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2023 ReportPeers and competitors of Coats Group:
Toray Industries Inc.A GREAT
PLACE
TO WORK
World’s 25
Best Workplaces
Coats Group plc
Annual Report 2023
OUR PURPOSE IS TO CONNECT
TALENT, TEXTILES AND
TECHNOLOGY TO MAKE
A BETTER AND MORE
SUSTAINABLE WORLD.
Big, bold, game-changing ideas are crucial to delivering this.
We are accelerating profitable sales growth through our ground-
breaking sustainable products and solutions, transforming
Coats for the future and creating value for our customers, their
industries, our shareholders, our people and the communities
in which we operate.
Read about our business model on page 19
Read about our values on page 10
Read about our strategy on page 17
Read about our culture on page 13
Coats Group plc
Annual Report and Accounts 2023
TABLE OF CONTENTS
Full year results and highlights
People and culture
Strategy
Business model
Strategic report
01 Our purpose
03
04 Coats at a glance
05 Chair’s statement
07 CEO’s statement
10 Our values
13
17
19
21 Market trends
25 Apparel division
29
33
37
41
42
43 Non-financial information statement
Footwear division
Performance materials division
Sustainability
Financial KPIs
Sustainability KPIs
Stakeholder engagement
Section 172 statement
Principal risks and uncertainties
Long-term viability statement
46
49
52
59
60 Operating review
63
Financial review
Board of Directors
Corporate governance
66 Chair’s introduction to governance
68 Corporate governance report
70
79 Audit and Risk Committee report
85 Nomination Committee report
88 Remuneration Committee report
91 Directors’ remuneration report
103 Directors’ report
Financial statements
Independent Auditor’s report
108
121 Primary financial statements
125 Notes to the financial statements
178 Company financial statements
179
Notes to Company financial statements
Taskforce on climate-related financial
disclosures
181 TCFD introduction
182 Governance
183 Risk management
184 Strategy
197 Metrics and targets
Other information
198 Group structure
204 Five-year summary
204 Shareholder information
DISCOVER OUR DIVISIONS
Apparel: Pioneering
leaders in customer
value creation
Footwear: Market leader
shaping the future of
footwear components
Performance Materials:
Transforming the
footprint for growth
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See our online ‘Year in Review’
at coats.com/results
A full copy of this Annual Report
can also be downloaded from
coats.com/investors
02
Coats Group plc Annual Report and Accounts 2023
2023 full year results and highlights
There is much to be confident about in Coats’ trading
performance in the year. Against the backdrop of
widespread industry destocking, we gained market share,
grew our margin and our adjusted free cash flow.”
Rajiv Sharma,
Group CEO
14%
ORGANIC REVENUE
DECLINE
44%
RECYCLED SALES
GROWTH
160bps
EBIT MARGIN GROWTH
8.0c
ADJUSTED EPS
2.80c
TOTAL DIVIDEND UP 15%
1.5x
BALANCE SHEET LEVERAGE
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$131m
ADJUSTED FREE CASH FLOW
16.7%
ADJUSTED EBIT MARGIN
Financial highlights
– Reported revenue down 9%
Financial performance
Continuing operations
Coats Group plc Annual Report and Accounts 2023
At a glance and highlights
We are the global market leader
in apparel threads, structural
components and threads for
footwear, and innovative pioneers
in performance materials.
We are manufacturers of sustainability-led innovative
products, and trusted partner to leading brands
across all three segments and multiple industries.
A FTSE250 company and a FTSE4Good Index
constituent, Coats takes part in the UN Global
Compact and is committed to science-based
sustainability targets for 2030 and beyond.
50+
Countries
>15,000
Permanent employees
>30,000
Customers globally
>250
Years of textiles experience
Revenue by division
Revenue by region
Apparel & Footwear 76%
Performance materials 24%
Asia 59%
Americas 18%
EMEA 23%
– Organic revenue 14% lower, on improving trend
(H1: 19% lower; H2 10% lower) with:
– Continued outperformance vs industry –
Apparel and Footwear markets c.20% lower
– Achieved 2024 Group adjusted EBIT margin target
17% in the second half, one year ahead of plan
– Strong adjusted free cash flow of $131 million,
despite lower sales volumes
– Net debt (excluding lease liabilities) lower at
$384 million with 1.5x leverage3
– Proposed final dividend of 1.99 cents, +15%,
reflecting the Board’s confidence in growth
strategy and future performance
Transforming the business
– Global market leader in 100% recycled thread
products – revenue grew 44% to $172 million at
constant currency, despite lower industry volumes
– Strategic projects delivered further $37 million
accelerated savings, with overall savings on track
for $70 million by 2024
– Integration synergies from Texon and Rhenoflex
has delivered a total of $16 million savings to
date ($19 million annualised), well ahead of
pre-acquisition expectations ($11 million by 2024)
– Received Great Place To Work® accolade –
and recognised as one of the world’s top
25 workplaces
– “Off trigger” activated for UK pension scheme,
resulting in £2 million per month cash savings
in 2024; working towards full pension scheme
de-risking in the medium term
Revenue
Adjusted 1
EBIT 6
Basic earnings per share
Free cash flow
Net debt (excl. lease liabilities)
Reported 2
EBIT 6
Basic earnings per share 5
Net cash generated by operating activities
Final dividend per share 7
FY 2023
FY 2022 4
FY2023 vs FY 2022
Reported
CER
Organic
$1,394m
$1,538m
(9%)
(6%)
(14%)
4%
(4%)
$233m
$233m
8.0c
$131m
$384m
$184m
5.2c
$124m
1.99c
8.0c
$114m
$394m
$181m
4.8c
$96m
1.73c
0%
0%
2%
7%
1. Adjusted measures are non-statutory measures (Alternative Performance Measures). These are reconciled to the nearest corresponding statutory measure in
note 14. Constant Exchange Rate (CER) metrics are 2022 results restated at 2023 exchange rates. Organic figures are results on a CER basis, and only includes
like-for-like contributions from Texon and Rhenoflex post their respective acquisition dates.
2. Reported metrics refer to values contained in the IFRS column of the primary financial statements in either the current or comparative period.
3. Leverage calculated on a frozen GAAP basis and therefore excludes the impact of IFRS 16 on both adjusted EBITDA and net debt. See note 37b for details.
4. Restated to reflect the results of the EMEA Zips business, divested in 2023, as a discontinued operation. This has resulted in a reduction in previously reported
2022 revenues of $46 million and $2 million adjusted EBIT.
5. From continuing operations.
6. EBIT (Earnings before interest and tax) relates to Operating Profit as shown on the face of the P/L.
7. Total dividend per share 2.80 cents.
Some of our customers
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Coats Group plc Annual Report and Accounts 2023
Chair’s statement
DAVID GOSNELL
CHAIR
Coats has always thrived
on the foundations of its
culture and the people who
make it special, and I am
proud that we have been
externally recognised as
one of the top 25
workplaces globally.
Resilient Coats/performance
This year has been no less challenging for the
world than we have seen in recent years. The
conflict in Ukraine, followed by the escalated
situation in the Middle East have served to
remind us of these various global challenges.
During the pandemic Coats utilised its global
footprint to maintain service to all our customers,
and were prepared and ready to capture
the return in demand. 2023 saw a year of
unprecedented destocking, along with cost
of inventory, continued inflation and elevated
interest rates. Coats once again responded and
focussed on controlling the controllable to deliver
cash and margin. Our resilience in the face of
such challenges underlines the importance
and effectiveness of our business model.
Destocking has been a theme across the industry
and whilst in 2023 Coats was no different in
this regard, it is a great credit to our customer
focus and agility that we continued to grow
market share alongside margin enhancement.
Transformation
Last year saw the double acquisition of Texon
and Rhenoflex, which has been pivotal in Coats’
most recent evolution. I am delighted with the way
both companies have seamlessly integrated to
create another world-class business in our new
Footwear division. This is testament to the closely
aligned cultures and goals of all three businesses
and has resulted in the delivery of synergies in
excess of those announced on acquisition.
Our programme of Strategic Projects, announced
in 2022, is on course to deliver as Coats
continued to demonstrate its ability to execute
on large-scale projects. Importantly, we have
completed the majority of our US and Mexican
manufacturing footprint projects, and we are
currently in the process of ramping up utilisation.
2023 also saw the sale of tail markets in Mauritius
and Madagascar as well as the disposal of
our EMEA Zips business, further streamlining
our operations and allowing management to
focus on delivering value to the Group. I wish
those businesses all the best for the future.
Capital allocation
Our capital allocation policy remains unchanged
and focusses on four key pillars (i) reinvesting
in organic growth (ii) acquisitions in line with
disciplined strategy (iii) supporting pensions and
(iv) paying a progressive dividend. We implement
these pillars whilst maintaining a strong Balance
Sheet with a target leverage ratio of 1–2x.
Following on from the £350 million buy-in in 2022,
we have made significant progress on UK Pensions
by agreeing with the UK Pension Trustees to switch
off our deficit repair payments. These payments
will remain off so long as the pension scheme
assets remain above 99% of its technical provisions.
We remain focussed on removing the risk from
our Balance Sheets and optimising our Capital
Allocation to enable additional growth opportunities.
The Board is mindful of the importance of returns
to shareholders. To underline the strong progress
we have made in 2023, we are pleased to propose
a final dividend for the year of 1.99 cents per share,
bringing the total dividend for the year to 2.80
cents per a share, a 15% increase on the 2022
total dividend. Subject to approval at the AGM,
the final dividend will be paid on 30 May 2024 to
ordinary shareholders on the register at 3 May
2024, with an ex-dividend date of 2 May 2024.
Sustainability
Sadly, the human impact on the world is not
confined to conflict. The recurrence of natural
disasters correlated to climate change has only
reinforced the importance of our longstanding
industry-leading commitment to the environment.
We continue to deliver on our stretching
sustainability goals, adding further momentum
in the last year with the opening of the Madurai,
India Innovation hub, established to accelerate
the development of sustainable materials, and the
addition of solar panels to a key site in Bangladesh
are among many examples of our investment.
I was also delighted to see Coats receive the Cradle
to Cradle Certified Material Health Certificate, and
to be recognised with such positive feedback at
the Shenzhen Fashion week, where we showcased
garments made with 100% EcoVerde, which is a
part of our sustainable thread range. As consumers
become ever more aware of the impact on the
environment, and ever more inclined to change
their behaviours, Coats stands well positioned to
deliver, having been a pioneer and consistently
invested in Sustainability for many years.
Innovation
Sustainability also leads our Innovation strategy,
the four Global Innovation hubs being prime
examples of this. Coats has a rich history of new
and innovative products, and as we witness the
transition to recycled, circular materials we are
again at the leading edge in our industry.
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Coats Group plc Annual Report and Accounts 2023
Chair’s statement cont.
The community that drives our performance is
why Coats delivers, year on year. I am extremely
proud of this achievement and for the recognition
that it brings to everyone around the Group.
‘Coats Cares’/culture
My admiration for the people of Coats was
again brought to the fore as our team in Turkey
reacted to the devastating earthquakes in the
south-east of the country. A Rapid Response
Team of 11 volunteered to engage in rescue
and relief mission coordinated by local NGOs,
providing much needed vital supplies as well
as operating essential equipment to locate and
free those trapped. The selfless efforts of these
brave individuals demonstrates our core values;
collaborative, agile, can-do, passionate and diverse.
The roll-out of our ‘Coats for Her’ programme is
an example of how seriously a diverse workforce
with equal opportunities for all sits at the heart of
the current and future success of the Group and
is among the reasons why we have 17 countries
where we are certified as a Great Place To Work®.
Board changes
Nicholas Bull will leave the Coats Board following
the AGM to be held in May 2024. I wanted this
opportunity to express my most sincerest of thanks
to Nicholas, both on behalf of myself, the Board, the
Executive Team and everyone at Coats. Nicholas
has been a guiding light and foundation of the
Coats Board for the past nine years. His insights
and leadership have been immeasurable as the
Group has transformed itself during his tenure.
In November, Sarah Highfield joined the Board
as Non-Executive Director. Sarah’s strategic and
financial background, having previously served
as CEO, CFO and COO at Elvie, and prior to
that as CFO at Costa Coffee, will bring valuable
insights to Coats. Subject to her election at the
2024 AGM, Sarah will become the Chair of the
Audit and Risk Committee, replacing Nicholas.
In addition, Sarah will join the Sustainability
Committee along with all three Divisional CEOs
as we focus on executing our plans in 2024.
Steve Murray will also be appointed Senior Non-
Executive Director following the AGM, succeeding
Nicholas. Steve joined the Board in September 2022
as a Non-Executive Director, and he is a member
of the Audit and Risk Committee, the Nomination
Committee and the Remuneration Committee.
On behalf of everyone at Coats, I wish
Nicholas, Sarah and Steve all the very best.
Looking ahead
The Group’s long-term track record of
outperforming the markets we serve is based
on our scale, global footprint, innovation, strong
digital platform and technical support capabilities,
all of which are becoming more relevant to
customers and supportive of our revenue growth
ambitions. We expect these growth drivers to
be augmented by a gradual market recovery
and by continued investment in sustainability
and operational efficiency which together give
us confidence in delivering strong profit growth
and cash generation over the medium term.
I would like to conclude by thanking, on
behalf of the Board, the contribution of our
exceptional teams across the world.
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The selfless efforts of the rapid
response team in Turkey who
reacted to the earthquake reflects
our core values of collaboration,
agility, can-do, passion and
diversity and gives me great
pride and admiration.”
David Gosnell, Chair
8.0c
Adjusted EPS: earnings maintained despite industry
destocking environment
2.80c
Total dividend up 15% from 2022
As the world looks towards energy conservation,
lightweighting and material replacement, it will
continue to drive demand for product innovation,
while the trend towards casualisation and
athleisure provides continued momentum for
the highest quality threads, especially those
that are produced from environmentally friendly
materials and manufactured in factories that
have an ever lower impact on the world. It is
not just what we make, but how we make it.
Our network of Innovation hubs around the
world will continue to differentiate Coats as an
unparalleled leader in Innovation in our industry.
Great Place To Work®
Coats has always thrived on the foundations of
its culture and the people who make it a special
place to work. It therefore gives me great pleasure
that in 2023, Coats was named as one of the
world’s top 25 workplaces by the Great Place
To Work® (GPTW®) organisation and Fortune.
Coats Group plc Annual Report and Accounts 2023
CEO’s statement
RAJIV SHARMA
GROUP CEO
Despite unprecedented industry-wide
destocking, by focussing on our customers,
flexing our operating model and the delivery
of strategic projects, productivity and
procurement savings, Coats has increased
market share, strengthened margins, and
delivered another year of strong cash flow.”
2023 HIGHLIGHTS
14%
Organic revenue decline
44%
Recycled sales growth
$37m
Strategic projects savings in 2023 On
track to deliver $70 million in 2024
16.7%
Adjusted EBIT margin
$233m
Adjusted EBIT
$131m
Adjusted free cash flow
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Coats Group plc Annual Report and Accounts 2023
CEO’s statement cont.
The business strategy and
business model has allowed us to
deliver strong financials through
the cycle. The business is well
positioned as volumes recover.”
Rajiv Sharma,
Group CEO
2024 Group adjusted EBIT
margin of 17% achieved in H2
World’s Top 25 best workplace
It gives me great pride and satisfaction that Coats
is included as one of the Top 25 workplaces in the
world. It is a testament to the culture we have built
in the company, that has been the glue for Coats
during significant volatility and external shocks in
the past few years. All 15,000 permanent employees
in Coats have played a crucial role in the success
of the business and are worthy recipients of this
prestigious award. A truly remarkable achievement.
Global leader
Coats is the world’s largest supplier of industrial
sewing thread to the apparel industry with a c.25%
global market share. We are also the world’s
largest supplier of industrial thread and structural
components to the footwear industry with a c.27%
global market share. Apparel and Footwear are both
global leaders in their respective markets, while
Performance Materials gives us diversification into
industrial end-markets and is a technology incubator.
Delivering despite destocking
We anticipated that destocking would be an
industry-wide issue, leading to low demand
visibility and reduced volumes, and that we
would need to navigate through this period.
Whilst consumer demand for apparel and footwear
was resilient, destocking and buffer buying
continued through H1. Overall, we anticipated the
apparel and footwear industry was down around
20% in terms of manufacturing volumes. Recovery
will be gradual improvements every quarter.
We anticipated destocking and had prepared the
business to ride through this period of low demand
visibility and lower volumes. We have focussed
on self-help initiatives, portfolio optimisation and
fiscal discipline to deliver robust performance. It is
especially pleasing to note that we held pricing,
highlighting the critical part we play in the supply
chain. Market share has grown across our Apparel
threads, Footwear threads and Footwear structural
components as sales outpaced the market
reflecting not only the strength of our business,
our customer focus and flexible operating model,
but also our ability to balance sound financial
management with investments in sustainability and
innovation. This has resulted in improved margins
and continued strong cash flow generation.
The business strategy and model has allowed us to
deliver strong financials through the cycle, and the
business is well positioned as volumes recover.
Innovation
We saw more notable developments of
sustainability-led innovation, helping drive
progress towards our 2030 committed goal of
generating 25% of sales from products created
in the previous five years. Examples include:
Hi-P going into soft durable seams essential in
athleisure, swimwear and other high-performance
apparel where softness, stretch and bulk are critical.
FlamePro Arc Lightweight protective fabric sets
new standards for safeguarding against electrical
arc incidents, flash fires, and related hazards.
Our 100% Recycled EcoVerde Neophil product
received validation from key customers across
the Automotive sector, solidifying its position as
an environmentally conscious industry leader.
Sustainability
In 2022, we announced new sustainability targets
for 2026 that will keep us firmly on a path to meet
our 2030 goal of reducing emissions by 50% and
reach our carbon Net-Zero goal by 2050. We made
significant progress on both a strategic and tactical
level this year with the opening of a state-of-the-
art sustainability hub in Madurai, India and the
addition of solar panels to our site in Bangladesh.
The Madurai hub will work alongside our
Innovation Centre in Shenzhen, China to accelerate
transition to recycled and renewable materials
and is part of our $10 million investment to scale
up the development of green technologies.
In Bangladesh, solar panels installed across 50,000
square feet of rooftop is expected to reduce fuel-
based energy on the site by 12%. During the day,
40% of factory power is from renewable sources.
Our sustainability success is demonstrated in
the sales of premium recycled thread which,
despite industry destocking, have grown in
excess of 44% in the last year. Sustainability
is a source of competitive advantage for
Coats and helps us grow market share.
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Coats Group plc Annual Report and Accounts 2023
CEO’s statement cont.
Our people
Talent is coming together with technology in
Coats culture to redefine the limits of excellence
in every aspect of our business. Our people have
formed winning teams and deliver extraordinary
results in a very challenging environment. Grit,
energy, tenacity and resilience of our employees
is coupled with modern tools, processes and
programmes to deliver value to customers,
shareholders and other stakeholders.
I have already highlighted the accolade of being
one of the Top 25 companies in the World to
work for, and in 2023 Coats added a further
three countries to our list of Great Place To Work®
(GPTW®) certified markets, bringing the total to 17.
Employee recognition is fundamental to
ensuring that the grassroots programmes
we have rolled out are realised, and this
is manifest in our comprehensive awards
programme acknowledging the work done
and goals achieved around the Group.
This aligns with our support and development
initiatives that encourage the level of
engagement required to be one of the
very best workplaces, enabling Coats to
connect talent, textiles and technology.
Strategic Projects
Our programme of Strategic Projects continues
to deliver with $70 million of cost savings by
2024, with $57 million delivered to date.
Apparel
In the Apparel division, we consolidated our India
Distribution Centres into state-of-the-art facilities
designed to incorporate future automation in order
to capture the near-term growth forecast.
We opened our European Logistics Centre in
Romania, rationalising three centres into one whilst
still serving 5,000 direct customers. All of this was
done seamlessly and without disruption to
the business.
In addition to strategic projects, we also divested
our EMEA Zips and the Madagascar / Mauritius
businesses. This will enable management to focus
on areas of the Group that will maximise shareholder
value and help shape the future of Coats. I wish
both businesses and the employees all the very
best for the future under their new ownership.
Footwear
Separately from strategic projects, we have
integrated the structural components acquisitions
into our existing footwear threads business to
create a new footwear division. Again, we are
ahead of schedule and I am delighted that we have
already delivered $19 million of annualised savings,
well ahead of the $11 million savings expected
by 2024. Our customers are already seeing the
benefits of having a single customer-facing team
dedicated to servicing this growing segment.
Performance Materials
Our two new factories in Mexico, designed with
best-in-class technologies, are now operational
and will complement the ongoing optimisation of
the North America footprint. Our Innovation hub
in North Carolina continues to be an important
part of our customer engagement and source
of new products. In 2023, the Division launched
6 new products with promising sales potential
and achieved 20% on our Vitality Index.
scheme into a fully funded position. This results
in a free cash flow benefit of £2 million per month
and will continue as long as the scheme’s assets
remain above 99% of its technical provisions,
optimising our capital allocation and enabling
additional growth opportunities. Our medium-
term aspiration remains to de-risk the scheme
fully and remove it from our Balance Sheet.
Looking ahead
The Group expects to make good progress in
2024 underpinned by modest revenue growth,
with a weighting to the second half, as Apparel and
Footwear gradually recover, and with increasing
tender activity in Performance Materials.
Our continued focus on controlling our costs,
including the benefits of strategic projects,
increases our confidence in achieving our
17% Group EBIT margin target in 2024.
Financial performance through the cycle
In a year when the world battled the impact of
inflation and cost of living challenges, it was
important that Coats continued to deliver value.
Our ongoing programmes on both a strategic and
operational level have seen the Group grow margins
and cash through the macro-economic cycle.
Pensions
We continue to make good progress on addressing
the UK Pension legacy. 2022 saw a £350 million
buy-in and in 2023 we were able to switch off the
monthly deficit contribution payments by agreeing
a £10 million one-off lump sum payment to take the
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Coats Group plc Annual Report and Accounts 2023
Our values
WE HAVE CAPTURED THE VALUES THAT REFLECT OUR UNIQUE CULTURE
WE ARE COLLABORATIVE
WE ARE AGILE
Coats connects talent, textiles and
technology to deliver great service
and quality to our customers. We
collaborate across all geographies
with partners and customers
to create the materials and
products of tomorrow. We believe
the success of our colleagues
is the success of Coats.
With a proud heritage dating
back more than 250 years and
a spirit of evolution that drives
us to constantly stay ahead
of the game, we have always
adapted to change, thriving and
becoming stronger as a result.
WE HAVE A ‘CAN DO’
ATTITUDE
We operate in a fast-paced, ever
changing world. We are confident,
motivated and energetic dealing
with new tasks and challenges,
committed to serving our
customers, trusted to deliver.
WE ARE PASSIONATE
WE ARE DIVERSE
We are enthusiastic about our
work, our colleagues, our company
and especially our customers.
Passion is seen in everything
we do. We are proud that our
employees find Coats a Great Place
To Work® and to be voted as one
of the top 25 best workplaces.
We operate across more than
50 countries, with a workforce
of 15,000 permanent employees.
We speak over 65 languages and
come from about 50 different
nationalities, cultures, and
ethnicities. We come together as
one and are a company for all.
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Coats Group plc
Annual Report and Accounts 2023
Case Study
A Great Place To Work®
WORLD’S
BEST WORKPLACE
Coats is over 250 years old and every
employee plays an essential part in
our company’s story. Our culture
narrative is a Great Place To Work®.”
Farnaz Ranjbar,
CHRO
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Annual Report and Accounts 2023
Coats Group plc Annual Report and Accounts 2023
Coats Group plc
Case Study
A Great Place To Work®
A GLOBAL CULTURE IS NURTURED
THE CULTURE PLAYBOOK IS PLANTED
At Coats, our culture plays a
crucial role in shaping the overall
work experience and translates
into making world-class products
for our customers and creating
value for our shareholders.
Understanding people is understanding
business. That is why we put people at the
centre of everything we do. The culture at
Coats flourishes from being a Great Place To
Work®. Our people playbook is full of people
initiatives which grow from our values:
WE are Collaborative
are Agile
have a CanDo attitude
are Passionate
are Diverse
The result is an employee-centric team working
hard every day to delight our customers.
When you are in the top 25 World’s Best
Workplaces™, you get there by thinking
global but acting local. In our workplace,
greatness is not just a goal; it’s a way of
life fostered by a culture that thrives.
We believe that the power of teamwork surpasses
individual efforts, encouraging collaboration as the
heartbeat of our success. With agility embedded in
our DNA, we navigate challenges with resilience and
adaptability, turning obstacles into opportunities.
The can-do attitude propels us forward,
driving innovation and instilling confidence
that no challenge is too great to overcome.
Passion fuels us, transforming work into a fulfilling
journey where dedication and enthusiasm are
contagious. Embracing diversity as a cornerstone,
we understand that as one our strength lies in our
unique perspectives, backgrounds, and ideas.
Together, we don’t just work; we create, inspire, and
achieve, building a Great Place To Work® every day.
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Coats Group plc Annual Report and Accounts 2023
People and culture
We continue to refresh our
Great Place To Work® playbook,
launching new attractive initiatives
to keep engaging and motivating
our people, making us one of the
World’s Best Workplaces™.”
Farnaz Ranjbar, Chief Human Resources Officer
POWERED BY OUR PEOPLE:
People are the heart of our business.
Our talented dedicated employees work day in and
day out to delight our customers, making our business
successful. It is therefore important for us to recruit
and develop great people and recognise them for
their great achievements. At Coats we do this through
our unique culture of connecting talent from the
outside in. When our customers understand that
Coats is a Great Place To Work®, they feel our people
have their best interests in mind. We do this through a
constant focus on feedback from our people to make
the workplace better every day. Partnering with the
Great Place To Work® organisation and leveraging our
feedback culture via an annual employee survey,
gives us an outside in, 360 view, of what our people
are telling us. And we listen. With thousands of
actions globally, developed by managers and their
teams, complemented by our various people
programmes, we have a winning playbook to make
us successful. What are the results? On 16 November
2023 Great Place To Work® and Fortune magazine
have honoured Coats as one of the Top 25 World’s
Best Workplaces™. Great Place To Work® selected the
World’s Best Workplaces by gathering and analysing
confidential survey responses representing 6.2 million
employees worldwide at Great Place To Work®
Certified organisations.
A CULTURE OF ENGAGEMENT:
Making it a daily priority
A culture of engagement is vital to our success, as it
serves as the foundation for a motivated, committed,
and productive workforce. Beyond internal benefits,
a culture of engagement will enhance the company’s
external image, making it more appealing to top
talent, clients, and investors. Ultimately, an engaged
workforce is a driving force behind sustained growth,
resilience in the face of challenges, and the overall
success of Coats. We do this through our many people
initiatives. When you plant the seeds of what is a Great
Place To Work®, the programmes flourish to help our
people feel a sense of true belonging.
50+
COUNTRIES
>15,000
PERMANENT EMPLOYEES
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Coats Group plc Annual Report and Accounts 2023
People and culture cont.
‘COATS FOR ALL’
Sharing similarities, celebrating differences
Coats is a company not for ‘a few’, not for many
but ‘for ALL’ – Our workforce reflects our diverse
customer base and remains a competitive
advantage. Our ‘Coats for All’ program puts our
people principles policy released in 2021 into
action and ensures equality of treatment during
recruitment, while at work and for development
of all employees globally regardless of gender,
age, disability, race, religion or belief. We strive
to attract and develop diverse employees who
in turn deliver the most diverse innovations.
To support the development of our employee
experience strategy, we have gathered diversity
profiling data such as race, ethnicity, gender, sexual
orientation and military status from employees on a
voluntary basis since 2021. Our Board Diversity Policy
was refreshed supporting the recommendations of
the FTSE Women Leaders Review on gender
diversity and the Parker Review on ethnic diversity at
board level. We are currently in line with the targets,
having 44% female representation, two members
from an ethnic minority background and six different
nationalities on the Board. Diversity, equity and
inclusion global events remain a biannual fixture and
our recent celebration of International Disability Day
at our global virtual events, were well attended by
over 500 employees.
Globally our gender balance is 39:61 female to male
and 23:77 in senior management roles. We are making
good progress to achieve our target of 30% females in
senior leadership roles by 2026 and 40% by 2030.
heartfelt acknowledgements, managers celebrated
the unique contribution of each employee, fostering a
sense of belonging and recognition of the vital role
they play in our shared success.
‘COATS FOR HER’
Women in leadership
APPLAUSE
ENERGY 4 PERFORMANCE
Another way to say ‘Thank you’
Caring for the wellbeing of our people
Our personal recognition programme is designed
to celebrate and acknowledge the exceptional
contributions of our team members. Through a
combination of personalised awards, public
appreciation, and ongoing recognition, we aim to
encourage a culture of empowerment and gratitude,
ensuring every individual feels valued for their
unique impact on our organisation.
Elevating excellence, empowering equity: Women
leading with vision and impact. Where leadership
knows no gender; breaking barriers and inspiring
futures. The dynamic ‘Coats for Her’ programme
continues our dedicated efforts towards gender
diversity, spearheading five impactful initiatives:
Female Recruitment Campaign, Women in Leadership
Fast-Track, Mentoring, Women’s Visibility, and Return
to Work. Our commitment has extended to include
structural changes, as we revamped our recruitment
policy and introduced a talent acquisition playbook to
attract the most diverse, equitable, and inclusive talent.
We also elevated the visibility and profiles of female
leaders across the business through strategic leaders
across the business through strategic spotlights,
reinforcing our commitment to fostering a workplace
that celebrates and advances gender diversity.
This year employees were encouraged to recognise
colleagues by sending ‘applause awards’ through
Success Factors; over 2,500 employees received
applause.
APPRECIATION WEEK
A big thank you for all
During one week every single employee at Coats
across the world was appreciated for their hard work.
From special events, personalised gestures, and
Our E4P programme is centred around the four
energy zones: Physical, Mental, Social and Emotional
to help everyone perform better at home and in the
workplace. At Coats we demonstrate, inform and
support our people on their journey to sustainable
wellbeing. This framework is our north star of
well-being which allows countries to tailor their
programmes based on the local needs with E4P as
the flagship. In 2023 we introduced more than 150
programmes in Coats countries from Yoga lessons
to mental health trainings and football matches,
making sure wellbeing employees remains a priority.
‘COATS CARES’
Making a difference and giving back to the world
Celebrating the incredible impact of our team
members who go above and beyond, we recognise
and reward those who proactively enhance the
world through their thoughtful initiatives.
For years, Coats has been making a positive impact
by supporting charities and communities. ‘Coats
Cares’ is our way to carry forward this tradition and
give back even more to the world.
We received over 100 entries this year for our
annual ‘Coats Cares’ competition, which celebrates
our unsung heroes and employees that commit their
time and efforts to improving the lives of others.
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Coats Group plc
Annual Report and Accounts 2023
Case Study
Coats provides aid to Turkey earthquake victims
COATS CARES
MAKING AN IMPACT
IN TIMES OF NEED
We are proud to have been able to support the communities
affected by this disaster and are humbled by the dedication and
bravery of our Rapid Response Team. We know that the road to
recovery will be long, but we are committed to doing everything
we can to help those affected to rebuild their lives.”
Erhan Aras,
Managing Director Turkey
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Coats Group plc Annual Report and Accounts 2023
Coats Group plc Annual Report and Accounts 2023
Case Study
Coats provides aid to Turkey earthquake victims
COATS RAPID RESPONSE
TEAM ON THE GROUND
Supporting things that matter
As a responsible corporate citizen, Coats
understands the importance of providing aid
and support to those affected by disasters.
Coats’ Rapid Response Team from Bursa,
Turkey, arrived at the disaster zone in south-
eastern Turkey on Day 2 after the
devastating earthquakes, providing much-
needed aid and support.
The expert team, equipped with high technology such
as audio listening devices, rescue cameras, stone and
iron cutters, large drill bits, and generators, worked
tirelessly for a week to assist those in need. They
engaged in rescue operations and worked with local
NGOs for coordinated help. The Rapid Response
Team comprised 11 experienced employees from our
Bursa facility who received extensive training in
emergency response, making them well-equipped to
handle the challenges of working in a disaster zone.
Coats provided tents, blankets, clothing, and food to
those affected by the earthquakes.
Coats also appealed to all employees globally to help
raise funds after formally donating to local NGOs active
in the region. Based on our five Company Values and
the essence of our Corporate Social Responsibility
(CSR) programme ‘Coats Cares’, the quick action
taken by global and local teams boosted morale and
strengthened community ties, creating long-term value.
A personal view
“As a trained team leader in fire and earthquake rescue,
I immediately proposed a Rapid Response Team. With support
from top management, we received special authorisation from
government officials to enter the disaster zone just within six
hours. Despite having dozens of volunteers, we embarked on
the mission with 11 team members due to legal constraints.
We successfully performed high-risk operations on the ground,
such as crane lifting, digging, and metal cutting. Additionally,
we aided search activities using thermal imaging and ultrasonic
sound detectors. It was a week filled with pride as we shared
the pain of the earthquake victims and touched their hearts.
One particular moment stands out when we rescued two
people after working for 203 hours in a building. It was a
remarkable display of hope.”
Lutfi Kaya,
Engineering Manager Turkey
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Coats Group plc Annual Report and Accounts 2023
Strategy
Accelerate profitable sales growth by leveraging innovation,
sustainability, digital technologies and our global scale to create world
class products and services, delivering value to our stakeholders.
TRANSFORM THE BUSINESS
Strategic projects
Footwear progress in 2023
– Capitalised on commercial synergies
resulting from our acquisitions
– Further market share growth of c.200bps
– Attained ‘preferred partner’ status with cross
selling opportunities delivered to brands
– Leveraged scale to drive integration
synergies of $19 million to date (annualised)
Performance Materials progress in 2023
– Commissioned two new units in Mexico
– Moved a significant portion of our
manufacturing capacity from US to Mexico
– Launched innovative new products in
Personal Protection and Composites
sub-segments
ACCELERATE PROFITABLE
SALES GROWTH
Apparel
Increase our market share by delivering sustainable,
innovative and value-added products and service
solutions to our global customer base. Our unique
ability to deliver sustainable products at the scale,
speed and quality required by our customers
positions us strongly in the market place.
Footwear
Focus on sustainability-led innovations to improve
product offerings to key brands and manufacturers,
and leverage our newly created scale to drive
efficiencies, share gains, and commercial synergies.
Performance Materials
Lead with innovative and sustainable developments
in highly engineered products, creating solutions for
attractive and growing markets.
Apparel progress in 2023
– Continued to grow Recycled sales, to
$172 million in 2023 ($127 million in 2022)
– Consecutive year of c.200bp market
share growth
– Defending price despite raw material
deflation
Over the last two years, Coats has undertaken a
number of strategic projects to improve margins
by optimising the portfolio and footprint, improving
the overall cost base efficiency and mitigating the
structural labour availability issues in the US. These
transformational initiatives have been successfully
delivered and have realised accelerated benefits
of $57 million over 2022 and 2023. A further
$13 million of benefits will be delivered in 2024.
Progress in 2023
CAPITAL ALLOCATION
– Substantial savings of $37 million in 2023
(bring total benefits delivered to $57 million)
Our capital allocation policy remains unchanged and
focusses on four key pillars
– Delivered for significantly lower cash cost
than originally expected
– New factory commissioned in Toluca, Mexico
to enable further growth in the Americas
– Divested our zips business in EMEA and
outsourced our zips business in China
i.
ii.
reinvesting in organic growth
acquisitions in line with disciplined strategy
iii. supporting pensions
iv. paying a progressive dividend
– Divested business in Mauritius and
Progress in 2023
Madagascar
– Actions taken in China further enhance our
sustainability leadership and market reach
with domestic sales +30%
– In India, focus on organisational
simplification, enhanced footprint
and consolidation
– Continue to invest in organic growth
– Full year dividend growth of 15%
– ‘Off trigger’ activated for UK pension
scheme, resulting in £2 million per month
cash savings in 2024
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Coats Group plc Annual Report and Accounts 2023
Strategy cont.
OUR STRATEGIC ENABLERS
Our purpose provides the basis for our strategy whereby we will
accelerate profitable sales growth and transform the business to
improve margins and create sustainable value for our shareholders,
customers, employees and the communities in which we operate.
Our strategic goals are underpinned by the following enablers:
INNOVATION
Innovation is at the heart of everything we
do. We recognise that big, bold, game-
changing ideas are crucial to our success.
We continue to accelerate our innovation
credentials and solutions to deliver tailored
solutions to customer design requirements.
SUSTAINABILITY
Sustainability is a core part of our wider business
strategy and an imperative to our mid- and long-
term business success. Playing our part in mitigating
climate change is core to our strategy, with
commitments made to reduce carbon emissions in
line with science-based targets and underpinned
by energy transition to renewables and substitution
of materials to non-Virgin oil based resources.
CASE STUDY
100% RECYCLED ECOVERDE
Coats EcoVerde is an innovative 100% recycled
alternative to virgin polyester that provides a
responsible solution to help reduce the global
plastic pollution problem. Since 2018, we have
recycled 1,488 million PET bottles to make
EcoVerde.
DIGITAL
Our investment in technology infrastructure
and digital tools has allowed us to flex our
supply chain, react to situations with speed
and ensure we are focussed on customer,
shareholder and employee value creation.
CASE STUDY
COATS FLAMEPRO™ HIGH VISIBILITY
In today’s fast-paced industries where hazards
such as trucks, trolleys and machinery pose a
threat, it is essential that workers remain highly
visible by wearing the right protective clothing.
Coats FlamePro™ High Visibility available in
Yellow and Orange colour, is an inherently flame
resistant and high-visibility certified fibre fabric
that is one of the lightest fabrics of its kind.
With industries demanding better quality high-
visibility garments, we set to work on a more
sustainable, easy to work with fabric.
FlamePro™ High Visibility includes renewable
fibres and needs no dyeing – which makes it
more sustainable than any other comparable
product on the market.
FlamePro Hi Vis is a great example of what is
coming from our teams in the Innovation Hubs.
We develop a product our customers will
manufacture using our yarns as their raw
materials, allowing our customers to grow
their business. This is a unique proposition by
Coats and significantly differentiates us from
our competitors.”
Richard Ridewood,
Managing Director, Performance Materials
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Coats Group plc Annual Report and Accounts 2023
Business model
HOW WE CREATE VALUE FOR OUR CUSTOMERS
Our purpose of connecting talent, textiles
and technology to make a better and more
sustainable world drives how we operate and
create long-term value.
SPEED
Speed to market is critical in an
industry where lead times are
short and getting ever tighter.
Owing to our agile supply chain
and customer-centric operational
footprint, we provide customers
and brands with the flexibility
they need to stay relevant in a
fast-moving world.
PRODUCTIVITY
We employ the latest in
Lean Six Sigma and other
improvement methodologies
to ensure a continuous cycle
of improvement and delivery
of operational excellence.
This enables us to reduce
costs, helping to offset
inflation whilst maintaining
excellent customer service.
AN EXCELLENT CUSTOMER
PROPOSITION AND OUR
MARKET-LEADING POSITION
CREATES VALUE FOR OUR
CUSTOMERS, GIVING COATS
A COMPETITIVE ADVANTAGE
RELIABILITY
Our track record for reliability and excellent technical
customer service allows us to partner with leading
global retailers, brands and manufacturers.
INNOVATION
We have a longstanding culture of innovation. Our Innovation Hubs
are spaces to collaborate with customers, in which we develop new
solutions to solve their problems and improve their finished products.
Our innovation capabilities have been further enhanced with the
opening of our brand new sustainability hub in Madurai, India.
SUSTAINABILITY
QUALITY
We manufacture to high ethical,
labour and environmental
standards whilst delivering
consistent colour and exceptional
product quality. Our products are
tested and measured against
globally consistent, stringent
safety standards.
A key element of our purpose is to create a better and more sustainable
world. It is not just what we produce, but how we produce it. Coats has
been a leader in setting sustainability strategy within the industry since
we launched ‘Pioneering a Sustainable Future’ in 2019. We also gain
competitive advantage by helping customers to improve their own
supply chain sustainability credentials. In 2022 we advanced our
ambitions, acknowledging the impact that our industry has on the
environment, and our part in taking responsibility for this. We have set
very ambitious sustainability targets across energy, materials, water,
waste and people. These complement our market differentiating
EcoVerde product range. See our Sustainability Report for details.
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Coats Group plc Annual Report and Accounts 2023
Business model cont.
HOW WE CREATE VALUE FOR OUR STAKEHOLDERS
EMPLOYEES
We are a proud employer of
>15,0000, highly engaged,
committed and diverse
permanent workforce. Whilst
driving a high-performance,
solution-focussed culture, we
are committed to the health,
safety, rights and well-being of
our employees. We champion
diversity and inclusion across
the Group. This is reflected
in our GPTW® certification.
>15,000 PERMANENT
EMPLOYEES GLOBALLY
SUPPLIERS
ENVIRONMENT
COMMUNITIES
We look for the right balance of global, national and
local capabilities to maintain supply chain agility.
$0.8 BILLION DOLLARS PAID TO SUPPLIERS
We recognise the need to
protect our environment and
are committed to achieving our
climate goals that align with the
global efforts to ensure a positive
and sustainable future for all.
Coats is committed to being
a good corporate citizen and
an active member of the local
communities in which it operate.
In our journey towards fostering
a culture of care, we introduced
the ‘Coats Cares’ Programme
which is designed to shine a
light on the incredible CSR
efforts of our colleagues on
both a global and local scale.
CUSTOMERS
We put our customers at the
centre of everything we do,
helping them to solve complex
problems as their expectations
evolve, we continually drive
towards responsibly sourced,
sustainable products.
INVESTORS
We are committed to delivering superior returns and
long-term, sustainable value for our investors.
>30,000 GLOBAL CUSTOMERS
2.80c TOTAL DIVIDEND FOR 2023
11,000+ EMPLOYEES ENGAGED
A high turn out of employees
attending and participating
in volunteering initiatives.
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Coats Group plc Annual Report and Accounts 2023
Market trends
TREND 1
MACROECONOMIC CONDITIONS
TREND 2
DESTOCKING
Geo-political uncertainty remained one of our top
risks in 2023. Owing to our global footprint, we were
subject to the impact of many macroeconomic
factors. Rising cost of living for consumers,
stubbornly high inflation rates and increased
borrowing costs were prevalent and dictated the
end consumer’s spending power. Despite these
ongoing headwinds, consumer demand for our
products in the garment and footwear sectors
remained resilient during the year across all regions.
2023 saw industry-wide destocking, where brands
and tier one manufacturers corrected for higher than
normal inventory levels coming out of the Covid
period. This followed a demand surge during H2
2021 and H1 2022 when significant supply chain
uncertainty existed, and manufacturers and brands
increased buffer stock levels significantly. The
subsequent destocking from mid-2022 primarily
impacted the Apparel and Footwear divisions, with
some specific destocking activities in sub-segments
in Performance Materials. We saw this trend easing
towards the end of 2023 in Apparel.
TREND 3
SUSTAINABILITY
Sustainability continues to increase in importance
across the industries we serve, driven by
consumer pressures, customer strategies and
legislative changes. COP28 delivered further
global progress across the environmental
agenda. This continued shift in sentiment
and behaviours is manifested in areas such
as materials innovation, energy renewables,
water management, waste reduction and social
justice and compliance. Many of our customers
are developing partner programmes that put
sustainability at the heart of ongoing collaboration.
Our expectation is that this trend is irreversible
and will only increase in importance over time.
In a year when the world battled
the impact of inflation and cost
of living challenges, it was
important that Coats continued
to deliver value.”
Rajiv Sharma,
Group CEO
Our response this year
Our response this year
Our response this year
We continued to focus on delivering value for
our customers and end-customers, dealing
successfully with macroeconomic challenges via
our agile supply chain and global operational
footprint. Concentrating on the premium end of
the market, we are best able to price according to
our differentiation through consistency and quality
while winning share from competitors through
our superior focus on innovation and market-
leading sustainability. This is further evidence
of our strategic positioning, which enables us to
outperform the market in adverse conditions and
grow faster than the market when volumes recover.
Coats has taken proactive measures to cope with low
demand in the supply chain and continued to deliver
significant benefits from strategic projects which,
together with agile and effective pricing, and the
delivery of synergies from our 2022 footwear
acquisitions, have resulted in further strengthening of
adjusted operating margins. We outperformed our
competitors by focussing on Speed, Productivity,
Innovation, Quality, Reliability, Sustainability and the
high-end market segment, we are now well-
positioned to successfully navigate economic
headwinds, and to serve customers profitably as
demand levels recover. Prioritising cash generation
and controlling inventory has led to high levels of
free cash flow and a stronger balance sheet.
We have continued to advance our sustainability
journey in 2023 with positive progress made on our
ambitious targets to deliver reductions in Scope 1 & 2
emissions – primarily achieved through a step
change in electricity derived from certified renewable
sources. Collaborating with our supply chain partners
,we have advanced our transition to sustainable raw
materials and delivered higher levels of circularity as
a means of driving waste prevention and reduction.
We have also made considerable progress on
reducing waste to landfill as part of our 2026 zero
waste to landfill target. Increased water recycling on
sites has also taken us closer to our 2026 water
recycling rate targets.
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Coats Group plc Annual Report and Accounts 2023
Market trends cont.
TREND 4
GROWTH OF ASIAN DOMESTIC MARKETS
AND ASIA BRANDS
Domestic consumer demand in Asia is significant and expected to
grow faster than US and European markets. Asia will continue to
enjoy growth due to favourable demographics and as consumer
wealth expand. Production and sourcing will remain in Asia in our
markets, driving accelerated demand for our products and services.
This is reflected in the growth of domestic fashion (apparel and
footwear) retail across the key Asia geographies. Performance
Materials markets will likewise benefit from infrastructure,
transportation, and industrial protection expansion.
TREND 5
AI AND EMERGING DIGITAL TECHNOLOGIES
Industry adoption of generative artificial intelligence (Gen AI)
and emerging digital technologies has continued to accelerate
during 2023 as companies look to drive faster speeds, increased
productivity, lower waste and end-to-end supply and materials
transparency. We have continued to embed our ongoing investments
in technology and commenced the further use of digital and Gen
AI solutions to improve our supply chain and support functions,
while remaining as vigilant as ever of cyber security threats.
Digital technology across the industry is not limited to pure
software solutions; as the industry becomes more and more
responsive to sustainability-led innovations, we are seeing
increased demand for solutions that use technology to
simultaneously reduce waste and increase productivity.
Our response this year
Our response this year
Asian domestic markets continue to provide attractive growth opportunities
for Coats, and we are delighted to have delivered sustained sales growth
with Apparel brands and retailers in China, Japan, South Korea and India,
increasing our confidence that we will benefit from the accelerated
economic growth in these key markets. Further, we are expanding our
Footwear operations in Indonesia to serve the growing demand for our
products there. Customers have responded positively to the value we
deliver in product, technical application and sustainability, allowing us to
build market share and brand loyalty. Market development continues to
provide profitable opportunities in Footwear and Performance Materials,
most notably in the automotive sector during 2023.
Coats Digital, our Fashion Tech business, enables fashion brands,
sourcing companies and manufacturers to optimise, connect and accelerate
business critical processes seamlessly, including: design and development;
method-time-cost optimisation; production planning and control; fabric
optimisation and shop floor execution. In 2023 bookings saw high double-
digit growth ahead of reported sales growth, indicating confidence for
continued future growth.
In our Footwear division we acquired, as part of the Rhenoflex acquisition,
the proprietary ‘Rhenoprint’ 3D printing IP, which offers leading brands a
zero waste, print-to-order solution with enhanced footwear performance.
In Apparel, through investing in emerging technologies and Gen AI, we are
digitising the way we engage with customers; a trend that we will continue
to accelerate in 2024. We continue to develop and enhance our customer-
facing software and proprietary applications to better use these digital and
Gen AI technologies to serve our brands and our customers, thereby
supporting their need for increased speed and supply chain agility.
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Despite challenging global conditions,
demand in the Asian domestic markets
remains resilient and rich in opportunities
for sustainable growth.”
Adrian Elliott,
CEO, Apparel Division
Coats Group plc
Annual Report and Accounts 2023
Case Study
Delivering on sustainability
A BIG STEP
TOWARDS
CARBON
NEUTRALITY
As part of our ambitious sustainability strategy,
Coats’ new solar power plants in Bangladesh
will accelerate our move towards renewable
power and a cleaner, carbon neutral future.
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Coats Group plc Annual Report and Accounts 2023
Coats Group plc Annual Report and Accounts 2023
Case Study
Delivering on sustainability
SOLAR POWERING BANGLADESH
This year, we switched on our new
50,000 sq ft rooftop solar power
plant at our Gazipur factory, with
construction of a second
underway in Chattogram.
The Gazipur plant generates 850MWh of
solar energy annually, reduces 12% of energy
consumption from fuel-based sources, and
saves 528 tons of CO2 emissions – equivalent
to planting up to 45,000 trees every year.
During the day, 40% of the factory’s power
will come from renewable sources.
With energy powering our factories, it is vital that we
utilise it properly, profitably and responsibly. Saving
on energy consumption is one of the top priorities
for Coats Bangladesh to establish its commitment
towards our sustainability strategy.
National solutions, global impact
This solar power project completion reinforces our
commitment to science-based sustainability targets
for 2030 and beyond, with a goal of achieving
the United Nations Global Compact and our
aspiration to achieve Net-Zero emissions by 2050.
Over the last four years, we have made significant
progress against our ambitious targets and
emissions reduction throughout the value chain
is central to the new targets the areas of Energy,
Materials, Water, Waste, and People. It is just
another example of Coats Bangladesh and its
employees’ commitment to exceed sustainability
targets and contribute towards a cleaner world.
Coats Bangladesh remains
committed to transitioning to
renewable energy sources, aiming
at 22% reduction in Scope 1&2
Emissions by 2026”
Mohammad Al Kashem,
Managing Director,
Bangladesh and Pakistan
Environmental benefits
same as planting
CO2 emissions
cut by
Daytime power from
renewable sources
450,000
520 tns
40%
trees a year
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Coats Group plc Annual Report and Accounts 2023
Apparel Division
2023 Summary
Building a better business
By focusing on customer satisfaction during a period
of widespread industry destocking during 2023, the
Apparel Division grew its market share by around
200bps from 23% to 25% and increased its adjusted
EBIT margin 150bps to 17.5%. The range and quality
of our products, our global presence with a focus
on key industry centres, customer partnering, and
leadership in sustainability differentiates us from our
competitors, allowing us to win new programmes
and increase our share of the customer’s wallet.
During the year, we sold our European Zips
business. This was in line with the strategy
of optimising the Company’s portfolio with
a focus on providing premium product in
markets where we have a leading position.
Market conditions and competitor landscape
It was a year of significant challenge across
retail segments. Brands focussed on reducing
their inventory levels, following a period of
significant supply chain disruption. This resulted in
significantly lower volumes across all geographies,
especially in the first half of the year. However,
consumer demand held up well across key
retail markets in North America and Europe.
There were also areas of relative strength:
Asian domestic markets performed well and
the industry trend to ‘near-shoring’ of supply
benefited parts of the EMEA region. Our
partnership with winning brands and manufacturers
underpinned our outperformance in the year.
Our Indian business continued to modernise and
consolidate its distribution network, opening new,
state-of-the-art distribution facilities, designed to
enable future automation; we are well positioned
to benefit from India’s accelerated growth.
In February, we opened our European Logistics
Centre in Romania, consolidating our operations in
Hungary and Poland as well as Romania to serve
over 5,000 direct customers across Europe.
Coats Digital, our fashion tech arm and key
adjacency to our core business, increased order
bookings by 75% and on-boarded over 30 new
customers in 2023.
In another technology landmark, ShopCoats, which
helps customers manage their orders digitally,
exceeded $1 billion of customer orders during the
year since inception.
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Adrian Elliott
CEO, Apparel Division
Joined Coats in 1988
I am delighted that we have
continued to gain share in a
difficult market by providing value
to our customers.”
Adrian Elliott
CEO, Apparel Division
What does Apparel Division do?
We are the global market leader in the supply
of sewing thread and an innovative partner to
the apparel industry. Sewing thread is a critical
component in the apparel manufacturing process
and is also critical for the quality and performance of
the finished garment. We are the leading thread and
technical advisory partner to global apparel brands
and a partner of choice across garment categories
such as denim, athleisure, sportswear, outerwear,
intimates, dress, casual and workwear. Our global
manufacturing presence means we are able to be
flexible and agile, with our operations often located
close to our customers. We have a strong reputation
for delivering quality threads, consistent colour-
matched to customer specification with speed and
reliability. Our fashion tech digital business supplies
software solutions enabling speed, productivity
and transparency for our customers’ operations.
$689m
Revenue
c.200bps
Market Share Gains
Coats Group plc Annual Report and Accounts 2023
Apparel Division cont.
People
Our success rests on the commitment, contribution
and expertise of all the employees who work in our
units across the world. Being recognised as one
of the Best Multinational Workplaces in Asia is a
testament to our people, management and culture.
Communities
At Coats, sustainability is at the heart of our
mission. The DNA of the company is in doing the
right thing, being sustainable and making sure that
we have a positive overall impact on society. This
year, we were involved in various social initiatives
across different countries. These included clothes
distribution to needy people in Bangladesh,
supporting education for underprivileged
children in Sri Lanka and Bangladesh and blood
donation camps in Vietnam. We also provided
industrial sewing training to hundreds of women
in India to help them achieve a brighter future.
Sustainability
In 2023, we also inaugurated our Sustainability
Hub in Madurai, India. Together with the
Sustainability Innovation Hub in Shenzhen,
China, we are embarking on a transformative
sustainable product offering to help brands
and retailers fulfil their sustainability goals.
This will help pave the way to Net-Zero.
We recognise that the future of the apparel
industry must be built upon the principles of
circularity and eco-consciousness. We actively
support customers’ sustainability journeys with
eco-friendly solutions, while pioneering the
development of next generation sewing threads
crafted from circular materials. We are proud to
announce that our recent sustainable sewing
thread offerings – Eco Regen, Eco Cycle, and
Tre Cerchi Vero – have all been awarded the
prestigious PLATINUM certificate – the highest
rated Material Health Certificate from the Cradle-to-
Cradle Institute. This recognition is evidence of our
commitment to producing materials that are not only
environmentally friendly but also safe for consumers.
Innovation
Coats has consistently demonstrated its
commitment to innovation, and our latest
success story, the Hi-P high bulk sewing thread,
exemplifies our dedication. What sets Hi-P apart
is its ability to provide consumers with soft,
durable seams while maintaining production
efficiency – a crucial balance in the apparel
industry. It has effectively created a new market
in athleisure and innerwear, where maximum
consumer comfort is of paramount importance.
However, as a result of our investment
in innovation we are also introducing
sustainable variants of our products, that
position us to gain further market share.
2023 Results
Revenue of $689 million (2022: $818 million)
was down 12% on a CER basis (16% reported). As
anticipated, revenue was lower year-on-year, against
a very strong prior year comparator, and reflected
the continuation of widespread industry destocking,
after a surge of post-COVID inventory restocking in
H1 2022, as well as buffer-buying due to supply chain
disruption. We have seen improving trends through
the year as it is clear the destocking period is largely
over, as customer inventory levels normalise, with
early but encouraging order trends now evident.
Despite challenging market conditions, the
Apparel business benefited from market share
gains, with an increase in our estimated market
share by c.200bps to c.25%. We were also able to
maintain pricing, and leverage moderating input
costs in some areas. We continue to be very well-
positioned in our markets, as the global partner
of choice for our customers, with market-leading
product ranges and customer service, and a clear
leadership position in innovation and sustainability.
Our proactive procurement strategy has put us
in a good position to benefit from raw material
price moderation. The focus on material transition
to recycled products has helped to scale our
recycled product offering and minimise cost
premiums associated with these products. This,
alongside our agile supply chain network, has
enabled us to help our customers and brands
achieve their sustainability goals, helping us
take market share and maintain prices.
With market conditions expected to continue to
gradually improve, our strong market position,
global presence, differentiation and focus on
leading brands provide further opportunities
for growth and market share gains.
Adjusted EBIT of $120 million (2022: $130 million)
decreased 4% vs the prior year on a CER basis,
significantly less than the overall revenue decline.
The adjusted EBIT margin was 150bps higher at
17.5% on a CER basis (2022: 16.0%), already slightly
ahead of our 2024 margin target. Savings from
our self-help actions, including strategic projects,
and procurement benefits more than offset the
adverse impact from lower sales volumes.
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Coats Group plc Annual Report and Accounts 2023
Annual Report and Accounts 2023
Coats Group plc
Case Study
Engines of sustainable growth: China and India domestic markets
CHINA
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By understanding and capitalising on fast-changing market dynamics, Coats delivered 2023 growth of 30% in China’s large and exciting domestic apparel sector. Over 40% of garments are now purchased online in China.This changes the way in which the industry creates, makes and sells product, and drives the need for supplier speed, agility and innovative customer services. Dynamics that play to Coats’ commercial, operational and supply chain strengths.By innovating in the ways we create dye to match samples, in the generation of recipes and operational process flows, and linked to strategic customer collaboration, we have pushed further ahead of competition. Innovation has also inspired our application of digital technologies to speed customer deliveries and improve communication flows. Investments in flexible machinery and working patterns have further underpinned our growth agenda.“We are proud of, and remain fully committed to, our profitable sales growth in the fast-evolving China domestic market.”Jamie Brown, Managing Director, Coats China
Coats Group plc Annual Report and Accounts 2023
Annual Report and Accounts 2023
Coats Group plc
Case Study
Engines of sustainable growth: China and India domestic markets
INDIA
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“As India’s domestic and export markets continue to evolve, we are confident that our strategic focus across the three divisions will help us grow by leveraging our current strengths and building upon new ones.”Rajesh Lakhanpal, Managing Director, IndiaIndia’s vibrant retail market continued its post-pandemic renaissance in 2023, opening exciting opportunities for the apparel, footwear and consumer product industries.Our strategic focus on growing in the attractive sectors of the domestic market continued to pay dividends across our Divisions, allowing us to enrich our share and margins through targeted initiatives in customer engagement, product innovation and price strategies.In the Apparel Division, growth was secured through innovative product and service enhancements. We increased the penetration of premium products and successfully launched new products to capture untapped markets in tailoring. In the ready-made garment sector, we conducted over 300 customer technical clinics to secure market share gains.In Footwear, effective cross-selling of threads and Texon components secured over 30 new business wins. Additionally, Transportation sales led Performance Materials sales in safety-critical applications.The outlook for continued growth in the India domestic economy remains robust, with Coats poised to accelerate its profitable and sustainable growth.
Coats Group plc Annual Report and Accounts 2023
Footwear Division
Frederic Verague
CEO, Footwear Division
Joined Coats in 2001
We have created a global market
leader in footwear thread and
structural components, putting us
in a strong position when the
market starts to recover.”
Frederic Verague,
CEO, Footwear Division
$368m
Revenue
14
New Products Launched
What does this Division do?
The Footwear Division is the combination of
Coats’ existing footwear thread business and the
complementary 2022 acquisitions of Texon and
Rhenoflex, which primarily manufacture structural
components for footwear markets. We are the global
market leader in thread and structural components,
offering a unique value proposition. We provide the
widest range of thread and component products
and have a global footprint, with locations close
to our customers. We are also market leaders in
sustainability and innovation. Our operations are
led and managed by experienced management,
who have come together from three leading
organisations, to become one Coats team.
2023 Summary
The industry reached peak inventory levels
in the fourth quarter of 2022, leading to a
widespread reduction in footwear production
during 2023, as brands sought to reduce
their excess inventory to normalised levels.
Against this challenging macro-environment,
2023 saw us increase our market share and
continue to invest in sustainable innovation.
We are also pleased that just over one year on from
the acquisitions of Texon and Rhenoflex, Coats
Footwear is now one customer-facing organisation,
with an integrated back office. We have over
delivered against our initial synergy targets in 2023,
which will provide a positive impact in 2024.
when the market starts to gradually recover. The
competitive landscape is fragmented and there
is no one in the market that has our footprint or
scale in terms of production or product range.
During the year, we have been expanding our
production footprint in Indonesia, attracting
the attention from some key brands.
The sustainability of new footwear products
continues to become increasingly important,
and we are positioned to benefit as we
leverage our leadership position.
Solutions that create value
We have introduced new products and technologies
that meet environment sustainability criteria, as
well as the needs of customers. This includes the
launch of seven specialist soft-flowing materials
for medical and orthopaedic applications. We also
launched the high-profile ProWeave™ upper to
enable the creation of a sustainable running shoe.
We have showcased our products in global
customer events and fashion shows in Milan,
Italy and Shenzhen, China. These activities
add extra value for our customers, in that
they support their marketing campaigns and
publicise that the products they are purchasing
are made from the best materials available.
We are exploring options for co-branding our
products with customers, with discussions
underway with global brands and Tier-1 suppliers.
Market conditions/competitor landscape
Value proposition
Our integrated and expanded product portfolio
has presented an opportunity to gain market
share during a period of destocking. As we
gradually expand our share of production for
customers, this puts us in a very strong position,
The merger of three top Footwear thread and
component suppliers, who are all driven by
innovation, sustainability and global presence
has created a very strong position in the market.
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This has enabled faster development of new
technologies, eco-friendly products and market
advantage. We are able to offer a compelling
product portfolio and innovation pipeline,
with an unmatched sustainability profile.
In 2023, we launched our new products through
a global go-to-market strategy, which would not
have been possible prior to the combination
of the three businesses. Leveraging our global
production footprint, we are also planning to
commence production of structural components
in East Java, Indonesia by Q1 2024, in a new,
efficient facility. Indonesia is a key country for
global footwear production with production in-
country expected to double in the medium term.
As a result of the business combination, we
have brought together leading experts in the
footwear industry across commercial, innovation
and production disciplines. This combination
of experience, industry knowledge and deep
relationships position us to lead the market and
support our customers’ growth initiatives.
Coats Group plc Annual Report and Accounts 2023
Footwear Division cont.
People
We believe that our people are at the heart
of our success, and creating an environment
where everyone feels valued and empowered
is paramount. We have continued to bring
together almost 1,000 people and three company
cultures, into one integrated organisation.
Our transformation has been guided by our
core values, with a commitment to fostering
unity, inclusivity, and a sense of belonging.
We have tailored our approach to bringing these
company cultures together, recognising the
strengths and values of each. We have woven
them into ‘One Coats’ by leveraging the best talent,
maximising synergies, and focussing on one goal,
which is ‘being stronger together for our customers’.’
As we move forward, we remain committed
to nurturing a harmonious workplace culture
that reflects our values. We are excited about
the customer opportunities facing us and are
dedicated to continuing to invest in our people.
Sustainability
Sustainability and innovation are strongly connected
and are an important differentiator in the footwear
industry. It’s not only to comply with the regulations,
it’s taking responsibility for environment and our
future and fostering the trust of our customers and
consumers. That’s why we made sustainability and
innovation leadership a central part of our strategy.
Our primary focus is on our product carbon
footprint. We are continuously striving for the
best solutions for our customers, enabling
them to reach their sustainability goals and
reduce their environmental impact.
We are also constantly looking for ways to reduce
our footprint. We support and participate in all
Group initiatives to reduce the consumption of
materials, energy and water, as well as take care
of our employees and our wider communities.
We are proud that our products and technology
are supporting Coats’ sustainability goals. This
year, some 46% of the raw materials we used
within our products are sustainable, being either
recycled, renewable or bio-based. As a Group
we have targeted 100% sustainable raw materials
usage by 2030. We are looking towards other bio-
based and circular supply chain solutions to meet
this target, while maintaining the high level of
performance, quality and availability of our products,
against a back-drop of medium-term growth.
We are also transitioning the energy we
purchase away from fossil fuel based power
generation to renewable energy.
2023 Results
Footwear benefited from market share gains, despite
industry destocking. We increased our estimated
market share by c.200bps to c.27% for threads and
structural components combined. Customer pricing
remained robust, even as some input costs began to
moderate. We have been realising the benefits of the
Texon and Rhenoflex acquisitions, with commercial
opportunities being pursued. In challenging
market conditions, our leading global position has
allowed us to leverage the strength of our customer
relationships and market leading product ranges.
Footwear revenue increased 24% to $368 million
(2022: $300 million) on a CER basis (23% reported),
including the Texon and Rhenoflex acquisitions,
acquired in July and August 2022 respectively.
Excluding the pre-acquisition contribution from
Texon and Rhenoflex, organic revenue decreased
16%. Encouragingly, we believe the industry
destocking cycle is largely complete, as customer
inventory levels normalise, and we expect to
see signs of a gradual volume recovery during
2024, although lagging the Apparel recovery.
We continued to deliver share gains and programme
wins, reflecting our position as a trusted partner
with our global accounts programme, in which we
dedicate resources to key brands and retailers.
The athleisure, performance and sports markets
within Footwear continue to be attractive. Supplier
consolidation and nearshoring, including China de-
risking, are becoming prominent trends, with brands
also placing increasing emphasis on sustainability
and innovation. With market conditions expected to
gradually improve in the second half of 2024, these
important, longer-term trends provide Footwear with
further opportunities for growth and share gain.
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Innovation
Our innovation project pipeline is focussed on
consumer trends and providing cutting-edge
solutions for customised solutions and volume
production. We create innovative products and
processes by utilising a highly experienced R&D
team, with experts from specialist fields working
closely together. In 2023, we launched more than
ten new and re-engineered product families for
reinforcement and sole applications. For example:
ECOSTROBE is made from 100% recycled PET and at
the end of product life, it is a 100% recyclable product
without loss of quality and therefore totally waste-free.
RHENOPRINT™ revolutionised the industry and
is still state-of-the-art today. With Multizone™, a
new generation of the Rhenoprint™ process was
introduced last year. The Multizone concept is
customisation at its best. Allowing reinforcements
with designed flex zones to provide excellent
shape and our highest wear comfort.
CYCLEA is a new circular upcycling process
for leather scraps from the production process,
enabling them to be recycled into new
products. This is a first for the industry.
VERDE is a premium biodegradable upper-shoe
material. It is made from sustainable and biobased
cellulose feedstock for lifestyle applications.
Coats Group plc
Annual Report and Accounts 2023
Case Study
Value Creation
COATS FOOTWEAR
CREATING VALUE WITH
TEXON AND RHENOFLEX
The back-to-back acquisitions of
Texon and Rhenoflex in 2022 have
created a global leader in
structural components.
We can see so many
opportunities for
Deckers to extend our
collaboration since
you are now one
organisation.”
Timberland
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Coats Group plc Annual Report and Accounts 2023
Case Study
Value Creation
SHAPING THE FUTURE OF FOOTWEAR
With a comprehensive product
portfolio, deep customer
relationships, unrivalled talent,
sustainable innovation leadership
and a global footprint, the
Footwear division is well
positioned to create stakeholder
value.
By integrating the three businesses, we
have delivered $19 million in annualised
synergies this year through combining
talent and procurement efficiencies.
We now have one customer-facing commercial
team which has been welcomed by both brands
and Tier 1 manufacturers. A single team allows
us to deepen our already strong customer
relationships as we now touch multiple parts of
a shoe as well as offering more opportunities to
provide sustainable and innovative solutions.
Our broad product range has created a number
of opportunities for complementary offerings
to our customers and this is progressing well,
with our customers seeing the potential to
simplify and optimise their supply chains.
Our procurement efficiencies come from a
combination of consolidating spend across a
range of raw material and indirect categories
and leveraging the purchasing power of
Coats to drive sustainable savings.
In Vietnam, we have established an integrated
business that reflects our combined
expertise in the footwear market across
thread and structural components to deliver
an enhanced customer experience.
Our brand customers have come
to realise that Coats Footwear is
greater than the historical sum
of our parts. We have elevated
our brand partnerships and are
shaping the future of footwear
with our ability to support from
design to execution on a
global scale.”
Bryan Whitfield,
Global Head of Sales, Footwear Division
$19m
Annualised synergies 2023
8%
Medium-term sales
growth ambition
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Coats Group plc Annual Report and Accounts 2023
Performance Materials Division
What does the Performance Materials Division do?
We are global experts in the design and supply
of highly engineered performance threads, yarns
and lightweight composites which are used in a
range of industries including, thermal and cut-
protective wear, telecom, oil & gas infrastructure,
automotive, household and recreational products.
Soundar Rajan
CEO, Performance Materials Division
Joined Coats in 1986
We commissioned two new large
manufacturing facilities in Mexico
and modernised one existing unit
to create flexible, cost-effective
manufacturing capacities for
Performance Yarns and Threads.”
Soundar Rajan,
CEO, Performance Materials Division
2023 Summary
One fifth of the Division’s revenue was generated
from sales of products launched within the
last five years and we continue to introduce
new ranges of unique and innovative products
in the Personal Protection and Composites
subsegments to ensure that we enhance
and retain our competitive advantage.
Bill, resumption of activity in 5G rollouts globally
and data centre upgrades linked to AI computing.
– Demand for Performance Thread was mixed in
2023. Growth in light vehicle production and
market share gains underpinned automotive
thread volumes. Volumes from other end uses like
feminine hygiene, medical and tea bags
remained stable.
Added-value products and services
We achieved some significant milestones this year
with the introduction of 6 groundbreaking products
and solutions. In Personal Protection, we unveiled
the FlamePro Arc Lightweight protective fabric,
setting a new standard for safeguarding against
electrical arc incidents, flash fires and related
hazards.
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Revenue
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New Products Launched
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Market conditions/competitor landscape
Performance Materials continued to be
impacted by the previously disclosed customer
insourcing of production, as well as customer
phasing issues in some US end-markets.
As a result, organic revenue in Performance
Materials in 2023 was 17% lower than 2022.
During the year, we relocated a large part
of our North American manufacturing
capacity to Mexico, mitigating structural
labour availability issues in the US.
– The Personal Protection business adjusted its cost
structure in light of lower volumes caused by the
in-sourcing of yarns by a large customer, and
customer phasing issues. With fewer government
tenders for military and firefighting applications,
an increase in tendering activity is now anticipated
in early 2024.
– Destocking by US telecom companies and,
consequently by the fibre optic cable
manufacturers, resulted in weaker sales of textile
composites. However, we anticipate a return to
growth in 2024 with investments in fibre
broadband in the US funded by the Infrastructure
Coats Group plc Annual Report and Accounts 2023
Performance Materials Division cont.
Our innovations extended to the Personal Protection
Trims segment, where we launched Signal Dark Grey
sew-on retro-reflective tape, designed to withstand
industrial washing while seamlessly blending with
darker fabrics without compromising on reflectivity.
In addition, we introduced Signal Lucence PRO in
colours, featuring 25 captivating shades, elevating
garment aesthetics while ensuring high visibility.
This phosphorescent technology offers an added
layer of protection, emitting a vivid glow for up
to eight hours in low or no light conditions.
In the Automotive sector, our 100% Recycled
EcoVerde Neophil received validation from
key customers, reinforcing our position as an
environmentally conscious industry leader.
Meanwhile, in Composites, our game-changing
Gral Binder SLS, a high-tenacity multi-filament
polyester yarn with ultra-low shrinkage was a first
in the Telecoms industry, surpassing expectations
and enhancing productivity. These innovations
collectively exemplify our commitment to delivering
exceptional value to our customers and partners.
People
Performance Materials Division has achieved
significant milestones in talent acquisition across its
footprint. Our emphasis has been on strengthening
our most prized asset: our human capital. Leveraging
the talent within Coats and bringing in the required
expertise externally have allowed us to improve our
people capabilities.
We introduced a ‘People Calendar’ to keep our
employees engaged across all organisational levels.
This calendar has proven invaluable to our workforce
planning and management support efforts by offering
a centralised view of employee schedules, holidays
and significant events. While our calendar plays a vital
role in fostering a work-life balance that contributes to
employee morale and contentment, it also serves as a
communication tool that enhances coordination and
US. Our longstanding trusted relationship with the
employee community was instrumental in achieving
this transformation without any disruption to our
manufacturing and customer deliveries.
Sustainability
Sustainability is at the forefront of our operations.
This is underpinned through a comprehensive
strategy centred around five key pillars: Energy,
Materials, Water, Waste, and People. By relentlessly
focussing on these pillars, we refined our dyeing
processes’ generating substantial reductions in water
and energy consumption. Collaborating closely with
our customers in Automotive, Household, Mattresses,
collaboration among team members. Managers utilize
this tool to schedule Town Hall meetings, training
sessions and other collaborative activities, thereby
promoting efficient teamwork.
The revamping of the manufacturing footprint in the
Americas was done with the wholehearted support
and cooperation of the employee community in the
Teabag and Feminine Hygiene industries, we started
the initiative to reduce our carbon footprint by
prioritising the use of recycled materials e.g. our
EcoVerde range and bio-based materials. An
example of this collaborative effort is Neophil
EcoVerde, a 100% recycled polyester sewing thread
co-developed with industry-leading automotive
partners. We championed a circular economy with
our Coats EcoCycle threads, designed to dissolve in
water, simplifying mattress disassembly. Working
collaborative with the leading global tea brands, we
launched fully biobased, non-genetically modified
PLA teabag strings and Admiral Vero, an organic
cotton-based feminine hygiene product. These
initiatives represent our commitment to advancing
sustainability at every opportunity.
Innovation
Our innovation journey was guided by our steadfast
mission: to boldly pioneer high-quality, disruptive
products that contribute to a better and more
sustainable world. Recognising key market trends,
we are aligning our efforts to meet industry demands
head-on. In the automotive sector, we are committed
to achieving carbon neutrality while safeguarding all
critical safety parameters. For household, furniture,
home textiles, outdoor, sports goods and filtration
industries, our focus is on transitioning to recycled
and natural materials, championing circularity.
Addressing the personal protection sector, we are
driven by the need for lighter yet more protective,
comfortable, and stylish PPE. We have intensified
efforts to integrate eco-friendly materials into our
innovative solutions, reflecting our commitment to
pushing the boundaries and driving positive change.
2023 Results
PM revenue declined 17% to $336 million in 2023
(2022: $420 million) on an organic and CER basis
(20% on a reported basis), with Personal Protection
decreasing by 25% on a CER basis, Composites
decreasing by 21% (CER) and Performance Threads
lower by 6% (CER). The largest factor driving the
decrease was the insourcing of production by a
large US customer in personal protection, which
resulted in $30 million lower revenue compared to
2022. There was previously disclosed customer
phasing issues in some US markets as well as
destocking at some US telecommunication
customers in Composites.
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Coats Group plc
Annual Report and Accounts 2023
Case Study
Case Study
Transforming the business
Transforming the business
COATS MEXICO
TOLUCA
We are very proud to have built the largest
factory in Coats, which includes 25,000m²
manufacturing space and 5,000m² offices
and warehouses.”
Soundar Rajan,
CEO, Performance Materials Division
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Coats Group plc Annual Report and Accounts 2023
Case Study
Transforming the business
SET FOR THE FUTURE
Coats continued to transform
Mexico operations in 2023.
Coats has a strong history and presence in Mexico,
with key sites in Tlaxcala, Orizaba and Huamantla.
Our strategic move to add a new spinning and
twisting factory in Toluca is the peak of our Mexican
transformation, culminating in a robust Performance
Yarns unit.
The Toluca site is now Coats’ largest Performance
Materials spinning and twisting factory, boasting a
25,000m² manufacturing area and a 5,000m²
offices/warehouse space. This facility is dedicated to
manufacturing high performance yarns that address
existing and emerging needs of customers in the
Personal Protection segments and other adjacent
end uses like Flame Retardant Home Furnishings.
The completion of the Toluca site signifies a crucial
milestone, establishing it as our most extensive
Performance Material facility. Toluca enhances the
profitability of our Performance Yarns business,
optimising utilisation, improving operational
efficiency, reducing conversion costs, and
expanding sales and customer service capabilities.
The move responds to challenges faced by US
operations, addressing structural labour issues and
high labour rate inflations. This strategic shift allows
for economies of scale by transferring machinery to
Mexico while ensuring compliance with the Berry
Amendment for US-manufactured products thanks
to the newly expanded and revamped Kings
Mountain site in North Carolina.
Aligned with Coats’ strategic goals, the Toluca site
accelerates sales growth, delivering improved
profitability with reduced lead time and exemplifies
our commitment to operational efficiency, digital
advancement, innovation, and sustainability.
The success of this large-scale manufacturing
footprint in Mexico, showcases high operational
efficiencies and improved service levels. Statistics
include 34,000 spindles, 330 workers at full
capacity, and a potential monthly output of 320klb.
With the Toluca site’s completion, Coats has not only
solidified its Mexican presence but also fortified its
global position in the Performance Yarns sector. The
Toluca project underscores Coats’ commitment to
innovation, operational excellence, and sustainable
growth.
“I am proud to have led this large, complex project,
contributing to Coats’ history. Toluca is poised to be
a lasting success story, ensuring a prosperous future
for Mexico.”
Gergely Zsigri
Strategic Program Manager
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Coats Group plc Annual Report and Accounts 2023
Sustainability
PERSISTENT IN PURPOSE,
BOLD IN AMBITION:
Our next chapter in Sustainability.
As we continue our journey towards a greener
future, our commitment to sustainability at Coats
remains unwavering. Sustainability is woven into
our DNA, is a core tenet of our Group business
strategy and embedded within our Apparel,
Performance Materials and Footwear Divisions.
Having delivered excellent results for 2019 to 2022,
we refreshed our sustainability pillars in late 2022
to span across Energy, Materials, Water, Waste
and People. Each pillar represents a key area of
our sustainability strategy and has defined metrics
and ambitious targets set for 2023 to 2026. Each
metric has a defined basis of reporting which clearly
outlines the manner in which it is measured.
We remain fully committed to:
– delivery of ‘science-based target’ emissions
reduction across Scope 1, 2 and 3 by 2030
– achieve Net-Zero emissions by 2050
– continuing our transition to renewable energy
with 100% renewable electricity by 2030
– driving innovation in development and adoption
of new market-leading eco materials to underpin
our journey to 100% non-virgin oil-based materials
by 2030
We fully recognise the importance of the circular
economy and are dedicated to being a catalyst
in our industry for developing solutions to help
drive circularity. Our ambition is not just to
participate in this new economy, but to shape
it, setting new standards for sustainability.
Our focus extends beyond environmental impact, as
we strive to make a positive and sustained difference
in the social sphere. Delivery of our sustainability
targets is driven by the diverse, dynamic and highly
engaged talent that we employ across the business;
each individual bringing their unique experiences and
skillsets to the global team that is Coats.
The below pillars and their associated targets for
delivery across the 2023 to 2026 time horizon
guide our actions and help us measure our progress.
They reflect our holistic approach to sustainability,
one that balances environmental stewardship with
social responsibility. As we work towards these
targets, we remain committed to leading the industry
in sustainability and social impact.
ENERGY
– 22% reduction in
Scope 1 & 2 Emissions
MATERIALS
– 60% transition to recycled
or bio materials
WATER
– 33% water recycling
WASTE
– 0% waste materials to landfill
– 100% compliance to ZDHC
PEOPLE
– 86% GPTW® coverage AND
– 30% women in leadership roles
2026
OUR NEXT CHAPTER SHORT-TERM TARGET
22%
reduction in
Scope 1&2
emissions
100%
ZDHC
compliance
60%
transition to
recycled or
bio materials
88%
GPTW® coverage
33%
increase in water
recycling rate
by 2026 from
2022 baseline
30%
Women in
leadership roles
0%
waste to
landfill
2030
OUR GOALS FOR 2030 ARE CLEAR AND AMBITIOUS
APPROVED SCIENCE-BASED TARGETS WITH 2019 BASELINE THAT COMMIT US TO
46.2%
reduction in Scopes 1 & 2
emissions
100%
renewable electricity
33%
reduction in
Scope 3 emissions
FURTHER TRANSFORMATIONAL TARGETS
Zero products
from virgin oil-based
materials
70% of total energy
from renewable sources
Circular product and
packaging solutions
Increased positive
social impact
2050
LONG-TERM TARGET
Net-Zero
emissions in our value chain by 2050
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Coats is fully committed to doing its part to help
mitigate climate change. As well as our 2050
Net-Zero commitment and 2030 science-based
target emissions reductions targets, we have also
committed to deliver a 22% reduction in Scope
1&2 emissions by 2026 from its 2022 baseline.
As part of our clear roadmap for delivery of these
targets, we established a dedicated team of
procurement and engineering professionals in
2023 to focus on delivering on our commitment
of 100% renewable electricity by 2030 as well as
driving continued energy efficiency increases.
New rooftop solar projects have been installed
across multiple sites in Bangladesh and India,
and other projects are currently in various stages
of deployment. We are rapidly increasing the
percentage of renewable energy consumed across
our facilities, through a combination of rooftop solar,
Power Purchase Agreements for offsite wind farm
energy and supplemental green energy through
purchase of Renewable Energy Certificates (iRECs).
Coats Group plc Annual Report and Accounts 2023
Sustainability spotlight
AMBITIOUS HORIZONS: ADVANCING
OUR SUSTAINABILITY JOURNEY
In 2023 we commenced preparations for our
intention to receive public limited assurance
on the performance of our 7 core sustainability
targets against their 2022 baseline. It is our
plan that limited assurance will be provided for
2024 ESG metrics performance and this will be
reported publicly within our 2024 annual report.
In March 2023, the UN Intergovernmental Panel
on Climate Change (IPCC) released its sixth
assessment report (AR6) which made for bleak
reading, confirming that human-induced global
warming of 1.1°C has caused unprecedented
changes to the Earth’s climate in every region,
such as rising sea levels, more extreme weather
events and rapidly disappearing sea ice.
Anyone with an eye on global media cannot
have missed the increased reporting of
catastrophic weather events that have had
such devastating impacts across the globe in
2023. Mass flooding, droughts, wildfires and
extreme heat were seen across all continents.
The IPPC report warns that additional warming
will increase the magnitude and frequency of
these changes and will heighten the risk of
reaching dangerous tipping points in our global
climate systems. However, the report also offers
hope. It highlights pathways to limit warming to
1.5°C or well below 2°C by reducing greenhouse
gas emissions and emphasises the need for
urgent and coordinated action from all sectors
of the economy to achieve these pathways and
avoid the worst impacts of climate change.
Emission related to raw materials constitute almost
two-thirds of our Scope 3 emissions, and our 2030
target reductions will be largely underpinned by
transition to non-virgin oil-based raw materials. Our
new Sustainability Hub in Madurai, India, which
was inaugurated in early 2023, will accelerate
our materials transition to recycled, renewable
and bio-based materials and emphasises
our commitment to delivery of this target.
Having delivered 38% reduction in water intensity
from 2019 to 2022, our future strategy for reducing
water extraction activities is primarily linked to
increasing our levels of water recycling by a rate
of 33% by 2026 on our 2022 baseline. This will
see capital investments being made in water
recycling capability with priority being given to
facilities in high water stress locations. In 2023
we have already delivered an 13.5% increase in
water recycling rate on our 2022 baseline.
Landfill waste is a major contributor to greenhouse
gas emissions, which are the main driver of
climate change. According to the Environmental
Protection Agency, landfills accounted for 15.1%
of the total U.S. methane emissions in 2019, a
potent greenhouse gas that traps more heat
than carbon dioxide. Landfill waste also poses
risks to human health and the environment. With
this in mind, Coats has committed to a delivery
of zero waste to landfill by 2026, and has set
year on year landfill waste reduction targets for
2023 through to 2026. In 2023 we significantly
enhanced our granularity of waste data recording
across all sites, capturing the waste destination
for every one of 35 defined waste categories.
This additional transparency has helped drive
insights that have led to landfill waste reduction
programmes which have seen our landfill waste in
2023 reduce by 37% from our 2022 baseline. We
currently have 40 sites operating with zero waste
to landfill and this number will grow next year.
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Coats Group plc
Annual Report and Accounts 2023
Case Study
Spotlight on innovation
CUTTING-EDGE
SUSTAINABILITY
This state-of-the-art
manufacturing facility in Madurai
is the ‘Centre of Excellence’ for
spinning and twisting in Coats.”
Rajiv Sharma,
Coats Group Chief Executive
In March, we opened the
doors of our state-of-the-art
Sustainability Hub in Madurai –
a spinning and twisting pilot
plant that will progress our
sustainability commitment.
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Coats Group plc Annual Report and Accounts 2023
Case Study
Spotlight on innovation
COATS SUSTAINABILITY HUB:
PRIDE OF MADURAI
Completed in just 12 months, in
the face of industry lead-time
challenges, our flagship state-of-
the-art Sustainability Innovation
Hub is set to accelerate the
material transition to recycled
and renewable materials.
The new spinning and twisting pilot facility is
located in the heritage site of Coats in Madurai,
India in a sprawling area of 10,000 square feet. It
has the infrastructure to process multiple fibres,
blends & high-performance fibres like aramids.
Together with our Sustainability Hub in
Shenzhen, China it will support customers and
other stakeholders in creating sustainability
in the industry, enabling Coats to streamline
sustainability innovation, enhance brand
collaborations and facilitate faster sustainable
product offers and market entry capabilities.
It is part of a $10 million investment planned
over the next five years in scaling up the
development of green technologies and
materials to accelerate the achievement
of Coats’ ambitious sustainability targets.
A personal view
Despite global supply chain
disruptions, the Hub was
operational in an astounding
12 months. Teamwork resulted in
the completion of the project and
I am really proud of being a part
of this great Sustainable Material
Transition initiative in Coats.”
SK Raja,
Director, Product Sustainability & Innovation
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Coats Group plc Annual Report and Accounts 2023
Key performance indicators
Performance measures of the Group’s progress
FINANCIAL KPIs
Link to strategy
Profitable
sales growth
Transform
the business
Value
creation
During 2023 we continued to monitor our performance and progress using a range of key performance indicators (KPIs), each of which is a non-GAAP measure. In the year,
adjusted EBITDA growth and leverage were added to the range as the Board consider them, along with the existing KPIs, to be important measures to track business performance.
For further details of how these financial Alternative Performance Measures are reconciled to the nearest corresponding statutory measure, see note 37 on page 174.
2021 and 2022 KPI comparators are as reported in prior years and do not include any restatement for discontinued operations.
Revenue growth
Adjusted operating
profit growth
EBIT margin
Adjusted earnings
per share growth
Adjusted free cash flow
Leverage
Adjusted return on capital
employed (ROCE)
Definition
Definition
Definition
Definition
Definition
Definition
Definition
Annual organic growth in sales
at like-for-like exchange rates.
Annual organic growth in
operating profit, adjusted for
exceptional and acquisition-
related items, at like-for-like
exchange rates.
Adjusted EBIT as a proportion
of revenue
Annual growth in reported EPS
from continuing activities,
excluding exceptional and
acquisition-related items.
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.
Multiple of Net Debt (excluding
leases) to EBITDA calculated on
a pro-forma basis (includes the
full year impact of acquisitions).
Pre-exceptional operating profit
from continuing operations
for the year divided by capital
employed (property, plant
and equipment, acquired
intangibles, right-of-use assets
and lease liabilities plus net
working capital) at year end.
2023 Commentary
2023 Commentary
2023 Commentary
2023 Commentary
2023 Commentary
2023 Commentary
2023 Commentary
2023 revenue performance
significantly impacted by
customer destocking in the
Apparel and Footwear Division,
as well as customer insourcing
and order phasing in the US in
Performance Materials.
Adjusted operating profits
down slightly vs a larger
decline in revenues, as pricing
/ productivity / strategic
projects / acquisition synergies
more than offset inflationary
pressures and volume declines.
Pricing / productivity / strategic
projects / acquisition synergies
more than offset inflationary
pressures and volume declines,
resulting in a strong margin
progression year on year.
Adjusted EPS flat year on
year with operating profits
held, despite lower sales,
alongside tight control of
interest and tax charges.
Strong cash generation
underpinned by well controlled
net working capital, whilst
alongside continued spend
on capital expenditure to
support future growth.
Leverage remains comfortably
within the 1-2x target
range, underpinned by
strong free cash flow.
Strong operating profit
performance, despite revenue
declines, alongside a continued
well controlled asset base.
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Performance
-14%
14%
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2022
2021
Performance
Performance
Performance
Performance
Performance
Performance
-4%
-4%
22%
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2022
2021
16.7%
2023
2022
2021
75%
16.7%
14.8%
12.8%
0%
2023 0%
2022
2021
16%
$131m
1.5x
30%
2023
2022
2021
181%
$131m
$114m
$113m
2023
2022
2021
1.5x
1.4x
2023
2022
2021
0.7x
10%
29%
30%
31%
40%
41
Coats Group plc Annual Report and Accounts 2023
Key performance indicators cont.
2023 SUSTAINABILITY KPIs
Following the maturity and successful delivery of our 2019-2022 targets at the end of 2022, we are now focussing on delivery of our new and highly ambitious
targets which span from 2023-2026. Note: The data reported below excludes divestments made in 2023 (EU Zips, Mauritius and Madagascar).
Energy
Materials
Water
Waste
Waste
People
People
Scope 1&2 Emissions
Target of 22% reduction in
Scope 1&2 Emissions from
2022 baseline by 2026
Sustainable Material %
Target transition to
60% sustainable raw
materials by 2026
Water Recycling Rate
Target to increase rate of
water recycling by 33% from
2022 baseline by 2026
Waste to Landfill
Target to be a zero waste to
landfill business by 2026
Effluent Quality
Target of 100% compliance to
ZDHC (Zero Discharge of
hazardous Chemicals) standard
by 2026
GPTW® Certification
Target of 88% employees
covered by GPTW® certification
by 2026
Diversity & Inclusion
Target of 30% females in senior
leadership roles by 2026
Definition
Definition
Definition
Definition
Definition
Definition
Definition
Absolute Scope 1&2 CO2e
emissions in tonnes.
Percentage of in-scope raw
materials volume purchased
and goods receipted which
are non-virgin oil-based.
Percentage of water that is
recycled.
Zero waste generated within
our facilities being diverted to
landfill sites.
Percentage of effluent
that is compliant to ZDHC
Foundational standards
for effluent and sludge.
Percentage of employees in
Coats units that have a Great
Place To Work® (GPTW®) or
equivalent certification.
Percentage of females in senior
leadership roles.
2023 commentary
2023 commentary
2023 commentary
2023 commentary
2023 commentary
2023 commentary
2023 commentary
The primary driver for Scope
1&2 emissions reduction is
our transition to renewable
electricity, were significant
progress was made in 2023
with an increase from 29% in
2022 to 54% in 2023. Reduced
production volumes in 2023
also contributed to Scope 1&2
emission reductions. In 2023
we delivered an overall 39%
Scope 1&2 emissions reduction.
Through accelerated
qualification processes we have
broadened our supplier base
for sustainable materials and
our new Sustainability Hub in
Madurai, India is now starting to
develop innovative sustainable
products. Our sustainable
raw materials increased to
29% in 2023 compared to
our 2022 baseline of 25%.
Evaluation and planning for
2024 capital investments in
new water recycling capability
in high water stress locations
took place in 2023, with
increased recycling efficiency
in currently installed recycling
capacity delivering a 13.5%
increase in water recycling rate
in 2023 versus 2022 baseline.
Our waste management
programme focussed on
delivery of improved granularity
in waste reporting which
enabled actionable insights
for delivery of significant
reductions in waste being
diverted to landfill. In 2023 we
have delivered a 37% reduction
in waste to landfill vs 2022.
Further improvements in
effluent quality, achieving
99.834%* ZDHC compliance
versus 99.756%* compliance
in 2022.
* Basis of reporting for effluent quality
has been updated, further details can
be found in our Sustainability Report.
In a year when Coats was
ranked Top 25 World’s Best
Workplaces and top 20 in Asia,
our commitment to ensure
Coats is a Great Place To Work®
for all is being recognised on
a global stage. Leadership
puts our people first and the
results mirror these high levels
of engagement. We are on a
journey, through our unique
culture, to maintain our place in
the World’s Best Workplaces.
Through the course of 2023
we have implemented various
programmes and initiatives
to promote female diversity
across our business and
have delivered an increase in
the female representation in
senior leadership roles from
21% in 2022 to 23% in 2023.
Performance
Performance
Performance
Performance
Performance
Performance
Performance
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182,005
241,134
29%
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27.3%
37%
99.834%
87%
29%
25%
Not reported
2023
2022
2021
27.3%
24.0%
23.0%
2023
2022
2021
1,449
2,296
2,887
2023
2022
99.834%
99.756%
2023
2022
2021
23%
87%
86%
83%
2023
2022
2021
23%
21%
23%
42
Coats Group plc Annual Report and Accounts 2023
Non-financial information statement
The non-financial reporting regulations in section
414CA and 414CB of the Companies Act 2006
require the disclosure of specific information
relating to environmental matters, the Company’s
employees, social matters, respect for human
rights and anti-corruption and anti-bribery
matters, a summary of which is set out below.
Full details of all our policies on these matters
can be found in our downloads section. We
are Participants of the United Nations Global
Compact (UNGC) and are committed to the 10
principles of the Compact, covering Human Rights,
Labour, the Environment and Anti-corruption. Our
Sustainability Report is our formal annual UNGC
Communication on Progress (COP) and contains
fuller information across all of these areas.
The Environment
Our commitment to environmental sustainability
is deeply ingrained in our purpose, and it remains
a central focus of our sustainability strategy. We
have committed to near-term science-based
emissions reduction targets for 2030, and
we’ve also submitted Net-Zero targets for 2050,
which are currently undergoing validation by
the Science Based Targets initiative. Achieving
these decarbonisation targets necessitates that
we reduce our energy consumption, transition to
renewable energy and transition away from raw
materials derived from virgin oil-based products.
Following delivery of a 38% water intensity reduction
across the period 2019 to 2022, we further reduced
water intensity by 5.5% in 2023. We are now focussing
on increasing our water recycling so that we reduce
the environmental water stress from our operations,
and in 2023 increased our water recycling rate by
13.5% from 2022 - a positive step towards our 2026
target increase of 33% from our 2022 baseline.
We operate to global industry standards in
terms of effluent quality and at the end of
2022 committed to a new target of being a
zero waste to landfill organisation by 2026.
In 2023, we reduced our waste to landfill
tonnage by 37% from our 2022 baseline.
Our key policies in this area are our Environmental
and Climate Policies and these can be found on
our website. Fuller details of our environmental
performance can be found in our Sustainability
Report. The importance of environmental policies
and performance is described on page 45.
Environmental non-compliance and climate change
are both considered to be principal risks and
details of the risk evaluations and mitigating actions
are shown on pages 185 to 187. Our approach to
responding to the risks and opportunities arising
from climate change are summarised in our TCFD
statement pages 188 to 195 of this report. We
measure our emissions impact for Scopes 1 and
2 monthly and for Scope 3 annually. Our results
can be seen in our emissions disclosures on
page 197. Our key risk in environmental terms
relates to effluent quality and we have on-line
monitoring of key effluent measures in our large
units and have extensive tests done by external
laboratories of effluent quality every six months.
Our performance is shown in our KPIs on page 42.
Employees
We are committed to providing a safe and
respectful working environment for our employees
and other stakeholders. We aim to have an
organisational culture which promotes inclusion,
diversity, belonging, equal opportunities, personal
development, and mutual respect. We aspire
that our colleagues will enjoy being at work and
will all contribute to creating an environment
that is free from any discrimination, bullying
or harassment. We seek to promote physical
and mental wellbeing in our workplaces.
Our key people-related polices are our Key
People Principles, our Health and Safety Policy,
our Worldwide Employment Standards, our
Living Wage Policy (see page 45), our Ethics
Code (see page 45), our Equal Opportunities
Statement and our Speak Up (Whistleblowing)
Policy (see page 45). All of these can be found
on our website. Targets and performance on
our people policies is described on page 42 of
this report and in our Sustainability Report.
Principal risks related to this area are the failure
to attract, retain and develop diverse and
inclusive talent and capability given business
changes, growth in new areas and labour
availability, and the risk of serious Health &
Safety incidents. These risk evaluations and
mitigations are described on pages 183 to 185.
Human Rights
Coats is committed to protecting the Human
Rights of our employees and those working in our
supply chain. We fully support the United Nations
(UN) Guiding Principles on Business and Human
Rights in our operations, and we uphold the UN
Declaration of Human Rights and the Convention on
the Rights of the Child, the core International Labour
Organisation (ILO) Conventions and the Organisation
for Economic Co-operation and Development
(OECD) Guidelines for Multinational Enterprises
and the related Due Diligence Guidelines for the
Garment and Footwear Sector. Every two years we
do a Human Rights Risk Assessment, and this was
last done in 2023. Our Global Internal Audit (GIA)
team include aspects of Human Rights assessment
in their regular audit programmes. Details on
the outcomes of our GIA audits in this area are
included in our Sustainability Report on page 61.
The GIA team completed 10 audits during 2023.
No human rights violations were found, and
20 minor issues were raised across several
people related process areas and these have
all been resolved or are being addressed.
We collaborate with our suppliers to extend
our principles up our supply chain and perform
regular Supplier Code audits on suppliers that are
identified as being at higher risk. The outcomes
of our Supplier Code audits are detailed in our
Sustainability Report on page 60. 131 supplier
audits were completed in 2023. 85% received
a good rating while about 15% were termed
acceptable with some areas for improvement.
These findings were mainly around improving
systems and processes across a range of safety,
labour, environmental requirements and we are
actively working with all these suppliers for time
bound corrective action plans. As a result of the
audits, we determined that four suppliers failed to
meet our standards and the supply arrangements
were terminated. Our key policies on Human
Rights are our Worldwide Employment Standards
and our Supplier Code and these can be found
on our website. Further details on performance
in this area can be found in our Sustainability
Report and in our Modern Slavery Statement.
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Coats Group plc Annual Report and Accounts 2023
Non-financial information statement cont.
Social
We link to wider society through our suppliers and
their employees, through our relationships with our
local communities and neighbours and with our
customers and consumers through our products.
Our Supplier Code, described above, describes
our expectations of employment standards for
our suppliers. There is a risk of non-compliance
here and reputational damage and the Supplier
Code audit programme helps us to manage this
risk. The results have been described above.
In 2023, we launched our ‘Coats Cares’ programme
which underpins our community engagement
approach and allows our business units to engage
with their communities on issues that are important
at a local level. More details on ‘Coats Cares’ can
be found on page 62 of our Sustainability Report.
The principal risk here is the environmental incident
one described on page 57 and our management
of this has been described above. See page 57
and for more details our Sustainability Report.
Ensuring that our products don’t present any risk to
our customers and consumers is actively managed
by our Restricted Substances List (RSL) programme,
which is updated annually. Application of this is part
of our Supplier Code management as all inputs into
our processes have to be certified as compliant to
our RSL list apart from a small number of industrial
products with performance-driven exceptions
that are approved at senior management level.
Anti-bribery and anti-corruption
Coats is committed to the highest levels of ethical
behaviour in all of our operations and has a zero-
tolerance approach to any bribery or corruption or
unethical behaviour in our operations and supply
chains. We have a rolling programme of raising
awareness across the business under the ‘Do the
Right Thing’ banner and this is underpinned by
biennial training for all key staff (around 5,000 in
total) in anti-bribery and anti-corruption, competition
law and ethical behaviour. We have a whistleblowing
system, ‘Speak up’, that has internal and external
reporting options and where every issue raised
is fully investigated. The outcomes from our
Whistleblowing process are detailed on page 104.
Our key policies in this area are our Anti-bribery
and Anti-Corruption Policy, our Competition Law
Policy, our Ethics code, our Gifts and Entertainment
Policy, our Speak Up (Whistleblowing) Policy
and our Undue Influence Policy. All these
policies can be found on our website. The main
risk we are exposed to in this area is of non-
compliance from our upstream supply chain and
the reputational impact that could have on us.
This is managed proactively through our Supplier
Code auditing process described above.
Other matters
In addition, information required in relation to
the company’s business model is described
on page 19. Principal risks including those that
relate to matters above are included on pages
52 to 58. Key non-financial KPIs are shown on
page 41 where we describe 2023 performance
against our new 2026 sustainability targets.
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Coats Group plc Annual Report and Accounts 2023
Non-financial information statement cont.
Non-financial information statement
POLICY
People
Key People Principles
Health and Safety Policy
Ethics Code
Speak Up – Whistleblowing Policy
Global Employment Standards
Equal Opportunities Statement
Modern Slavery statement
(including a statement on
transparency in supply chains)
Living wage policy
Governance
Anti-bribery and Anti-corruption
Policy
Gifts and Entertainment Policy
DESCRIPTION
POLICY
DESCRIPTION
This statement identifies the range of policies and procedures we have in place
to manage our key people-related issues.
This policy outlines our commitment and actions for the prevention of injury and
ill health, and ensuring health and safety excellence across our business.
Competition Law Policy
Charitable donations policy
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.
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.
As a global employer, Coats strives to follow ethical employment standards
and believes the human rights of its employees 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.
The Company supports equal opportunities in employment and considers it to
be an integral part of our employee relations policy.
This statement has been prepared for the year ending 31 December 2022 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.
At Coats people are at the heart of what we do. We aim to ensure that all
employees receive a wage that is sufficient to afford a decent standard of living
for the employee and their family. We are committed to paying a living wage to
all of our employees.
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.
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.
Suppliers
Supplier Code
Restricted Substances List
Conflict Minerals Policy
Environment
Environmental Policy
Climate Change Policy
The purpose of this policy is to make sure that all Coats’ charitable donations
and sponsorships are aligned with our approach to ‘Coats Cares’, our Code of
Ethics, our Anti-Bribery and Anti-Corruption Policy, our HR policies, as well as
our wider Corporate Responsibility (CR) approach.
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.
The Supplier Code outlines our expectations required of suppliers and covers
labour practices, environmental management, responsible sourcing of materials
and products, and business conduct.
As part of Coats Product Safety programme, we require that all Coats’ suppliers
of raw materials, dyes, chemicals and packaging materials meet the highest
standards appropriate for their end use. A comprehensive list of restricted
chemicals is revised and reissued to all of our material suppliers every year.
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.
We take our responsibility to the environment very seriously and this policy lays
out our approach. Coats senior management has defined objectives and targets
to ensure that we deliver on this policy and additional details on progress can
be found in our Sustainability Report.
We are committed to doing what we can to limit the impact of climate change
and will always follow the scientific consensus on future impacts in assessing
how to address this challenge.
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Coats Group plc Annual Report and Accounts 2023
Stakeholder engagement
Developing and maintaining strong and mutually beneficial relationships with our
stakeholders is part of our culture and is vital to our purpose and our strategic ambitions.
Below we summarise who our key stakeholders are, how we engaged with them during the year, what we
learned and what we will do going forward. You can read our section 172 statement on pages 49 to 51, which
sets out how the Board and management considered certain insights gained from our stakeholders in our
decision making. Read more about why we consider these stakeholder groups to be important to the
delivery of our strategy in our business model section on page 19.
OUR STAKEHOLDERS
EMPLOYEES
See page 47
CUSTOMERS
See page 46
SHAREHOLDERS
See page 46
ENVIRONMENT
See page 47
COMMUNITIES
See page 48
SUPPLIERS
See page 48
CUSTOMERS
Our global footprint provides
unrivalled access to markets and
customers. We want to proactively work
together with our customers to deliver
additional value together.
How the Board engaged in 2023
The Board received in-depth overviews of the key
customers, including customer insights, as part of
the divisional deep dives provided by the divisional
CEOs at Board meetings throughout the year. At the
Company’s annual strategy day, emerging trends
and behaviours in China and India were discussed
by the Board and management, relying on inputs
sought directly from key customer meetings. During
the visit to Sri Lanka, the Board met with several key
customers and participated in an Apparel industry
forum discussion, allowing direct engagement.
As well as these regular updates from Executive
Directors and management, the global customer
surveys programme continued using our dedicated
commercial, sales and marketing teams to connect
and partner with customers and brands, by listening
and innovating to achieve jointly desired outcomes.
What we learned
The change to our operating model has been well
received by customers but the Board must continue
to monitor changing customer trends and demand to
ensure the business model remains appropriately
focussed. Previously identified demands for
increased demand for speed, agility, and sustainable
solutions continue across all divisions. Innovation and
our focus on sustainability throughout the supply
chain are key attractors for, and help retain,
customers. The insights gained informed discussions
on asset utilisation at the annual Strategy Day, as well
as enabling the Board to provide considered input
relating to other strategic and forecasting matters.
What we are going to do in 2024
The Board will continue to regularly monitor
trends and insights in the Boardroom, leveraging
existing two-way communication channels. As
part of the annual away week, and at any other
appropriate time during the year, the Board will
seek direct engagement where appropriate. We will
monitor customer feedback to identify emerging
opportunities and risks, noting demand continues to
be impacted by the macroeconomic environment.
SHAREHOLDERS
Coats maintains and values regular
dialogue with shareholders throughout
the year, so that they can more accurately
assess our value and the opportunities and
risks of investing in our business.
How the Board engaged during 2023
The Group CEO and Chief Financial Officer, together
with the Investor Relations function, are regularly in
contact with investors through calls and roadshows
throughout the year. During 2023, Coats welcomed
a number of shareholders, analysts, bankers,
advisors and brokers to the Gotex facility in Spain
and insights were shared with the Board. The Chair
also joined investor calls where appropriate, with
investors having been invited to share their views on
the Remuneration Policy that was approved at the
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Coats Group plc Annual Report and Accounts 2023
Stakeholder engagement cont.
2023 AGM. The Senior Independent Director,
together with the incoming Senior Independent
Director, consulted with a number of investors
regarding the extension of the Chair’s tenure. Full
details of the process undertaken are set out in the
Nomination Committee report on page 86.
The Board receives an update at every Board
meeting from the Investor Relations function on
feedback from investors and key trends, and the
annual Broker presentation on how the Company is
perceived by investors was again considered.
Additionally, the Board carefully considered the
progressive dividend policy when deliberating in
relation to the interim and final dividend levels,
noting the importance of returns to shareholders.
What we learned
Regular conversations with both existing and
prospective investors allow the Company to
share timely information on key strategic and
operational matters. Site visits allow investors
to directly experience our operations and better
understand our value proposition. Our continued
focus on ESG matters continues to be attractive
to investors. The proactive actions taken, such
as the strategic projects and divestments, to
optimise the Company’s portfolio and footprint
and improve the overall cost base efficiency
have been positively received. The progressive
dividend policy continues to be important to
investors. Investors appreciated being consulted
when the tenure of David Gosnell, Chair, was
being reviewed and valued the opportunity to
understand the rationale for the proposal, in
particular the benefits of continuity given the
significant changes that had taken place within the
Group, ahead of the Company’s forthcoming AGM.
What we are going to do in 2024
We will continue to seek appropriate opportunities
to allow investors to visit our sites and operations to
demonstrate our strategic value. We will continue to
consider total returns to shareholders in our Board
discussions. The Chair, Group CEO and Chief
Financial Officer will continue to attend relevant
investor meetings as will the Chairs of the
Committees, if appropriate.
EMPLOYEES
Our 15,000+ permanent employees
are at the heart of making our
business a success and we recognise that
listening to and engaging with our people
is essential to our continued success.
How the Board engaged in 2023
The Board continued to directly engage with
employees at various levels of the Company
presenting at Board meetings, including those
providing the divisional deep dives and those
participating in the various topics covered at the
annual strategy day. By inviting a wider range of
employees into the Boardroom, the Board gains
insights into ways of working that are then used to
inform strategic and operational matters. During
the Board visit to Sri Lanka, the Board met with
those working at our local plants and had direct
experience of day-to-day operations. A number
of Board members attended the Leadership
Conference and valued the increased insights
gained by this event being held in-person. Sarah
Highfield met with employees from various parts
of the business as part of her induction programme
and shared her impressions with the Board.
The Board continued to monitor metrics relating
to culture and diversity at every Board meeting.
The Chief HR Officer provided various updates
throughout the year across various topics, including
the insights from the ‘Your Voice Matters’ survey,
and tracking the resulting actions, as well as
providing updates on the ‘Coats for All’ and ‘Coats
for Her’ initiatives. People updates were also
considered as part of the divisional deep dives.
At both the Board and the Nomination Committee,
there were discussions regarding succession
and development opportunities and employee
insights were used to inform talent planning.
Regular reviews of the results of Great Place To
Work® surveys were considered by the Board.
Our Designated Non-Executive Director for
Workforce Engagement, Fran Philip, continued
her detailed programme of engagement through
a combination of in-person and virtual sessions
held with employees based in Turkey, UK, and
Asia. Fran had discussions with the divisional
CEOs, and she also continued to attend our
DE&I Network calls to listen and speak to a wide
range of people from across the Company.
What we learned
The organisation has embraced the new ways of
working and the divisional structure, welcoming
the resulting agility and freedom to operate.
As evidenced by the achievements in the Great
Place To Work® global rankings, the Company’s
culture continues to attract and retain employees.
Employees still highly value the Group’s approach
to health and safety and the focus on diversity,
particularly the activities relating to ‘Coats for
Her’. Further common areas of feedback included
a desire for increased mentoring opportunities
and to continue to identify and implement
standardisation of processes to drive simplification
and efficiency in ways of working. Employees also
remain mindful of the cost of living increases.
What we are going to do in 2024
Direct engagement will be sought during site
visits, conferences and at Board meetings with
insights informing future Board discussions. Fran
will continue to share insights from her very
important engagement role. There will continue
to be a focus on diversity and other inclusion
initiatives, noting the cultural and strategic
importance of these. The insights from employee
surveys will also be appropriately considered, as
will other relevant metrics including in relation to
employee engagement and health and safety.
ENVIRONMENT
Coats is working proactively with
customers and suppliers to help them
improve the sustainability of their products,
and to minimise the environmental impact of
our industry.
How the Board engaged in 2023
The Sustainability Committee met twice and
considered inputs from a range of stakeholders
as well as monitoring current performance against
targets and reviewed the detailed plans to achieve
the 2030 science based-targets, including the
transition to renewables. Changes to legislation,
regulation and best corporate governance practices
were considered to ensure the Group is able to
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Coats Group plc Annual Report and Accounts 2023
Stakeholder engagement cont.
meet its legal responsibilities as well as its own
ambitions. Communication on environmental issues
is tracked and escalated as appropriate within
the Group, with relevant updates being provided
to the Board on key environmental issues.
The Board was able to consider the impact of
the Sri Lankan plant and operations on the local
environment as part of the away week in October
2023. Members of the Board and GET were
also present at the opening of the Sustainability
Hub in March 2023, and engaged with various
environmental-related stakeholders regarding
our efforts in transitioning to recycled
and renewable materials.
Environmental metrics are presented at every
Board meeting and progress is tracked across key
performance measures, including our sustainability
targets programme. The Board considered the
impact of current operations on our environmental
footprint and how these could be further reduced
through asset utilisation. Sustainability innovations
were considered with their link to our strategy and
performance also being reviewed. There were
discussions as to what improvements are required to
ensure we continue to deliver against our ambitions.
What we learned
The regulatory and reporting environment
continues to develop globally and at pace. Our
commitment to sustainability and corporate
responsibility has prepared us well for these
forthcoming changes but we will have to
continue to be proactive and ambitious to
meet increased stakeholder expectations.
Shareholders offered their views on living wage
policies, as well as other ESG-related matters.
What we are going to do in 2024
The Board will continue to monitor progress against
targets and track this against the agreed plans for
delivering the 2030 targets. Insights gathered from key
environmental stakeholders will be considered and
continue to inform strategic and operational planning.
The Board will continue to ensure strategic planning is
aligned to meeting our environmental goals.
COMMUNITIES
We operate in over 50 countries
across six continents. By empowering
people and championing inclusion and
diversity, we can help build thriving
communities and strengthen our business.
How the Board engaged in 2023
During the away week held in Sri Lanka, the Board
visited a local school, which is attended by relations
of the workforce and occupies land originally
donated by Coats. The school will receive donations
from Coats Sri Lanka to enhance infrastructure
and further benefit the community. The Board
also visited a local hospital, which provides critical
healthcare to the community and also receives
donations from the local business. The Directors
were able to directly interact with people living
in the areas in which we operate. As part of the
decisions taken in relation to divestments during
the year, the Board considered the impact on
the local communities, especially in relation to
the changes made in our production footprint.
The Board was kept informed of various initiatives
taking place as a result of ‘Coats for All’, ‘Coats for Her’
and ‘Coats Cares’. As well as monitoring the insights
from and the impacts of the DE&I programmes
internally, the Board also learned of other initiatives
taking place such as a local scheme to help train
women that were not part of the Coats workforce to
sew and support the development of their other skills
to enhance their future employment prospects.
What we learned
We understand the impact of our business on local
communities, both for our workforce and those in
the areas in which we operate. As the volatility in the
macro environment persists, opportunities provided
by the Group continue to be valued. Changes
to our footprint can have long-lasting impacts
on communities, and the Board will continue to
be mindful of these in its decision making.
What we are going to do in 2024
The Board will continue to monitor the insights from
‘Coats for All’, including the focus on ‘Coats for Her’,
to support our DE&I aspirations. Key metrics, including
those relating to DE&I, will be monitored at every
meeting. Visits to local communities are planned as
part of the 2024 programme of work. More details of
our activities can be found in our Sustainability
Report online (www.coats.com/sustainability).
SUPPLIERS
Our suppliers do not just supply goods
and services to us, but are true
partners throughout our processes and
aligned to our requirements on compliance,
quality, sustainability and innovation ethos.
How the Board engaged in 2023
The Audit and Risk Committee reviewed supplier
payment terms and maintained oversight of
the refresh of the Group’s Supplier Code, with
reviews being undertaken into any failures of
suppliers to meet our high standards. The Audit
and Risk Committee shared these insights with
the full Board. The Board also considered insights
from suppliers as part of the divisional deep
dives, including reviewing supply chain issues
and trends. Discussions relating to India and
China were held as part of the annual strategy
day and there were insights into supply trends
and potential future risks and opportunities.
The Board reviewed key supply contracts in line
with the Group’s Delegated Authorities Policy.
What we learned
The refreshed Group Supplier Code was
accompanied by appropriate training, conducted
internally and externally. All parties are clear on
expectations of our suppliers, and what will happen
if these expectations are not met. This allows
certainty in our relationships. Suppliers continue to
appreciate our innovation and sustainability focus.
In the context of the continued global uncertainty,
supply chain management continues to be critical.
What we are going to do in 2024
The Board will continue to use existing feedback
structures to regularly review supply-related trends
and insights identified by management across all
parts of our business. Direct engagement as a part
of Board visits or in the Boardroom will be kept
under review and scheduled when appropriate.
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Coats Group plc Annual Report and Accounts 2023
Section 172 statement
Section 172 of the Companies Act 2006
requires the Directors to promote the success
of the Company for the benefit of the members
as a whole, having regard to the interests of
stakeholders in their decision making (S172
Factors). The Board believes that considering
and balancing the needs and priorities of our
stakeholders, when making key business
decisions is not only the right thing to do but
is central to our ability to drive sustainable
value creation over the longer term.
On pages 46 to 48 we outline the ways that
the Board has engaged with our six groups of
stakeholders, including what was learned and what
we will do in 2024 as a result of this engagement.
These interactions provide the Board with
insights to allow them to make informed decisions
that consider and address any differing needs
and priorities, while ensuring the appropriate
focus on strategic and cultural outcomes.
Board information and monitoring –
the correct inputs
– Board papers identify the key stakeholder
groups for matters under discussion. The Board
is able to probe, challenge and debate the various
stakeholder-related factors, to ensure any differing
views and outcomes are addressed. Assurance is
sought as and when required.
– There are consistent Group-wide governance and
reporting structures.
– Appropriately timed updates on actions and
implementation are tracked and provided to the
Board to ensure timely delivery or adjustment in
the event that priorities or needs change.
Strategic discussions
– All Board members are expected to contribute
their views and insights to provide appropriate
strategic guidance. The diversity of skills,
knowledge and experience assists debate
and results in informed decision making that
considers the needs of our stakeholders.
– The Board utilises the Group’s well established
systems and ways of working to ensure that there
is proper consideration of the potential short- and
long-term consequences of decisions.
– Management is appropriately contactable at and
in between meetings to allow the timely provision
of sensitive information when required.
Strategy and culture
– Coats’ culture is characterised by agile
collaborative ways of working that deliver
high-quality strategic outputs. The Board is
committed to maintaining a tone that ensures
our high standards of business conduct are
upheld at all levels within the Group. The
importance of maintaining our reputation for
‘doing the right thing’ is well understood.
– We continue to challenge ourselves, and
those in our supply chain, to demonstrate the
highest standards of conduct in our dealings
and the Board, together with the Audit and Risk
Committee, monitor these areas, including the
insights from supplier audits, and discuss
interventions with management where required.
Specific examples of Board decision making, including how stakeholders were considered and further
examples of how their input contributed to the outcomes, are shown on pages 50 to 51. Other information
considered by the Board during 2023 relating to the S172 Factors is set out below:
S172 Factor
(a) The likely
consequences
of any decision
in the long-term.
(b) The interests of
the Company’s
employees.
Relevant disclosures
– Chair’s statement (pages 5 to 6)
– Strategy (page 17 to 18)
– Business model (pages 19 to 20)
– Sustainability (pages 37 to 38 and TCFD disclosures (pages 181 to 197)
– Principal risks and uncertainties (pages 52 to 58)
– Long-term viability statement (page 59)
– People and Culture (pages 13 to 14)
– Business model (page 20)
– Division updates (pages 26,30 and 34)
– Key performance indicators (GPTW® certification, page 42)
– Stakeholder engagement (page 47)
– The Board and culture (page 75)
(c) The need to foster the
Company’s business
relationships with
suppliers, customers
and others.
(d) The impact of the
Company’s operations
on the community and
the environment.
(e) The desirability of the
Company maintaining
a reputation for high
standards of business
conduct.
(f) The need to act fairly
as between members
of the Company.
– Business model (pages 19 to 20)
– Division updates (pages 25 to 34)
– Stakeholder engagement (pages 46 to 48)
– Principal risks and uncertainties (pages 52 to 58)
– Operating review (pages 60 to 62)
– Stakeholder engagement (pages 47 to 48)
– Sustainability (pages 37 to 38)
– Principal risks and uncertainties (pages 52 to 58)
– Directors’ report (SECR disclosures, page 105 to 106)
– TCFD disclosures (pages 181 to 197)
– People and Culture (pages 13 to 14)
– Non-financial information statement (pages 43 to 45)
– Principal risks and uncertainties (pages 52 to 58)
– Audit and Risk Committee Report (pages 79 to 84)
– Whistleblowing (page 104)
– Stakeholder engagement (page 46 to 47)
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Coats Group plc Annual Report and Accounts 2023
Section 172 statement cont.
BOARD DECISION MAKING DURING THE YEAR
Examples of Board decision making during the year and S172 Factors considered
Pensions
Further to the agreement that had been made in December 2022 resulting in the
implementation of a mechanism to ‘switch off/switch on’ the Company’s regular
pension deficit repair payments to the UK Pension Scheme (Scheme), the Board
continued to closely monitor the funding position of the Scheme. In December
2023, it was agreed with the UK Pension Trustee (Trustee) that the regular cash
contributions be ‘switched off’ subject to the payment of a lump sum of £10 million.
Divestments during 2023 – including Mauritius/Madagascar, European Zips and
change in manufacturing locations
Following the move to a divisional operating structure in January 2023, and as part
of the ongoing strategic projects, the Board continued to consider the footprint of
the organisation to ensure that this remained optimised to meet the ongoing needs
of the Group and its stakeholders. In particular, during 2023, the Board considered
the divestment of the Mauritian and Madagascan business units, the European Zips
business and the relocation of production of certain of the Group’s products to
move these closer to customers and to maximise utilisation of existing facilities.
Stakeholder considerations and outcomes
EMPLOYEES
SHAREHOLDERS
The Board considered the benefits of continuing to de-risk the Scheme for both current and future pensioners. De-risking
the Scheme by purchasing insurance policies is the safest form of asset class for current and future pensioners.
Noting the attractiveness of free cash flow generation to shareholders, both in terms of the ability of the Company to
reinvest those cash flows to compound growth or provide additional returns to shareholders, the Board considered the
monthly free cash flow benefit of ‘switching off’ the regular contributions. The Board considered investor feedback in
relation to previous pension actions.
Outcome – Mindful that the payment of the £10 million lump sum was expected to result in free cash flow benefit of circa £2 million per month for
the period in which the pension deficit repair payments remained ‘switched off’, the Board considered that the payback period and benefits to all
stakeholders were compelling enough to reach agreement with the Trustee. The deficit repair payments will remain ‘switched off’ for so long as
the Scheme’s assets remain above 99% of its technical provision.
CUSTOMERS
SUPPLIERS
COMMUNITIES
EMPLOYEES
ENVIRONMENT
When considering the potential opportunities and challenges arising from further optimising the footprint of the business,
the Directors noted the alignment to Coats’ strategic aim to bring operations closer to customers. The Board also considered
the impact of the divestments of non-core assets on the customers of the Group, noting that this would potentially result in
the end of certain relationships.
The Board considered the impact on new and existing supplier relationships, particularly in ensuring the need for suppliers
to adhere to the Group’s Supplier Code and ensuring the consistency of supply.
The Board is aware that changing the location of where we do business can have significant impacts on the communities
in which we operate, especially when decisions result in us exiting an area. Accordingly, the Board considered the wide
ranging impacts resulting from the divestments and relocations, including the potential effects on the local economy and,
in particular, any reduction in local opportunity.
The Board regularly deliberated and monitored the impacts of the further changes to the operating structure on existing
and new employees, through regular project and people updates as well as assessing the overall cultural impact on the
Group’s employees through the results of the various employee surveys. There was discussion regarding the increased
opportunities for employees in new business areas and/or relocated operations balanced against the challenges presented
to employees that would exit the business, with relocation opportunities considered where appropriate.
The Board is aware that moving operations closer to customers can result in environmental benefits from a shortened
supply chain. The Board also sought to ensure the Group’s laser focus on achieving the strategic plan, including meeting
our ambitious sustainability targets, through having the right range of product solutions manufactured in the right way in
the right location.
SHAREHOLDERS
The Board noted the positive reception from investors to our new operating model and the range of self-help strategic
projects to allow the Group to manage items within its control during the continued period of economic uncertainty and
challenge.
Outcome – After detailed consideration of both the short- and long- term impacts of the divestments and relocation of production activities, and
having considered the feedback from stakeholders presented regularly at meetings and noting the various impacts on stakeholder groups
resulting from these projects, the Board agreed to approve the divestments and relocation of certain production facilities.
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Coats Group plc Annual Report and Accounts 2023
Section 172 statement cont.
Examples of Board decision making during the year and S172 Factors considered
Financial considerations including dividend payments
The continued global economic and geopolitical uncertainty resulted in lengthy Board
discussions regarding the financial performance of the Group, including the best
approach to capital allocation. There was detailed consideration of the level of both the
interim and final dividend based on a full assessment of the Group’s position considering,
amongst other factors, the ongoing destocking and the Group’s market share gains.
DE&I-related targets
The Board has continued to closely monitor the implementation of and the outcomes
to date from the ‘Coats for All’, ‘Coats for Her’ and ‘Coats Cares’ programmes. These
programmes support the development and continuation of a number of aspects
of the Group’s desired culture. The Board also considers the impact these, and
other Group initiatives have had on our previously communicated sustainability
targets including the coverage of Great Place To Work® certification and the
number of women in leadership roles. Continuing the Group’s ambitions in DEI-
related areas, and in line with the new request from the Parker Review, in December
2023 the Board considered setting an ethnicity target to be achieved by 2027.
Stakeholder considerations and outcomes
SHAREHOLDERS
The Board understands the importance of regular returns to shareholders and the feedback received regarding the Group’s
progressive dividend policy supports this.
Outcome – Having considered several different scenarios, the Directors agreed to pay an interim dividend of 0.81 cents per share, a 15%
increase on the prior year, on 15 November 2023. The Directors are proposing a final dividend of 1.99 cents per share, a 15% increase on the
prior year, which will be paid, subject to shareholder approval at the forthcoming AGM, on 30 May 2024 to ordinary shareholders on the register
at 3 May 2024, with an ex-dividend date of 2 May 2024.
COMMUNITIES
EMPLOYEES
The Directors have long understood the importance of diversity within all levels of the workforce to support the Group
in achieving its ambitions. The Board considered the insights presented during the year regarding the activities in local
communities and how the Group had continued to support those in the areas in which we operate.
The Board considered the regularly presented updates regarding people and progress on our sustainability-related targets
during the year. The Board also considered the feedback from the Designated Non-Executive Director for workforce
engagement, in particular on the positive response to the culture-related initiatives and also the desire for further
opportunities within the Group.
SHAREHOLDERS
The Board noted the positive feedback received over many years in relation to the Group’s commitment to DEI and ESG.
Investors’ desire to see diverse workforces has increased over recent years and the Board is aware of the continuing trend.
Outcome – Following consideration of all relevant factors, including recent certification of Coats Group plc as one of the World’s Best
Workplaces™, the Board considered the current levels of ethnic representation at GET level and amongst the population reporting into the GET.
Noting the Group has a global footprint, the Board agreed to set a target, using the definitions of the Parker Review, stating that “The Group is
committed to maintaining circa 50% ethnic diversity in our senior leadership team, while recognising that periods of change in the composition
of senior leadership may result in temporary periods when this balance is not achieved”.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties
Effective and pragmatic risk management drives better decisions, protects our business and
supports our growth.
Risk framework and governance
The Board understands that operating in a dynamic and ever changing business environment requires a
risk management framework that is robust and pragmatic. At Coats, we have an established structure and
processes which bring together our risk management and internal controls activities, to provide a holistic
and integrated approach.
The Group has implemented a divisional operating structure with each of the three divisions having
well defined responsibilities supported by clear reporting processes and delegated authorities. Those
responsibilities include risk management within the respective divisions under the oversight of senior
executive management and the Board. A summary of risk management responsibilities across the Group is
set out below. This framework enables the effective identification, evaluation and management of our risks.
We focus on understanding the risks, and their potential impacts, to appropriately mitigate and/or leverage
risks and related opportunities and ensure any residual risks are acceptably within our risk parameters
and do not impact business operations adversely. Our risk framework is based around five categories
of principal risks (strategic, external, climate, operational, and legacy), as well as key and emerging risks
Top-down
– Define risk
tolerance
– Monitor
exposure
– Oversight of risk
management
The Board*
– Identifies which risks are most important for the Group, effectiveness of risk management and reviews the Group’s risk profile
– Sets risk tolerance in the aggregate and, in particular, for each of the principal risks
– Monitors risk experience
Group Executive Team (GET)
Audit and Risk Committee (ARC)
– Responsible for operational delivery of the Group’s
– Supports Board in monitoring the effectiveness of the
strategy, including day-to-day management of
operations and responsibility for monitoring detailed
performance of all aspects of the Group’s business.
Necessarily, this includes many elements of practical
risk management
systems of risk management and internal control
– Reviews reports from Group Executive Team (GET),
Group Risk Management Committee (GRMC), Group
Internal Audit (GIA) and the external auditor relating
to effectiveness
Divisions/Enabling Functions/Senior Management/
Risk Champions
Group Risk Management Committee (GRMC)
– Responsible for formulating risk management strategies
– Responsible for identifying, managing and mitigating
appropriate sets of risks including emerging risks
and policies and monitoring risk management
throughout the Group
Bottom-up
– Identify
– Monitor
– Report
– Regularly review a broad range of individual current
strategic and operational risks
– Monitors key risk indicators
– Reports and provide feedback to GRMC, GET, Audit
and Risk Committee and the Board
Key
Report for
evaluation
Direct and
monitor
* The Board has appropriate regard for all the factors
set out in S172 of the Companies Act 2006 in its
consideration of risk and other matters. You can read
about this on pages 49 to 51 in the S172 Statement.
which are used to build the Group Risk Register.
These also informed the creation of our divisional
risk registers during 2023, which support the
overall assessment of Group risk. We use internal
and external data to monitor our risks and make
appropriate interventions. Climate related risks,
impacts and mitigating actions are assessed
as part of our Taskforce for Climate-related
Financial Disclosures (TCFD) which are outlined
in more detail from page 181 of this report.
The Board retains overall responsibility for
determining the nature and scope of the
Company’s principal, key and emerging risks,
the extent of the Group’s risk tolerance, and for
monitoring and reviewing the effectiveness of the
Group’s systems of risk management and internal
controls. It has delegated responsibility for the
latter to the Audit and Risk Committee (ARC).
The Group Executive Team (GET) is responsible
for day-to-day monitoring, management and,
where appropriate, mitigation of key risks that
impact the business and receives regular updates
on these from risk champions in the business.
The Group Risk Management Committee (GRMC)
is comprised of all members of the GET and
meets regularly, facilitating timely and responsive
risk assessment and agile action taking.
The effectiveness of our risk management relies
on embedding the correct cultural behaviours as
well as systems in the organisation through our
Group-wide policies and processes. These are
supported by our ongoing training and compliance
initiatives, as well as a comprehensive range of
communications. These activities are conducted
on both a scheduled and ad hoc basis, with timely
refreshers being conducted by GET members where
key messages are identified for re-enforcement.
‘Doing the Right Thing’, our internal ethics
programme, has continued to be a key part of these
initiatives throughout 2023, with sessions held in all
areas of the business covering a variety of topics.
Risk tolerance
The Board has undertaken an exercise to consider its
risk tolerance across our principal risks. Our well
established and embedded risk tolerance structure is
determined using four categories which are listed
below. In setting risk tolerances, the Board has
considered the expectations of its shareholders and
other stakeholders to practically inform the appropriate
level of tolerance. After careful consideration, the
Board determined the appropriate risk tolerance level
of each of the principal risks. The results of this review
will support the Board’s decision making during 2024.
The Board conducts a review of its risk tolerances for
principal risks at least annually.
Very risk averse
Risk averse
Somewhat risk
tolerant
High degree of
risk tolerance
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
Where we are cautious and
seek to reduce the financial
and reputational risk. Mitigation
actions are proportional and
based on cost effectiveness
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
Where we are willing to take
significant financial risk to
achieve our objectives. Mitigation
involves an active management
of risk-return trade-offs
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Risk management actions in 2023
The Board, with input from a range of internal
stakeholders, undertook a comprehensive
assessment of the emerging, key and principal
risks facing the Group, along with the risk trends
and levels of risk tolerance for each of those risks.
During 2023, the Board, ARC, GET and GRMC
considered presentations from senior management
that included a holistic view of risks, including
principal risks, and gave input on the steps planned
to mitigate these risks. Following the change to
the divisional operating model, each divisional
Finance Director attended an ARC meeting
to provide an overview of the development of
their divisional risk register, as well as providing
insights into key risk priorities and mitigations
for their area of the business. There are also
standalone risk presentations when appropriate,
which, in 2023, included two cyber security
deep dive discussions with the Board as well as
an externally facilitated AI-related deep dive.
The regular updates on the progress in the
Strategic Projects and divisional and country
level deep dives continued to be presented at
Board meetings and at the Strategy Day, which
all included an analysis of associated risks and
opportunities, including principal risk considerations.
Additionally, the Board received regular reporting
from the Group CEO/GET members on health
and safety, sustainability, people, performance,
M&A and legal and environmental matters.
The Group’s ongoing insurance programme is
kept under review by the Board to ensure this
continues to provide an appropriate balance
between retained risk and risk transfer.
Throughout all discussions, risks were considered
both in isolation and 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
could be taken. The ARC, and then Board, also
reviewed the effectiveness of the Company’s risk
management and internal controls. You can read
more about this in the ARC report on page 82.
Based on the principal and key risks of the
organisation, our GIA team updates and embeds
the relevant Group risks in its audit process,
for instance, compliance with anti-bribery and
corruption requirements, the risk of internal fraud,
sustainability-related risks and IT/cyber security
controls. GIA reviews the Group Risk Register
and divisional risk registers regularly throughout
the year. This review includes an assessment of
the risk management practices in divisions such
as the frequency and adequacy of the local risk
management committee meetings, the risks
identified and discussed, and the completion of the
actions contained in the divisional risk registers.
The ARC considers the results of these assessments
along with GIA’s bi-annual risk questionnaire,
which sets out business units’ reports on
exceptions or risks arising from operations.
Topics covered in the risk questionnaire are
appropriately aligned to principal and key risks,
including feedback on health and safety, people
matters, the environment and anti-bribery and
corruption. These activities provide an assurance
that risk management activities are carried out
appropriately and consistently throughout the
Group, and that the risks are reviewed and kept
up to date by the respective stakeholders.
Emerging risks
The Board and management continue to remain
alert to emerging risks. Horizon scanning is
integrated into our risk management processes
to identify any potential disruptions to our
internal or external business environment. These
are undertaken at appropriate intervals within
divisions, consulting both internal and external
experts to inform the process, and these are then
discussed regularly at the GRMC/GET/Board.
During 2023 a number of emerging and evolving
technology-related risks and opportunities
were identified and, after discussion, the
Board categorised these as emerging risks.
These have been added to the Group’s risk
register and will continue to be monitored,
managed and, as appropriate, mitigated, in
line with our risk management processes.
Modern Slavery
During the year, the Board approved the Group’s
Modern Slavery Statement. We remain committed
to addressing the potential risks of modern slavery
and human rights abuses, to acting in an ethical
manner with integrity and transparency in all
business dealings, and to investing in the creation
of effective systems and controls across the Group
to safeguard against adverse human rights impacts.
Change of risk description
Due to the ever-changing global risk environment,
the following risks have been updated since the
last report:
1. Climate change risk has been refined to include
reference to energy security and the Group’s
ability to access sufficient renewable energy in the
locations where it needs it.
2. Supplier risk has been amended to include the
reputational risk of supplier non-compliance with
the Group’s ethical standards.
3. M&A programme ambition risk has been amended
to remove the explicit reference to the integration
of the two footwear acquisitions completed in
2022.
4. Bribery and anti-competitive behaviour risk has
been expanded to include areas such as
compliance with sanctions laws and was renamed
‘Legal and regulatory compliance risk’.
Change in risk trend
The Board recently reviewed the risk trends for
all current principal and key risks and concluded
that the trends for all principal risks remained
unchanged, noting that the risk trend for economic
and geopolitical risk remained “increasing”.
Risk trends for certain key risks were adjusted
to reflect the current assessment of the risk
environment within which each of those risks sits.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Our 11 principal risks, along with a summary of the measures we have put in place to manage and
mitigate them or leverage these risks and any related opportunities, are set out in the table below.
As stated above, the Board will continue to keep the management and mitigation of these principal risks,
as well as the appropriateness of this list and the constantly changing broader risk environment, under
ongoing review.
Principal risk
Action/mitigation
1. STRATEGIC
M&A programme ambition
risk in light of Group’s
increasing ambition in
scale of its acquisition
programme and its ability
to source, satisfactorily
acquire and integrate
suitable targets
Risk trend
Link to strategy
– Create value
– Maintenance of robust acquisition pipeline developed utilising internal networks and
external consultants, with clear acquisition criteria mapped to Coats’ strategic goals.
– Structured and appropriate due diligence undertaken on potential new targets where
permitted and practicable.
– Developing relationships with potential acquisition targets where practical.
– Use of professional advisory firms to conduct thorough due diligence and prepare
robust integration plans spanning across all Group functions.
– In-house M&A expertise utilised to operate proven, structured integration process.
– Post-completion, detailed and established integration processes are used to ensure
adequate resources are in place, appropriate progress is being achieved in line with
agreed schedule and that anticipated synergies are being realised.
– Regular updates provided to Board on integration.
Principal risk
Risk of ever-increasing
customer product and
sustainability expectations
and Group’s continuing
ability to meet and exceed
those expectations as part
of its strategic growth and
sustainability ambitions
Risk trend
Link to strategy
– Accelerate profitable
sales growth
– Create value
Action/mitigation
– Regular engagement via well established lines of communication across various
platforms with customers undertaken at all levels within Group. During 2023, further
digitised ways of engaging with customers were introduced with further opportunities
for enhancements identified for implementation in 2024.
– Continued monitoring of trends that have potential to change our industry undertaken
at both Group and divisional level. These are tracked and escalated where required via
well established reporting processes.
– Ensuring agility in our supply chain and maintaining customer-centric operational
footprint to ensure enhanced productivity resulting in continuous improvement and
speed of delivery.
– Laser focus on quality to ensure globally consistent, superior and safe products
resulting in reliability to facilitate superior partnering.
– Notable development of sustainability-led innovations to drive progress towards 2030
committed goal of generating 35% of sales from products created in previous five years.
– Inauguration of industry-leading Sustainability Hub in Madurai, India, to accelerate
Coats’ materials transition journey to sustainable materials.
– Highly skilled team of postgraduate and PhD educated textile engineers employed to
collaborate with partners and brands to develop highly innovative new thread products
to meet exacting technical requirements of customers.
– Introduction of new Life Cycle Assessment Manager role with focus of implementing
Life Cycle Impact Assessment (LCIA) across Coats’ core product groups and
embedded LCIA into product innovation process.
– Further development and enhancement of customer facing software and proprietary
applications to better support their needs. Coats Digital continues to enable customers
to optimise, connect and accelerate business critical processes seamlessly and
ShopCoats helps customers manage their orders digitally.
– Expansion of Footwear operations in Indonesia to serve growing demand.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Principal risk
Action/mitigation
1. STRATEGIC CONTINUED
Principal risk
2. EXTERNAL
Action/mitigation
Risk of failure to attract,
retain and develop diverse
and inclusive set of talent
and capability given
business changes, growth
in new areas and labour
availability challenges
Risk trend
Link to strategy
– Accelerate profitable
sales growth
– Transform the business
– Create value
– Variable pay incentives in place, benchmarked and overseen by Remuneration
Committee and aligned to both Group and individual performance. Individual
performance appropriately calibrated to ensure fair and appropriate outcomes.
– Clear objectives and development plans, including learning opportunities, agreed
between each employee and their leaders.
– Review of succession plans for senior and critical roles regularly discussed at both GET
and Board meetings.
– Recruitment policy introduced and investment in internal and external talent to
strengthen capability in key roles, develop future leaders and drive internal career
progression.
– Internal talent review conducted by GET to identify high-potential individuals and agree
action plans for development. These are discussed regularly by Nomination Committee.
– Employee engagement continues to be key part of HR strategy. Partnering with Great
Place To Work® organisation and review of internal employee surveys/feedback
provides 360 degree feedback and allows action plans to be developed to address
key themes. Actions are tracked and updates are provided to Board annually.
– Regular cultural monitoring and people driven initiatives (you can read more about
these programmes on page 14) continued in 2023 which focussed on recognition and
appreciation; belonging and DEI; wellbeing; philanthropy and appropriate flexibility for
individual roles.
Economic and geopolitical
risk arising from significant
macroeconomic and
demand uncertainty –
across both key Asian
and developed markets –
including risk to free trade
conventions – as well as
global inflationary pressures
and ongoing geopolitical
developments
Risk trend
Link to strategy
– Accelerate profitable
sales growth
– Transform the business
– Create value
– Group-level and divisional-level strategic analysis and scenario planning undertaken
utilising well established modelling processes. Review of local and global key business
factors to reflect impacts of any potential changes in external environment.
– Appropriate use of external consultants, data sources and systems to supplement and
inform internal review findings, including stress testing.
– Regular and timely updates provided to GET and Board to enable informed strategic
decisions.
– Continued review of potential strategic levers including cost base efficiency. Group
portfolio / footprint remains under review with decisions taken to further enhance our
strategic positioning. Continued focus on differentiation from competitors, and
enhancing the value we deliver to our customers, through (for example) consistency
and quality as well as innovation and sustainability.
– Central hedging and currency monitoring take place to manage volatility which arises.
Bank financing is readily available to Group, with comfortable liquidity and covenant
headroom.
– Active global supply chain management allows operational processes to be maintained
through volatility.
– Strong customer relationships built on long-term partnerships are supported by local
operations, technical excellence and quality.
– Regular monitoring of legal and regulatory matters at both Group and business unit
level. Consultation with external advisors where necessary.
– Appropriate insurance cover in place to mitigate certain types of risk.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Principal risk
Action/mitigation
2. EXTERNAL CONTINUED
Risk of cyber incidents
leading to corruption of
applications, critical IT
infrastructure, compromised
networks, operational
technology and /or loss
of data
Risk trend
Link to strategy
– Transform the business
– Cyber Security Team responsible for all aspects of security across Coats’ global
organisation and is appropriately resourced.
– Cyber Security Steering Committee in place to oversee strategy and plans, provide
investment support and monitor progress throughout the year. GRMC, ARC and Board
review progress at regular intervals.
– Established Group-wide control areas, supported by maturing controls, include
Endpoint Detection and Response; Internet Security Protection; Email Security
Protection; Education and Awareness programmes; and Identity and Access
Management processes and procedures. These processes and solutions allow
proactive real time monitoring and identification of potential threats to enable these to
be removed/mitigated.
– New controls introduced during 2023 included: Vulnerability Disclosure Process and
Policy; IT and Security Asset Management; Log Aggregation and Monitoring; Email
Fraud Defence; and Network Security. These will continue to mature through 2024.
Continued education of employees and protection of key systems ensures business
continuity and reduces the potential impact of future threats.
– Focus areas for 2024 include Privileged Identity and Access Management; enhancing
email security; supply chain security measures; and advanced network security.
Principal risk
Risk of supplier non-
performance, unavailability
and/or price increases of
raw materials, labour and
freight and/or logistical
challenges causing major
disruption to Coats’ supply
chain and/or reputational
damage as result of non-
compliance with Group’s
ethical standards
Risk trend
Link to strategy
– Accelerate profitable
sales growth
– Transform the business
– Create value
Action/mitigation
– Group continues policy of maintaining strategic supply arrangements to achieve
optimal balance between cost and having supply chain localised to production teams.
– Business contingency planning undertaken at Group and divisional level, supported by
regular scenario analysis and continuity planning with any necessary adjustments to
stocking policy implemented to ensure robust and reliable supply chain.
– During 2023 there was focus on evaluation and onboarding of selected new supply
options to ensure accelerated transition to sustainable materials.
– Continued monitoring of stocking and demand data to facilitate timely consolidation of
orders with strategic suppliers.
– Monitoring of global geopolitical and macro-economic factors to identify potential
future sources of disruption and enable timely pro-active engagement with key
suppliers to secure required stock and activate alternate freight arrangements.
– Refreshed Supplier Code issued and supported by extensive training internally at all
levels within Group and with key external suppliers.
– Supplier Code contains five ‘red flags’ for child labour, forced labour, physical/mental
abuse, anti-bribery & corruption, and minimum wage as per country standards. There is
zero-tolerance to any violations in these five areas. In such cases, relationship with
supplier is terminated both immediately and permanently.
– Continuation of programme of audits that are targeted at suppliers that have high-risk
profile. On our behalf, Bureau Veritas conducted 159 third party audits in 2023. All
suppliers have to commit to compliance with our Supplier Code as condition of doing
business with Coats, and suppliers with annual spend over defined threshold and any
supplier that falls under high-risk category have to undergo mandatory on-site supplier
audit as part their on-boarding process and on recurring basis, with frequency
dependant on score of their previous audit.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Principal risk
Action/mitigation
2. EXTERNAL CONTINUED
Environmental non-
performance risk given
changing standards,
increasing scrutiny,
customer and investor
demands and expectations
and scale of Group’s own
self-imposed standards
and ambitions, creating
commercial, financial and
reputational risks as well
as opportunities
Risk trend
Link to strategy
– Transform the business
– Development of year on year roadmap to deliver our 2026 targets, noting our 2023
performance, across all metrics, is on track.
– Track and implement new and updated Environment, Health & Safety (EHS) legislative
requirements using subscription-based environmental system.
– Utilisation of permit management system for all environmental permits and licences
held in each country that we operate.
– All 33 Apparel and Footwear manufacturing units annually complete Higg Facility
Environmental Module (FEM), this sustainability assessment tool is specifically
designed to assess the environmental performance of textile industry. Higg
assessment comprehensively assesses environmental management systems; energy
& greenhouse gas emissions; water; waste; wastewater; air emissions; and chemicals
management.
– Environmental incident management system is maintained to ensure consistent and
transparent way of managing any environmental incidents that occur. Corrective and
preventative actions are implemented to prevent reoccurrence through risk-based
approach.
– Online analytical monitoring equipment provides real-time data for effluent treatment
plants that discharge direct to natural waterways, to ensure that local permit conditions
are met as well as more stringent effluent standards set by Roadmap to Zero
Programme for effluent compliance.
– Global Business Continuity Plans include environmental emergency preparedness and
response plans. Environmental risks are tracked through environmental aspects and
impacts management system. Environmental management plans are run through series
of workstreams to ensure key stakeholders have input into their delivery through
define, measure, analyse, improve and control (DMAIC) process.
– Further details on our sustainability strategy can be found in our annual Sustainability
Report (www.coats.com/sustainability).
Principal risk
3. CLIMATE
Action/mitigation
Climate change risk arising
from either (i) impact of
failing to sufficiently
address need to
decarbonise company’s
operations and reduce
emissions (including
potentially as result of
energy security challenges
and ability to access
sufficient renewable
energy in relevant
locations), leading
principally to commercial
and reputational risks and
financial risk of emissions
taxes or other legislative
changes, or (ii) physical
impact of climate change
on company’s operations
and business model and
that of its customers in
textile supply chain
Risk trend
Link to strategy
– Accelerate profitable
sales growth
– Transform the business
– Create value
– GET, through Group Sustainability function, has responsibility for overseeing reporting
of environmental data by the business, and driving the sustainability strategy and
climate change risk management processes. Board and Sustainability Committee
provide strategic oversight and monitor execution of Company’s sustainability strategy
and initiatives. ARC reviews processes for reporting of environmental data externally.
– Maintenance of detailed register of climate-related risks and opportunities, which are
assessed based on their level of materiality and impact over short-, medium- and long-
term time horizons.
– Extension of climate change risk analysis to incorporate sites owned by Texon and
Rhenoflex, which included analysis of physical climate risks such as risks associated
with coastal and riverine flooding as well as water stress and extreme heat days.
– Scopes 1, 2 and 3 emissions established for Texon and Rhenoflex, with re-baselining
back to 2019 to enable submission to SBTi for approval. These businesses have also
been brought into scope when assessing risks associated with future carbon tax
implementation as well as risks associated with market share loss in event of failure to
deliver our climate-related targets (e.g. 2030 SBTi emissions reduction targets across
Scopes 1, 2, 3 and 2050 Net Zero commitment). You can read more about our
sustainability targets in our 2023 Sustainability Report (www.coats.com/sustainability).
– Quantification and mitigation continued to be carried out using TCFD Recommendations
as detailed in ‘Recommendations of the Task Force on Climate-related Financial
Disclosures’, 2017, with use of additional guidance from ‘Implementing the
Recommendations of Task Force on Climate-related Financial Disclosures’, 2021.
– Progress in transitioning to renewable supplies of electricity resulting in increase in
percentage of green certified electricity to 54% in 2023 (29% in 2022). Rooftop solar
installations have been fitted across number of sites in 2023, and good progress has
been made in instituting Power Purchase Agreements for certified green energy supply
through country national grids.
– Full details of our 2023 TCFD disclosures, which set out implications of climate change
over short-, medium- and long-term and seven TCFD risks, can be found in TCFD
section of this annual report.
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Coats Group plc Annual Report and Accounts 2023
Principal risks and uncertainties cont.
Principal risk
Action/mitigation
4. OPERATIONAL
Health & Safety risk –
risk of (i) 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; and/
or (ii) physical and mental
health issues impacting
wellbeing, engagement,
productivity and talent
retention
Risk trend
Principal risk
Legal and regulatory
compliance risk – risk of
breach of law in relation
to areas such as anti-
corruption, competition
or sanctions, resulting in
material fine and/or
reputational damage
Risk trend
– Risk-based management system approach in force in relation to safety and
occupational health to drive continuous reduction in both likelihood and severity
of injury or occupational illness. Hazard identification processes are in place.
– Subject matter experts in H&S at unit level in place to set H&S strategy, conduct audit
of H&S controls, and support local H&S efforts.
– Learnings from incidents and best practices communicated to all areas of Group to
facilitate continuous improvement.
– Board oversight ensures positive and proactive health & safety culture with appropriate
focus on prevention of injury.
– Global programme ‘Energy for Performance’ in place focussing on four pillars of
wellbeing (mental, physical, social and emotional support). This provides framework
for countries to determine and implement tailored initiatives to meet local needs
e.g. mental health seminars and trainings, exercise programs and support, and other
wellbeing focussed activities.
Link to strategy
– Accelerate profitable
sales growth
– Transform the business
– Key elements of ISO 45001 (international standard for occupational health safety
management systems) are in place including:
– Group hazard identification and incident management system (Intelex).
– Defined Group H&S standards that serve as baseline controls to mitigate known
hazards.
Link to strategy
– Transform the business
– Annual targets and objectives are set and monitored in regular reports that are
considered at GET and Board meetings.
– Regular training programmes and inspection programmes are conducted globally.
– ‘Top-5 risk’ approach utilised to ensure that sites are focussing on reducing their top
risks. All actions, both preventive and reactive, are prioritised by risk and closure of
top risk actions is priority.
5. LEGACY
Action/mitigation
– Robust control framework maintained, supported by comprehensive corporate
governance and compliance policies and procedures at both Group and business
unit level.
– Regular monitoring of legal and regulatory developments at both Group and business
unit level, with appropriate consultation with external advisors where necessary. Group
policies regularly reviewed and enhanced to incorporate relevant changes and best
practice e.g. Human Rights policy in 2023.
– Comprehensive suite of mandatory compliance training modules covering areas such
as Ethics at Work, Anti-bribery, Competition Law, Cyber Security, Data Protection and
Anti-Slavery is maintained in multiple languages. These are completed by all relevant
employees on biennial basis, and by all new starters. In 2023, 36,000 training modules
were delivered to over 5,000 employees. Targeted training is provided to specific
groups and functions where additional training needs are identified.
– Specific areas of compliance are highlighted through the global ‘Doing The Right
Thing’ programme, which is led by members of senior management and supported
by local ethics champions. In 2023 the programme focussed on Anti-bribery, Data
Protection & Cybersecurity, and Competition Law compliance.
– During 2023, the sanction policies and procedures were refreshed, supported by
tailored communications and bespoke training provided to divisional teams. Updates
were made to vendor and customer data management systems to require completion
of mandatory fields linked to our Sanctions Instructions.
– Each business unit completes semi-annual compliance review checklist, with any
deviations being reported to ARC.
– Group Internal Audit (GIA) include regulatory and policy compliance as part of their
audit remit. During 2023 GIA completed ten market audits.
– Dedicated whistleblowing email address and confidential, multi-language external
web-based reporting system available in line with Whistleblowing Policy, which was
updated in 2023.
– Audits of both H&S systems and the hazard controls are undertaken.
– Behaviour management system utilised to influence risk behaviour at Coats’ sites
(Intenseye).
Lower Passaic River legacy
environmental matter
Risk trend
– Board continues to monitor developments very closely.
– Board approves the strategy in relation to Lower Passaic River proceedings.
Link to strategy
– Transform the business
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Coats Group plc Annual Report and Accounts 2023
Long-term viability statement
In accordance with provision 31 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 2026. 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 the Group’s
committed debt finance facilities of $835 million
across both its Banking and US Private Placement
group, which have a range of maturities from
December 2024 through to 2030.
The Group’s strategic objectives and associated
principal risks are underpinned by an annual budget
and Medium Term Plan process, which comprises
financial projections for the next three years (2024–
2026). The Medium Term Plan represents a common
process with standard outputs and requirements at
the Group level. The Board reviews and challenges
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 consider that the three-year period
considered by the Medium Term Plan reflects an
appropriate period over which its business and
investment cycles, as well as its prospects, can be
considered. The Medium Term Plan and the severe
but plausible downside scenarios (as set out below)
both consider the implications of risks around
sustainability and climate change over the three-
year assessment period. Longer term implications
and prospects, including both risks and
opportunities, of climate change have been
considered as part of the Task Force on Climate-
related Financial Disclosures report.
The Directors have considered the Group’s current
position and the potential impact of the principal
risks set out on pages 52 to 58 as well as other risks
that could crystallise during the medium-term. 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 52 to 58 as well as other
risks that could crystallise during the medium-term.
After assessing the potential impact of the principal
risks, the specific areas considered as part of the
severe but plausible scenarios include:
The Directors have also taken into account a
number of assumptions that they consider
reasonable within these assessments including:
– Sales growth is lower than expected throughout
– The assumption that funding facilities will continue
the assessment period, with reduced margins and
cash generation. Lower sales growth could result
from a prolonged industry de-stocking cycle,
lower demand because of macro-economic
uncertainties, escalation in geopolitical tensions,
resurgence of Covid or similar pandemic with
resulting lockdowns and subsequent supply chain
challenges, as well as Coats being unable to meet
customer expectations (including sustainability
targets).
to be available throughout the period under
review: the core US private placement borrowings
are due between 2024 and 2030 and the
revolving facility matures in 2026, following bank
agreement for two one-year extensions. It has
been assumed that the US private placement
borrowings maturing in December 2024 are
repaid in full and the revolving facility maturing in
April 2026 is successfully refinanced during the
assessment period.
– Benefits from strategic projects are lower than
– The assumption that following a material risk
expected.
– Benefits from synergies, following the Texon and
Rhenoflex acquisitions, are lower than expected.
– Supply chain challenges cause unavailability and/
or price increases of raw materials, labour, freight
and/or logistical challenges causing major
disruption to Coats’ supply chain.
event, the Group would adjust capital
management to preserve cash.
– The assumption that the Group will be able to
mitigate risks effectively through other available
actions.
As part of the going concern assessment, the
Directors also considered a reverse stress test
flexing sales to determine what circumstance would
be required to either reduce headroom to zero on
committed borrowing facilities or breach borrowing
covenants, whichever occurred first. As set out on
page 127, the Directors consider the likelihood of the
condition in the reverse stress test occurring to be
remote.
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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Coats Group plc Annual Report and Accounts 2023
Operating review
Continuing operations
Revenue
By division
Apparel
Footwear
Performance Materials
Total
By region
Asia
Americas
EMEA
Total
Adjusted EBIT 2, 5
By division
Apparel
Footwear
Performance Materials
Total adjusted EBIT
Exceptional and acquisition-related items
EBIT 5
Adjusted EBIT margin 2
By division
Apparel
Footwear
Performance Materials
Total
FY 2023
$m
FY 2022 4
$m
FY 2022
CER 1
$m
Inc / (dec)
%
CER 1
inc / (dec)
%
Organic ⁴
inc / (dec)
%
689
368
336
818
300
420
784
298
406
1,394
1,538
1,488
823
246
325
912
341
285
890
340
257
1,394
1,538
1,488
120
84
29
233
(49)
184
130
68
34
233
(52)
181
125
68
32
225
(16%)
23%
(20%)
(9%)
(10%)
(28%)
14%
(9%)
(8%)
23%
(15%)
0%
(12%)
24%
(17%)
(6%)
(8%)
(28%)
26%
(6%)
(4%)
24%
(10%)
4%
(12%)
(16%)
(17%)
(14%)
(13%)
(28%)
(2%)
(14%)
(4%)
(1%)
(10%)
(4%)
17.5%
22.8%
8.6%
16.7%
16.0%
22.7%
8.1%
15.1%
16.0%
22.7%
7.9%
15.1%
150bps
150bps
10bps
50bps
10bps
60bps
150bps
430bps
60bps
160bps
160bps
190bps
1 Constant Exchange Rate (CER) are 2022 results restated at 2023 exchange rates.
2 On an adjusted basis which excludes exceptional and acquisition-related items.
3 Organic figures are results on a CER basis, and only includes like-for-like contributions from Texon and Rhenoflex post their respective acquisition dates.
4 2022 restated for the disposal of the European Zips business, which is now shown as a discontinued operation. This has resulted in a reduction in previously
reported 2022 revenues of $46 million and $2 million adjusted EBIT.
5 EBIT (Earnings before interest and tax) relates to Operating Profit as shown on the face of the P/L.
2023 Operating Results Overview
Group revenue of $1,394 million decreased 9% on
a reported basis, 6% on a CER basis, and 14% on
an organic basis. There was an improving trend
through the year with H1 organic revenues down
19% vs 2022, and H2 revenues down 10%. The
organic revenue decline for the full year, against
a very strong prior year comparator, reflects the
continuation of the widespread industry destocking
in Apparel and Footwear. In addition, there was
the previously disclosed customer contract in-
sourcing and certain customer phasing issues
in US end markets in Performance Materials.
The improving Group trend in the second half
of the year was primarily driven by signs of
the anticipated gradual recovery in Apparel.
Destocking commenced later in Footwear, and
here the recovery is lagging that of Apparel.
Group adjusted EBIT of $233 million increased
by 4% on a CER basis (2022: $225 million CER),
despite market headwinds on the top line, with
adjusted EBIT margins up 160bps to 16.7% (2022:
15.1%). We are pleased that our 2024 Group adjusted
EBIT margin target of 17% was delivered during the
second half of the year. The year-on-year increase
in adjusted EBIT margins reflect the impact of lower
volumes due to market conditions being more
than offset by some input cost deflation (whilst
maintaining pricing) and the ongoing accelerated
benefits from strategic projects and integration
synergies, as well as strict cost discipline. On
a reported basis EBIT was $184 million (2022:
$181 million), after $49 million of exceptional and
acquisition-related items (2022: $52 million) which
predominantly related to the execution of our
strategic projects and 2022 footwear acquisitions.
Adjusted earnings per share (‘EPS’) were
unchanged at 8.0 cents (2022: 8.0 cents) despite
market conditions and rising interest rates. As
reported above, there was a significant year-on-
year increase in the Group adjusted EBIT margin,
alongside tight management of our interest costs
and tax charge, with a reduction in minority interest
payments. Reported EPS of 5.2 cents (2022: 4.8
cents) was 7% higher, also including the impact
of exceptional and acquisition-related items.
Our Group cash performance remained strong
with adjusted free cash flow of $131 million (2022:
$114 million), as we focused on margins and
cash generation. Our Balance Sheet remains in
a strong position, with net debt (excluding lease
liabilities) of $384 million (2022: $394 million), with
leverage of 1.5x (2022: 1.4x on a proforma basis).
Revised Divisional Reporting from 1 January 2023
As a result of the 2022 acquisitions of Texon
and Rhenoflex, our new organisational and
reporting structure, effective 1 January 2023,
is comprised of three divisions (segments):
Apparel, Footwear and Performance Materials.
The Footwear division consists of the existing
Coats footwear thread business (formerly part of
Apparel & Footwear), and the acquired footwear
components businesses, Texon and Rhenoflex.
As announced at our 2022 Capital Markets Day,
the medium-term sales growth CAGR for the
new operating divisions are anticipated to be
3-4% for Apparel, c.8% for Footwear, and 6-9%
for Performance Materials, resulting in medium-
term Group growth of c.6%. The target for the
Group 2024 adjusted EBIT margin is c.17%,
comprising 15-16% for Apparel, >20% for Footwear,
and 13-14% for Performance Materials. As noted
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Coats Group plc Annual Report and Accounts 2023
Operating review cont.
above, we are pleased to report that we have
already delivered our 2024 Group adjusted EBIT
margin target during the second half of 2023.
Apparel
Coats is the global market leader in supplying
premium sewing thread to the Apparel industries.
We are the trusted value-adding partner, providing
critical supply chain components and services,
and our portfolio of world-class products and
services exist to serve the needs and requirements
of our customers and brand owners.
Revenue of $689 million (2022: $818 million)
was down 12% on a CER basis (16% reported).
As anticipated, revenue was lower year-on-year,
against a very strong prior year comparator,
and reflected the continuation of widespread
industry destocking, after a surge of post-COVID
inventory restocking in H1 2022, as well as buffer-
buying due to supply chain disruption. We have
seen improving trends through the year as it is
clear the destocking period is largely over, as
customer inventory levels normalise, with early
but encouraging order trends now evident.
Despite challenging market conditions, the
Apparel business benefited from market share
gains, with an increase in our estimated market
share by c.200bps to c.25%. We were also able to
maintain pricing, and leverage moderating input
costs in some areas. We continue to be very well-
positioned in our markets, as the global partner
of choice for our customers, with market-leading
product ranges and customer service, and a clear
leadership position in innovation and sustainability.
Our proactive procurement strategy has put us
in a good position to benefit from raw material
price moderation. The focus on material transition
to recycled products has helped to scale our
recycled product offering and minimise cost
premiums associated with these products. This,
alongside our agile supply chain network, has
enabled us to help our customers and brands
achieve their sustainability goals, helping us
take market share and maintain prices.
With market conditions expected to continue to
gradually improve, our strong market position,
global presence, differentiation and focus on
leading brands provide further opportunities
for growth and market share gains.
Adjusted EBIT of $120 million (2022: $130 million)
decreased 4% vs the prior year on a CER basis,
significantly less than the overall revenue decline.
The adjusted EBIT margin was 150bps higher at
17.5% on a CER basis (2022: 16.0%), already slightly
ahead of our 2024 margin target. Savings from
our self-help actions, including strategic projects,
and procurement benefits more than offset the
adverse impact from lower sales volumes.
Footwear
We are the trusted partner to the footwear
industry, shaping the future of footwear for
better performance through sustainable and
innovative solutions. The combination of
Coats, Texon and Rhenoflex makes us a global
champion with a portfolio of highly engineered
products with strong brand component
specification, primarily targeted at the attractive
athleisure, performance, and sports markets.
Despite continued industry destocking, Footwear
benefited from market share gains. We increased
our estimated market share by c.200bps to c.27%
for threads and structural components combined.
Customer pricing also remained robust, even
as some input costs began to moderate. We
have been realising the benefits of the Texon
and Rhenoflex acquisitions, with commercial
opportunities being pursued. In challenging
market conditions, our leading global position has
allowed us to leverage the strength of our customer
relationships and market leading product ranges.
Footwear revenue increased 24% to $368 million
(2022: $300 million) on a CER basis (23% reported),
which includes contributions from Texon and
Rhenoflex post their respective acquisition dates
in July and August 2022. This was against a very
strong prior year comparator and included an
adverse impact from the continuation of widespread
industry destocking that commenced in Q4 2022.
Excluding the pre-acquisition contribution from
Texon and Rhenoflex, organic revenue decreased
16%. Encouragingly, we believe the industry
destocking cycle is largely complete, as customer
inventory levels normalise, and we expect to
see signs of a gradual volume recovery during
2024, although lagging the Apparel recovery.
Despite the market headwinds, we continued
to deliver share gains and programme wins,
reflecting our position as a trusted partner with
our global accounts programme, in which we
dedicate resources to key brands and retailers.
The athleisure, performance and sports markets
within Footwear continue to be attractive. Supplier
consolidation and nearshoring, including China de-
risking, are becoming prominent trends, with brands
also placing increasing emphasis on sustainability
and innovation. With market conditions expected
to gradually improve in 2024, these important,
longer-term trends provide Footwear with further
opportunities for growth and share gain.
Adjusted EBIT was $84 million with adjusted EBIT
margins up 10bps to 22.8% despite significantly
lower sales volumes and the initial dilutive impact
of the acquisitions. As a result, our 2024 margin
target for the Footwear Division has been reached,
a year earlier than planned. The acquisitions
of Texon and Rhenoflex remain on track to be
accretive, post-synergies. On a proforma basis,
including the pre-acquisition contribution of the
July and August 2022 acquisitions, margins were
up 510bps year-on-year. This is as a result of
strong commercial delivery in a difficult market
environment, pricing benefits being maintained in
the context of some lower input costs, the delivery
of acquisition-related synergies and general cost
discipline. Acquisition integration has so far focused
on commercial and general & administrative
costs, as well as on procurement, delivering $16
million of efficiency savings by the end of the
year ($19 million annualised). This is ahead of our
initial guidance ($11 million savings by 2024).
Performance Materials (PM)
We are experts in the design and supply of a
diverse range of technical products that serve
a variety of strategic end use markets. Building
on over 250 years of leadership in thread, we
incorporate specific design features to provide
highly engineered solutions for our customers.
The division operates across Personal Protection,
Composites and Performance Threads. Personal
Protection offers multi-hazard industrial applications
for industrial, energy, firefighting and military wear.
Composites provides products and solutions for
fibre optic cables and oil & gas piping sectors,
and light weighting solutions for automotive
components. Performance Threads has applications
in a range of sewn products including safety-
critical automotive airbags and seat belts, outdoor
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In EMEA, 23% (2022: 19%) of Group, revenue
increased 26% CER to $325 million (2022: $285
million), which included a 28% contribution from
the Texon and Rhenoflex acquisitions. Excluding
acquisitions, performance was driven by positive
momentum in PM in telecommunication composites
and transportation, as fibre optic sales remained
robust in EMEA. The Organic revenue decline of
2% also benefited from the weakening Turkish Lira,
as we continue to price largely in US Dollars, and
pass on the significant local currency devaluation.
Coats Group plc Annual Report and Accounts 2023
Operating review cont.
goods, household products like bedding and
furniture, hygiene-sensitive consumer goods
like feminine hygiene products and tea bags.
The Group discloses three PM sub-segments:
Personal Protection (38% of 2023 divisional
revenue), Composites (18% of 2023 divisional
revenue) and Performance Thread (44% of
2023 divisional revenue). Medium-term revenue
growth expected for each sub-segment are
high single digits for Personal Protection, low
double-digits for Composites, and growth in
line with global GDP for Performance Threads.
The overall medium-term growth target for
the division is a 6-9% growth CAGR.
PM revenue declined 17% to $336 million in 2023
(2022: $420 million) on an organic and CER basis
(20% on a reported basis), with Personal Protection
decreasing by 25% on a CER basis, Composites
decreasing by 21% (CER) and Performance
Threads lower by 6% (CER). The largest factor
driving the decrease was the insourcing of
production by a large US customer in personal
protection, which resulted in $30 million lower
revenue compared to 2022. There was previously
disclosed customer phasing issues in some
US markets as well as destocking at some US
telecommunication customers in Composites.
Despite market conditions, there were significant
new customer wins across PM’s sub-segments.
These included gains at two large US Personal
Protection manufacturers and a global agreement
with a large cable manufacturer in the Composites
subsegment. Within Performance Threads there
were new contract wins at two premium automotive
OEMs and a tier 1 supplier, as well as at a global
feminine hygiene product manufacturer.
Adjusted EBIT was 10% lower vs 2022 on an organic
and CER basis at $29 million (2022: $34 million),
reflecting the significantly lower sales volumes.
However, adjusted EBIT margins increased on an
organic and CER basis by 60 bps to 8.6% (2022:
8.1%) due to the contribution of strategic project
savings, recovery in EMEA margins (following
a temporary supply issue last year), and self-
help actions. PM margins included c.$5 million
of duplicate running costs in relation to the US /
Mexico plant transitions. Excluding these costs,
PM margins were 190bps higher at 10.0%.
Geographical Performance
In line with divisional performance, there was a
year-on-year revenue decline on a CER organic
basis in all geographic regions, due to the market
headwinds. However, there were improving trends
in Asia and EMEA during the second half of the year.
Asia revenue, 59% (2022: 59%) of Group,
decreased 8% CER to $823 million (2022: $912
million), which included a 5% points contribution
from the acquisitions made in H2 2022. All
key Asian markets were impacted by the large
scale industry destocking in the Apparel and
Footwear divisions although, as noted earlier,
we are starting to see early encouraging
signs of a gradual recovery within Apparel.
Our Americas revenue, 18% (2022: 22%) of Group,
decreased 28% CER to $246 million (2022: $341
million). All key markets were impacted by the
challenging market conditions in 2023, although
with comparatively more solid performances in
Colombia and Mexico. The US was also impacted
by customer insourcing of a significant PM contract
in H2 2022, and certain customer phasing issues
in US end markets in Performance Materials.
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Coats Group plc Annual Report and Accounts 2023
Financial review
Revenues
Group revenue from continuing operations
decreased 9% on a reported basis and 6% on a CER
basis. On an organic basis revenue decreased 14%,
which includes like-for-like contributions from Texon
and Rhenoflex post their respective acquisition
dates. All commentary below is on an organic basis
unless otherwise stated.
Operating profit
At a Group level, adjusted EBIT from continuing
operations was maintained year-on-year at $233
million and adjusted EBIT margins increased 160bps
to 16.7%, despite ongoing market headwinds. The
table sets out the movement in adjusted EBIT during
the year.
2022 adjusted EBIT
Volumes impact (direct
and indirect)
Price/mix
Raw material deflation
Freight deflation
Other cost inflation
(e.g. labour, energy)
Productivity benefits
(manufacturing and sourcing)
Strategic projects savings
Other SD&A savings
Others (e.g. FX)
Texon and Rhenoflex synergies
2023 adjusted EBIT
Exceptional and acquisition
related items
2023 reported EBIT
$m
Margin %
233
15.1%
(106)
18
19
6
(31)
33
37
8
1
15
233
(49)
184
16.7%
There were significant volume headwinds as a result
of widespread industry destocking in the Apparel
and Footwear businesses, as well as the adverse
impact of the customer contract in-sourcing and end
market phasing impacts in the US in Performance
Materials. 2023 performance is also measured
against very strong prior year revenue comparators,
as there was a continued post-COVID demand
surge (driving supply chain overstocking) particularly
during the first half of 2022. From the second half of
2022, as anticipated, there was a slow-down in
demand due to destocking in Apparel and then
Footwear. The direct and indirect volume impact of
this, together with the very strong 2022 comparators
(particularly in H1), resulted in significant direct and
indirect volume headwinds. These headwinds have
been gradually receding in the second half in
Apparel, with evidence that we are largely through
the widespread destocking in our markets of the last
c.18 months.
Our proactive approach to pricing during 2021 and
2022, when inflationary pressures accelerated at
unprecedented levels, has meant that we have
continued to see roll-over pricing gains year-on-year,
although the impact of pricing has been broadly
neutral in the second half. We have started to see an
easing of some key raw material input and freight
costs during the latter part of 2022, and this has
continued through 2023. The favourable impact
from this has acted as a partial offset to some of the
volume impacts in the year.
Selling, Distribution and Administration (SD&A) costs
are below last year, despite ongoing inflationary
impacts in some areas, as we controlled our costs in
challenging market conditions. We have also
benefited from a further $37 million of efficiency
savings (total savings to date are $57 million,
including $20 million delivered in 2022), in relation
to our strategic projects announced in March 2022,
with the expected savings accelerated. Since these
projects began, we have increased the total savings
we expect to deliver by 2024 to $70 million (from
$50 million) through expanding the scope of the
projects, with a focus on our Asian operations.
Our 2022 acquisitions, Texon and Rhenoflex,
delivered a total of $16 million of synergy benefits by
the end of the year ($15 million incremental benefits
in 2023). These acquisitions have experienced
similar industry destocking headwinds as the wider
Apparel and Footwear businesses, and we have
delivered accelerated integration synergies in
response, as an underpin to performance. Total
annualised synergies are $19 million (original
expectations of $11 million in 2024).
The Group’s adjusted EBIT margins increased by
160bps to 16.7% on a CER basis (2022: 15.1%), with
the impact of the year-on-year volume declines
being offset by the benefits of controllable factors.
On a reported basis, Group EBIT, including
exceptional and acquisition-related items, increased
to $184 million (2022: $181 million). A breakdown of
these items is provided below. Exceptional and
acquisition-related items are not allocated to
divisions and, as such, the divisional profitability
referred to above is on an adjusted basis.
Foreign exchange
The Group reports in US Dollars and translational
currency impacts can arise, as its global footprint
generates significant revenue and expenses in a
number of other currencies. For the year, this was a
headwind of 3% on revenue and adjusted EBIT. As
previously announced, these adverse translation
impacts were primarily due to the previous adoption
of hyperinflation accounting in Turkey which saw
significant depreciation towards the end of the half.
Aside from the impact of the Turkish Lira, and the
resulting volatility of hyperinflation accounting,
underlying headwinds were modest and driven
primarily by the depreciation of Chinese, Egyptian
and Pakistan currencies. At latest exchange rates,
we expect a minimal impact on revenue and
adjusted EBIT for 2024 (excluding any future
hyperinflation impact in Turkey, which cannot be
forecasted with accuracy).
Non-operating results
Adjusted EPS was maintained year-on-year at 8.0
cents (2022: 8.0 cents), despite market headwinds.
Within this, adjusted EBIT was unchanged year-on-
year at $233 million, at significantly increased
margins. Interest costs were slightly lower, despite
rising interest rates and increased debt in H2 2022
to fund the Footwear acquisitions. Our effective tax
rate reduced to 29% (2022: 30%), and there were
lower minority interest payments. Reported EPS of
5.2 cents (2022: 4.8 cents) was 7% higher year-on-
year, after exceptional and acquisition related items.
Net finance costs decreased slightly to $29 million
(pre-exceptional) (2022: $30 million), despite rising
interest rates and the full year impact of the 2022
acquisition-related debt.
Key increases to the interest charge were:
– An increase in interest on bank borrowings due to
increasing rates on floating debt of $4 million;
– Additional interest of $8 million on the $240
million acquisition facility taken out in July 2022 to
fund the Texon acquisition.
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Coats Group plc Annual Report and Accounts 2023
Financial review cont.
Offsetting this were some significant decreases:
– A $6 million favourable movement on foreign
exchange, largely as a result of Sterling
strengthening during the period, where we hedge
a number of costs and cash flows;
– A $5 million decrease in interest on pension
scheme liabilities, as a result of an IAS19 pension
surplus at 31 December 2022.
The adjusted taxation charge for the period was
$58 million (2022: $60 million). Excluding the impact
of exceptional and acquisition-related items, the
effective tax rate on pre-tax profit reduced to 29%
(2022: 30%). The reported tax rate was 35% (2022:
37%), after exceptional and acquisition related items.
Profit attributable to minority interests is
predominantly related to Coats’ operations in
Vietnam and Bangladesh, in which it has controlling
interests. These primarily operate in Apparel and
Footwear markets and were exposed to the wider
industry destocking in the year. Profit attributable to
minority interests decreased to $18 million (2022:
$22 million).
Exceptional and acquisition-related items
Net exceptional and acquisition-related items
before taxation were $49 million (2022: $53
million). These include strategic project costs of
$18 million (net of a $6 million property profit), and
other acquisition-related items of $21 million.
Strategic project costs of $18 million relate to the
strategic initiatives commenced during 2022; and
primarily consist of severance costs of $11 million,
legal / advisor / closure costs of $7 million, non-
cash impairments of $6 million, offset by a profit
of $6 million from the sale of property. These
costs have supported the acceleration of project
benefits, with $37 million of incremental adjusted
EBIT delivered in the year (with $57 million
incremental savings on the projects to date).
$6 million of costs have been incurred in relation to
the delivery of acquisition-related synergies which,
as mentioned above, are ahead of expectation,
with a total of $16 million of savings now delivered
since acquisition ($19 million annualised).
Other acquisition-related items of $21 million
consisted of the amortisation charges from
the newly recognised intangible assets
from the Texon and Rhenoflex acquisitions,
and the amortisation of intangible assets
acquired with previous acquisitions.
Discontinued items
On 30 June 2023 the Group entered into an
agreement to sell its European Zips business to
Aequita, a German family office. The sale was
subsequently completed on 31 August 2023.
The exit from the European Zips business was in line
with Coats’ previously announced strategic
initiatives to optimise the Group’s portfolio and
footprint, and improve the overall cost base
efficiency. The results of the European Zips business
is presented as a discontinued operation in the
consolidated income statement for the year ended
31 December 2023, together with a loss on disposal
of $27 million.
Amounts for year ended 31 December 2022 in the
consolidated income statement have been
represented accordingly to reclassify the results of
the European Zips business from continuing
operations to discontinued operations. Note 13
provides further details of the sale. This has resulted
in a reduction in previously reported 2022 revenues
of $46 million and $2 million adjusted EBIT.
Cash flow
The Group delivered strong $131 million (2022: $114
million) adjusted free cash flow from continuing
operations, driven by a working capital inflow, in part
reflecting a focus on cash generation through the
destocking cycle. Adjusted free cash flow is
measured before annual pension deficit recovery
payments, acquisitions, disposals and dividends,
and excludes exceptional items.
We have managed net working capital closely, with
a focus on inventory, without compromising service
levels. We also continued our disciplined approach
to payables and receivables management during the
year, as an input to working capital efficiency.
Capital expenditure was $31 million (2022: $34
million), as we continued to maintain a selective
approach to investing in growth opportunities, as
well as in strategic projects, which will favourably
impact long-term returns. We anticipate 2024 full
year capital expenditure to remain in the $30-40
million range, as we continue to invest in support of
our growth strategy, in productivity and in our
environmental performance. However, this level of
investment will remain dependent on the demand
recovery profile during the year.
Minority dividends of $20 million (2022: $18 million)
were paid, as cash was repatriated from those
relevant overseas entities to the Group. Tax paid
was $61 million (2022: $55 million). Interest paid was
$34 million (2022: $25 million) reflective of higher
interest rates and the acquisition debt taken out in
H2 2022.
The Group delivered an overall free cash inflow of
$15 million (2022: $247 million outflow). This
primarily reflects the adjusted free cash inflow of
$131 million, offset by:
– UK pension deficit repair payments (including
administrative expenses) of $49 million, which
includes the accelerated £10 million payment
made in December to secure the switch off of
ongoing contributions;
– Exceptional and acquisition related payments,
mainly relating to strategic projects of $13 million;
– Payments to purchase own shares (via our
Employee Benefits Trust) to fund management
share schemes of $10 million;
– Discontinued operations (EMEA Zips) $5 million;
– Dividend payments of $40 million.
Net debt (excluding lease liabilities) at 31 December
2023 was $384 million (31 December 2022: $394
million). Including lease liabilities, net debt was $471
million (31 December 2022: $500 million).
Pensions and other post-employment benefits
The pre-tax surplus for the Group’s retirement and
other post-employment defined benefit liabilities (UK
and other Group schemes), on an IAS 19 financial
reporting basis, was $63 million at 31 December
2023, which was $7 million lower than 31 December
2022 ($70 million surplus). This decrease was
primarily due to movements on the UK scheme.
The Coats UK Pension Scheme, which is a key
constituent of the Group defined benefit liabilities,
had a surplus on an IAS 19 basis at 31 December
2023 of $102 million (31 December 2022: $118
million). The decrease in the surplus during the year
ended 31 December 2023 of $15 million
predominantly relates to net actuarial losses of $72
million. This was offset by employer contributions
(excluding administrative expenses) of $43 million, a
reduction in withholding tax and foreign exchange
translation movements.
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Coats Group plc Annual Report and Accounts 2023
Financial review cont.
UK funding update
We continue to maintain strong and collaborative
relations with the Scheme Trustees around strategic
planning and have established a joint working group
between the Company and Trustees to review
further opportunities for de-risking the scheme,
beyond the significant positive progress that has
already taken place. This included the successful
partial buy-in transaction with Aviva, representing
full insurance of the benefits of c.20% of the scheme
liabilities in December 2022.
The Aviva buy-in is consistent with Coats’ medium-
term aspiration of fully insuring the Scheme and
removing it from the Group balance sheet, in a cost
effective manner.
When the Technical Provisions (funding) deficit for
the Scheme was last formally assessed at 31 March
2021, as part of the triennial valuation cycle, it
showed a £193 million deficit. As a result of this
valuation, future contributions were maintained at
the previously agreed levels of £22 million ($27
million) per annum (indexing) up until 2028. The
Group agreed to continue to pay the Scheme
administrative expenses and levies of around $5
million per annum.
Updates since then have confirmed that the funding
deficit has fallen significantly and is now fully funded
on a technical provisions basis. This significant
improvement has been due to ongoing employer
contributions, favourable movements in the market
(increasing discount rates) and the de-risking actions
that we and the Trustees have taken, for example
the buy-in transaction referred to above.
As a result of this significantly improved funding
position, and reflective of the collaborative working
relationship with the Trustees, in early 2023 we
agreed a mechanism to switch off / switch on the
regular cash contributions to the scheme based on
monthly estimates of the latest funding position.
Further to this switch off / switch on agreement and
further improvements in the funding position during
the year, in December 2023, the Group agreed to
pay the scheme a one-off lump sum payment of £10
million ($13 million) to move it into an expected
surplus position against the technical provisions
funding basis and enable the switch off threshold to
be comfortably met.
This agreement will result in a free cash flow benefit
of £2 million ($2.5 million) per month while the
payments remain switched off. The deficit repair
payments will remain switched off so long as the
scheme’s assets remain above 99% of its technical
provisions.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) at 31
December 2023 was $384 million ($471 million
including lease liabilities), a reduction on 31
December 2022 ($394 million). This reduction
reflects strong and disciplined cash management as
noted above, offset by acquisition-related items,
ongoing pension deficit repair payments,
exceptional cash costs in relation to strategic
projects, cash spent on Employee Benefit Trust
share purchases and shareholder dividends.
The Texon acquisition, which was completed in July
2022, was funded by a $240 million temporary
acquisition facility. As previously announced, in
January 2023, we refinanced this acquisition facility
via the US Private Placement (USPP) market with
$250 million of notes split between 5 and 7 years
tenor at highly competitive interest rates (between
5.3% and 5.4%). This maintains our total committed
debt facilities at $835 million with well diversified
source and tenor; being $360 million revolving
credit facility, $225 million of original USPP notes
(2024 and 2027 tenors), as well as the new $250
million of USPP notes (2028 and 2030 tenors). The
committed headroom on our banking facilities was
approximately $315 million at 31 December 2023.
At 31 December 2023, our leverage ratio (net debt
to EBITDA; both excluding lease liabilities) was 1.5x
(2022: 1.4x on a proforma basis) and remains well
within our 3x covenant limit, and towards the middle
of our target leverage range of 1-2x. There was also
significant headroom on our interest cover covenant
at 31 December 2023 which was 8.2x, with a
covenant limit of 4x. The covenants are tested twice
annually in June and December and monitored
throughout the year.
Going concern
On the basis of current financial projections and the
facilities available, the Directors are satisfied that the
Group and the Company has sufficient resources to
continue in operation for the period from the date of
this report to 30 June 2025, and, accordingly,
consider it appropriate to adopt the going concern
basis in preparing the financial statements. Further
details of our going concern assessment, financial
scenarios and conclusions are set out in note 1.
This Strategic Report was approved by order of
the Board.
On behalf of the Board
Rajiv Sharma
Group Chief Executive
6 March 2024
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65
Coats Group plc Annual Report and Accounts 2023
Chair’s introduction to governance
David Gosnell
Chair
I am delighted to introduce the Governance report, which sets out
further information regarding the governance structures that we have
in place and also provides more details of how we have complied with
the UK 2018 Corporate Governance Code.”
HIGHLIGHTS FOR 2023:
Board oversight of transforming the business
The Board continues to take its responsibility
for the long-term sustainable success of the
Company very seriously, to ensure the generation
of value for our stakeholders. Against a continued
economically challenging and geopolitically
volatile backdrop, the Board has focussed on
ensuring the business is well positioned to deliver
against its strategic plan. This has been achieved
by the Board monitoring the integration of the
new divisional structure, in particular verifying
that the correct structures are in place to ensure
compliance with internal and external controls
and risk management requirements, reviewing the
talent pool and discussing optimal asset utilisation
to maintain efficiency in both how and where we
conduct our business operations (read more about
these in the Audit and Risk Committee report, the
Nomination Committee report and on page 75).
In addition to receiving divisional deep dives, the
Board has also approved the divestment of certain
parts of the business that were not aligned with
the current strategy, including the Madagascar
and Mauritius business units and European Zips.
Board succession, DE&I and ESG
Ahead of the planned retirement of Nicholas Bull, I was
delighted to welcome Sarah Highfield to the Board in
November 2023. Sarah joined as a Non-Executive
Director, member of the Nomination Committee and as
Chair Designate of the Audit and Risk Committee.
Sarah will succeed Nicholas as Chair of that Committee
following him stepping down from the Board at end of
the 2024 AGM. Sarah also became a member of the
Sustainability Committee on 1 January 2024. In
November 2023, we also announced that Steve
Murray, Non-Executive Director, would succeed
Nicholas as Senior Independent Director. Nicholas has
been overseeing appropriate handovers for these very
important roles to ensure a smooth transition.
Additionally, Nicholas, in his role as Senior Independent
Director, together with Steve Murray, acting as incoming
Senior Independent Director, has led the consultation
process that preceded the proposal to extend my
tenure as a Director and Chair, as set out in the Notice of
AGM. I have served as a Director on the Coats Board for
nine years and, in line with provision 19 of the 2018 UK
Corporate Governance Code (Code), the Nomination
Committee has determined that it is appropriate to
seek shareholder approval to extend the term of my
appointment for a period for up to three years, noting
that I have only served as Chair from May 2021, and
A summary of how we have applied the principles of
the UK Corporate Governance Code is set out below.
Subject matter
Board leadership and Company purpose
Promoting the long-term sustainable success
of the Company
Generating value for shareholders
Page(s)
17 to 18
19 to 20
Contributing to wider society
37 to 38, 46 to 48
Purpose, values and strategy, and how
these and our culture are aligned
1, 10, 17 to 18, 75
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 Chair
Board roles
Non-Executive Directors
Information and support
Composition, succession and evaluation
Succession planning
Board diversity
Board evaluation
41 to 42
82
46 to 48
45
69
69
69
69 and 73
85 to 86
86 to 87
77
Audit, risk and internal control
Independence and effectiveness of internal
and external audit functions
82 to 84
Fair, balanced and understandable reporting
80
Principal risks
Remuneration
52 to 58
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Remuneration policies and practices that
support strategy and promote long-term
sustainable success
88 to 102
A formal and transparent procedure for
developing policy on executive remuneration 88 to 102
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Coats Group plc Annual Report and Accounts 2023
Chair’s introduction to governance cont.
in light of the changing composition of the Board and
the recent significant changes in the Group including
the footwear acquisitions, the implementation of the
strategic projects and the further de-risking of the
pension scheme. You can find full details of the process
that has been undertaken in the Nomination Committee
report on page 86 and in the Notice of AGM.
The Board has tracked progress against the
internally and externally set diversity targets at each
Board meeting as part of the overall tracking of all
our ESG-related ambitions. Several updates were
also provided on the ‘Coats for All’ and ‘Coats for
Her’ initiatives, as well as more general People and
development-related items to ensure the appropriate
cultivation of talent in the business. In line with the
most recent request made by the Parker Review,
in December 2023 the Board also considered and
approved the proposal to introduce an ethnicity
target percentage to be achieved by 2027. I am
proud of the stretching target agreed that commits
the Group to maintaining circa 50% ethnic diversity
in our senior leadership team, while recognising
that periods of change in the composition of senior
leadership may result in temporary periods when
this balance is not achieved. You can read more
about these succession planning processes and our
Parker Review diversity target, as well as the other
succession and diversity-related items considered
by the Nomination Committee in 2023, in the
Nomination Committee Report from page 85.
Sustainability at Coats, including climate-related
governance, is led by the Board, supported by the
Sustainability Committee. Strategy development
and monitoring of action plans at an executive level
is championed by the Group CEO and the whole
Group Executive Team (GET). The responsibilities
for each element of our ESG activities are set
out in the Committees’ section (see page 73).
Our independent Non-Executive Directors
play a large role in the Board’s ESG oversight,
including through Committee membership and
designated responsibilities at Board level.
Further details of the Group’s stance and focus on
ensuring effective stewardship in respect of key
ESG matters are set out in the Sustainability section
of this Annual Report, and also in our Sustainability
Report (available on www.coats.com/sustainability).
You can also review our report on our compliance
with the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations from page 181.
>15,000 PERMANENT EMPLOYEES SPREAD
ACROSS 50+ COUNTRIES
Culture including Great Place To Work®
Setting, monitoring and, where necessary,
correcting the culture within the Group is an integral
part of the Board’s responsibilities and one that is
taken very seriously. The Board monitors cultural
metrics at each Board meeting, has detailed People-
related sessions throughout the year and ensures
that management is appropriately following up and
intervening when inconsistent working behaviours
are identified. I was delighted that our culture, ways
of working and focus on People was recognised
when Coats was included in the list of the 25
World’s Best Workplaces™ 2023. You can read
more about the Board and culture on page 75.
Stakeholder engagement
We value the views of all our stakeholders: their
views help the Board make better informed
decisions to deliver long-term sustainable success.
This year, the Board focussed on ensuring the new
operating model was meeting stakeholder needs as
well as ensuring the business was well positioned
going forward. You can read more about how the
Board engaged, and what it learned, from page 46.
Board evaluation
Following last year’s externally facilitated review
of effectiveness, the Board and its Committees
undertook an internal review in 2023. This review
probed the outcomes of previous reviews to ensure
that suitable progress had been achieved as well as
identifying areas for focus in 2024. I also continued our
process of conducting a further standalone extensive
appraisal for each Non-Executive Director that has
served for a further term of three years from either
election or from their last full appraisal. The Board
was satisfied with its own performance and with all
Board members’ performances rating positively. The
Board’s composition and succession planning were
considered appropriate, noting the focus on these
areas in 2023. You can read more about these areas
on page 77 and in the individual Committee reports.
David Gosnell
Chair
6 March 2024
THE UK CORPORATE GOVERNANCE CODE
Compliance statement
Coats has applied all of the principles and complied
with all the relevant provisions of the 2018 UK
Corporate Governance Code (Code) during the
course of the year ended 31 December 2023.
A summary of how we have applied the
principles set out in the Code is presented
in the table on page 66.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance report
HOW GOVERNANCE SUPPORTS STRATEGY
Strategic goal
Stakeholders key
CUSTOMERS
COMMUNITIES
ENVIRONMENT
EMPLOYEES
SHAREHOLDERS
SUPPLIERS
ACCELERATE PROFITABLE SALES GROWTH
TRANSFORM THE BUSINESS
Read more on page 17
Key stakeholders
Read more on page 17
CREATE VALUE
Read more on page 17
The Board’s governance role
The Board approves the Group’s strategy and annual operating plan, reviews
subsequent progress and makes decisions related to matters reserved for the
Board in order to support the delivery of this strategy.
Board discussions during 2023
The Board reviews the strategy for sustainable growth and leverages its
collective experience to advise on related matters.
The Board reviews key proposals relating to business capability.
Strategy
– Annual strategy day focussing on key strategic matters including China, India, review of asset utilisation and AI.
– Received reports on macro-economic environment and geopolitical developments.
– Regularly reviewed performance against strategy.
– Reviewed Group’s tax strategy and policy.
– Carried out deep-dives into each division including strategy, market update and outlook, review of retail segments/
customer developments, performance against competitors, sustainability, innovation and internal talent.
Operational
– Update on markets and divisional performance presented at every meeting.
– Consideration and approval of divestments – including Madagascar and Mauritius business units and
European Zips – and review of potential M&A pipeline.
– Reviewed funding levels of UK Pension Scheme and approved payment of lump sum to enable ‘switch
off’ of monthly pension deficit repair payments.
– Updates on Strategic Projects.
– Review of cyber security arrangements.
– Reviewed, approved and regularly monitored annual operating plan and Medium Term Plan.
– Reviewed the company’s capital allocation and considered, and approved, interim and final dividends.
– Regularly reviewed and approved the Group’s M&A and business development activities, reorganisations and
– Consideration of going concern and long-term viability statement.
various other projects
ESG
– Tracking of ESG (including H&S, GPTW® and diversity) metrics at every Board meeting via Group CEO dashboard
– Review succession planning and talent strategy, including updates on ‘Coats for All’ and ‘Coats for
to ensure appropriate progress against internal and external targets.
Her’ at both Board and Nomination Committee meetings.
– Received reports on work force engagement, culture and results of the ‘Your voice matters’ survey.
– Deep-dive into talent pools for below-GET level succession including reviews of diversity and
suggestions for development opportunities.
Governance
– Approved appointment of Sarah Highfield as Non-Executive Director and Chair Designate of the Audit and Risk
– Review of insurance arrangements and risk register, including risk trends.
Committee and also approved appointment of Steve Murray as Senior Independent Director Designate.
– Received reports in relation to material legal matters, including disputes and regulatory and
– Review of interactions with investors at every Board meeting.
governance developments.
– Quarterly whistleblowing and fraud report reviews and consideration of outcomes and recommendations from
– Regular reports from the Chairs of the Audit and Risk Committee, Nomination Committee,
external review of whistleblowing policy and procedures.
Remuneration Committee and Sustainability Committee.
– Deep dive into each division’s internal controls and risk management processes at the Audit and Risk Committee.
– Review and approval of key Board and Group policies including Modern Slavery, Human Rights and
Board diversity policy.
– Review of Board and Committee effectiveness, including action tracking.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance report cont.
GOVERNANCE STRUCTURE:
Our governance framework enables effective decision making and
ensures collaboration between the Board, its Committees and the
GET while also maintaining clear separation of key Board roles to
ensure the correct division of responsibilities.
NON-EXECUTIVE DIRECTORS
SENIOR INDEPENDENT DIRECTOR
– Contribute to developing our strategy.
– Scrutinise and constructively challenge the
performance of management in the execution
of our strategy.
– Provides a sounding board to the Chair.
– Leads the appraisal of the Chair’s performance
with the other Directors annually.
– Acts as an intermediary for other Directors,
– Responsible for the governance of the
if needed.
Company.
– Bring their diverse expertise to the Board and
the Board Committees.
– Available to respond to shareholder concerns
if contact through the normal channels is
inappropriate.
– Devote such time as is necessary to the proper
performance their duties.
Read about the succession process for identifying the new
Senior Independent Director on page 85
CHAIR
– Primarily responsible for the overall
effectiveness of the 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. Responsible for CEO
succession.
– Provides advice and acts as a sounding board
to the Board and management. Has open and
regular contact and interaction with the CEO.
– Ensures effective communication with our
shareholders.
COMPANY SECRETARY
– Provides support to the Board and ensures
information is made available to the Board in
a timely manner.
– Supports the Chair on meeting management
arrangements including setting the agenda for
the Board, administering effectiveness reviews,
ensuring appropriate Board training and
coordinating Board inductions.
– Provides advice on corporate governance
matters.
All Directors have access to the advice of the
Group Company Secretary.
THE BOARD OF DIRECTORS
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:
– setting the strategic direction of the Group,
including consideration of strategic acquisitions
and divestments;
– overseeing implementation of the strategy and
monitoring performance by ensuring that the Group
is suitably resourced to achieve its aspirations;
– overseeing returns to shareholders and monitoring
the share price;
– encouraging entrepreneurial leadership by providing
a framework of prudent and effective controls which
enables risk, including risk tolerance, to be assessed
and managed, supported by robust systems of
governance, ethics and compliance;
– engaging appropriately with stakeholders to
understand their views; and
– setting and monitoring the Group’s culture,
supported by its values, and ensuring alignment
with the Company’s purpose and strategy.
See page 68 for examples of discussions of key strategic topics
at Board meetings in 2023.
AUDIT AND RISK COMMITTEE
See page 79 for more information.
NOMINATION COMMITTEE
See page 85 for more information.
REMUNERATION COMMITTEE
See page 88 for more information.
SUSTAINABILITY COMMITTEE
See page 73 for more information.
GROUP CEO
See biography on page 70.
– Responsible for Executive Management of the
Group as a whole.
– Leads the GET (see page 78).
– Delivers strategic and commercial objectives within
the perimeters agreed by the Board and within the
Board’s stated risk appetite (see page 52 for more
details on key risks).
– Builds positive relationships with all the Group’s
stakeholders (see page 46).
CHIEF FINANCIAL OFFICER
See biography on page 70.
– Responsible for financial management
and implementing and monitoring effective
financial controls.
– Supports the Group CEO in developing
and implementing the Company’s strategy.
– Oversees relationships with the investment
and banking community.
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Coats Group plc Annual Report and Accounts 2023
Board of Directors
as at 31 December 2023
Key to Committee memberships
Committee chair
R Remuneration
A Audit and Risk
S Sustainability
N Nomination
N S
S
David Gosnell OBE
Rajiv Sharma
Jackie Callaway
Chair of the Board
British
Appointed as a Non-Executive Director on 2 March 2015,
Chair of the Board since 19 May 2021
Group CEO
Singaporean
Appointed as an Executive Director in March 2015,
Group CEO since 1 January 2017
Chief Financial Officer
New Zealander
Appointed as an Executive Director on 1 December 2020,
Chief Financial Officer since 1 April 2021
Key skills and experience
– Strong and deep supply and procurement background in global
multinational companies
– International and strategic mindset
Key skills and experience
– 30 years’ global multi-industry leadership experience
– Growth, digital, sustainability and acquisitions track record
Key skills and experience
– Strong finance track record
– Experience across multinational manufacturing and supply
chain businesses
External appointments
Was previously Chair 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.
Previous experience and external appointments
Non-Executive Director of Senior plc. 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.
Rajiv has been on the board of joint ventures at both GE and Shell and
held management positions with Saab, Honeywell, GE and Shell.
Previous experience and external appointments
Non-Executive Director of IMI plc. Member of Australian Institute of
Company Directors since 2017.
Previously Chief Financial Officer of Devro plc, one of the world’s leading
manufacturers of collagen products for the food industry. Prior to that,
Jackie was Group Financial Controller of Brambles Ltd, the ASX top 20
supply chain logistics company
Qualifications
David is a Fellow of the Institute of Engineering and Technology and
holds a Bachelor of Science degree in Electrical and Electronic
Engineering from Middlesex University. He has completed Supply Chain
Manufacturing – Drive Operational Excellence at INSEAD (Singapore).
See the Nomination Committee report on page 85 and an overview of
the activities of the Sustainability Committee on page 73.
Qualifications
Rajiv holds a degree in Mechanical Engineering, as well as an MBA from
the University of Pittsburgh, USA.
See the Group CEO’s statement on page 7.
Qualifications
Jackie is a Fellow of the Chartered Accountants Australia and New
Zealand, and of the Institute of Chartered Accountants in England and
Wales. She has a Bachelor of Business Management Studies from the
University of Waikato, New Zealand.
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Coats Group plc Annual Report and Accounts 2023
Board of Directors cont.
Key to Committee memberships
Committee chair
R Remuneration
A Audit and Risk
S Sustainability
N Nomination
NA
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Nicholas Bull
Sarah Highfield
Senior Independent Non-Executive Director
British
Appointed as a Non-Executive Director and Senior
Independent Director on 10 April 2015
Independent Non-Executive Director
British
Appointed as a Non-Executive Director on 1 November 2023
Hongyan Echo (Echo) Lu
Independent Non-Executive Director
British/Chinese
Appointed 1 December 2017
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
Key skills and experience
– Strong finance track record
– Significant experience of driving growth globally, including in the
US and China
External appointments
Deputy Chair of CHL 2022 Ltd, Trustee of the Design Museum,
Camborne School of Mines Trust, The Creative Education Trust and
the Conran Foundation and a member of the Advisory Panel of INTO
University. Previously served as Chair of Fidelity China Special Situations
plc, Chair of De Vere, Chair of the Advisory Board of Westhouse
Securities and of Smith’s Corporate Advisory Limited and a member
of Council of the University of Exeter. Nicholas had a global career in
banking with Morgan Grenfell (subsequently Deutsche Bank), Société
Générale and ABN AMRO.
External appointments
Chief Financial Officer of Away Resorts Ltd, a UK holiday parks business.
Previously Chief Executive Officer of Elvie, the female technology firm,
having previously served as Chief Operating Officer & Chief Financial
Officer and Deputy Chief Executive Officer. Sarah was also a Non-
Executive Director and Chair of the Audit Committee at Seraphine Group
plc, which was listed on the main market from 2021 to 2023. Prior to
joining Elvie, Sarah was Group Chief Financial Officer at Costa Coffee for
over five years, including during the c£3.9billion sale to The Coca-Cola
Company. She was also Chief Financial Officer of Tesco’s Hungary and
Slovakia businesses.
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.
He received an Honorary Doctorate of Law from the University of Exeter
in 2022.
Nicholas was appointed as Chair of the Audit and Risk Committee on 19
May 2022 and he will step down from the Board at the conclusion of the
2024 AGM. Nicholas brings extensive financial experience through his
previous roles with Fidelity China Special Situations plc, De Vere Group
Limited, Morgan Grenfell, Société Générale and ABN Amro.
See the Audit and Risk Committee report on page 79.
Qualifications
Sarah has a BSc in Mathematical Sciences from the University of
Birmingham and is a qualified accountant, Chartered Institute of
Management Accountants.
Sarah was appointed Chair Designate of the Audit and Risk Committee
on 1 November 2023 and will succeed Nicholas Bull as Chair at the
conclusion of the 2024 AGM.
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
building strong teams and delivering positive change
External appointments
Managing Director, UK and ROI, of Sonova Group AG, the global leader
for innovative hearing solutions. Previously Chief Executive Officer
of Haulfryn Group Ltd, a UK leisure business, Managing Director,
International of Holland & Barrett International and 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 was a member
of the Advisory Board for Diversity in Hospitality, Travel and Leisure.
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.
Echo was appointed as Chair of the Remuneration Committee on
1 May 2021, having served on the Remuneration Committee since
her appointment to the Board in December 2017. Her background
and qualifications in Industrial Relations and Human Resources
provide the Company with an ideally experienced Chair of the
Remuneration Committee.
See the Remuneration Committee report on page 88.
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Coats Group plc Annual Report and Accounts 2023
Board of Directors cont.
Key to Committee memberships
Committee chair
R Remuneration
A Audit and Risk
S Sustainability
N Nomination
A
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Steve Murray
Independent Non-Executive Director
British
Appointed 1 September 2022
Fran Philip
Independent Non-Executive Director, Designated
Non-Executive Director for Workforce Engagement
American
Appointed 1 October 2016
Jakob Sigurdsson
Independent Non-Executive Director
Icelandic
Appointed 1 October 2020
Key skills and experience
– More than 30 years’ experience in the apparel and footwear industry
– Strong background in general management and track record of
delivering positive change globally and regionally
Key skills and experience
– Extensive speciality retailing business experience
– Deep background in product innovation, design and development
– Workforce dynamics experience
Key skills and experience
– International business experience across a diverse range of sectors
with particular emphasis on growth in new or developing markets
– Strong background in general management and track record of
External appointments
Previously Global Brand President of The North Face and a member
of the group executive leadership team at VF Corporation, one of the
world’s largest apparel, footwear and accessories companies and the
parent company of The North Face, Timberland and Vans. Steve
previously served as CEO of Airwair International (Dr. Martens, the
iconic British footwear brand), and prior to that he served as Global
Brand President of Vans, Global Brand President of Urban Outfitters
and EMEA President of Deckers Brands.
External appointments
Non-Executive Director of Vera Bradley Inc., Sea Bags and Totes
Isotoner. Previously Fran worked for The Gap, Williams- Sonoma, 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. Fran was previously a Non-
Executive Director of Regent Holdings and Vista Outdoor Inc, and an
industry executive for Freeman Spogli.
delivering positive change
External appointments
Chief Executive Officer of Victrex plc, an innovative world leader in
high-performance polymer solutions. Jakob has more than 20 years’
experience in large multinational companies, both listed and private,
including nine years with Rohm & Haas (now part of Dow Chemical) in
the US, as well as Chief Executive of food manufacturer Alfesca in
Europe and Chief Executive of Promens.
Between September 2016 and June 2017, Jakob was Chief Executive
Officer of VÍS, the largest Icelandic insurance and reinsurance company.
He has held various Non-Executive roles and was a Member of the
University of Iceland Council and a Non-Executive Director of the
Icelandic Technology and Development Board.
Qualifications
Steve holds a bachelor’s degree in Business Studies from Middlesex
University, England.
Qualifications
Fran has a degree in English and Sociology from Bowdoin College,
Maine, and an MBA from the Harvard Business School.
Qualifications
Jakob has a BSc in Chemistry from the University of Iceland and an MBA
from the Northwestern University.
Steve will succeed Nicholas Bull as Senior Independent Director at the
conclusion of the 2024 AGM.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance
BOARD COMMITTEES
Our governance framework enables effective decision making and
ensures collaboration between the Board, its Committees and the GET.
AUDIT AND RISK COMMITTEE
– Oversees and monitors the integrity of the
Company’s financial statements, accounting
processes and audits (internal and external).
– Ensures that risks are carefully identified and
assessed, and that effective systems of risk
management and internal control are in place
and appropriately monitored.
– Reviews matters relating to fraud.
– Oversight of the governance-related element
of ESG.
See page 79 for more information.
NOMINATION COMMITTEE
– Reviews the structure, size, composition and
mix of skills and experience 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 and
inclusion.
– Oversight of the diversity and inclusion-related
social element of ESG.
See page 85 for more information.
OTHER COMMITTEES
REMUNERATION COMMITTEE
– Reviews and recommends the framework and
policy for the remuneration of the Chair, 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 the setting of the
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 strategy.
– Oversight of the remuneration-related social
element of ESG.
See page 88 for more information.
DISCLOSURE COMMITTEE
The Disclosure Committee oversees the Company’s
compliance with its disclosure obligations. The
Group CEO chairs the Committee, and its other
members are the Chief Financial Officer and the
Group Company Secretary.
GROUP RISK MANAGEMENT COMMITTEE (GRMC)
The GRMC is responsible for formulating risk
management strategies and polices, and monitoring
risk management throughout the Group. Its Chair is
the Group CEO, and its membership is aligned to
the Group Executive Team.
ACQUISITION COMMITTEE
The Acquisition Committee is authorised to oversee
specified projects by the Board when appropriate.
The Group CEO chairs the Committee, and it
includes the Chief Financial Officer and the Group
Company Secretary.
See page 78 for information on our Group Executive Team.
SUSTAINABILITY COMMITTEE
– Provides strategic oversight and monitors the
execution of the Company’s Sustainability strategy
and initiatives.
– Oversees, reviews and provides input as required
to refine, enhance and accelerate the progress of
the Company’s sustainability strategy, projects
and targets.
– Oversees the environmental and employee
engagement-related social elements of ESG.
The Sustainability Committee is chaired by David
Gosnell, and during 2023 its other members were
the Group CEO and two Non-Executive Directors.
From 1 January 2024, the Committee membership
will comprise the Group CEO, three Non-Executive
Directors, the Divisional CEOs and the Group
Sustainability Director. David will continue
to act as Chair.
The Committee was established in December 2021
and its terms of reference are available on coats.com.
The Committee met twice during 2023 and
conducted an internal evaluation, which concluded
it was working effectively with suggestions made for
the 2024 workplan including increasing the frequency
of meetings. See the Working Responsibly section
of this Annual Report and the Sustainability Report,
available from www.coats.com/sustainability,
for more information.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance cont.
Conflicts of interest, independence,
and external appointments
The Company has procedures in place for managing
conflicts of interest, including situational conflicts
of interest. Potential situational conflicts of interest
are identified prior to appointment and the Board
will consider and authorise these if appropriate.
If a conflict of interest has been identified and
approved, the Group Company Secretary ensures
that the Director in question is absented from
relevant discussions and/or decision making.
Should an existing 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 the Board on any changes to these conflicts.
The Chair was considered to be independent on
appointment and is committed to ensuring that the
Board comprises a majority of independent Non-
Executive Directors who maintain constructive
and challenging debate in the Boardroom. As
set out in the Notice of AGM, an extension to
the term of appointment of David Gosnell has
been proposed to shareholders. You can read
more about this in the Nomination Committee
report on page 86. There are currently nine
Directors of the Company: the Chair, the Senior
Independent Director, five Independent Non-
Executive Directors and two Executive Directors.
The Board considers that all its Non-Executive
Directors continue to demonstrate independence.
During the course of the year, Board members
continued to inform the Chair of any proposed
new external appointments, and these were
considered and approved by the Board, including
consideration of any potential conflicts. The
Company Secretary maintains a register of
Interests and Conflicts to track the commitments
of the Directors and ensure these are in line with
overboarding guidance. The Board is satisfied that
the external commitments of its Chair and members
do not conflict with their duties as Directors of
the Company and that any situational conflicts
have been authorised in line with the process set
out in the Company’s Articles of Association.
Articles of Association
The Articles of Association set out the rules agreed
between shareholders as to how the Company is
run, including the powers and responsibilities of
the Directors.
Coats’ Articles of Association were approved for
adoption at the 2021 AGM, and these reflect best
practice and current legal and governance standards.
Service contracts
The Company maintains the terms of appointment
of the Chair and Non-Executive Directors to ensure
that they continue to meet the requirements of the
Code. Details of the Executive Directors’ service
contracts and the Chair’s and the Non-Executive
Directors’ letters of appointment are set out in
the Directors’ Remuneration Report on page 94.
These documents are available for inspection
at the registered office of the Company during
normal business hours and at the AGM venue.
These documents are reviewed regularly.
Committee terms of reference
The Board is assisted by four Board Committees
to which it delegates matters as appropriate.
Each Committee has full terms of reference that are
reviewed annually and have been approved by the
Board and which can be found on our website at
www.coats.com/en/About/Corporate-Governance/
Board-Committees.
Delegated authorities
The Coats Delegated Authorities policy is an internal
document that sets out the delegations below
Board level. It is reviewed and approved annually.
It provides a structured framework to ensure the
correct level of scrutiny of various decisions covering
matters including contracts, capital expenditure,
tax, treasury and human resourcing decisions.
Directors indemnities
The Company maintains Directors’ and Officers’
liability insurance, which provides appropriate cover
for any legal actions brought against its Directors.
Each Director has been granted indemnities in
respect of potential liabilities that may be incurred
as a result of their position as an officer of the
Company. A Director will not be covered by the
insurance in the event that they have been proven
to have acted dishonestly or fraudulently.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance cont.
THE BOARD AND CULTURE
Our purpose is to connect talent, textiles
and technology. We have identified three
strategic priorities to achieve our goals and
support our purpose: accelerate profitable
sales growth; transform the business; and
create value. To create the conditions to
achieve our strategy and our purpose, Coats
has a culture characterised by its values that
are manifested by its people everywhere in
the business. These values include
collaboration, agility, a ‘can do’ attitude,
passion and diversity.
In January 2023, we introduced a new operating
model. Accordingly, the Group’s governance
structure and ways of working had to be reviewed
and monitored, to ensure that there was a clear and
uniform decision-making framework embedded in
our divisions that resulted in clear reporting and
accountability. The Board received regular updates
on these areas to ensure that the outcomes were
appropriately supporting the Group’s strategy and
that our desired culture was also aligned to strategy
and remained consistent across the Group during
this period of transition and implementation. These
updates, received via divisional updates and the
CEO report, informed the Board’s discussions and
ultimate decisions. The Board and its Committees
also monitored the cultural impacts of the ongoing
Strategic Projects and divestments during 2023, and
continued to consider any trends in, and the insights
from, the cultural indicators and metrics set out
below as well as other information presented at and
in between Board meetings, providing feedback and
direction if required.
We are very proud that, in the year following the
transformation of our business, our culture, ways of
working and focus on our people was recognised
by Coats’ inclusion in the list of the 25 World’s
Best Workplaces™ 2023 by Great Place To Work®,
the global authority on workplace culture.
Updates and cultural metrics considered by the
Board in 2023
– Review of key metrics, including health and safety,
Great Place To Work® certification, sustainability
and diversity statistics, at every Board meeting.
– Regular presentations on culture, diversity, equity
and inclusion initiatives, including the progress
against targets, and talent management and
development plans. Consideration of the internal
DE&I programmes ‘Coats for All’, ‘Coats for Her’
and ‘Coats Cares’ with a focus on cultural outcomes
and details of how these were supporting the
achievement of our strategic priorities.
Transparency in Supply Chains Act of 2010. In
accordance with the UK Modern Slavery Act 2015,
we publish on our website a statement, which is
approved annually by the Board, on our actions to
prevent modern slavery in our operations and in
our supply chain. We expect our employees and
our suppliers to behave ethically in all their dealings
relating to our business. All our employees receive
training on ethics, compliance and modern slavery
including focussed training and online training
modules for our senior employees and those with
customer or supplier facing roles. These training
programmes are regularly refreshed, available
in multiple languages, form part of the induction
for new starters and are rolled out biannually for
all relevant employees including Directors.
Stakeholder engagement
The Board ensures that there is continued
compliance with the Code (see page 67) and
with wider statutory and regulatory requirements.
The Board acts fairly between stakeholders
and engages in appropriate dialogue to
obtain the views of stakeholders as a whole.
You can read more about our engagement
with stakeholders on pages 46 to 48.
– Annual review into health and wellbeing.
– Designated Non-Executive Director for Workforce
Engagement updates with key insights for Board
level discussions.
– Reviews of whistleblowing cases and remedial
actions (read more on page 104).
– Insights from supplier audits and review of cultural
impacts resulting from outcomes agreed with
management (read more in the Audit and Risk
Committee report).
– Appropriately monitoring policies, practices and
behaviour and how they support strategy via
reports given at Board meetings.
Robust systems of governance, ethics
and compliance
The Board regularly reviews information relating
to, among other areas, anti-bribery and corruption
and whistleblowing as set out in the Audit and Risk
Committee Report and in the principal risks and
uncertainties section. An independent review of
the Group’s whistleblowing policies and associated
processes was completed during 2023 and this
resulted in identification of certain enhancements,
which have been undertaken. Also, during 2023,
the Board reviewed the Group’s Human Rights
Statement, which is available for viewing on
our website. As set out in that policy and our
Sustainability Report, 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
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Coats Group plc Annual Report and Accounts 2023
Corporate governance cont.
GOVERNANCE AT A GLANCE
Board profiles:
Length of service –
Directors
Length of service –
Non-Executive Directors
Relevant Functional
Experience
0–3 years 22%
3–6 years 22%
6–9 years 56%
0–3 years 29%
3–6 years 14%
6–9 years 57%
People 19%
Legal 14%
Risk 17%
Finance 19%
Technology/Digital 14%
Customer 17%
Geographic Expertise
Ethnic Diversity
Gender Diversity
Global Business Experience 26%
US Market Experience 22%
European Market Experience 26%
Asia Market Experience 26%
White British or other White (including
minority-White groups) 78%
Asian/Asian British 22%
Mixed/Multiple Ethnic groups 0%
Black/African/Caribbean Black British 0%
Other Ethnic group, including Arab 0%
Not specified/prefer not to say 0%
Men 56%
Women 44%
Not specified/prefer not to say 0%
Board and Committee attendance
The Directors’ attendance record at the last AGM,
scheduled Board meetings and Board Committee
meetings regularly attended by Non-Executive
Directors, for the year ended 31 December 2023
is set out in the table below. For Board and Board
Committee meetings, attendance is expressed
as the number of meetings attended out of the
number that each Director was eligible to attend.
During the year, the Board held nine scheduled
meetings. All Directors received papers for meetings
in advance. The Board continued to meet in person
for the majority of meetings held during the year
but utilised technology to hold hybrid or fully virtual
meetings when it was appropriate to do so, mindful
of the environmental and efficiency benefits.
The Board held the annual strategy day in Sri
Lanka and visited the Group’s plant in Horana,
as well as visiting a local school and hospital
that served the community in which the business
operates. Visits were also made to local customers
and the Board joined members of an Apparel
industry group to discuss relevant matters. These
visits allow engagement with the local workforce
and other stakeholders to enhance strategic
discussions. You can read more about the Board’s
engagement with stakeholders on pages 46 to 48.
In addition to the scheduled meetings, the Senior
Independent Director and the Non-Executive
Directors meet once a year without the Chair
present in order to appraise his performance.
The Chair and the Non-Executive Directors also
periodically attend sessions without management
present to discuss, amongst other things, the
performance of key members of management.
David Gosnell
Rajiv Sharma
Jackie Callaway
Nicholas Bull
Sarah Highfield3
Heather Lawrence1
Echo Lu
Steve Murray
Fran Philip
Jakob Sigurdsson
Board
Audit and Risk
Nomination4
Remuneration
Sustainability
9/9
9/9
9/9
9/9
2/2
1/2²
9/9
9/9
9/9
9/9
6/6
1/1
1/2²
6/6
6/6
4/4
4/4
1/1
1/1
4/4
4/4
4/4
4/4
2/2
2/2
2/2
2/2
5/5
5/5
5/5
5/5
AGM
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1/1
1. Heather Lawrence stepped down from the Board on 30 March 2023.
2. Heather Lawrence was unable to attend the Audit and Risk Committee and Board calls held on 1 March 2023 due to a longstanding commitment that existed
prior to her appointment to the Board. Heather had been involved in all previous discussions regarding the business of the meeting and discussed the
outcomes of the calls with the Chairs.
3. Sarah Highfield was appointed to the Board on 1 November 2023.
4. Certain Nomination Committee discussions were conducted as part of scheduled Board meetings.
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Coats Group plc Annual Report and Accounts 2023
Corporate governance cont.
Board effectiveness improvements implemented during 2023
The Board progressed the agreed action plan in relation to the feedback received as part of the 2022
external effectiveness review and a summary is set out below:
Actions taken in 2023 as a result of previous evaluation feedback
Effectively telling the strategic
story internally
Board meetings
– Refreshed Investor Relations Programme with regular updates presented at
– Annual Report for the year ended 31 December 2022 was refreshed and received
positive feedback
Board’s oversight and
assurance of technology
– Cyber Security deep dive presented at the Board with follow-up session
conducted in December 2023
Continuing to work on
executive succession planning
– Regular Audit and Risk Committee updates from the Head of Cyber Security
– Cyber Security governance review conducted by Group Internal Audit and
discussed at Audit and Risk meeting
– Session on AI, including demonstrations and governance advice, conducted
at Board Strategy Day
– Talent and succession deep dive reviews presented to the Group Executive Team,
Nomination Committee and Board by the Chief HR Officer, with feedback being
provided on the Women in Leadership List, ‘Coats for Her’ and development
opportunities for those in the ‘Fast Track’ programme
– Divisional deep dives presented to the Board included summary of talent
and diversity
– Nomination Committee discussions regarding executive succession including
for Group Executive Team members
– Tracking of diversity in leadership metrics at every Board meeting
– Continuation of certain Group Executive Team members attending Board meetings
by invitation as an observer
2023 review of effectiveness
Board evaluation
In line with the Code, this year an internal evaluation of the Board and its Committees was conducted,
and an external evaluation will be undertaken in 2025. The internal evaluation process of the Board
and its Committees was led by the relevant Chair and comprised a questionnaire that was circulated
electronically. The Board and its Committees recognise the value of a full and transparent evaluation
of their performance and seek feedback from both Board members and regular Board and Committee
meeting attendees.
Review of previous year’s evaluation findings and progress help
to define the scope for this year’s evaluation.
Evaluation undertaken by a combination of absolute rating scale
and open-ended questions on a no-names basis.
Recommendations for the Board and each of the Committees
are analysed and discussed, and action plans agreed.
The Board report identified key strengths, including oversight of culture, Board governance and Board
collaboration. Action plans and focus areas for 2024, including timelines for delivery, were agreed as set
out below and in the relevant Committee reports.
Areas for development and planned for the Board in 2024
Key areas for focus
Actions identified for 2024
Enhanced focus on oversight of
technology (including AI)
– AI identified as an emerging opportunity and risk, and is being tracked as
part of the risk management process
– Further discussions planned regarding impact of changing technology/AI
on business and 3-5 year strategic plan
Further focus on changing
customer needs and expectations
– Further customer updates to be provided periodically to the Board
including as part of scheduled divisional deep dives
– Opportunities for direct engagement between the Board and customers to
be leveraged when appropriate during Board visits including away week
Continued focus on executive
succession planning
– Board oversight of enhanced talent development programme to be continued
and detailed succession plan for GET and high potential employees
– Talent discussion scheduled as part of 2024 Board planned agenda
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Coats Group plc Annual Report and Accounts 2023
Corporate governance cont.
GROUP EXECUTIVE TEAM (GET) MEMBERS’
ROLES AND RESPONSIBILITIES
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.
FARNAZ RANJBAR
Chief Human Resources Officer
Read about People and Culture on page 13
– Responsible for delivering the global Human
Resources strategy, including performance
management, progression planning, reward
and talent acquisition.
FREDERIC VERAGUE
CEO, Footwear Division
Read about Footwear on page 29
– Responsible for the overall performance of
the Footwear division including delivery of
the division’s strategy, and the financial and
non-financial KPIs.
– Responsible for all of the commercial and
operational activities in the Footwear division.
– Drives innovation and sustainability delivery in
line with Group objectives and strategy.
RAJIV SHARMA
Group CEO
See biography on page 70
ADRIAN ELLIOTT
CEO, Apparel Division
Read about Apparel on page 25
– Responsible for executive management of the
Group as a whole and is accountable for the
overall performance of the Group.
– Responsible for the overall performance of the
Apparel division including delivery of the division’s
strategy, and the financial and non-financial KPIs.
– Delivers strategic and commercial objectives
within the Board’s stated risk appetite (see page
52 for more detail on key risks).
– Builds positive relationships with all the Group’s
stakeholders (see page 46).
JACKIE CALLAWAY
Chief Financial Officer
See biography on page 70
– Responsible for financial management and
implementing and monitoring effective
financial controls.
– Supports the Group CEO in developing and
implementing the Company’s strategy.
– Oversees relationships with the investment
and banking community.
– Responsible for all of the commercial and
operational activities in the Apparel division.
– Drives innovation and sustainability delivery in line
with Group objectives and strategy.
– Adrian also serves on the Board of Twine, a
technology start-up, and chairs Coats Digital.
STUART MORGAN
Chief Legal & Risk Officer and
Group Company Secretary
Read about our principal risks and uncertainties on
page 52
– Responsible for legal and compliance,
governance, risk management and company
secretarial matters.
SOUNDAR RAJAN
CEO, Performance Materials Division
Read about Performance Materials on page 33
– Responsible for the overall performance of the
Performance Materials division including delivery
of the division’s strategy, and the financial and
non-financial KPIs.
– Responsible for all of the commercial and
operational activities in the Performance Materials
division.
– Drives innovation and sustainability delivery in line
with Group objectives and strategy.
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Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report
Nicholas Bull
(Chair since May 2022)
Member since 2015
Sarah Highfield
Steve Murray
Member since 2022
(Chair Designate)
Member since
1 November 2023
Jakob Sigurdsson
Member since 2020
Dear Shareholder,
I am pleased to present the report of the Audit and
Risk Committee for the year ended 31 December
2023. This report sets out how the Committee has
discharged the duties delegated to it by the Board,
including how it ensured compliance with the relevant
regulations and guidance, such as the FRC’s 2018 UK
Corporate Governance Code (Code), as well as setting
out the key topics and findings during the year.
The Committee has continued to monitor closely the
proposed regulatory and reporting changes, including
changes to the UK corporate governance and audit
regimes. This included an in-depth review and
discussion of the potential impacts of the FRC’s ‘Audit
Committees and the External Audit: Minimum
Standard’ and the FRC’s consultation on the UK
Corporate Governance Code (Consultation), facilitated
by our external advisors. The Committee requested
that the Company provide a response to the questions
posed by the FRC in relation to the Consultation, which
was duly submitted after approval by Directors. The
Committee monitored developments, in particular
noting the ‘FRC policy update’ statement published on
7 November 2023. During 2023, the Committee
considered how the Company was preparing for these
changes to ensure it is well positioned for forthcoming
requirements, including those set out in the updated
UK Corporate Governance Code that was published
in January 2024, with a focus on those that require
external assurance or reporting.
The Committee has continued its focus on the
preparedness of the Group to receive external
assurance on the Group’s ESG-related data, with an
aim for this to be published in the 2024 Annual Report.
This was progressed by conducting an external review
of 2023 and ESG-related data to verify baseline
figures for our sustainability targets and ensure
the appropriateness of recording and reporting
processes. Part of this process involved on-site audits
of representative sites across all three divisions to
enable a comprehensive review of ESG-related data
processes, systems and governance. The Committee
was reassured by the outcomes of this exercise. An
independent internal review was also conducted
on our TCFD models for determining financial
impact of climate related risks and opportunities.
The Group is also currently reviewing the Group
Internal Audit function, to ensure it is positioned
and resourced to meet the changing needs of the
business and the evolving regulatory environment.
The Committee expects to finalise the plan for
Group Internal Audit in 2024 and will present the
outcomes of this review in its next report.
Following the change to the divisional operating
model, the Committee received deep dive
presentations to enable it to assess whether
internal controls and risk management processes
have been appropriately embedded for each of
the Apparel, Footwear and Performance Materials
divisions. These presentations were provided by
the relevant divisional Finance Directors. Continuing
the theme of risk oversight, the Committee has
continued to extend its review of non-financial risks,
particularly in relation to areas relating to suppliers.
Details of the Committee’s oversight of the
refresh of the Group’s Supplier Code and supplier
payments terms are set out later in this report.
This year we changed our external auditors and,
following the approval of the appointment of Ernst
& Young LLP at the 2023 AGM, the Committee has
overseen the transition of responsibilities. You can
read more about this process in the following pages.
The Committee would like to thank Deloitte LLP for
their service to the Company.
Principal objectives of the Audit and Risk Committee
– To monitor the integrity of the Group’s financial
reporting processes.
– To ensure the independence and effectiveness
of internal and external audit functions.
– 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.
– Provide advice to the Board on whether the Annual
Report and Accounts is fair, balanced and
understandable and provides the necessary
information to assess the Company’s performance,
business model and strategy.
– Ensure the adequacy and effectiveness of the internal
control environment.
– Monitor the Group’s risk management processes
and performance.
– Review the resourcing, plans, reports and
effectiveness of Group Internal Audit.
– Conduct a competitive tender process for external
audit when required and oversee the appointment,
independence, effectiveness and remuneration of
the Group’s external auditor, including the policy
on the supply of non-audit services.
– Ensure the establishment and oversight of fraud
prevention arrangements and consider reports
under the whistleblowing policy in conjunction
with the Board.
– Monitor the Audit and Assurance Policy.
– Review the Group’s compliance with the Code.
– Monitor forthcoming regulatory changes.
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Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report cont.
Heather Lawrence resigned from the Board and the
Committee on 31 March 2023. An external search
for a new Non-Executive Director was conducted
and I was pleased to welcome Sarah Highfield
as a Non-Executive Director and Chair Designate
of the Committee in November 2023. Sarah is
expected to succeed me as Chair of the Committee
at the conclusion of the 2024 AGM when I will
stand down from the Board and the Committee.
It has been my pleasure to serve as Chair and as a
member of the Committee. I am proud of the work
the Committee has undertaken during my tenure
and I am confident that Sarah will continue to
oversee a progressive agenda in this important area.
Nicholas Bull
Chair, Audit and Risk Committee
6 March 2024
Highlights of 2023
– Deep dives into divisional risk management and
internal controls processes.
– External auditor transition.
– Supplier Code review and supplier payment terms
review.
– Continuation of progressive implementation of
assurance policy including the assurance of
sustainability data.
Areas of focus for 2024
– Agree future structure and responsibilities for Group
Internal Audit.
– Continue preparation for changes in regulatory
environment.
– Continue focus on internal control processes and
divisional risk management.
– Further develop assurance, particularly of ESG data.
Membership and meetings
The members of the Committee are independent
Non-Executive Directors. During the year, the
Committee met five times and held one additional
call, and all Committee Members attended the
maximum number of meetings possible. Further
details of individual Directors’ attendance can be
found on page 76. The Committee met privately
with the external auditor and with the Group
Internal Audit function. To enable robust and timely
discussion, 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, the Chief HR Officer, Divisional
Finance Directors and the external auditor attended
parts of Committee meetings by invitation. The
Group Chair and Group CEO also attend meetings
when appropriate. The Deputy Company Secretary
acts as Secretary to the Committee. The Chair
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.
‘Financial expert’, recent and relevant
financial experience
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 purposes of the Code, in respect of
the financial year ended 31 December 2023,
Nicholas Bull, Heather Lawrence and Sarah
Highfield were the members of the Committee
determined by the Board as having recent and
relevant financial experience. You can read
more about the skills and experience of the
members of the Committee on pages 70 to 72.
Financial reporting, going concern and
viability statement
During the year, the Committee reviewed the interim
results announcement, including the interim financial
statements, the Annual Report and associated
preliminary results announcement, focussing on key
areas of financial judgement and estimates made
by management to ensure it was satisfied with the
outcome, critical accounting policies, disclosures
(including those relating to contingent liabilities,
climate change and principal risks), provisioning and
any changes required in these areas or policies.
Particular focus areas during the year were the
accounting treatment of our Strategic Projects
and the new divisional structure. The Committee
reviewed the updated wording of the Group’s
longer-term viability statement, set out on page 59.
The Committee reviewed the process undertaken
to ensure that the model used was consistent
with the approved Business Plan and that the
relevant scenario and sensitivity testing aligned
clearly with the principal risks of the Group. The
Committee 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 104 and confirmed
its satisfaction with the methodology including
the appropriateness of sensitivity testing.
The Committee continues to focus on both the basis
of preparation of the going concern and viability
analysis as well as the external disclosures, to
ensure they are prepared in line with current
Financial Reporting Council guidance.
Fair, balanced and understandable
As part of its review of the Company’s Annual
Report and associated disclosures, the Committee
has considered whether this report is ‘fair, balanced
and understandable’ and provides the information
necessary for shareholders to assess the Company’s
position, performance, business model and strategy,
as required by the Code. The Committee used
the established assurance processes to ensure its
input was appropriately timed, including providing
feedback on the planning process, and considering
the reviews taken by external advisers. The
Committee received a full draft of the Annual Report
and provided feedback on it, highlighting the areas
that would benefit from further clarity or balance,
and this feedback was appropriately incorporated.
In this respect the Committee focussed on ensuring
consistency and completeness in non-financial
reporting, including ESG and TCFD reporting,
principal risks and uncertainties and reviewing
the use of alternative performance measures
and their appropriateness in aiding users of our
financial statements to understand better our
performance year-on-year. On this basis, the
Committee recommended to the Board that it
could make the required statement that the Annual
Report is ‘fair, balanced and understandable’.
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Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report cont.
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
Exceptional and acquisition-
related items
In 2023, exceptional and acquisition-related items of $49.4 million have been recorded in operating profit; the disclosures in note 4
provide further details. The Committee assessed management’s judgements, took into account the views of the external auditor and
concluded that the accounting treatment was appropriate given the one-off nature of the events.
Pension matters – valuation
of obligations and
recognition of surpluses
At 31 December 2023 the Group’s Pension surplus calculated under IAS19 was $62.8 million. The Committee reviewed the underlying
assumptions, which were also agreed with Coats’ external advisers and auditors. Note 10 to the accounts sets out these assumptions
and, for the UK scheme, also places in context the calculation of the surplus by reference to the position calculated under the funding
valuation basis which showed a small surplus over the Technical Provisions at the year end. The Committee also reviewed the position in
relation to ending repair payments to the UK scheme as described in the accounts. The Committee is satisfied that the surplus on the
balance sheet has been appropriately recognised and that the note and the narrative in the Annual Report provides the wider context.
US legacy environment
provision
Sale of European Zips
business
Taxation
The Group has recognised a provision of $12.2 million in respect of remediation and legal/ professional costs for the Lower Passaic
River. The Committee considered 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, have
triggered the requirement to remeasure the level of remediation provisioning previously established. The Committee is satisfied that
there is no requirement to remeasure the remediation provision at 31 December 2023 and that the disclosures provided in note 28 to
the financial statements are appropriate.
The sale of the European Zips business was announced on 4 July 2023. The Committee reviewed management’s judgements on the
accounting and reporting implications on the 2023 results, including the loss on disposal of $17.1 million and the presentation of results
as discontinued operations. The Committee concluded that it was satisfied with the accounting treatment and disclosures made in the
Annual Report.
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 including the risk of challenge by national
tax authorities. In addition to reviewing the Group’s adjusted effective tax rate, which decreased from 30% to 29%, the Committee also
considered the Group’s uncertain tax provisions and deferred tax assets, which amount in total to $29.2 million and $18.0 million
respectively. 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 on provisions made for litigation and tax matters and the Committee considered the appropriateness of the
methodology applied.
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Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report cont.
Internal control and risk management
The Board is responsible for the Group’s risk
management framework and for defining its risk
appetite. During 2023, the Committee continued to
keep under review the Company’s internal financial
controls systems that identify, assess, manage and
monitor financial risks and other internal control and
risk management systems, and the effectiveness
of the Group’s risk management system, through
regular updates from management. This included a
review of the key findings presented by the external
and internal auditors having agreed the scope,
mandate and review schedule in advance. The
principal risks and uncertainties facing the Company
are addressed in the Strategic Report and in the
table on pages 52 to 58 in this Annual Report.
There were deep dives into the financial control and
risk framework of each division, with the relevant
divisional Finance Director providing an overview
of the business, a summary of the structure of
the finance team including a summary of diversity
and tenure and a talent review, the approach to
embedding and monitoring internal controls and
risk management accompanied by a summary of
the assurance processes currently in place. The
divisional Finance Directors also outlined plans for
further internal controls testing and automation
for future years. The Committee undertook its
annual review of ESG reporting and disclosures,
including consideration of the TCFD disclosures.
Mindful of expected changes in the UK governance
regime including as a result of the updated UK
Corporate Governance Code, the Committee
has revisited internal control matters to ensure
the business continues to enhance its overall
control environment to align with requirements
and emerging practices. Further opportunities to
automate controls testing will be evaluated when
the regulatory requirements are clear. Instances
where the effectiveness of internal controls
were considered insufficient, or where there was
opportunity for enhanced controls, were discussed
during the year with updates being provided
when required. In particular, during 2023 the
Committee conducted a further deep dive into
cyber security risks and controls, and this was
also a focus for the full Board, and there were
periodic updates on sanctions documentation and
training. Remediation plans are monitored closely
on an ongoing basis, including continued focus
on Supplier Code compliance and HR controls.
The Committee continued to receive detailed bi-
annual reports on internal controls over financial
reporting, which included analytical reviews of
balance sheets conducted in the business, deep
dives into key financial risks and judgements and a
review of the timeliness of previous Group Internal
Audit follow-up actions. There were also regular
updates on the governance and reporting of the
Strategic Projects and divestments and acquisitions.
The annual review of the effectiveness of the
Company’s risk management and internal
control systems covering all material controls
was conducted, including operational and
compliance controls. Following the robust
assurance process, the Committee was satisfied
that these systems operate effectively in all
material respects with no significant weaknesses
identified and others remediated appropriately.
The Committee reviews the minutes of
all Group Risk Management Committee
meetings and discusses any relevant matters
that have arisen with management.
Fundamental components of the Company’s
internal control and risk management
framework include:
management structure supported by clear
approval limits and delegated authorities;
appropriately drafted and communicated
policies, procedures, and guidance to support
business operations;
a thorough and co-ordinated annual planning
process and strategy review, combined with
comprehensive financial forecasting, reporting,
and budgeting;
embedded tools and technology such as SAP
and Concur;
a well-established sign off system in relation to
financial reporting and other business matters;
appropriate post-acquisition integration
activities to ensure adherence to Group
standards;
Group Internal Audit activities and
investigations; and
an externally operated whistleblowing helpline
and robust process to allow anonymous
reporting and suitable investigations.
Internal audit
The Committee is in the process of conducting a full
review of Group Internal Audit, including resourcing
and responsibilities, to ensure the function is fully
aligned to the new shape of the business and
focussed on auditing the controls that mitigate the
Group’s principal and key risks. This is expected
to be concluded in 2024 and a further update
will be provided in next year’s Annual Report.
The proposed Group Internal Audit plan is
presented at the December meeting of the
Committee to ensure this is agreed in advance
and it is then reviewed at each Committee meeting.
Updates are provided on audit coverage and
any recommended changes to the schedule of
work. The Committee reviews key findings from
Group Internal Audit reports, receives detailed
reports from management where appropriate,
and monitors the rate at which actions agreed with
management are implemented. Group Internal Audit
present their annual audit opinion at the February
meeting of the Committee. The Head of Group
Internal Audit also consolidated and presented
to the Committee a biannual review of in-country
operational risks which are appropriately aligned
against the Group’s principal risks, which included
a summary of any new risks that have arisen in
the period with agreement on appropriate actions
and interventions. Group Internal Audit grade
the severity of any findings in their reporting to
the Committee, with significant control findings
being defined as a material deficiency in the
design or implementation of a control. This might
include a risk of material misstatement of financial
information where controls in operations are largely
deficient or where there is a pervasive violation
of policies and procedures. No significant control
findings were identified during the period.
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Audit tender
As set out in last year’s Annual Report, the
Company conducted a competitive tender process
for the Group’s external auditor during 2022. The
Company appointed Ernst & Young LLP as its
auditor for the year ending 31 December 2023
in November 2022, and their appointment was
approved at the 2023 Annual General Meeting
of the Company. No members of the Committee
have any connection with the current auditors.
Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report cont.
A key theme in the Group Internal Audit reports
included compliance with the Group’s Supplier Code
including updates on findings from the third-party
Bureau Veritas audits into suppliers. The Committee
discussed two instances of non-compliance with
the Company processes as set out in the Group’s
Supplier Code that had occurred, and probed
management’s responses to ensure that these
were appropriately robust and proportionate. The
Committee noted that our procedures and culture
are consequently stronger as result of changes
and communications made in relation to these
incidents. The Committee requested, and received,
updates on the roll-out of training being provided
internally and externally in relation to compliance
with the refreshed Group Supplier Code.
Group Internal Audit presented the outcomes
of their reviews of the Group’s cyber security
governance and of Group data protection
governance to the Committee. There were also
appropriate updates on items that had arisen as
key themes in previous years including HR controls
compliance in markets and metrics in relation to
zero discharge of hazardous chemicals (ZDHC).
An analysis of data was used to review controls in
some areas. Investigations were conducted both
remotely and physically on site during 2023, and the
Committee continued to monitor the way internal
audits were undertaken and the findings to ensure
there was consistency of approach on audit delivery.
For any control findings identified as part of any
investigation or audit, remediation plans were put
in place and the Committee reviewed these and
the adequacy of the implementation measures.
Group Internal Audit continued to progress the
actions identified as part of recent effectiveness
evaluations. Updates were provided on the internal
assurance map that was developed during 2023.
The Committee has continued to monitor and review
the Company’s Audit and Assurance Policy, which is
available on the Company’s website (www.coats.com),
to ensure that this keeps pace with internal and
external developments, noting the changes that had
occurred in the associated regulatory environment
in particular as result of the release of the updated
Corporate Governance Code in January 2024. The
Committee anticipates that this policy statement will
continue to evolve and provide further opportunities
for engagement.
External audit
Independence
The Committee is responsible for reviewing the
independence and objectivity of the Company’s
external auditor, Ernst & Young LLP, agreeing the
terms of engagement with them and the scope of
their audit. Ernst & Young LLP has a policy of partner
rotation, which complies with regulatory standards,
and, in addition, 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
annually reviews the policy on non-audit fees to
ensure it complies with latest FRC Ethical Standards.
The Committee also reviewed the level of audit
and non-audit fees paid to Deloitte (who resigned
at the AGM in 2023) and to EY. The key principles
of the policy on non-audit services are:
– The auditor is prohibited from providing any
services that are not included in the list of
permitted 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.
– Any service that is not on the list of permitted
services, if in excess of $25,000, requires the
approval of the Committee.
During 2023, the external auditor provided
services in relation to the Group’s interim results.
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 fees in relation to the services
supplied by the external auditor can be found in
note 5 of the financial statements. Non-audit fees
presented as a percentage of total audit fees is 13%.
The lead partner is rotated every five years.
Anup Sodhi was appointed as the lead
audit engagement partner in 2023.
The Group is in compliance with the requirements
of the Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014.
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Coats Group plc Annual Report and Accounts 2023
Audit and Risk Committee report cont.
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 which reviews its
adequacy and holds further discussions with
management and the auditor before final approval.
In respect of the financial year ended 31 December
2023, and noting that this would be the first audit
conducted by Ernst & Young LLP, the Committee
conducted an assessment of the performance
and effectiveness of the external auditor.
This assessment was undertaken by way of 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 items pertaining to
the review of the external auditor as listed in the
FRC’s ‘Audit Committee and the External Audit:
Minimum Standard’ and the Code were considered
and appropriately incorporated in the drafting
of the questionnaire. The questionnaire covered
topics such as the robustness of the audit, and the
quality of delivery, reporting and service as well
as covering areas such as consideration of the
auditor’s culture and mindset including free form
questions to allow consideration of any other points
that respondents wished to raise. The Committee
appropriately assessed the auditor’s view of the
risks to audit quality, performance against the
audit plan and also reviewed the FRC’s annual
report on the auditor at its December meeting. The
summary of the results of the questionnaire has
been reviewed by the Committee and appropriate
feedback has been shared with the external auditor.
Assessment of the effectiveness of the Committee
Following the external effectiveness review
conducted in 2022, the Committee’s effectiveness
in respect of the year ended 31 December 2023
was evaluated by way of a questionnaire-based
internal review. Respondents included Committee
members, regular attendees and the external
auditor. The Committee considered the findings
of the process in relation to both the Committee
and the Group Internal Audit function at its
December meeting, as well as considering whether
the feedback identified in the previous year’s
assessment had been adequately addressed.
The 2023 evaluation indicated that the Committee
was working effectively and identified opportunities
for the 2024 Committee work plan, which have
been appropriately included and are set out below.
Looking forward
As well as the regular cycle of matters that
the Committee schedules for consideration
each year, it is planned that the Committee
will during the course of 2024:
– Agree future model and ways of working for
Group Internal Audit.
– Continue preparation for changes in regulatory
environment.
– Continue focus on internal control processes and
divisional risk management.
– Further develop assurance, particularly of ESG
data.
Signed on behalf of the Audit and Risk Committee by:
Nicholas Bull
Chair, Audit and Risk Committee
6 March 2024
Areas of focus in 2023
Corporate reporting
– Half and full year external reporting
Key stakeholders
SHAREHOLDERS
– Interim and preliminary results announcements
– Annual Report and consolidated financial statements
– Review of tax and statutory filing status
– Ongoing review of assurance of ESG data
Internal controls
– Ongoing review into the future of Group Internal Audit
– Group Internal Audit updates
– Bi-annual review of internal financial controls
– Monitoring agreed actions status
– Group Internal Audit resourcing reviews
– Deep dives into Apparel, Footwear and Performance Materials divisions
risk management and internal controls
– Review of updates to regulatory reform updates to ensure appropriate
internal preparation
Risk management
– Litigation, cyber, expenses and tax risk reviews
– Bi-annual risk review including environmental compliance
– Review of governance of reporting of acquisitions
– Horizon scanning for changes to regulatory environment for audit
– Sanctions update including review of Company’s ways of working to
ensure compliance
– Monitoring of refresh of Group’s Supplier Code, including internal and
external training and compliance updates
– Review of Supplier payment terms
External audit
– Oversight of external audit transition
– Report on external audit at half and full year
– Insights and observations on reporting review
– Auditor independence and non-audit work reviews
– Review of management representation letters
– Review of fees of external auditor
– Auditor effectiveness review
EMPLOYEES
SHAREHOLDERS
CUSTOMERS
EMPLOYEES
ENVIRONMENT
SHAREHOLDERS
SUPPLIERS
CUSTOMERS
EMPLOYEES
SHAREHOLDERS
SUPPLIERS
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84
Coats Group plc Annual Report and Accounts 2023
Nomination Committee report
David Gosnell
(Chair since November 2020)
Member since 2015
Nicholas Bull
Sarah Highfield
Member since 2015
Member since
1 November 2023
Echo Lu
Steve Murray
Member since 2017
Member since 2022
Fran Philip
Jakob Sigurdsson
Member since 2016
Member since 2020
Dear Shareholder,
I am pleased to present the report of the Nomination
Committee for the year ended 31 December 2023.
Committee membership and meetings
The members of the Committee are independent
Non-Executive Directors. You can read more
about the skills, tenure and experience of the
members of the Committee on pages 70 to 72.
During the year, the Committee met four times
in separately scheduled meetings, with further
discussions taking place as part of scheduled
Board meetings. A Committee member discussion
on succession planning was also held during
the Board’s away week in October 2023.
All Committee members attended the maximum
number of meetings that they were eligible to
attend. Further details of individual Directors’
attendance can be found on page 76.
Board and Committee changes
In preparation for the planned retirement of
Nicholas Bull at the conclusion of the Company’s
2024 Annual General Meeting, Sarah Highfield
joined the Board, Audit and Risk Committee and
the Nomination Committee on 1 November 2023.
She will succeed Nicholas as Chair of the Audit
and Risk Committee. On 15 November 2023, we
announced that, following a rigorous process,
Steve Murray will succeed Nicholas as Senior
Independent Director. Both of these transitions will
take effect at the end of the 2024 AGM following
an appropriate period of handover from Nicholas,
which will include meeting various internal and
external stakeholders. On 14 December 2023
we announced that Sarah would also join the
Sustainability Committee from 1 January 2024. This
was part of an overall review of the composition of
the Sustainability Committee which also resulted
in the three Divisional CEOs and the Group
Sustainability Director joining the Sustainability
Committee from the start of 2024. We believe that
widening the membership to include management
will enhance operational understanding and
result in more efficient decision making.
Succession planning
Following a period of transformation for the Group,
the Committee has focussed on ensuring that
succession planning continues to be suitably robust
for both Non-Executive and Executive roles, with
a focus on DE&I, maintaining the desired culture
of the Group, and reviewing the required skills
profile for the Group. The Committee, on behalf
of the Board, regularly assesses the composition
of the Board and its Committees in terms of skills,
experience, diversity and capacity. The Board tenure
tracker is regularly considered by the Committee
to ensure that discussions are held well in advance
of planned departures, to allow appropriate
skills gap identification and timely succession.
The Committee uses the Board skills matrix to
provide a detailed and transparent assessment
of the current skill set on the Board and identify
any training needs or skills/experience gaps on
the Board. During 2023, the Board undertook all
required regular training for Coats’ employees,
as well as receiving tailored training updates at
Board and Committee meetings for specific topics,
including Cyber risks and AI, as appropriate.
The Committee and Board have actively reviewed
GET and below GET succession plans, and
also discussed the training and development
opportunities being created for these talent pools.
The Committee has continued its regular review
of the progress on Group CEO succession plans
Principal objectives 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.
– Oversight of the diversity and inclusion-related
elements of ESG.
Key responsibilities
– Ensuring the appropriate composition of the Board
and its Committees, and overseeing a rigorous and
transparent procedure for appointments to the Board.
– Maintaining ongoing succession plans for the Board
and GET, and reviewing the leadership needs of the
organisation.
– Ensuring diversity in the pipeline for senior
management roles.
Highlights of 2023
– Succession planning for key Board roles.
– Reviewing executive and senior management
talent plans.
– Monitoring of DE&I programmes.
Areas of focus for 2024
– Further GET succession planning focus.
– Oversight of transition of key Board roles.
– Continuing to monitor changes in relevant
requirements and best practice.
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Coats Group plc Annual Report and Accounts 2023
Nomination Committee report cont.
with certain GET members being invited to observe
and participate in a full Board meeting. This is a
continuation of our internal programme to enhance
their understanding of the Board ways of working
and to allow the Board greater face-to-face contact.
Neither the Chair nor any of the Non-Executive
Directors has exceeded the maximum nine-year
recommended term of service set out in the Code in
2023. However, as set out in our Notice of AGM, the
Board has proposed a resolution to re-appoint David
Gosnell as a Director of the Company. As David has
served on the Board from 2015, this would be an
extension of his appointment that would exceed the
usual nine year term but the Committee considers
this to be compliant with provision 19 of the Code
which allows an extension for a limited time where
the Chair was an existing director, subject to a clear
explanation being provided. It is proposed that
David’s appointment be extended for a period of
up to three years, subject to annual re-election by
shareholders. Further details are set out below.
The Nomination Committee and the Board, acting
with David having recused himself, have diligently
considered this proposal mindful of the significant
changes that have taken place within the Group
recently and the vital need for strong and consistent
leadership from the Chair to continue to guide the
Board, the Committees on which he sits and the
Group in such a period of change. These include the
integration of the two major footwear acquisitions,
completion of the far reaching strategic projects
and the further and ongoing de-risking of the
pension scheme. Consideration was also given
to the recent changes to the Board which include
two recent Non- Executive Director appointments
and the forthcoming transitions that will result
from Nicholas Bull stepping down from the Board
at the conclusion of the 2024 AGM. There was
also discussion regarding David’s tenure as Chair,
noting he assumed the role in May 2021. Finally, the
Nomination Committee and the Board considered
the independence of David given the length of his
service on the Board and are satisfied that David
continues to demonstrate independent character
and judgement, and promotes constructive
challenge amongst the Board, and that he continues
be independent in accordance with the Code.
In the second half of 2023 and in early 2024,
Nicholas Bull, in his role as Senior Independent
Director, and Steve Murray, in his role as incoming
Senior Independent Director, conducted a
direct consultation process with a number of
the Company’s key institutional shareholders to
explain the rationale for this proposal and seek
their views. The Committee and the Board, meeting
in discussions chaired by Nicholas and held
without David present, have carefully reviewed
the feedback that was received and noted that
the shareholders that had been consulted had
indicated clear support for David continuing as
Chair, with the majority supportive of a three year
extension, subject to annual re-election at the
AGM. Accordingly, the Committee recommended
to the Board, and the Board has concluded,
that the proposed extension of David’s term
of appointment is appropriate and in the best
interests of the Company and its stakeholders to
ensure continuity as part of a broader effective
and timely succession planning process.
Non-Executive Director recruitment
The first step in the Group’s Non-Executive Director
recruitment process is to align on the desired criteria
for the candidate profile, informed by a detailed
review of the Board skills and tenure matrices and a
discussion of the potential gaps and talent needs of
the Board. In 2023, following Heather Lawrence’s
stepping down from the Board in March 2023, it was
necessary to focus on finding a successor for the
Chair of the Audit and Risk Committee. Odgers
Berndtson, a professional search agency with no
connection to the Company nor any Director, was
engaged to create a comprehensive and diverse long
list of candidates. Odgers Berndtson was appointed
in accordance with the Company’s procurement
policy based on its expertise relative to this role. The
shortlisted candidates were then interviewed by the
pre-determined interview panel, and appropriate due
diligence was undertaken to ensure the appropriate
fit with the requirements including consideration of
candidates’ skillset and experience, their ability to
contribute across the requisite range of Board topics,
whether their appointment was in line with the
Board’s diversity aims and whether they could meet
the expected time commitment. Recommendations
were then made to the Board. The process resulted in
the appointment of Sarah Highfield as a Non-
Executive Director and Chair designate of the Audit
and Risk Committee. In the case of Executive Director
or GET appointments, an executive leadership
assessment would be carried out by an external
professional agency.
Any new Directors are appointed by the Board and,
in accordance with the company’s articles of
association, they must be elected at the next AGM
to continue in office. All existing Directors stand for
re-election every year.
Board direction induction programme example
Effectiveness
– Training on ethics and
other governance topics
– Briefed on outcomes of most
recent effectiveness review
–
Accountability
Information on the Group
budget and strategy
– Last Annual Report
Leadership
– Meeting senior executives
– Site visits
Relations with
stakeholders
– Meeting with employees
during site visits
– Meeting with key customers
Diversity
The Committee has continued to monitor the
evolving regulatory and reporting environment to
ensure it is suitably forward looking in its talent
planning and ambitions, while continuing to review
progress against our ambitious internally set targets
and also externally set targets. Linked to this, the
Committee and Board have also been updated on
the initiatives and outcomes of the ‘Coats for All’ and
‘Coats for Her’ programmes that were launched in
2022. You can read more about this in the People
and Culture section of this report on pages 13 to 14.
The Board strongly believes diversity at all
levels of the business results in better business
outcomes, grows innovation and helps us achieve
our strategy. The impacts of the changing shape
of the business, resulting from recent acquisitions
and divestments as well as our Strategic Projects,
on our DE&I metrics has been closely reviewed by
the Committee and the Board, with an emphasis
on ensuring there are appropriate internal talent
development initiatives available for our diverse
range of future leaders. These align with the
Board’s diversity policy, which was updated in
2023 to align with best practice and includes
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Coats Group plc Annual Report and Accounts 2023
Nomination Committee report cont.
reference to knowledge and understanding of
relevant diverse geographies, people and their
backgrounds and includes, and is not limited
to, race, socio-economical, educational and
professional backgrounds, disability, gender,
sexual orientation, religion, belief and age, as well
as culture, personality, work-style and cognitive
and personal strengths. This policy is available
to view on our website (www.coats.com/about/
corporate-governance/board-composition).
Our workforce diversity policy is included in
our Coats Key People Principles, which set out
the range of policies in place to ensure fair and
equitable treatment of our diverse workforce. The
diversity section includes the same definitions and
references as our Board policy and aims to promote
an inclusive working environment. You can access
our Coats Key People Principles on our website
(https://www.coats.com/en/Download-Centre).
The Board supports the recommendations of the
FTSE Women Leaders Review on gender diversity
and the Parker Review on ethnic diversity and
continues to monitor developments in these areas.
During the course of 2023, the Group undertook
a data collection exercise to confirm and update
our DE&I information. Employees were offered the
option to update their information, with facilities
being provided in our factories and facilities to
enable easy completion, and informed about how
this information would be used to help inform better
decision making and outcomes for the business.
I am pleased to confirm that we have 44% female
representation on the Board, including our Chief
Financial Officer, Jackie Callaway, and there are
two Directors from an ethnic minority background.
Accordingly, as at 31 December 2023, we are in
line with the recommendations of the FTSE Women
Leaders Review and we meet the diversity targets
set out in the Listing Rules. We are also in line with
the recommendations of the Parker review and
the targets set out in our Board diversity policy.
We continue to monitor progress against the
future recommendations in relation to diversity.
In December 2023, following the request made
by the Parker review, the Board approved an
ethnicity diversity target to be achieved by 2027.
After reviewing the current levels of diversity at
both GET level and in those reporting in to the GET
and considering the wide geographic footprint of
the organisation, the Board concluded that it was
appropriate for the Group to commit to maintaining
circa 50% ethnic diversity in our senior leadership
team (using the definition recommended by the
Parker review), while recognising that periods of
change in the composition of senior leadership
may result in temporary periods when this balance
is not achieved. The Board considers this to be
suitably challenging. You can read more about our
progress against our other sustainability objectives,
which are linked to our Long Term Incentive share
plan, and read more about the diversity of our
global workforce in the Sustainability Report
(www.coats.com/sustainability).
Board and GET gender identity or sex
Number of
senior
positions on
the Board
(CEO, CFO,
SID and
Chair)
Number in
executive
management
(GET and
direct
reports)
Percentage
of executive
management
(GET and
direct
reports
Number of
Board
members
Percentage
of the Board
5
4
56%
44%
3
1
34
12
74%
26%
Men
Women
Other categories
Not specified/
prefer not to say
Board and GET ethnic background
Number of
senior
positions on
the Board
(CEO, CFO,
SID and
Chair)
Number in
executive
management
(GET and
direct
reports)
Percentage
of executive
management
(GET and
direct
reports
Number of
Board
members
Percentage
of the Board
White British or
other White
(including
minority-white
groups)
Mixed/Multiple
Ethnic Groups
Asian/Asian
British
Black/African/
Caribbean/Black
British
Other ethnic
group, including
Arab
Not specified/
prefer not to say
7
78%
3
19
42%
1
2%
2
22%
1
18
39%
2
6
4%
13%
The data in the tables above was collected
directly from the Board and GET. Members of
the Board and GET were asked to indicate their
gender identity, sex and ethnic background
against the categories in the table above.
At Coats, we define our senior management
team as employees that are band three or above
in the organisation (Senior Management). As at
31 December 2023, there were 38 women (23%)
and 127 men (77%) in Senior Management.
Assessment of the effectiveness of the Committee
Following the external effectiveness review
conducted in 2022, the Committee’s effectiveness
in respect of the year ended 31 December 2023 was
evaluated by way of a questionnaire-based internal
review. Respondents included Committee members
and regular attendees. The Committee considered
the findings of the process, as well as considering
whether the feedback identified in the previous
year’s assessment had been adequately addressed.
The 2023 evaluation indicated that the Committee
was working effectively and identified opportunities
for the 2024 Committee work plan, which have
been appropriately included and are set out below.
Looking forward
As well as the regular cycle of matters that
the Committee schedules for consideration
each year, it is planned that the Committee
will during the course of 2024:
– Further GET succession planning focus.
– Oversight of transition of key Board roles.
– Continuing to monitor changes in relevant
requirements and best practice.
Signed on behalf of the Nomination Committee by:
David Gosnell
Chair, Nomination Committee
6 March 2024
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Coats Group plc Annual Report and Accounts 2023
Remuneration Committee report
Echo Lu
(Chair since May 2021)
Member since 2017
Nicholas Bull
Member since 2021
Steve Murray
Member since 2022
Fran Philip
Member since 2016
Dear Shareholder,
As Chair of the Committee, I am pleased to present
the Directors’ Remuneration Report for 2023.
This report consists of three parts: this letter
summarising the work of the Committee and
the decisions made, the Annual Report on
Remuneration for 2023 (the Report), and a summary
of the Directors’ Remuneration Policy (the Policy)
approved by shareholders at the 2023 AGM.
This letter and the Report will be subject to an
advisory vote from shareholders at the 2024 AGM.
I would like to thank those shareholders who provided
feedback on the Policy ahead of the 2023 AGM. The
Committee was very pleased with the level of support
received (99.7%), which demonstrates shareholders’
ongoing support for the Committee’s approach.
Highlights of 2023
– Reviewing feedback ahead of the 2023 AGM
on the now current Policy, and the proposed
implementation of Policy for 2023.
– Considering the implementation of the current
Policy for 2024, including amendments to
performance measures and weightings.
– Reviewing remuneration arrangements within the
wider workforce including the annual review of
our global Living Wage policy, to which over 99%
of our employees are above the living wage with
immediate plans to raise this back to 100%.
– Strengthening our global wider workforce pay
policy to ensure all our employees receive equal
pay for equal work in each operating location.
– Approval (subject to 2024 AGM shareholder
approval) of new Long Term Incentive and
Deferred Annual Bonus Plan rules.
– Reviewing salary and packages for the Executive
Directors and Group Executive Team.
Areas of focus for 2024
– Overseeing the implementation of the Policy.
– Setting incentive targets in a continually volatile
macro environment ensuring alignment with
strategy and shareholder interests, as well as
ensuring fairness and transparency.
– Continuing to review workforce remuneration
policies to support our environmental, social and
governance strategy as well as our Diversity,
Equity and Inclusion objectives.
Workforce context
During 2023 the Committee remained mindful of the
significant impact that high inflation and cost of living
pressures have on employees within the Group.
As such, the Committee has closely monitored
remuneration arrangements across the Group and
is supportive of the significant positive actions taken
by management to support employees; for example,
we have provided mid-year salary increases for
those most impacted by the effects of inflation.
Salary increases for the Executive Directors
and the senior executive team were approved
considering the increases applied to the relevant
local workforce and their overall position against the
market. Increases for our Executive Directors and
senior executive team in the UK were positioned
below the UK workforce increase of 7%.
Fran Philip, our Designated Non-Executive
for Workforce Engagement, continued her
programme of meetings with our employees in all
our local markets. Employees were encouraged
to discuss our approach to remuneration. As
a result, the Group has continued to address
concerns raised by employees surrounding
the impact of high inflation in their country.
Principal objectives of the
Remuneration Committee
Our main objectives are to have fair, equitable
and competitive reward packages that support
our vision & strategy and help ensure that
rewards are performance based and encourage
longer-term shareholder value creation.
Key responsibilities
– Implementing the Directors’ Remuneration
Policy (the Policy).
– Ensuring the competitiveness of reward.
– Designing the incentive plans.
– Setting incentive targets and determining
award levels.
– Reviewing workforce remuneration and
related policies and the alignment of
incentives and rewards with business strategy
and culture.
– Engaging with shareholders on remuneration
matters, including the Directors’ Remuneration
Policy.
Our executive remuneration principles
– Competitive with the local market and industry
where we recruit from.
– Rewards the achievement of personal goals
for each role.
– Linked to company performance over the
short and long term.
– Fair & transparent rewards linked to clear
measures and aligned to business strategy
and goals.
– Aligned to the principles and operation of the
remuneration policy for the wider workforce.
– Ensures that Remuneration appropriately
reflects and incentivises the Company’s
Sustainability goals.
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Coats Group plc Annual Report and Accounts 2023
Remuneration Committee report cont.
Incentive structures remain aligned within the Coats
business so that the key metrics that apply to senior
management compensation are applied consistently
through the organisation.
We are in the process of enhancing and harmonising
our benefits offering across the Group to ensure we
continue to offer the most appropriate packages to
our staff.
2023 remuneration outcomes
2023 has continued to see challenging market
conditions across the industry with widespread
destocking in apparel and footwear. In this context,
we are pleased to see that the business has
continued to grow its market share whilst improving
margins and achieving a number of strategic goals.
With regard to the annual bonus, the Committee
assessed actual performance against the targets set
at the start of the year and determined that bonus of
66.5% of the maximum was earned for the CEO and
CFO. This is felt to reflect the strong efforts made by
the Executives during a challenging year which saw
EBIT maintained, strong free cash flow generation
of $131 million and strategic progress, for example
through the de-risking of our pension schemes.
Further detail can be found on page 92.
With regards to long-term performance, we achieved
growth in EPS over the three-year period ending
31 December 2023 to 8 cents, delivered a total
shareholder return of circa 20% and made strong
strategic progress against a balanced scorecard of
objectives. This resulted in 96.27% of the total award
vesting. In the challenging market conditions, this was
considered to be exceptional performance of the
Executives and wider management team over the last
three years. With the 2021 award granted in March of
that year, companies’ share prices, including Coats’,
had recovered from their Covid pandemic losses and
so the Committee was comfortable that the award did
not benefit from windfall gains. Further details can be
found on page 92.
The Committee considered whether the formulaic
outcome under both the annual bonus and LTIP was
appropriate, mindful of the financial and non-financial
performance of the business over the performance
periods and concluded that no adjustments to the
formulaic outcomes were necessary at a Group level.
The Committee can confirm that the current Policy
approved at the 2023 AGM was implemented in
2023 as the Committee originally intended and was
working effectively. The Committee continues to
monitor this on an ongoing basis.
Implementation of Policy for 2024
The key decisions in respect of 2024 implementation
were taken following a review of how our current
performance metrics mapped across to our current
short and long-term corporate priorities. This resulted
in the following changes for 2024:
– We introduced EBIT Margin as a new measure for
20% of the total bonus opportunity to align with a
Group-wide focus on driving efficiencies through
our businesses and reflected this for all our
employees on Group targets. To accommodate the
introduction of EBIT Margin, we rebalanced the
weightings on our other key performance metrics
with EBIT subject to a 20% weighting, Free Cash
Flow 30%, Sales 10% and individual objectives
20%. The overall bonus structure reflects our near
term priorities of delivering profitability and cash
through a combination of efficiency and growth in
our key markets. Further details of the measures
and weightings for 2024 are included on page 98.
– We retained EPS, Average Cash Conversion and
TSR as our key financial performance metrics for
the 2024 LTIP. However, reflecting the importance
of sustainability to Coats, we made a modest
adjustment to the weighting so that structured
sustainability measures will account for 25% of the
2024 LTIP grant (from 20%), with EPS remaining at
30%, Average Cash Conversion at 20% and TSR
accounting for 25% (from 30%).
There have been no other changes made in respect
of the implementation of the remuneration policy
for 2024.
Base salary – as of 1 January 2024:
CEO (Rajiv Sharma) – £695,000
CFO (Jackie Callaway) – £431,550
The above salaries have been in operation since
1 July 2023 when they were increased by 5% which
was below the UK budgeted workforce increase of
7%. The Committee remains mindful of institutional
investor guidance in relation to 2023/24 salary
increases and the compounding impact of Executive
Director increases during periods of higher inflation
and will continue to balance this with the need to
recognise the performance, experience and calibre
of the Executive Directors.
Pension – the pension provision for the CEO and
CFO are aligned to the typical rate of pension
provision for the UK workforce of 12%.
Annual bonus – the maximum annual bonus
opportunity will remain at 150% of salary for the CEO
and 125% of salary for the CFO with 50% deferred
into shares for the CEO and 40% for the CFO. The
deferral period is three years. The performance
metrics are as detailed above.
The targets for the annual bonus will be disclosed
retrospectively in next year’s Remuneration Report.
The Committee is comfortable that the targets will
reflect our business objectives and will be
appropriately stretching.
LTIP – the Long Term Incentive awards are expected
to be granted at 175% and 150% of salary for the
CEO and CFO respectively, with awards vesting
subject to three-year performance targets. The
award levels are consistent with the awards granted
in 2023. The performance metrics are as detailed
above. Details of the targets will be provided at the
time of grant as at the time of finalising the 2023
Annual Report and Accounts, given the dynamic
nature of market conditions, the Committee
remained in the process of finalising specific targets.
Conclusion
The Committee is satisfied that the decisions made
during 2023 reflect the financial and non-financial
performance of the Group during the year and
balance the interests of all key stakeholders.
I look forward to receiving your support for our
Annual Report on Remuneration at our 2024 AGM.
Echo Lu
Chair, Remuneration Committee
6 March 2024
Ensuring fair reward at all
levels is what helps us to be
a Great Place To Work®”
Echo Lu,
Chair, Remuneration Committee
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Coats Group plc Annual Report and Accounts 2023
Remuneration Committee report cont.
Remuneration Policy summary (Executive Directors)
Element
Key features of policy
Fixed base and benefits
– Base salary is benchmarked against the FTSE 250 and a selected comparator
group of similar size and complexity
– Benefits benchmarked to local market practice and reflect the nature of the
Executive’s role
– Pension benefits aligned to the workforce where the role is based
Annual bonus
– Maximum award opportunity: 150% of base salary
– A proportion of annual bonus is subject to a mandatory deferral. Deferred
bonuses are converted into share awards and are released after a three-year
retention period so that the value of annual incentives is significantly aligned
to the longer term performance of the Company
LTIP
– Maximum LTIP award opportunity: 175% of base salary (200% exceptional
circumstances)
– Awards are discretionary and may be made annually
– Vesting is 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
Shareholding Requirement
– 200% of salary within five years of appointment
– Applies for 2 years post termination of employment based on the lower of the
shareholding requirement or the actual shares held on termination
Remuneration release profile
2023
2024
2025
2026
2027
Base salary/Benefits/Pension
Cash & benefits
Short Term Incentive
Long Term Incentive
Cash
Deferred shares
Performance Period
Holding Period
Summary implementation in 2023
Fixed remuneration
Implementation in 2023
Base salary
1 July 2023 review
Pension benefit
Aligned to the UK workforce
Annual bonus
Performance measures:
Sales: 10%
EBIT: 35%
Free Cash Flow: 35%
Personal objectives: 20%
Long Term Incentive
Performance measures:
EPS growth: 30%
Average Cash Conversion: 20%
Total Shareholder Return: 30%
Sustainability: 20%
– Increase of 5% for Rajiv Sharma and Jackie Callaway, which was lower than the
7% budgeted increase for the UK workforce
– 12% of salary for both the CEO and CFO
– For Rajiv Sharma a maximum bonus of 150% of salary with a deferral of 50%
of the outcome in shares
– For Jackie Callaway a maximum bonus of 125% with a deferral of 40% of the
outcome in shares
– Outcomes for 2023 shown on page 91
– Grant of 175% of salary to Rajiv Sharma
– Grant of 150% to Jackie Callaway
– Three-year performance period with subsequent two-year holding period
– Targets for 2023-2025 on page 93
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90
Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report
for the year ended 31 December 2023
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 (the Regulations). Where indicated information has been audited
by Ernst & Young LLP.
The Annual Report on Remuneration will be subject to an advisory vote and the Directors’ Remuneration
Policy will be subject to a binding vote at the AGM on 22 May 2024.
Executive Directors
Two Executive Directors were employed during 2023. Rajiv Sharma was appointed to the Board on 2 March
2015 and was appointed as Group Chief Executive with effect from 1 January 2017. Jackie Callaway was
appointed to the Board on 1 December 2020 and appointed as Chief Financial Officer on 31 March 2021.
Single total figure for Executive Directors’ remuneration for 2023 (audited information)
£000’s
Base salary
Benefits
Other
Pension
Total Fixed
Annual bonus
LTIP
Total Variable
Total
Rajiv Sharma
Jackie Callaway
2023
678.5
46.4
–
81.4
806.3
693.3
1,208.1
1,901.4
2,707.7
2022
646.2
41.4
–
122.4
810.0
834.1
224.6
2023
421.3
21.8
–
50.6
493.6
358.8
643.0
1,058.7
1,868.7
1,001.7
1,495.4
2022
401.3
21.3
–
48.2
470.8
397.2
–
397.2
868.0
The figures in the table above have been calculated on the basis of the following:
– Benefits: this is the value of all benefits including a car allowance, private medical insurance, life insurance
and income replacement insurance. A car allowance of £20,000 per annum is paid to Rajiv Sharma and an
allowance of £15,000 per annum is paid to Jackie Callaway.
– Annual bonus: is the total value in cash and shares of the annual bonus that is attributable to each year.
50% of any 2023 bonus outcome for the Chief Executive Officer and 40% for the current Chief Financial
Officer will be awarded in shares under the terms of the Deferred Annual Bonus Plan.
– 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.
Jackie Callaway’s pension benefit is based on 12% of salary. For 2022 Rajiv Sharma’s pension benefit was
fixed at £122,400 per annum and reduced to 12% of salary with effect from 1 January 2023.
– The value of the LTIP award shown for Rajiv Sharma for 2022 has been restated to reflect the value on the
vesting date (6 March 2023) including dividend equivalents, using the share price on this date of £0.758.
Of the amount shown, £47,939 of this value represents the value attributable to share price growth over
the three-year period (excluding dividend equivalents).
– The value of the LTIP awards shown for Rajiv Sharma and Jackie Callaway for 2023 reflect the vesting
of LTIP awards with a performance period ending in 2023. Of the amount shown, £177,024 and £94,214
of this value represents the value attributable to share price growth for Rajiv Sharma and Jackie Callaway
respectively, over the three-year period based on the average share price for the last three months
for 2023.
Annual bonus outcome 2023 (audited information)
The annual bonus for 2023 was determined in accordance with the details provided in the 2022 Directors’
Remuneration Report. Details of the bonus measures and opportunities are provided in the table below.
The measures were selected to incentivise a balance of outcomes that reflected the strategic priorities of
the Group.
Annual bonus 2023
Weighting
Achievement
Performance
achieved in 2023
Performance Measure
Group Sales $m
Earnings Before Interest and Taxation (EBIT) $m
Free Cash Flow (adjusted) (FCF) $m
Individual objectives
Total
10.0%
35.0%
35.0%
20.0%
100.0%
Threshold
(10% of max)
Target
(50% of max)
Maximum
(100% of max)
1,521
228
93
–
1,690
1,774
1,417
248
108
–
263
118
240
131
– See below
Outcome
as % of Max
0%
11.5%
35%
20%
66.5%
Targets are set in relation to budget for the upcoming financial year and the figures in the table above
exclude the pre-disposal contribution of EMEA Zips and reflect the 2023 Plan exchange rates.
The performance reflected in the table above reflects the figures disclosed in this Annual Report adjusted
to exclude the impact of any exchange rate fluctuations during the year $23 million for Sales, $6 million
for EBIT, and $0.6 million for FCF respectively.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
For the 2023 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 2023 are reflected in the section below.
The above table includes the targets set and actual performance against them other than where information
is considered price sensitive by the Remuneration Committee.
Summary 2023 Bonus Outcome
Personal objectives linked to 2023 bonus
At the beginning of the year the Committee determined that the following personal objectives would be
linked to 20% of the maximum annual bonus outcome. All objectives were equally weighted.
Performance Measure
Bonus opportunity (% of salary)
2023 bonus outcome (% of maximum)
Bonus outcome (£)
CEO – Rajiv Sharma
CFO – Jackie Callaway
150%
125%
66.5%
66.5%
£693,334
£358,763
Objective
Outcome
CEO – Rajiv
Sharma
Conclude strategic
project started in 2022
Reach 17% EBIT margin
run rate by Dec 2023
Launch 2023–2026
phase of sustainability
journey and deliver
2023 targets
The 2023 in year target of $30 million of savings was exceeded
with savings of $37 million delivered. Performance was well
ahead of the total 2022/2023 targeted savings of $50 million.
EBIT margin was exceeded with Q4 EBIT at 20%.
Successfully launched 2023-2026 sustainability targets and
delivered progress across all indicators ahead of 2023 plan and
versus 2022 actuals. This included, material reductions in
absolute Scope 1 and 2 emissions, increases in water recycling
rates and use of sustainable materials as well as becoming
certified as a Great Place To Work®. Full details are included
on page 42.
CFO – Jackie
Callaway
The Committee determined the outcome of 20% out of a possible 20% of maximum
bonus.
Launch 2023–2026
phase of sustainability
journey and deliver
2023 targets
Successfully launched 2023-2026 sustainability targets and
delivered progress across all indicators ahead of 2023 plan and
versus 2022 actuals. This included, material reductions in
absolute Scope 1 and 2 emissions, increases in water recycling
rates and use of sustainable materials as well as becoming
certified as a Great Place To Work®. Full details are included
on page 42.
EBIT margin was exceeded with Q4 EBIT at 20%.
Get to a 17% EBIT margin
run rate by Dec 2023
Agree and implement
strategy for de-risking
pension scheme
The Committee determined the outcome of 20% out of a possible 20% of
maximum bonus.
Strategy agreed which culminated in reaching agreement with
the pension trustees in December 2023 to switch-off pension
payments.
Long Term Incentive award vesting (audited information)
On 5 March 2021 Rajiv Sharma and Jackie Callaway were granted 1,770,247 and 942,148 Long Term Incentive
Plan awards respectively in the form of nil cost options. Awards vest according to performance over the
period from 1 January 2021 to 31 December 2023 (referred to as 2021 LTIP).
As set out in the table below 96.27% of the shares granted will vest on 7 March 2024.
The performance measures were based upon Total Shareholder Return performance (TSR), Earnings Per
Share (EPS) and cumulative Free Cash Flow relating to Coats Group plc. The achievement of the Long Term
Incentive Plan performance measures and the consequent vesting of the awards are shown in the table
below.
LTIP 2021: Performance period 1 January 2021 to 31 December 2023
Measure
EPS
Cumulative Free Cash Flow
Total Shareholder Return versus the FTSE 250
excluding investment trusts
Sustainability
Total
Weighting
40.0%
30.0%
20.0%
10.0%
Threshold
(25% vesting)
Mid
(62.5% vesting)
Maximum
(100% vesting)
6.0 cents
7.0 cents
8.0 cents
Actual
8.04
$205m $242.5m
$280m
$369m
Median
62.5th
Percentile
Upper
Quartile
70th
Percentile
See summary of performance below
Outcome as % of
max LTIP
40%
30%
16.82%
9.45%
96.27%
Summary of performance against sustainability targets
The extent of achievement in performing against the targets set for the 2021 LTIP is set out below. The
Committee tested the extent of achievement against the target on an indexed basis.
Based on average performance against the targets set (on an unweighted basis), 100% achievement results
in the threshold target being met (25% of this part of the award vesting), rising to 100% vesting for 110%
average achievement against the targets. The targets were set to be similarly challenging to the 2020 LTIP
sustainability targets in light of the progress of the Company through to 2021.
With 109.26% achievement against the targets, 94.5% of the maximum sustainability target was achieved.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
Area
Water usage
Energy
Effluent & discharge
Social
Target
Performance
Percentage
Achievement of
Target
Achieved a 41.2% reduction in 2023.
103%
Achieved a 5.3% reduction in 2023.
75.7%
Reduction versus 2018 baseline of
40% water usage
Achieve a 7% reduction versus 2018
baseline of energy usage
Compliance with Zero Discharge of
Hazardous Chemicals effluent
standards
Achieve Great Place To Work®
accreditation or similar for all locations
that cover approximately 80% of all
employees. Enable all employees to
participate in community support
activities
Achieved 99.834% compliance in
2023.
Achieved certification coverage
across 87% of employees and
community support activities have
been enabled.
Sustainability
Reduce waste by 25% (vs a 2018
baseline)
A 21.3% reduction in waste was
achieved in 2023.
Increase use of sustainable materials
(working towards 100% of higher
grade premium product thread
produced from recyclable materials)
The combined increase in sustainable
materials in higher grade product
sales and use of sustainable raw
materials used in products increased
by 183.2% during the period based on
continuing sustainability KPIs
Average achievement
The Committee considered the Group’s overall performance over the 2021 LTIP performance period and felt that
the outcome of 96.27% appropriately reflected the performance of the business during the performance period.
Share awards granted in 2023 (audited information)
The following share awards were granted to Executive Directors during the financial year ended 31 December
2023. The targets for achieving minimum performance for each measure, where these apply, are shown in the
table to the right.
Coats Group plc Long Term Incentive Plan
The share price shown below, which was used to calculate the number of options awarded under the terms
of the Coats Group plc Long Term Incentive Plan, is based on the mid-market closing price for the day
immediately preceding the grant date.
Awards were granted 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. Awards were also granted to approximately 100 senior
managers on similar terms. 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 upon exercise.
Executive Director
Date of grant
Number of options
awarded
Face value at award
date
Award value as a
% of salary
Jackie Callaway
17–Mar–23
786,352
£616,500
150%
Share price to
calculate no of
shares
% vesting for
minimum
performance
Rajiv Sharma
17–Mar–23 1,477,678 £1,158,500
175%
£0.784
25%
Performance
period
Vesting date
1 Jan 2023
to 31 Dec
2025
21–Mar–
26
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 2023 (LTIP 2023) are shown below.
99.834%
108.8%
85%
183.2%
109.26%
Measure
EPS CAGR
Total Shareholder Return versus the FTSE 250
excluding investment trusts
Average Cash Conversion
Sustainability (see details below)
Weighting
30.0%
30.0%
20.0%
Threshold
(25% vesting)
Mid
(62.5% vesting)
Maximum
(100% vesting)
5%
10%
Median
70%
62.5
percentile
80%
15%
Upper
quartile
90%
20.0% See below
– See below
The Board will consider the achievement of normalised EPS, adjusted to exclude the impact of exceptional
costs such as property gains or losses and the impact of variation of the IAS 19 (pensions finance) charge.
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.
Average Cash Conversion is defined as the average of the adjusted Free Cash Flow divided by normalised
Attributable Profit for each of the three years in the performance period. The adjusted Free Cash Flow is
before deficit repair contributions to the UK pension scheme and after maintaining the company’s asset
base i.e. operating cash flow minus capital expenditures, adjusted for exceptional items such as property
gains or losses.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
The Sustainability targets are as follows:
Sustainability
Energy: reduction in Scope 1&2 emissions
Recyclable materials: growth in sustainable
(non-virgin oil) based materials
Waste: reduction in waste to landfill
Diversity & inclusion: percentage representation of women
in the leadership (senior manager and above) population
Vesting (the proportion of the award for this measure that vests)
Threshold
15%
Mid
15.75%
Maximum
16.5%
Growth to 46% Growth to 48% Growth to 50%
65% reduction 70% reduction 75% reduction
21%
25%
23%
62.5%
25%
100%
Targets for energy and waste reduction and growth in recyclable materials are measured against a 2022 baseline.
The Committee will test the extent of achievement against each equally weighted target shown above.
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
The base fee was increased by 5% from £63,000 to £66,150 per annum with effect from 1 July 2023.
The supplementary Chair and Senior Independent Director fees increased to £13,125 (5% increase for the
Chair fees and £3,125 for the SID). Finally, the fee as Designated Non-Executive for Workforce Engagement
increased by 5% to £7,875. The fee for the Chair payable to David Gosnell following his appointment on
19 May 2021 has been fixed on appointment at £250,000.
Single total figure for Non-Executive Directors’ remuneration for 2023 (audited information)
Non-Executive Directors, excluding the Chair, 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
Supplementary fee
£000
Benefits1
£000
Other fee2
£000
Total
£000
Comments
2023
2022
2023
2022
2023
2022
2023
2022
2023
2022
David
Gosnell
Nicholas
Bull3
Sarah
Highfield
Heather
Lawrence4
Echo Lu
Stephen
Murray
Fran Philip
Jakob
Sigurdsson
250.0
250.0
–
–
64.6
61.5
24.4
18.3
11.0
15.8
64.6
64.6
64.6
–
10.5
61.5
21.0
61.5
64.6
61.5
–
–
–
–
12.8
12.5
–
7.7
–
–
7.5
–
Total
599.7
527.5
44.9
38.3
–
–
–
–
–
–
1.8
–
1.8
–
–
–
–
–
–
–
–
–
–
–
250.0
250.0
1.5
1.5
90.5
81.3
–
–
1.5
1.5
7.5
1.5
13.5
–
–
–
–
6.0
1.5
9.0
11.0
15.8
78.9
66.1
81.6
Appointed
1–Nov–23
–
10.5 See below
74.0
21.0
75.0
Appointed
1–Sep–22
66.1
63.0
659.8
574.8
1 The figure under benefits for Non-Executive Directors relates to support with tax returns.
2 Fees under Other fee represent the £1,500 per trip travel fee payable for Directors (excluding the Chair) who travel long haul to attend Board meetings.
The travel fee is capped at a maximum of £7,500 per annum.
3 Nicholas Bull was appointed Chair of the Audit and Risk Committee in May 2022.
4. Heather Lawrence was appointed on 1 November 2022 and stepped down on 31 March 2023.
Payments for loss of office (audited information) & Payments to former Directors (audited information)
There have been no payments for loss of office during the year. No payments were paid to former Directors
in the year.
Directors service agreements and appointment letters
All Executive Directors have service agreements which are rolling with an indefinite term and provide for a
notice period from either side of 12 months and all of this notice is unexpired. No appointment letters for
Non-Executive Directors, including the Chair, contain a notice period. All service agreements and
appointment letters for Directors are available for inspection at the Company’s registered office during
normal hours of business and will also be available for inspection at the Company’s Annual General Meeting.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
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 2023,
are set out below.
Shareholding requirement in 2023
Shares beneficially owned
Deferred bonus shares subject to
vesting period
LTIP share options
(subject to performance conditions)
Share options
(no performance conditions)
Number of
shares3
Equivalent
% of salary
Condition
met?
01-Jan-231
31-Dec-232
01-Jan-23
31-Dec-23
01-Jan-23
31-Dec-23
01-Jan-23
31-Dec-23
Executive Director
Jackie
Callaway 1,196,306
Rajiv
Sharma 1,926,620
200%
Yes
269,716
333,489
258,709
464,702
1,846,305
2,632,657
–
–
200%
Yes
4,596,492
4,596,492
1,055,858
1,246,906
5,027,626
4,946,731
346,586
296,308
Chair and Non-Executive Directors
David Gosnell
N/A
Nicholas Bull
Sarah Highfield
Heather Lawrence
Echo Lu
Stephen Murray
Fran Philip
Jakob Sigurdsson
1. Or date of appointment, if later.
2. Or date of resignation, if earlier.
N/A
N/A
N/A
N/A
N/A
N/A
N/A
1,567,470
1,717,470
550,000
550,000
–
–
22,874
–
75,984
77,244
–
–
22,874
65,000
75,984
77,244
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
3. The target number of shares is based on the average share price for 2023 which was 72.15p.
The Executive Directors’ shareholding requirement must be met within five years of their appointment
to the Board (2 March 2020 for Rajiv Sharma, and 1 December 2025 for Jackie Callaway). 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 unexercised Long Term Incentive Plan awards granted
to Executive Directors 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 2023 (audited information)
Rajiv Sharma
Award
Vesting date
Retention period
Expiry date
No.
Status
Performance
conditions?
Deferred bonus shares subject to vesting period
DABP22
DABP23
Sub-total
4–Mar–25
3–Mar–26
N/A
N/A
4–Mar–32
3–Mar–33
706,218 Unvested
540,688 Unvested
1,246,906
LTIP share options (subject to performance conditions)
LTIP21
LTIP22
LTIP23
Sub-total
5–Mar–24 5–Mar–26
4–Mar–25 4–Mar–27
5–Mar–31 1,770,247 Unvested
4–Mar–32 1,698,806 Unvested
17–Mar–26 17–Mar–28 17–Mar–33 1,477,678 Unvested
No
No
Yes
Yes
Yes
Share options (no performance conditions)
LTIP201
Sub-total
6–Mar–23 6–Mar–25
6–Mar–30
1. Excluding 12,648 dividend equivalent shares acquired on vesting.
Jackie Callaway
4,946,731
296,308
296,308
Vested
No
Award
Vesting date
Retention period
Expiry date
No.
Status
Deferred bonus shares subject to vesting period
DABP22
4–Mar–25
DABP23
Sub-total
3–Mar–26
N/A
N/A
4–Mar–32
258,709 Unvested
3–Mar–33
205,993 Unvested
464,702
LTIP share options (subject to performance conditions)
LTIP21
5–Mar–24 5–Mar–26
5–Mar–31
942,148 Unvested
LTIP22
LTIP23
Sub-total
4–Mar–25 4–Mar–27
4–Mar–32
904,157 Unvested
17–Mar–26 17–Mar–28 17–Mar–33
786,352 Unvested
2,632,657
Performance
conditions?
No
No
Yes
Yes
Yes
Share options (exercised during the year)
Rajiv Sharma exercised and sold options over 696,226 shares and received dividend equivalents in the form
of shares of 29,154 on 26 September 2023 when the share price was 74.05 pence. No other share options
were exercised by Directors during the year.
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No options have been exercised by any Director 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 2023 was 77.4 pence and the range during the year was 64.3 pence to 80.7 pence.
95
Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
Review of performance
The graph below shows the difference between investing £100 in the Company and the constituents of the
FTSE 250 from 1 January 2014 to 31 December 2023. It is assumed dividends are reinvested over that period.
The Board feels the FTSE 250 provides an appropriate comparator given the Company’s market
capitalisation and its presence on the London Stock Exchange.
Director’s remuneration – annual percentage change
The table below shows the percentage change in the annual remuneration of Directors and the average UK
colleague from 2019 onwards.
Salary or fees3 (% change)
Benefits2 (% change)
Bonus (% change)
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
2022 to
2023
2021 to
2022
2020 to
2021
2019 to
2020
£350
£300
£250
£200
£150
£100
£50
£0
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
31 Dec
2021
31 Dec
2022
31 Dec
2023
Coats
FTSE250 Index
Chief Executive total remuneration for the last 10 years1,2
Executive Director
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
Name
CEO single figure of
remuneration (£k)
Annual bonus as a % of
maximum opportunity
LTIP award as a % of
maximum opportunity
Paul
Forman
Paul
Forman
Rajiv
Sharma
Rajiv
Sharma
Rajiv
Sharma
Rajiv
Sharma
Rajiv
Sharma
Rajiv
Sharma
Rajiv
Sharma
N/A
– 1,017.0 1,760.3 2,566.9 3,356.7 2,228.1
787.4 1,758.5 1,868.7 2,707.7
–
–
87.1%
77.0%
79.5%
66.7%
67.3%
5.0%
97%
84%
66.5%
–
43.6%
60.0%
84.2%
95.8%
0%
0%
18.2% 96.27%
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.
2. 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. The 2022 single figure of remuneration has been restated to reflect the value of the LTIP
on vesting.
Rajiv
Sharma
Jackie
Callaway
David
Gosnell
Nicholas
Bull
Sarah
Highfield
Heather
Lawrence
Echo Lu
Stephen
Murray
Jakob
Sigurdsson
Average of
all
employees1
5.0%
4.0%
6.9%
-3.6%
12% -12.7% 25.8% -46.8% -16.9%
-9% 1,898.8% -91.1%
5.0%
4.0%
1.4%
N/A
2.4% 35.7%
-0.6%
N/A
-9.7%
-5.5%
100%
N/A
0% 37.7% 163.4%
-5%
11.3% 13.7%
4.4%
-5%
0%
0%
0%
0%
0%
0%
0%
0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0%
6.6%
0%
N/A
6% 22.5%
7.4%
0%
Fran Philip
6.4% 11.1%
N/A
2.9%
N/A
-5%
N/A
-5%
0%
0%
0%
0%
0%
N/A
0%
N/A
0%
N/A
0%
N/A
0%
N/A
0%
N/A
0%
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
0%
0%
0%
N/A
N/A
N/A
N/A
4.9%
2.4% –6.8%
-5%
7.6%
5.5%
3.1%
0% 10.8%
0%
0%
0% -13.8%
N/A
N/A
N/A
1. The average of all employees reflects the total number of employees based in the UK excl. Texon. The UK has been chosen as the most appropriate
comparator group because the Executive Directors are employed by the UK parent company 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 and for prior year comparisons, excludes acquisitions made during the relevant year.
2. Non-Executive Directors do not receive benefits-in-kind however, figures are disclosed in the benefits Single Figure table to reflect business expense payments
and tax support where applicable, that are regarded as taxable by the UK tax authority. Year-on-year variations in the reported benefits value have been
ignored for this purpose unless there is the provision of a material specific benefit or if the difference in benefit is greater than £5,000 from one year to the next.
3. Jackie Callaway, Sarah Highfield, Heather Lawrence and Stephen Murray do not have four years’ worth of disclosure as they joined the business during this
time. Anne Fahy resigned on 18 May 2022, details of Anne’s percentage change can be found in previous years’ reports.
4. To enable comparisons, leavers and joiners figures have been annualised. The figures for David Gosnell, Echo Lu and Nicholas Bull in 2022 and 2021 reflect
their increased fees following their appointments as Group, Remuneration Committee and Audit Chairs respectively.
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96
Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
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
2023
Year to
31 December
2022
293.7
40.6
15,539
1,394.2
233.4
306.1
32.9
17,155
1,487.8
225.2
% change
-4%
23%
-9%
-6%
4%
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 2023 and 2022
have been stated on the basis of continuing operations only. Information for 2022 includes acquisitions
made during the year. The figures for revenues and operating profit are on a constant exchange rate (CER)
basis with amounts for 2022 restated at 2023 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, the Company publishes a disclosure on a voluntary basis. This ratio shows the CEO’s pay relative
to our UK employees.
Financial Year
Calculation
methodology
2019
2020
2021
2022
2023
A
A
A
A1
A1
Salary
Salary plus bonus
Total pay
P25
21
20
16
15
14
P50
P75
12
12
12
10
9
8
7
8
6
5
P25
37
20
37
34
28
P50
20
12
27
21
17
P75
11
7
13
10
8
P25
58
20
41
42
50
P50
36
14
27
23
30
P75
19
7
12
11
14
1 During 2022, Coats acquired Texon which includes approximately 100 UK based employees. Giving the timing of this acquisition and differing pay structures,
these employees have been excluded for 2022 and 2023. Although employees from Texon have been excluded from the calculations, based on high-level
analysis, Coats is comfortable that the inclusion of these employees would not have had a material impact on the overall CEO pay ratio, and that the ratios for
are reflective of the overall Group.
The ratio of salary, salary plus bonus have remained relatively stable over the year with an ongoing
decreasing trend over time. Total pay is strongly impacted by overall variable pay performance which, on
the back of strong LTIP vesting in the year has marginally increased our ratio. The lower quartile, median
and upper quartile employees in the table below were identified on the basis of full-time equivalent
total remuneration and benefits in the 12-month period ending 31 December 2023 (this is referred to
as methodology A according to the 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 2023. The UK workforce is the most appropriate comparator group
because the CEO is employed by the UK parent company and the pay of the global workforce is subject
to very significant fluctuations due to local inflationary pressures and foreign exchange rate movements.
The Committee has considered the pay data for the three individuals identified above and concludes
that the median ratio is a fair reflection of the movement of pay and reward within the UK workforce
especially considering that the pay for all three individuals does not include any share-based incentive
remuneration. In addition, 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 2023 to
ensure the percentile ranking for each individual was comparable to all individuals within that quartile
grouping. 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 estimated 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
Lower quartile
Median
Upper quartile
678,512
1,371,846
2,707,701
48,671
48,671
54,509
73,097
81,643
90,569
123,709
163,525
188,989
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.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
Corporate Governance Code requirements
The Directors believe that the principles outlined in Provision 40 of the Corporate Governance Code
continue to be met in the operation of the Remuneration Policy. Remuneration arrangements are clearly
communicated and straightforward. Incentives are linked to the key performance metrics of sales, profit
and cash generation. These measures are aligned throughout the Groups incentive schemes and there is
a balance between overall Group performance across all three metrics and each individual local business
unit, where relevant. Personal performance is also an element, both in incentives and in salary reviews,
but there is an overall link to the achievement of company performance to ensure that the risk of excessive
rewards in cases of poor performance is managed. Teamwork is a key strength and cultural aspect for Coats,
and incentives are managed to ensure that there is cooperation and flexibility in delivering performance
and to ensure that incentive structures do not negatively impact the culture of the organisation.
Although the Company does not formally consult with employees in determining the Remuneration Policy
there are several routes by which employee engagement is achieved. Fran Philip is the Designated
Non-Executive for Workforce Engagement and is also a member of the Remuneration Committee.
During 2023 a programme of meetings was conducted by Fran with business unit leadership teams
to discuss a variety of issues of interest to employees. All employees were encouraged to raise
any areas of concern, including matters of remuneration, directly or through line managers. Further
details of the Board’s engagement with the workforce is set out on page 47. In addition, during 2023
the Committee considered in depth for all employees the competitiveness of the remuneration
offering, the level of any minimum Living Wage and whether any employees were below this level,
the gender profile and pay differentials of the workforce across the main operating countries.
Statement of implementation of Remuneration Policy for 2024
Base salaries for Executive Directors and fees for the Non-Executive Directors will be reviewed on 1 July 2024.
Rajiv Sharma will continue to receive a base salary of £695,000, a car allowance of £20,000 and a pension
contribution (aligned to the UK workforce) of 12%.
Jackie Callaway will continue to receive a base salary of £431,550, a car allowance of £15,000 and a pension
benefit (aligned to the UK workforce) of 12%.
Both Directors also receive private medical insurance, life and income replacement insurance.
The above Executive Director salaries have been in operation since 1 July 2023 when they were increased
by 5%, below the budgeted increase to the workforce of 7% in the UK.
In line with Remuneration Policy, it is expected that the LTIP award for the Chief Executive Officer will be
175% and the maximum annual bonus opportunity will remain 150%. The maximum bonus opportunity
for the Chief Financial Officer will remain at 125% and the LTIP award is expected to remain at 150% of
salary. The compulsory three-year deferral into shares of the 2023 bonus outcome will be 50% for the
Chief Executive Officer and 40% for the Chief Financial Officer. A post-termination minimum shareholding
requirement applies to all Executive Directors for two years following termination of employment based on
the lower of 100% of the minimum shareholding requirement or the actual shareholding at termination.
As detailed in the Chair’s Introductory Letter, the performance measures were revised to better reflect the
current short and longer-term priorities of the Company as follows:
Annual bonus
Measure
Sales
Earnings Before Interest and
Taxation Margin
Earnings Before Interest
and Taxation
Free Cash Flow
Individual objectives
Long Term Incentive
Weighting
10%
Measure
Earnings Per Share CAGR
Three-year Average
Cash Conversion
Total Shareholder Return
compared to the FTSE250
Sustainability
20%
20%
30%
20%
Weighting
30%
20%
25%
25%
Annual bonus targets are based on EBIT, Adjusted EBIT Margin, Adjusted Free Cash Flow and individual
objectives, excluding the impact of any exchange rate fluctuations. The Company does not publish annual
bonus targets in advance as these figures are considered commercially sensitive but will do so at the time
the bonus award is disclosed.
The Long Term Incentive Plan awards granted in 2024 will be subject to targets that will vest at a level no more
than 25% (for each measure) for threshold performance and at 100% (for each measure) for performance at
maximum. There will be straight-line between threshold, maximum and any intervening points.
The specific targets for both the annual bonus and Long Term Incentive Plan are set to be challenging by
the Committee having regard to internal planning expectations, external expectations for the Company’s
performance and economic conditions.
As detailed in the Chair’s Introductory Letter, the Committee was in the process of finalising the conditions to
apply to the 2024 LTIP awards at the time the Annual Report was finalised. It is the Committee’s intention to
publish the targets in the announcement notifying the market of the grant of the award.
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Coats Group plc Annual Report and Accounts 2023
Directors’ remuneration report cont.
Consideration by the Directors of matters relating to Directors’ remuneration
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 Non-Executive for Workforce 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),
Farnaz Ranjbar (Chief HR Officer) and the Reward Director. No Directors are involved in deciding their
own remuneration.
The Remuneration Committee receives independent external advice on executive remuneration from
Korn Ferry, a member of the Remuneration Consultants Group and signatory to its Code of Conduct, who
were appointed as Remuneration Advisers in 2022. Korn Ferry, who do not have any connection with any
Directors of the Company, provide advice to the Remuneration Committee which supports robust and sound
decision making. The Remuneration Committee is satisfied that its remuneration advisers act independently.
Korn Ferry fees for advising the Remuneration Committee during 2023 were £88,063.
Statement of voting at the General Meeting
At the AGM of the Company on 2023 the results of the vote regarding remuneration (resolution 2 and 3) were:
Votes for
Number
Votes against
Votes total
Votes withheld
%
Number
%
Number
Number
Approval of
Remuneration
Report
(resolution 2)
Approval of
Remuneration
Policy (resolution 3)
1,412,483,258
99.74
3,655,177
0.26 1,416,138,435
31,208
1,412,457,273
99.74
3,641,947
0.26 1,416,099,220
70,423
Committee performance and effectiveness
The Committee effectiveness in respect of the year ended 31 December 2023 was evaluated internally
following an externally facilitated review process undertaken last year, as set out in the 2022 Annual Report.
The Committee considered the key points that were identified in the previous year’s assessment. The 2023
evaluation indicated that the Committee’s ways of working and dynamics were working effectively and noted
areas they can further enhance their performance in 2024.
Signed on behalf of the Remuneration Committee by:
Echo Lu
Chair, Remuneration Committee
6 March 2024
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Coats Group plc Annual Report and Accounts 2023
Remuneration policy report
A summary of the Directors’ Remuneration Policy approved by shareholders at the 2023 AGM has been
reproduced here. The full Policy approved by shareholders can be found in the Coats plc Annual Report
2022. The summary set out below applies to all Directors who are appointed to the Board during the life of
this policy.
Executive Directors’ Remuneration Policy table
FIXED REMUNERATION
Purpose and link to strategy
Operation and opportunity
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.
Benefits
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.
There is no set maximum salary.
Executive Directors are entitled to participate in a defined contribution scheme, on a non-
contributory basis, with an employer contribution of up to the typical UK workforce (or other
relevant local workforce where appropriate) rate which is currently 12% of salary, or will be
provided with a cash alternative in lieu of any pension benefits of up to an equivalent value.
To provide a market
competitive level of
benefits.
Benefit provision to Executive Directors will be determined by the Committee taking into account
such factors as it determines to be necessary, with the aim of creating a competitive overall
package. There are no set maximum levels.
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 performance measures, weightings and
targets for the annual bonus will be set by the
Committee on an annual basis.
The maximum annual bonus that may be
awarded to any executive director will be 150%
of salary.
Performance measures will normally include
tests of both business and individual
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.
Any bonuses awarded will be subject to a
mandatory deferral which is normally 50% of
any bonus earned where the maximum bonus
opportunity is 150% of salary and 40% of any
bonus earned where the maximum bonus
opportunity is below 150% of salary.
Deferred bonuses will be transferred into
shares, to be held for a three-year retention
period, under the terms of the Deferred Bonus
Plan.
The annual bonus including cash paid or
deferred element of the bonus may be subject
to malus or clawback. Details of malus and
clawback terms are set out below.
Malus & clawback
The Committee may, at any time within three years of a cash bonus payment, LTIP or deferred bonus award
vesting, determine that malus and/or clawback shall apply if the Committee determines that:
– there was a material misstatement of the financial statements of the Company upon which the
performance targets were assessed, or an erroneous calculation was made in assessing the extent
to which performance targets were met;
– the award holder has contributed to serious reputational damage to the Company or one of its
business units;
– the award holder’s conduct has amounted to serious misconduct, gross negligence, fraud, dishonesty,
a breach of the Code of Business Conduct or material wrongdoing; or
– where corporate failure or failure in risk management has occurred.
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Coats Group plc Annual Report and Accounts 2023
Remuneration policy report cont.
VARIABLE REMUNERATION cont.
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
Purpose and link to strategy
Operation and opportunity
Performance
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.
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 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.
Details of malus and clawback terms are set out
on the previous page.
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.
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.
Shareholding requirements
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.
Element
Fees
Supplementary
fees
Travel fees
Purpose and link to strategy
Operation
To attract and retain a high-calibre Chair and
Non-Executive Directors by offering market
competitive fee levels.
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. The Board wishes to
recognise the additional time commitment
required for Non-Executive Directors (excluding
Chair) in travelling to Board meetings.
The Chair 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 and the Director responsible for
employee engagement.
An additional fee may be payable to any Non-
Executive Director (excluding the Chair) 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 2023, a travel fee will be payable for any
journey longer than five hours of one-way flight
time and the maximum fee will be capped at the
equivalent of five 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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Coats Group plc Annual Report and Accounts 2023
Remuneration policy report cont.
VARIABLE REMUNERATION cont.
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.
Under their respective Non-Executive Director appointment letters, all of the Non-Executive Directors are
entitled to receive an annual fee. None of the appointment letters contains a set term of office. None of the
appointment letters contains a notice period. There are no provisions in the Non-Executive Directors’ letters
of appointment that would give rise to any compensation payments for loss of office.
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.
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Coats Group plc Annual Report and Accounts 2023
Directors’ report
Coats Group plc (Company) is the holding
company of the Coats group of companies
(Group).
Annual General Meeting
The Annual General Meeting (AGM) of the Company
will be held on 22 May 2023 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 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, stakeholder engagement, Section 172
Statement and environmental policy. The 2018 UK
Corporate Governance Code is available from the
Financial Reporting Council’s website
(www.frc.org.uk).
Directors
The names and biographical details of the current
Directors are shown on pages 70 to 72 of this
Annual Report. Particulars of their emoluments and
beneficial and non-beneficial interests in shares are
given in the Directors’ Remuneration Report on
pages 88 to 99.
The appointment and removal of Directors are
governed by the Company’s Articles of Association
and the Companies Act 2006. The Directors may,
from time to time, appoint one or more Directors. In
accordance with the provisions of the Code, all
Directors will retire and submit themselves for
election or 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. The Company
adopted new Articles at the AGM held in May 2021.
In the event that a Director raises any concerns
about the operation of the Board or management of
the Company that cannot be resolved, a record
would be kept in the Board minutes, and this should
also be noted in the Director’s resignation letter.
Further discussion of the Board’s activities, powers
and responsibilities appears within the Corporate
Governance Report on pages 66 to 78. Information
on compensation for loss of office is contained in
the Directors’ Remuneration Report on page 94.
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.
The Company has one class of ordinary shares with a
nominal value of five 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 159,781,039 (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
2023) of its own ordinary shares was granted at the
2023 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 £53,255,020 was granted at the 2023 AGM. No
shares were allotted pursuant to this authority
during the year.
The issued share capital of the Company at
31 December 2023 was approximately £79,890,520
divided into 1,597,810,385 ordinary shares.
Since 31 December 2023, 0 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 6 March 2024 is
1,597,810,385 ordinary shares. The Company’s
ordinary shares are listed on the London Stock
Exchange. The register of shareholders is held in the
UK. The number of ordinary shares of the Company
in which the Directors were beneficially interested as
at 31 December 2023 is set out in the Directors’
Remuneration Report on page 95.
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.
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Coats Group plc Annual Report and Accounts 2023
Directors’ report cont.
As at
31 December
2023*
As at
6 March 2024*
Nature of
holding
Liontrust Investment
Partners LLP
Kempen Capital
Management N.V.
FIL Limited
M&G Plc
10.01
10.01
Direct
7.49
6.12
5.30
7.49
6.12
5.30
Indirect
Indirect
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,
as 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 (2022: £nil).
Whistleblowing procedure
A whistleblowing, ethics and fraud report is a
standing agenda item that is presented quarterly
at Board meetings. During the course of 2023,
there was an independent review of the Group’s
whistleblowing policy and associated processes
to ensure these were in line with best corporate
governance practice. 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 via email through
the Group ethics channel or via an externally
hosted web service whistleblowing hotline.
‘Doing the right thing’ and ways to raise concerns
are regularly communicated and discussed.
During the year ended 31 December 2023,
there were 138 whistleblowing concerns raised
(2022: 128*). Of these concerns raised, following
investigation 18% (2022: 17%*) of the closed
cases were upheld and 9 cases are still under
review. In the case of substantiated concerns,
disciplinary action, up to and including termination,
was taken whenever there was any evidence
of misdemeanour, and training and enhanced
controls were implemented wherever appropriate.
*2022 figures have been restated to reflect
the change in internal reporting methodology
from number of cases raised to number of
individual themes raised. This change was
approved by the Group’s Ethics Committee.
Concern is raised via
whistleblowing procedure
Acknowledgement is sent to the whistleblower
within seven days of receipt of the concern.
The investigation team, independent of the
relevant operational business or function, is
nominated by the CFO, Chief Legal & Risk
Officer and Group Company Secretary, Chief
Human Resources Officer and the relevant
Group Executive Team member.
Allegation is investigated by
the nominated team
Findings are presented to the CFO, Chief Legal
& Risk Officer and Group Company Secretary,
Chief Human Resources Officer and the
relevant Group Executive Team member who
decide appropriate remedial actions and any
controls/process enhancements.
The outcome of the investigation is
appropriately communicated to the
whistleblower once any remedial actions and/
or any controls/process enhancements (even
in circumstances where the allegation has not
been upheld) have been determined.
Reports and outcomes are reviewed by the
Board and the Audit and Risk Committee.
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 Chair’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 Group’s
cash and borrowings is set out in note 30(g).
The Directors are satisfied that the Company
and Group have sufficient resources to
continue in operation for the period from
the date of this report to 30 June 2025.
Accordingly, 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.
In assessing the Group’s going concern position,
the Directors have considered a number of factors,
including the current balance sheet position and
available liquidity, the principal and emerging risks
which could impact the performance of the Group
and compliance with borrowing covenants. Further
details are provided in note 1 of the accounts.
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Coats Group plc Annual Report and Accounts 2023
Directors’ report cont.
Results and dividends
The results of the Group are shown on page 106and
movements in reserves are set out in note 27 to the
financial statements.
The Board is mindful of the importance of returns
to shareholders and is pleased to propose a
final dividend of 1.99 cents per share (2022 final
dividend: 1.73 cents). Subject to approval at the
forthcoming AGM, the final dividend will be paid
on 30 May 2024 to ordinary shareholders on the
register at 3 May 2024, with an ex-dividend date
of 2 May 2024. Alongside the interim dividend
of 0.81 cents per share, this makes a total of
2.80 cents per share for the full year 2023.
Greenhouse Gas (GHG) emissions
Absolute emissions for last three years plus 2019
baseline
Thousands of
tonnes of CO2e
Scope 1
Direct2
Scope 2
Indirect3
Scope 3
Value Chain4
Biogenic
Emissions
CO2 5
2023
2022
2021
2019
51.7 59.6
68.7
73.5
Location
Based 172.2 201.9
Market
Based 59.4 122.4
213.3
232.6
172.4
190.9
882.8 999.2 1,181.0 1,060.8
24.1 27.5
32.8
38.2
1 To enable like for like comparison, all yearly data has been calculated to
exclude divestments made during the reported period. Footwear Division
acquisitions (Texon and Rhenoflex) have been fully included across all
years, for Scopes 1, 2 & 3, including the 2019 baseline year. All data is
calculated following GHG Protocol guidelines.
2 Direct emissions relate to the use of fuels to generate energy on Group
facilities, mainly the use of oil and gas to generate heat in the form of steam
for use in processing. On-site generation of electricity using diesel or gas
fired generators and the use of diesel, petrol and LPG for on-site transport
is also included. The calculation methodology here is to convert fuel
purchased in each country to kWh and then to CO2e equivalent using
DEFRA conversion factors; the data is consolidated globally.
3
Indirect emissions relate mainly to the purchase of electricity from third
party suppliers. This is mostly taken from local electricity grids, but does
include some on-site generation of electricity or steam from third party
suppliers. The methodology converts the electricity or other purchased
energy from kWh to CO2e using the country level conversion factors
published by the International Energy Authority (IEA) for electricity and
DEFRA conversion factors for other energy types. This provides the
location based calculation. Market based calculation deducts any certified
renewable energy that is purchased by country and continues to calculate
the residue of the energy consumed at the IEA country or DEFRA
conversion factors as appropriate. The data is then consolidated globally.
4 Scope 3 value chain emissions cover all other emissions that occur
throughout our product and business value chain. This includes the
cumulative emissions to produce our raw materials and capital equipment
and installations, product and people transport at all stages, downstream
processing and consumer use of our sold products and treatment for our
waste and our products at the end of their life. The methodology for this
varies for each Scope 3 category and follows the GHG Protocol hierarchy
of data quality to determine the best available inventory calculation
approach. Calculation models are maintained for each individual category
and are updated annually as required and consolidated globally.
5 Biogenic emissions cover CO2 emissions that occur from burning bio-mass
for the purposes of steam generation. These CO2 emissions are excluded
from our reported emissions, however the CH4 and N²0 emissions
associated with bio-mass are included in our reported Scope 2 market
based emissions as per GHG protocol guidelines.
Scopes 1 and 2 combined absolute emissions
on a market based approach decreased by 39%
between 2022 and 2023. To a large extent, this
significant reduction in emissions is attributable
to two principle factors: production volumes
which reduced on a like for like basis due to the
continued destocking of supply chains across the
textile industry through 2023; and our continued
efforts on energy transition where good progress
has been made in 2023 to further transition to
certified green electricity. In 2023 we increased
the proportion of our electricity covered by energy
attribute certificates (EACs) to 54%, up from 29%
in 2022. Scopes 1 and 2 emissions from our UK
facilities in 2023 were 903 tonnes CO2e and
represented 0.8% of our global emissions. 97%
of our UK emissions are related to our Skelton
manufacturing site, which produces footwear
structural components for our Footwear Division.
Emissions Intensity1
Greenhouse gas emissions intensity
per unit of production
kg CO2e per kg of finished product
Scopes 1&2
Scope 3
2023
1.1
8.6
20223
20213
1.5
8.3
1.8
8.8
Greenhouse gas emissions intensity
per sales value
tonnes CO2e per million $ sales
20233
20223
20213
The overall value intensity for Scopes 1&2 emissions
reduced by 33% compared to 2022, with the Scope
3 value intensity reducing by 3% . The difference
between the volume and value intensity movements
is largely related to movements in price and mix.
Full details on emissions of all reportable
greenhouse gas emissions and on the reporting
methodology used for the above figures can be
found in our online Sustainability Report.
Energy Consumption
Scopes 1&22
Scope 3
79.7 118.4 166.6
633.2 649.9 816.2
Million kWh
Direct (Fuels)
1 We have used these two ratios for several years. The first uses volume of
finished goods production in tonnes (Kilo tonnes used for Scopes 1&2 are
2022: 95, 2021: 95, 2020: 76) and hence relates directly to the industrial
activity that drives emissions, while the second uses Group turnover and
hence relates to overall commercial activity. Since Scope 3 emissions data
does not include new acquisitions the production volume used for 2022
intensity is 83 kilo tonnes; there is no change to 2021 and 2020 production.
For Scope 3 value intensity, 2022 sales excluding new acquisitions were
$m 1,522.9. 2019 is not used as a baseline for these intensity metrics as
that year is only our baseline for our absolute science-based targets.
2 Figures are calculated on a market basis for Scope 2 emissions.
The Scopes 1&2 volume emissions intensity shows
a 29% drop between 2023 and 2022. The primary
driver for this reduction is the positive progress that
has been made in transition to renewable indirect
energy through 2023. Scope 3 volume intensity
increased marginally from 2022 and was negatively
impacted by the reduction in sales volume on
cellulosic footwear structural components in
2023 due to supply chain destocking. Through
2023 we have fully incorporated the Texon and
Rhenoflex businesses into our Scope 3 reporting,
with emissions re-baselined back to 2019. This
has resulted in a 12% reduction in Scope 3 volume
intensity from previously reported full year 2022
figures, and reflects the higher proportion of
sustainable materials used in the Footwear
structural components product portfolio.
Indirect (bought electricity
and steam)
Total
20231
20221
2021
262.8 309.5 354.6
334.6 380.0 468.4
597.4 689.4 823.0
1 All years data excludes divestments made during that year. All include
acquisition of Footwear Division business units (Texon and Rhenoflex)
Through 2023 we further advanced the rollout of
our global smart energy metering programme to
a further four locations, enabling new actionable
insights to be developed to deliver further
improvements in energy efficiency. An example
of a key insight developed by this system was the
inefficient running of factory boilers to generate
steam for operation of small volume laboratory
machines during periods when there was no
demand to operate large production machines. We
have now purchased right sized electrical boilers
for steam generation in laboratories in two of our
largest units and have plans to roll this out to further
sites in 2024. As well as improving the energy
efficiency, the move to electrical boilers will aid our
efforts in energy transition to renewable electricity.
In the period from 2022 to 2023, our energy
intensity experienced a 1.3% increase from 6.27
kWh/kg to 6.38. This change was predominantly
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Coats Group plc Annual Report and Accounts 2023
Directors’ report cont.
driven by a reduction in production volumes, which
subsequently led to a higher ratio of fixed energy
consumption to variable energy consumption.
Auditor
A resolution to re-appoint Ernst & Young LLP as
auditor will be proposed at the 2023 AGM.
Energy consumption in our UK facilities in 2022 was
6,504 MWh and represented 1% of global energy
consumption.
A statement in respect of the current auditor, Ernst &
Young LLP, 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, as 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.
Branches
The Company, through various subsidiaries, has
branches in several different jurisdictions in which
the business operates outside the UK. The full list of
subsidiary companies can be found from page 198.
The following methodology is used for calculating
emissions and energy consumption:
Boundary
Scope 1
Scope 2
Scope 3
All emissions from operating companies that
are consolidated in the Group financial
statements are included. Operational joint
ventures are included based on equity share.
Fuel consumption data is collated monthly
from all units, based on metered or invoiced
consumption converted into kWh. We use
DEFRA published gross calorific value
conversion factors to standardise emissions.
Electricity or steam purchase volumes are
collected from all units monthly. All electricity
kWhs are converted using IEA country level
conversion factors for the location based
data. For the market based data certified
renewable electricity purchased is not
included and the remainder is converted
using the same IEA country factors, or
country level residual emissions factors
where available.
Scope 3 emissions are calculated annually
using multiple sources for data (including
suppliers, lifecycle assessment data
providers and industry data sources). Each
category is calculated with the best available
set of data sources, and is consistent over
the 3 reported years. Products & Services,
Upstream Energy and Transport are the main
components of Scope 3 emissions.
More detail on methodology is available in
our Sustainability Report online.
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
Page(s)
Important events since the financial year-end
174
Likely future developments in
the business
Exposure to price risk, credit risk,
liquidity risk and cash flow risk
9, 21 to 22
152
Research and development
21 to 22, 26, 30 & 34
Information on financial instruments
Environmental policy
Energy efficiency
Employment of disabled persons
Employee involvement
Stakeholder engagement
Diversity policy
167
37 to 38
188
14
47, 49 to 51
46 to 48
86 to 87
This Directors’ Report was approved by order of
the Board.
On behalf of the Board
Stuart Morgan
Company Secretary
6 March 2024
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106
This responsibility statement was approved by
the Board of Directors on 6 March 2024 and is
signed on its behalf by:
Rajiv Sharma
Group CEO
6 March 2024
Coats Group plc Annual Report and Accounts 2023
Directors’ report cont.
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
financial statements for each financial year. Under
that law the Directors are required to prepare the
group financial statements in accordance with
United Kingdom adopted international accounting
standards. The Directors have chosen to prepare the
parent company financial statements in accordance
with United Kingdom Generally Accepted
Accounting Practice (United Kingdom Accounting
Standards and applicable law), including FRS 102
‘The Financial Reporting Standard applicable in the
UK and Republic of Ireland’. Under company law the
Directors must not approve the 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 in accordance
with Section 10 of FRS 102 and then apply them
consistently;
– make judgements and accounting estimates that
are reasonable and prudent;
– present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
– state whether applicable UK Accounting
Standards, including FRS 102, have been followed,
subject to any material departures disclosed and
explained in the financial statements;
– provide additional disclosures when compliance
with the specific requirements in FRS 102 are
insufficient to enable users to understand the
impact of particular transactions, other events and
conditions on the entity’s financial position and
financial performance; and
– 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
in accordance with IAS 8 Accounting Policies,
Changes in Accounting Estimates and Errors;
– present information, including accounting policies,
in a manner that provides relevant, reliable,
comparable and understandable information;
– state whether United Kingdom adopted
international accounting standards have been
followed, subject to any material departures
disclosed and explained in the financial
statements; and
– provide additional disclosures when compliance
with the specific requirements in United Kingdom
adopted international accounting standards are
insufficient to enable users to understand the
impact of particular transactions, other events
and conditions on the entity’s financial position
and financial performance; and
– make an assessment of the Company’s ability
to continue as a going concern.
The Directors are responsible for keeping adequate
accounting records that are sufficient to show and
explain the Company’s transactions and disclose
with reasonable accuracy at any time the financial
position of the Company and enable them to ensure
that the financial statements comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the Directors
are also responsible for preparing a strategic report,
Directors’ report, Directors’ remuneration report and
corporate governance statement that comply with
that law and those regulations. The Directors are
responsible for the maintenance and integrity of the
corporate and financial information included on the
Company’s website.
Directors’ responsibility statement
We confirm that to the best of our knowledge that:
– 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 Annual Report including, 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.
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107
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc
Opinion
In our opinion:
– Coats Group plc’s group financial statements and parent company financial statements (the
“financial statements”) give a true and fair view of the state of the Group’s and of the parent
company’s affairs as at 31 December 2023 and of the Group’s profit for the year then ended;
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 believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
–
–
–
the Group financial statements have been properly prepared in accordance with United Kingdom
adopted international accounting standards;
the parent company financial statements have been properly prepared in accordance with United
Kingdom Generally Accepted Accounting Practice; and
We are independent of the Group and parent in accordance with the ethical requirements that are relevant to
our audit of the financial statements in the UK, including 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.
the financial statements have been prepared in accordance with the requirements of the Companies
Act 2006.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group or the
parent company and we remain independent of the Group and the parent company in conducting the audit.
We have audited the financial statements of Coats Group plc (the ‘parent company’) and its subsidiaries (the
‘Group’) for the year ended 31 December 2023 which comprise:
Group
Parent company
Consolidated statement of financial position as at 31 December 2023 Balance sheet as at 31 December 2023
Consolidated income statement for the year then ended
Consolidated statement of comprehensive income for the year
then ended
Consolidated statement of changes in equity for the year
then ended
Consolidated statement of cash flows for the year then ended
Related notes 1 to 37 to the financial statements, including
material accounting policy information
Statement of changes in equity for the year then
ended
Statement of cash flow for the year then ended
Related notes 1 to 6 to the financial statements
including a summary of significant accounting
policies.
The financial reporting framework that has been applied in the preparation of the group financial statements
is applicable law and United Kingdom adopted international accounting standards. 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).
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate. Our evaluation of the directors’
assessment of the Group and parent company’s ability to continue to adopt the going concern basis of
accounting included:
– Confirming our understanding of management’s going concern assessment process, including how
principal and emerging risks were considered.
– Obtaining the forecast cash flows to 30 June 2025 used by management in its going concern assessment
and testing for arithmetical accuracy of the models, verifying inputs against budgets approved by the
Board and agreed the opening net debt to the audited 31 December 2023 financial statements.
– Evaluating the appropriateness of the duration of the going concern assessment period to 30 June 2025
and considering the existence of any significant events or conditions beyond this period, including the
re-financing of the RCF in April 2026, based on our inquiries of management, Coats Group plc’s three-
year plan and knowledge arising from other areas of the audit.
– Challenging the reasonableness of the cash flow forecast by analysis of management’s historical
forecasting accuracy and checking for consistency of the forecasts with other areas of the audit including
the impairment assessment and deferred tax asset recognition.
– Evaluating the key assumptions used by management in preparing the going concern models and:
– assessing contrary evidence by considering industry data, key customers’ outlook, analyst expectations
and information obtained from other areas of the audit.
– assessing whether assumptions made were reasonable and appropriate, in light of the Group’s relevant
principal risks and uncertainties and our own independent assessment of those risks.
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
– assessing the impact of the loan facility repayment of $125m due in December 2024 on the Group’s
forecasted liquidity in the going concern period.
– assessing the impact of Coats Group plc’s climate commitments on the cash flow forecasts.
– Obtaining the Group’s existing borrowing facility agreements and:
– performing a detailed examination of all agreements, to assess their continued availability to the Group
throughout the going concern period and to ensure completeness of covenants identified by
management.
– obtaining the signed extensions to the Revolving Credit Facilities extending the facilities until April 2026.
– assessing the accuracy of management’s covenant forecast model on the base case, verifying inputs to
board approved forecasts and facility agreement terms.
– evaluating the compliance of the Group with debt covenants in the forecast period by reperforming
calculations of the covenant tests.
– assessing the impact of the downside risk scenarios on covenant compliance and performing sensitivity
analysis.
– Assessing management’s sensitivity scenarios of the Group’s cash flow forecast models and their impact
on forecast liquidity and forecast covenant compliance and ability to make the loan repayment falling due
in December 2024.
– Challenging the appropriateness of management’s ‘reverse stress test’ scenario, to understand how
severe conditions would have to be to breach liquidity and/or covenant compliance and whether the
required conditions have no more than a remote possibility of occurring when compared to historical
financial performance.
– Assessing management’s ability to execute controllable mitigating actions to respond to the downside
risk scenarios including reverse stress test based on our understanding of the Group and the sector.
– Management’s going concern assessment was also supported by a reverse stress test with a more severe
decline in performance. Management considers such a scenario to be remote, however, in such unlikely
event management considers that the impact can be mitigated by implementing actions which are within
their control.
Based on the work we have performed, we have not identified any material uncertainties relating to events
or conditions that, individually or collectively, may cast significant doubt on the Group and parent company’s
ability to continue as a going concern for a period to 30 June 2025.
In relation to the Group and parent company’s reporting on how they have applied the UK Corporate
Governance Code, we have nothing material to add or draw attention to in relation to the directors’ statement
in the financial statements about whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in
the relevant sections of this report. However, because not all future events or conditions can be predicted,
this statement is not a guarantee as to the Group’s ability to continue as a going concern.
Overview of our audit approach
Audit scope
– We performed an audit of the complete financial information of 15
components, full audit procedures on specific balances for a further 10
components, specified audit procedures on specific balances for a further 2
components, and other procedures on the remaining 301 components.
– The components where we performed full or specific audit procedures
accounted for 74% of Absolute Profit before tax, 80% of Revenue and 88% of
Total assets.
Key audit matters
– Revenue recognition (cut-off)
– Performing an independent reverse stress test to understand the extent of reduction in sales required to
–
Impairment of goodwill and acquired intangible assets
breach debt covenants.
– Considering whether management’s disclosures in the financial statements sufficiently and appropriately
reflect the going concern assessment including key judgements made and outcomes.
Our Key Observations
– UK defined benefit pension liability valuation
– Provision for uncertain tax positions
– Classification of the disposal of the European Zips business as an IFRS 5
discontinued operation
– The directors’ assessment forecasts that the Group will maintain sufficient liquidity and covenant
Materiality
– Overall Group materiality of $10 million which represents c.5% of adjusted
compliance throughout the going concern period to 30 June 2025. We observed that in management’s
base case and in the downside sensitivity scenario, which both reflect full repayment of the loan due in
December 2024, there is liquidity headroom and covenant compliance without considering any identified
controllable mitigations.
profit before tax
– Parent Company is determined to be $13.4 million which is 1% of equity.
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109
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
An overview of the scope of the parent company and group audits
Tailoring the scope
Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality
determine our audit scope for each company within the Group. Taken together, this enables us to form an
opinion on the consolidated financial statements. We take into account size, risk profile, the organisation
of the Group and effectiveness of group-wide controls, changes in the business environment, the potential
impact of climate change and other factors such as recent Internal audit results when assessing the level
of work to be performed at each component.
In assessing the risk of material misstatement to the Group financial statements, and to ensure we had
adequate quantitative coverage of significant accounts in the financial statements, of the 328 reporting
components of the Group which consist of legal entities, sub-components of legal entities, profit and
cost centres, we selected 27 components covering entities within Vietnam, India, China, Taiwan, USA,
Bangladesh, Indonesia, Turkey, Germany, Mexico, Honduras, Columbia, Spain, Romania and United Kingdom,
which represent the principal business units within the Group.
Of the 27 components selected, we performed an audit of the complete financial information of 15
components (“full scope components”) which were selected based on their size or risk characteristics.
For 10 components (“specific scope components”), we performed full audit procedures on specific
accounts within that component that we considered had the potential for the greatest impact on the
significant accounts in the financial statements either because of the size of these accounts or their
risk profile.
For the remaining 2 components (“specified procedures components”), we performed certain audit
procedures on specific accounts within those components that we considered had the potential for the
greatest impact on the significant accounts in the financial statements either because of the size of these
accounts or their risk profile.
The reporting components where we performed audit procedures accounted for 74% of the Group’s
Absolute Profit before tax, 80% of the Group’s Revenue and 88% of the Group’s Total assets. For the
current year, the full scope components contributed 61% of the Group’s Absolute Profit before tax, 63% of
the Group’s Revenue and 77% of the Group’s Total assets. The specific scope components contributed 10%
of the Group’s Absolute Profit before tax, 12% of the Group’s Revenue and 9% of the Group’s Total assets.
The audit scope of these components may not have included testing of all significant accounts of the
component but will have contributed to the coverage of significant accounts tested for the Group. We also
instructed 2 locations to perform specified procedures over certain aspects of revenue, cost of sales, trade
receivables, inventory, and cash, as described in the Risk section above.
Of the remaining 301 components that together represent 26% of the Group’s Absolute profit before tax,
none are individually greater than 5% of the Group’s Absolute profit before tax. For these components,
we performed other procedures, including analytical review procedures and use of data analytics tools
over revenue to identify items for further investigation for 25 review scope components, analytical review
procedures for the remaining components at either aggregated or individual component levels, testing
of consolidation journals, intercompany eliminations, inquiries of management and foreign currency
translations to respond to any potential risks of material misstatement to the Group financial statements.
The charts below illustrate the coverage obtained from the work performed by our audit teams.
Absolute profit before tax
Revenue
Total assets
Full scope
components
Specified scope
components
Specified procedures
components
Other procedures
61%
10%
3%
26%
Full scope
components
Specified scope
components
Specified procedures
components
Other procedures
63%
12%
5%
20%
Full scope
components
Specified scope
components
Specified procedures
components
Other procedures
77%
9%
2%
12%
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Involvement with component teams
Climate change
In establishing our overall approach to the Group audit, we determined the type of work that needed to
be undertaken at each of the components by us, as the primary audit engagement team, or by component
auditors from other EY global network firms operating under our instruction. Of the 15 full scope components,
audit procedures were performed on 1 of these directly by the primary audit team. Of the 10 specific scope
components, audit procedures were performed on 6 of these directly by the primary audit team. For the 2
specified procedures components, audit procedures were performed directly by the component teams.
Where the work was performed by component auditors, we determined the appropriate level of involvement
to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion on the
Group as a whole.
The Group audit team continued to follow a programme of planned visits that has been designed to ensure
that the Senior Statutory Auditor and delegates visit key locations on a rotational basis. During the current
year’s audit cycle, physical visits were undertaken by the primary audit team to the component team in
China, India, Vietnam, Indonesia, Taiwan, Germany, Turkey and Mexico. These visits involved understanding
the audit approach with the component team and any issues arising from their work, meeting with local
management, attending planning, reviewing relevant audit working papers on risk areas. The primary team
interacted regularly with the component teams where appropriate during various stages of the audit,
reviewed relevant working papers and were responsible for the scope and direction of the audit process.
The primary audit team interacted regularly with the local EY full scope, specific scope and specified
procedures component teams where appropriate during various stages of the audit, reviewed relevant working
papers and were responsible for the scope and direction of the audit programme. We maintained continuous
and open dialogue with the component audit teams in addition to holding formal meetings to ensure that we
were fully aware of their progress and the results of their procedures. Close meetings for full, specific, and
specified audit procedures components (excluding those performed by the primary audit team) were held via
video conference in January and February 2024 and were attended by the Senior Statutory Auditor and/or
other members of the primary audit team. This, together with the additional procedures performed at Group
level, gave us appropriate evidence for our opinion on the consolidated financial statements.
Stakeholders are increasingly interested in how climate change will impact Group. The Group has
determined that the most significant future impacts from climate change on their operations will be from
introduction of carbon taxes, disruption of water supply and extreme weather events (floods and extreme
heat). These are explained on pages 181-197 in the required Task Force for Climate related Financial
Disclosures and on pages 52-58 in the principal risks and uncertainties. They have also explained their
climate commitments on pages 68-69. All of these disclosures form part of the “Other information,” rather
than the audited financial statements. Our procedures on these unaudited disclosures therefore consisted
solely of considering whether they are materially inconsistent with the financial statements or our
knowledge obtained in the course of the audit or otherwise appear to be materially misstated, in line
with our responsibilities on “Other information”.
In planning and performing our audit we assessed the potential impacts of climate change on the Group’s
business and any consequential material impact on its financial statements.
As explained in note 1, the basis of preparation, consideration of climate change impact on the judgements
in the accounts is not considered to have a material impact at this time. Governmental and societal responses
to climate change risks are still developing, and are interdependent upon each other, and consequently
financial statements cannot capture all possible future outcomes as these are not yet known. The degree of
certainty of these changes may also mean that they cannot be taken into account when determining asset
and liability valuations and the timing of future cash flows under the requirements of United Kingdom
adopted international accounting standards.
Our audit effort in considering climate change was focused on evaluating management’s assessment of the
impact of climate risk being appropriately reflected in asset values and associated disclosures where values
are determined through modelling future cash flows, being the impairment tests of tangible and intangible
assets, deferred tax asset recognition and related disclosures.
We also challenged the Directors’ considerations of climate change risks in their assessment of going
concern and viability and associated disclosures.
Based on our work, while we have not identified the impact of climate change on the financial statements
to be a standalone key audit matter, we have considered the impact on the Impairment of goodwill and
acquired intangible assets allocated to the Footwear cash generating unit key audit matter. Details of the
impact, our procedures and findings are included in our explanation of key audit matters below.
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Key audit 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 our opinion thereon, and we do not provide a separate opinion on these matters.
Risk
Revenue recognition (Cut-off) $1,394 million (2022: $1,538 million)
Refer to the Audit Committee Report (page 79); Accounting policies
(page 117); and Note 3 of the Consolidated Financial Statements
(page 121)
There is the potential incentive to overstate revenue for the financial
year in order to meet individual or Company financial targets
(principally adjusted operating profit and adjusted EPS targets).
Our response to the risk
We performed full or specific audit procedures over this risk area in
15 full scope, 10 specific scope and 2 specified procedure components
with material revenue balances, which covered 80% of the Group’s
revenue.
Procedures around this risk area are primarily performed at a
component level and therefore, form a significant part of our oversight
procedures. We instructed our component teams and each of them:
Key observations communicated to the Audit Committee
We concluded that the revenue recognised at or near year end was
properly accounted for and that revenue was appropriately recognised
in accordance with the relevant accounting standards.
We concluded that management’s disclosures in relation to revenue,
including disclosed accounting policies, to be appropriate.
As part of our procedures, we noted no indication of deliberate or
other manipulation of revenue cut-off or management override.
The process for accounting for revenue transactions at or near the
year end contains manual elements and therefore there is opportunity
for error (either accidental or with intent).
Further, due to the varied incoterms across the Group as well as
some export products with longer delivery lead times, there is a risk
of revenue being recorded prior to the performance obligations
being satisfied.
– Performed walkthroughs to obtain understanding of the revenue
recognition processes and key controls.
– Obtained understanding of management’s cut off assessment at
year-end, including the split between export and domestic sales
and the delivery lead time assumptions utilised by management.
– Tested revenue cut off by obtaining management’s sales cut off
assessment and independently testing a sample of transactions
therein by vouching to invoices and proof of delivery.
–
Inspected third party evidence (e.g., contracts with customers,
purchase orders) to test validity of incoterms and understand the
conditions required to satisfy the performance obligations.
– Tested an independent sample of transactions invoiced in the
21 days for pre-year end period and 7 days for the post year end
period. We stratified the population between revenue type and
selected our sample based on the following criteria:
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Risk
Key observations communicated to the Audit Committee
Our response to the risk
– Key items based on a quantitative threshold or specific qualitative
factors.
– Statistical sample of items invoiced within the 14 day prior to the
balance sheet date, which we considered to be of higher risk
based on average delivery lead times.
– We tested our sample by vouching to invoices and third-party
evidence (e.g., proof of delivery, bill of lading) to assess whether
the performance obligation is satisfied.
– Tested a sample of journal entries recorded at or near year end as
well as top-side adjustments by verifying to appropriate supporting
documentation.
– With the exception of 2 components, analysed sales-related journal
entry data to track sales from revenue through to accounts
receivable through to cash collection using data analytics tools. We
used this analysis to validate the appropriateness of transaction
flows and tested a sample of transactions to determine if the
journals accurately reflected the substance of transactions recorded.
– For the remaining 2 components, we selected a statistical sample
from the entire population of revenue transactions in the year, and
vouched to invoices and proof of delivery, to confirm these had
been recorded in the correct period.
For the remaining entities, constituting the residual 20% of revenue, we
performed analytical review procedures and we utilised a combination
of data analytical tools and monthly sales data to search for any
unusual items and activities.
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Risk
Impairment of Footwear goodwill and acquired intangible assets
(Goodwill: $98 million (2022: $98 million) and acquired intangible
assets $221 million (2022: $240 million))
Refer to the Audit Committee Report (page 79); Accounting policies
(page 114); and Note 13 of the Consolidated Financial Statements
(page 137)
This is an area of focus due to the significance of the carrying value of
the goodwill and acquired intangibles assets.
Our response to the risk
The below procedures were performed by the primary team.
We validated that the methodology of the impairment exercise is
consistent with the requirements of IAS 36 Impairment of Assets,
including appropriate identification of the Footwear cash generating
unit for value in use calculations.
Below we summarise the procedures performed in relation to the
key assumptions for the goodwill and acquired intangibles allocated
to the Footwear cash generating unit:
The estimation of recoverable amount involves significant judgements
including assumptions relating to future cash flows, discount rate, long-
term growth rates and the success of strategic projects including
integration of the Rhenoflex and Texon businesses and the resulting
economic benefits (synergies).
– Understood management’s process for the annual impairment
testing and gained an understanding of the controls through a
walkthrough of the process management has in place to assess
impairment.
– Obtained management’s value in use model and tested for
Key observations communicated to the Audit Committee
Based on our audit procedures we have concluded that no impairment
of goodwill or acquired intangible assets allocated to the Footwear
cash generating unit was identified.
We highlighted that a reasonably possible change in certain key
assumptions, including short-term growth rates, change in discount
rate, and long-term growth used to determine the terminal value of the
Footwear cash generating unit, do not result in impairment.
We have concluded appropriate disclosures have been included in the
financial statements as required under the accounting standards.
mathematical accuracy.
– Engaged EY Valuation specialists to assess the appropriateness
of the discount rate, including a review of the discount rate
methodology, long-term growth rates, and the overall methodology
used in the value-in-use model prepared for the purposes of the
Footwear cash generating unit impairment assessment.
– Assessed management’s forecasting ability by comparing forecasts
to actual results for this year and prior year.
– Performed independent research to identify contrary information
and evaluate assumptions for management bias.
– Performed sensitivity analysis over key assumptions underpinning
management’s forecasts including discount rate, growth rate and
assumptions relating to synergies due to the integration of the two
businesses acquired in 2022 and incorporated into the new
Footwear cash generating unit.
– Performed a reverse stress test to assess the extent of change in
assumptions needed for there to be an impairment.
– Assessed the appropriateness of the Group’s disclosures in the
consolidated financial statements.
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114
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Risk
UK Defined benefit pension liability valuation – gross value
of pension liability in the current year is $1,894 million
(2022: $1,786 million)
Refer to the Audit Committee Report (page 79); Accounting policies
(page 117); and Note 10 of the Consolidated Financial Statements
(page 127)
At 31 December 2023 the gross defined benefit liability recognised in
the Consolidated Statement of Financial Position was $1,894m (2022:
$1,786m)
There is a risk of material misstatement relating to the judgements
made by management in valuing the defined benefit pension liabilities
including the use of key model input assumptions specifically the
discount rate, mortality assumption and inflation rate. These variables
can have a material impact in calculating the quantum of the retirement
benefit liability.
Management identified 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 79.
Our response to the risk
The below procedures were performed by the Primary team where we:
– Understood management’s process for accounting and valuation of
the UK defined benefit obligation and gained an understanding of
the controls through a walkthrough of the process management
has in place.
– Engaged internal actuarial specialists to assess the key
assumptions applied in determining the pension obligations for the
UK pension schemes and determined whether the key assumptions
are within a reasonable expected range. Testing covered 94% of
the defined benefit pension liabilities.
– Challenged management’s key assumptions by reference to
illustrative benchmark rates, sensitising for any difference between
management’s rates and the illustrative benchmark rates.
– Assessed management’s judgement that an unconditional right to
recover the UK and US schemes surpluses exist by comparison to
the underlying scheme rules and the view of management’s
external specialist.
– Assessed the impact of the High Court ruling (Virgin Media v NTL
Pension) on 16 June 2023 regarding the contracted-out defined
benefit pension schemes, with the assistance of our pension
specialists.
– Recalculated management’s adjustment with respect to withholding
tax impact on the pension surplus for the current and prior periods.
– Assessed the completeness and accuracy of management’s
disclosures within the financial statements in accordance with
IAS 19 Employee Benefits and determined whether any critical
accounting judgements or key sources of estimation uncertainty
exist that require further disclosure under IAS 1.
Key observations communicated to the Audit Committee
From the work performed we are satisfied that the key assumptions
applied in respect of the valuation of the UK scheme liabilities are
appropriate.
We take no exception to management’s judgement that it is
appropriate to recognise a surplus in respect of the UK and US
scheme in accordance with IFRIC 14. However, in completing our audit
procedures, we identified two material errors impacting the current
and prior period pertaining to the recognition of surpluses in the UK
and US pension schemes in accordance with IFRIC 14, leading to a
restatement of prior period comparatives.
We concluded that the related disclosures in the financial statements
are appropriate including the presentation and disclosure of the prior
period errors with respect to recognition of the UK and US pension
surpluses in accordance with IFRIC 14.
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Risk
Provisions for uncertain tax positions – $26.3 million
(2022: $26.6 million)
Refer to the Audit Committee Report (page 79); Accounting policies
(page 118); and Note 9 of the Consolidated Financial Statements
(page 125)
The Group operates in a number of international jurisdictions, and as
a result there is a risk of uncertain tax exposures arising around the
Group, as well as heightened risk around estimates in determining
the tax effect of cross border transactions including transfer pricing
arrangements. The Group is subject to tax authority audits and has
a number of open tax enquiries in multiple jurisdictions at any point
in time.
As a result of this, management are required to exercise judgement
in making determinations as to the amount of tax that is payable.
The Group has recognised a number of provisions for uncertain tax
positions, the valuation of which requires significant assumptions
and judgement.
We focused on this area due to the complexity, subjectivity,
quantification of the provision and the judgement around the
trigger for recognition or release.
Our response to the risk
Our procedures on the uncertain tax position provisions were
performed centrally by the Group team supported by subject matter
specialists (including UK transfer pricing specialists) and overseas tax
teams with expertise in local tax regulations where appropriate.
Key observations communicated to the Audit Committee
We are satisfied that management’s judgements in relation to the
provisions for uncertain tax positions are supportable.
We consider the disclosures with respect to uncertain tax positions
to be appropriate.
Our procedures included:
– Performing a walkthrough of the tax provisioning process and
identifying key controls. We also evaluated the appropriateness of
the Group’s transfer pricing and uncertain tax provisioning policies.
– Meeting with tax management to understand the Group cross-
border transactions, status of all significant matters, including
those provided for, and any changes to management’s judgements
in the year.
– Reading correspondence with tax authorities and external advisors
to inform our assessment of recorded estimates and evaluate the
completeness of the provisions recorded, directly engaging with
external advisors where appropriate. For the most material cases,
we met external advisors to understand the key judgements in the
case and utilised relevant internal specialists.
–
Independently assessing management’s significant assumptions
and judgements to record or release provisions following tax
audits, settlements and the expiry of statute of limitations.
– Testing the accuracy of the calculation of the year end provisions
by inspecting underlying documentation and supporting schedules.
– Evaluating the adequacy of tax disclosures.
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Key observations communicated to the Audit Committee
Following completion of our planned procedures, we concluded that
the classification of the European Zips business as an IFRS 5
discontinued operation does not constitute a material error in the
consolidated financial statements given the totality of information
provided in the consolidated financial statements, including the
disclosures relevant to this matter provided in note 1, and note 32.
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Risk
Classification of the Disposal of the European Zips Business as an
IFRS 5 Discontinued Operation
Profit from continuing operations impact – $26.7 million (2022:
$0.1 million)
Refer to the Audit Committee Report (page 79); Accounting policies
(page 110); and Note 32 of the Consolidated Financial Statements
(page 149)
Judgement is required in order to determine whether the disposal of
the European Zips business meets the discontinued operation criteria
(being a separate major line of business or geographic area) in
accordance with IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations.
In the event of a misclassification of the disposal, there may be a risk
that it impairs the ability of the users of the financial statements to
make informed decisions in the current and subsequent year.
This risk is new in the current year as the disposal took place in 2023.
Our response to the risk
In order to respond to the classification risk, we:
– Obtained and reviewed management’s paper in relation to the
proposed accounting and disclosure for the disposal of the
European Zips business and their conclusion that it represents
a separate major line of business;
– Engaged our IFRS and Subject Matter Group technical specialists
to review the fact pattern in relation to the disposal and proposed
accounting treatment by management;
– Performed a peer and an industry benchmark review to look for
similar in nature disposals and assessed the fact pattern of the
disposal of the European Zips business against such disposals and
the adopted accounting treatment; and
– We reviewed the accounting treatment adopted by management
for disposals of a similar nature in the past.
Furthermore, we considered whether a different judgement in respect
of the associated accounting and disclosure would be material to the
users of the consolidated financial statements. In forming our view, we:
– Considered the impact on the primary financial statements and
notes to the consolidated financial statements;
– Reviewed the disclosures in the critical accounting judgements
section and note 1 of the consolidated financial statements;
– Reviewed analyst reports to understand the performance measures
and key performance indicators that investors and analysts are
interested in;
– Understood the impact of the disposal on the performance
measures underpinning management remuneration;
– Evaluated the impact of the accounting treatment of the disposal on
covenant compliance;
– Considered the impact on KPIs which are constituted of non-GAAP
adjusted alternative performance measures; and
– Considered the impact on long-term and year on year trends on
earnings and EPS metrics.
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Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Our application of materiality
Performance materiality
We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified
misstatements on the audit and in forming our audit opinion.
Materiality
The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be
expected to influence the economic decisions of the users of the financial statements. Materiality provides
a basis for determining the nature and extent of our audit procedures.
We determined materiality for the Group to be $10 million which is c.5% of adjusted profit before tax. We
believe that adjusted profit before tax provides us with appropriate measure given the prominence of this
metric to investors, shareholders, and management.
We determined materiality for the Parent Company to be $13.4 million which is 1% of equity which is the
metric the investors and shareholder are most interest given the Parent Company holds the investment of
the entire Coats Group.
– $155.8 million
– Profit before tax
Starting
basis
– Add back $49.4 million for exceptional and
Adjustments
acquisition related items
– Totals $205.2 million adjusted profit before tax
– Materiality of $10 million (c.5% of adjusted profit
Materiality
before tax
The application of materiality at the individual account or balance level. It is set at an amount to reduce to
an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements
exceeds materiality.
On the basis of our risk assessments, together with our assessment of the Group’s overall control
environment, our judgement was that performance materiality was 50% of our planning materiality, namely
$5 million. We have set performance materiality at this percentage because Coats Group plc is a first-year
audit engagement for EY.
Audit work at component locations for the purpose of obtaining audit coverage over significant financial
statement accounts is undertaken based on a percentage of total performance materiality. The performance
materiality set for each component is based on the relative scale and risk of the component to the Group as
a whole and our assessment of the risk of misstatement at that component. In the current year, the range of
performance materiality allocated to components was $1.0 million to $1.8 million.
Reporting threshold
An amount below which identified misstatements are considered as being clearly trivial.
We agreed with the Audit Committee that we would report to them all uncorrected audit differences in
excess of $0.5 million which is set at 5% of planning materiality, as well as differences below that threshold
that, in our view, warranted reporting on qualitative grounds.
We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed
above and in light of other relevant qualitative considerations in forming our opinion.
Other information
The other information comprises the information included in the annual report 1 to 107, including taskforce
on climate-related financial disclosures report, group structure and five-year summary set out on pages 181
to 204, other than the financial statements and our auditor’s report thereon. The directors are responsible
for the other information contained within the annual report.
Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.
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 course of 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 this gives rise to a material misstatement in
the financial statements themselves. If, based on the work we have performed, we conclude that there is a
material misstatement of the other information, we are required to report that fact.
We have nothing to report in this regard.
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118
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
Opinions on other matters prescribed by the Companies Act 2006
– Directors’ statement on fair, balanced and understandable set out on page 78;
In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in
accordance with the Companies Act 2006.
– Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set
out on page 50;
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.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the Group and the parent company and its environment
obtained in the course of the audit, we have not identified material misstatements in the strategic report or
the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006
requires us to report to you if, in our opinion:
– adequate accounting records have not been kept by the parent company, or returns adequate for our
audit have not been received from branches not visited by us; or
–
the parent company financial statements and the part of the Directors’ Remuneration Report to be
audited are not in agreement with the accounting records and returns; or
– certain disclosures of directors’ remuneration specified by law are not made; or
– we have not received all the information and explanations we require for our audit.
Corporate Governance Statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of
the Corporate Governance Statement relating to the Group and company’s compliance with the provisions of
the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements
of the Corporate Governance Statement is materially consistent with the financial statements or our
knowledge obtained during the audit:
– Directors’ statement with regards to the appropriateness of adopting the going concern basis of
accounting and any material uncertainties identified set out on page 102;
– Directors’ explanation as to its assessment of the company’s prospects, the period this assessment
covers and why the period is appropriate set out on page 102;
– The section of the annual report that describes the review of effectiveness of risk management and
internal control systems set out on page 80; and
– The section describing the work of the audit committee set out on page 77.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement set out on page 105, 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 and 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.
Explanation as to what extent the audit was considered capable of detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The risk of
not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from
error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion. The extent to which our procedures are capable of detecting irregularities, including
fraud is detailed below.
However, the primary responsibility for the prevention and detection of fraud rests with both those charged
with governance of the company and management.
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– Director’s statement on whether it has a reasonable expectation that the group will be able to continue in
operation and meets its liabilities set out on page 58 and 102;
– We obtained an understanding of the legal and regulatory frameworks that are applicable to the Group
and determined that the most significant frameworks which are directly relevant to specific assertions in
119
Coats Group plc Annual Report and Accounts 2023
Independent auditor’s report to the members of Coats Group plc cont.
the financial statements are those that relate to the reporting framework (United Kingdom adopted
international accounting standards, United Kingdom GAAP, the Companies Act 2006 and the UK
Corporate Governance Code) and the relevant tax laws and regulations in the jurisdictions in which the
Group operates. In addition, we concluded that there are certain significant laws and regulations which
may have an effect on the determination of the amounts and disclosures in the financial statements being
the Listing Rules of the UK Listing Authority, and those laws and regulations relating to health and safety,
employees, environmental and bribery and corruption practices.
– We understood how Coats Group plc is complying with those frameworks by making enquiries of
management, internal audit, those responsible for legal and compliance procedures and the company
secretary. We corroborated our enquiries through our review of board minutes, papers provided to the
Audit Committee, correspondence received from regulatory bodies and information relating to the
Group’s anti-money laundering procedures as part of our walkthrough procedures.
– We assessed the susceptibility of the Group’s financial statements to material misstatement, including
how fraud might occur and met with finance and operational management from various parts of the
business to understand where it considered there was susceptibility to fraud. We also considered
performance targets and their potential to influence management to manage earnings or influence the
perceptions of analysts. We have determined there is a risk of fraud associated to revenue recognition.
We considered the policies, processes and controls that the Group has established to address the risks
identified, including the design of controls over revenue recognition. We also considered the controls that
the Group has that otherwise prevent, deter and detect fraud, and how senior management monitors
these controls. We performed audit procedures to address each identified fraud risk. These procedures
were designed to provide reasonable assurance that the financial statements as a whole are free from
material misstatement, due to fraud or error.
– Based on this understanding we designed our audit procedures to identify non-compliance with such
laws and regulations including providing specific instructions to full scope and specific scope component
teams and, where necessary, using our forensic and other relevant specialists. Our procedures included
journal entry testing, with a focus on manual journal entries, consolidation journals and journal entries
indicating large or unusual transactions using data analytics. We based this testing on our understanding
of the business, enquiries of management, including internal audit, legal and other advisors, the company
secretary and reading relevant reports. We performed specific searches derived from forensic
investigations experience and leveraged our data analytics platform in performing our testing. We have
also reviewed the whistleblowing reports issued during the year. Any instances of non-compliance with
laws and regulations identified that might have an impact on components were communicated to the
component audit teams and considered in our audit approach.
A further description of our responsibilities for the audit of the financial statements is located on the Financial
Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of
our auditor’s report.
Other matters we are required to address
– Following the recommendation from the Audit and Risk Committee we were appointed by the company
on 16 May 2023 to audit the financial statements for the year ending 31 December 2023 and subsequent
financial periods.
– The period of total uninterrupted engagement including previous renewals and reappointments is one
year as this is the first audit year.
– The audit opinion is consistent with the additional report to the audit committee.
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.
Anup Sodhi (Senior statutory auditor)
for and on behalf of Ernst & Young LLP
Statutory Auditor
Luton
6 March 2024
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120
Coats Group plc Annual Report and Accounts 2023
Consolidated income statement
2023
Before
exceptional and
acquisition related
items
US$m
Exceptional and
acquisition related
items
(see note 4)
US$m
Notes
Before
exceptional and
acquisition related
items
US$m
Exceptional and
acquisition related
items
(see note 4)
US$m
Total
US$m
2,3
1,394.2
–
1,394.2
Year ended 31 December
Continuing operations:
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Other operating income
Operating profit
Share of profits of joint ventures
2,4,5
16
Finance income
Finance costs
Profit before taxation
Taxation
Profit from continuing operations
Loss from discontinued
operations
Profit for the year
Attributable to:
Equity shareholders of the company
Non-controlling interests
6
7
5
9
32
Earnings/(loss) per share (cents):
11
Continuing operations:
Basic
Diluted
Continuing and discontinued operations:
Basic
Diluted
(910.9)
483.3
(115.9)
(134.0)
–
233.4
1.1
4.6
(33.9)
205.2
(57.9)
147.3
(1.3)
146.0
127.8
18.2
146.0
(18.2)
(18.2)
(2.6)
(34.4)
5.8
(49.4)
–
–
–
(49.4)
2.9
(46.5)
(25.4)
(71.9)
(71.3)
(0.6)
(71.9)
(929.1)
465.1
(118.5)
(168.4)
5.8
184.0
1.1
4.6
(33.9)
155.8
(55.0)
100.8
(26.7)
74.1
56.5
17.6
74.1
5.18
5.13
3.52
3.48
1,537.6
(1,049.3)
488.3
(122.0)
(133.6)
–
232.7
1.1
2.6
(32.3)
204.1
(60.1)
144.0
(1.5)
142.5
120.2
22.3
142.5
–
(9.9)
(9.9)
(3.8)
(39.1)
1.2
(51.6)
–
–
(1.1)
(52.7)
3.7
(49.0)
(86.2)
(135.2)
(134.9)
(0.3)
(135.2)
Adjusted earnings per share
37(d)
8.04
8.02
* Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
Notes on pages 125 to 177 form part of these financial statements.
Consolidated statement of comprehensive income
Year ended 31 December
Profit for the year
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit schemes (note 10)
Tax relating to items that will not be reclassified
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Remeasurement of equity investment at fair value
Items reclassified to profit or loss:
Exchange differences transferred to income statement on sale of business (note 32)
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
2023
US$m
74.1
(70.8)
(0.2)
(71.0)
(0.4)
(6.7)
(7.1)
6.6
(71.5)
2.6
(14.3)
16.9
2.6
Restated*
2022
US$m
7.3
15.3
5.4
20.7
(27.2)
–
(27.2)
15.0
8.5
15.8
(5.5)
21.3
15.8
* Pension surplus amounts at 31 December 2022 for the Coats UK and US pension schemes have been restated to reflect a change in measurement
as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
Notes on pages 125 to 177 form part of these financial statements.
2022*
Total
US$m
1,537.6
(1,059.2)
478.4
(125.8)
(172.7)
1.2
181.1
1.1
2.6
(33.4)
151.4
(56.4)
95.0
(87.7)
7.3
(14.7)
22.0
7.3
4.82
4.79
(0.98)
(0.97)
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121
Coats Group plc Annual Report and Accounts 2023
Consolidated statement of financial position
31 December
Non-current assets:
Goodwill
Other intangible assets
Property, plant and equipment
Right-of-use assets
Investments in joint ventures
Other equity investments
Deferred tax assets
Pension surpluses
Trade and other receivables
Current assets:
Inventories
Trade and other receivables
Pension surpluses
Cash and cash equivalents
Non-current assets classified as held for sale
Total assets
Current liabilities:
Trade and other payables
Income tax liabilities
Bank overdrafts and other borrowings
Lease liabilities
Retirement benefit obligations:
– Funded schemes
– Unfunded schemes
Provisions
Net current assets
Notes
2023
US$m
*Restated
*Restated
2022
US$m
2021
US$m
31 December
Notes
2023
US$m
*Restated
*Restated
2022
US$m
2021
US$m
13
13
14
15
16
16
17
10
19
18
19
10
30(g)
21
23
15
10
10
25
126.1
470.7
243.2
74.4
12.8
0.9
18.0
148.2
19.5
124.7
488.7
256.3
96.5
13.1
5.9
24.4
186.9
20.2
1,113.8
1,216.7
173.5
292.0
1.6
132.4
1.0
211.4
286.3
2.0
172.4
–
26.2
256.7
244.5
91.6
12.0
6.0
20.7
163.7
28.7
850.1
250.1
302.7
5.2
107.2
–
600.5
1,714.3
672.1
1,888.8
665.2
1,515.3
(285.6)
(45.5)
(144.3)
(17.5)
(0.8)
(7.7)
(17.1)
(518.5)
82.0
(278.4)
(346.8)
(20.2)
(16.7)
(19.0)
(27.6)
(5.0)
(18.2)
(385.1)
287.0
(16.5)
(19.2)
(17.8)
(41.9)
(6.1)
(8.1)
(456.4)
208.8
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 profit
Equity shareholders’ funds
Non-controlling interests
Total equity
21
24
23
15
10
10
25
(3.2)
(63.9)
(372.2)
(69.3)
(2.9)
(75.6)
(19.3)
(26.3)
(78.2)
(550.1)
(86.4)
(3.3)
(83.4)
(25.4)
(606.4)
(853.1)
(1,124.9)
(1,238.2)
589.4
650.6
26
27
26, 27
27
27
27
27
27
99.0
111.4
(6.1)
(109.7)
59.8
246.3
157.4
558.1
31.3
589.4
99.0
111.4
(0.1)
(116.6)
59.8
246.3
216.7
616.5
34.1
650.6
(24.2)
(26.5)
(235.1)
(81.2)
(5.6)
(90.2)
(27.7)
(490.5)
(946.9)
568.4
90.1
10.5
(0.5)
(105.1)
59.8
246.3
236.2
537.3
31.1
568.4
* Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension schemes have been restated to reflect a
change in measurement as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
Rajiv Sharma
Group Chief Executive
Jackie Callaway
Chief Financial Officer
Approved by the Board 6 March 2024
Company Registration No.103548
Notes on pages 125 to 177 form part of these financial statements.
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122
Coats Group plc Annual Report and Accounts 2023
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$m
Retained
profit
US$m
Non-
controlling
interests
US$m
Total
US$m
Total
equity
US$m
Share
capital
US$m
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
profit
US$m
Non-
controlling
interests
US$m
Total
US$m
Balance as at
1 January 2022 as
originally reported
Restatement in respect
of prior year*
Balance as at
1 January 2022 as
restated
(Loss)/profit for the year
Other comprehensive
income and expense
for the year
Application of IAS 29
(note 1)
Dividends (see notes 12
and 27)
Issue of ordinary
shares
Purchase of own
shares by Employee
Benefit Trust
Movement in
own shares
Share based payments
Deferred tax on share
schemes
Balance as at
31 December 2022
90.1
10.5
(0.5)
(105.7)
59.8
246.3
252.5
553.0
31.1
584.1
–
–
–
0.6
–
–
(16.3)
(15.7)
–
(15.7)
90.1
10.5
(0.5)
(105.1)
59.8
246.3
236.2
537.3
(14.7)
(14.7)
31.1
22.0
568.4
7.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(10.1)
4.1
–
–
6.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
56.5
56.5
17.6
Total
equity
US$m
74.1
(77.7)
(70.8)
(0.7)
(71.5)
(40.6)
(40.6)
(19.7)
(60.3)
–
(10.1)
(4.5)
7.0
(0.4)
7.0
–
–
–
(10.1)
(0.4)
7.0
Profit for the year
Other comprehensive
income and expense
for the year
Dividends (see notes 12
and 27)
Purchase of own
shares by Employee
Benefit Trust
Movement in
own shares
Share based payments
Balance as at
31 December 2023
20.7
5.0
9.2
5.0
(0.7)
–
8.5
5.0
99.0
111.4
(6.1)
(109.7)
59.8
246.3
157.4
558.1
31.3
589.4
(32.9)
(32.9)
(18.3)
(51.2)
* Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension schemes have been restated to reflect a
change in measurement as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
–
–
(2.5)
4.6
0.3
109.8
(2.1)
–
4.6
0.3
–
–
–
–
–
109.8
Notes on pages 125 to 177 form part of these financial statements.
(2.1)
–
4.6
0.3
–
–
–
–
–
–
–
–
8.9
100.9
–
–
–
–
–
–
–
–
–
–
–
–
–
(2.1)
2.5
–
–
–
(11.5)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99.0
111.4
(0.1)
(116.6)
59.8
246.3
216.7
616.5
34.1
650.6
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Coats Group plc Annual Report and Accounts 2023
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
Acquisition of businesses
Disposals of business
Net cash absorbed in investing activities
Cash (outflow)/inflow from financing activities:
Issue of ordinary shares
Purchase of own shares by Employee Benefit Trust
Dividends paid to equity shareholders
Dividends paid to non-controlling interests
Payment of lease liabilities
Borrowings settled on completion of acquisitions
(Repayment)/drawdown of term loan acquisition facility
Issue of senior notes
Net (decrease)/increase in other borrowings
Net cash (absorbed in)/generated from financing activities
Notes
30(a)
30(b)
30(c)
30(d)
30(e)
30(f)
30(f)
2023
US$m
2022
US$m
Year ended 31 December
217.3
(33.7)
(59.7)
123.9
0.6
(19.7)
–
(1.2)
(20.3)
176.5
(25.5)
(54.6)
96.4
0.5
(31.6)
(271.2)
(17.0)
(319.3)
Net (decrease)/increase in cash and cash equivalents
Net cash and cash equivalents at beginning of the year
Foreign exchange losses on cash and cash equivalents
Net cash and cash equivalents at end of the year
Reconciliation of net cash flow to movements in net debt
Net (decrease)/increase in cash and cash equivalents
Repayment/(drawdown) of term loan acquisition facility
Issue of senior notes
Net decrease/(increase) in other borrowings
Change in net debt resulting from cash flows (free cash flow)
Net movement in lease liabilities during the period
Movement in fair value hedges
26
–
109.8
Other non-cash movements
Foreign exchange (losses)/gains
Decrease/(increase) in net debt
Net debt at the start of the year
Net debt at the end of the year
Notes on pages 125 to 177 form part of these financial statements.
(10.1)
(40.3)
(19.7)
(18.5)
–
(240.0)
248.6
(67.0)
(147.0)
(2.1)
(33.0)
(18.3)
(18.1)
(62.5)
240.0
–
79.2
295.0
31
30(g)
30(g)
Notes
30(g)
30(g)
30(g)
37(e)
30(g)
2023
US$m
(43.4)
157.7
(2.8)
111.5
(43.4)
240.0
(248.6)
67.0
15.0
17.5
(1.2)
(1.5)
(0.9)
28.9
(499.8)
(470.9)
2022
US$m
72.1
90.8
(5.2)
157.7
72.1
(240.0)
(240.0)
(79.2)
(247.1)
(13.0)
5.2
(1.0)
2.2
(253.7)
(246.1)
(499.8)
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124
Coats Group plc Annual Report and Accounts 2023
Notes to the financial statements
1 Principal accounting policies
Discontinued operations
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.
In the course of preparing the financial statements, the below critical judgements and key sources of
estimation uncertainty have had a significant effect on the amounts recognised in the financial statements
for the year ended 31 December 2023. The critical accounting judgements made by management in
applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as
those applied to the consolidated financial statements for the year ended 31 December 2022, except for
the critical accounting judgement relating to the sale of the European Zips business in 2023 set out below.
Critical judgements in applying the Group’s accounting policies
Exceptional and acquisition related items
As set out in the Group’s accounting policy below, judgement is used to determine those items which should
be separately disclosed as exceptional and acquisition related items to provide valuable additional
information for users of the financial statements in understanding the Group’s performance. This judgement
includes assessment of whether an item is of sufficient size or of a nature that is not consistent with normal
trading activities. Please see note 4 for further details.
UK pension surplus recognition
The Group has recognised a net defined benefit pension surplus for the Coats UK Pension Scheme under
IAS 19 of $102.2 million at 31 December 2023 (2022: $117.5 million). Judgement has been applied when
interpreting the scheme rules to determine whether the Group can recognise this surplus asset amount on
the statement of financial position or whether any economic benefits available as a refund are contingent
upon factors beyond the Group’s control and instead require an adjustment to be made to restrict the
amount of the surplus recognised and reflect a liability arising from future committed contributions to the
Coats UK Pension Scheme under IFRIC 14. The Group has determined that it has an unconditional right to a
refund of the surplus assuming the gradual settlement of liabilities over time and therefore has recognised
the full amount of the net defined benefit pension surplus. Please see note 10 for further details.
In management’s judgement the European Zips business which was sold in August 2023 represents a
separate major line of business and therefore its results for 2023 have been presented as a discontinued
operation with 2022 comparative amounts represented to reclassify the results of the European Zips
business from continuing operations to discontinued operations (see note 32 for further details of the sale).
Judgement is used by the Group in assessing whether a disposal of a business represents a disposal of a
separate major line of business considering the facts and circumstances of each disposal. In determining
whether a disposal represents a separate major line of business, the Group considers both quantitative and
qualitative factors.
If the Group had concluded that the disposal of the European Zips business did not represent a discontinued
operation, the Group’s revenue and operating profit before exceptional and acquisition related items from
continuing operations for the year ended 31 December 2023 would have been $1,419.5 million and $232.1
million respectively (2022: $1,583.8 million and $234.9 million respectively). The Group’s revenue and
operating profit before exceptional and acquisition related items from continuing operations for the year
ended 31 December 2023 was $1,394.2 million and $233.4 million respectively (2022: $1,537.6 million and
$232.7 million respectively) with the European Zips business reported as a discontinued operation.
In addition the loss on disposal of the European Zips business of $23.7 million, including foreign exchange
losses transferred to the income statement on disposal, would have been presented as other operating costs
from continuing operations under exceptional and acquisition related items. Other exceptional costs incurred
by the European Zips business of $1.7 million would also have been charged to operating profits from
continuing operations. As a result, total exceptional and acquisition related items charged to operating profits
from continuing operations would have been $74.8 million compared to $49.4 million that has been reported
for the year ended 31 December 2023. See note 32 for further details on the results of the European Zips
business.
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.
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Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
UK retirement benefit obligations
The UK retirement benefit surplus recognised in the consolidated statement of financial position is the net
of the fair value of scheme assets less the present values of the defined benefit obligations at the year end.
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 surplus recognised in the consolidated statement of financial
position. Sensitivities regarding the discount rate and inflation assumptions used to measure the liabilities
of the UK pension scheme are set out in note 10.
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.
a) Accounting convention and format
Discontinued operations
The Group’s financial statements for the year ended 31 December 2023 have been prepared in accordance
with international accounting standards in conformity with the requirements of the Companies Act 2006, and
complies with the disclosure requirements of the Listing Rules of the UK Financial Conduct Authority. The
financial statements are prepared under the historical cost convention except for investments and derivatives
which are stated at fair value 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, interpretations and
amendments (as detailed in note 1), 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 2022.
b) Basis of preparation
Prior period restatement of pension surplus amounts
Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension
schemes have been restated to reflect a change in measurement as set out in note 10. There is no impact
on either profits or cash flows for the year ended 31 December 2022.
Subsidiaries
Subsidiaries are consolidated from the effective date of acquisition or up to the effective date of disposal,
as appropriate. 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.
On 30 June 2023 the Group entered into an agreement to sell its European Zips business to Aequita, a
German family office. The sale was completed on 31 August 2023, the date which control passed to the
acquirer. The exit from the European Zips business was in line with Coats’ previously announced strategic
initiatives to optimise the Group’s portfolio and footprint, and improve the overall cost base efficiency. The
results of the European Zips business is presented as a discontinued operation in the consolidated income
statement for the year ended 31 December 2023. Amounts for year ended 31 December 2022 in the
consolidated income statement have been represented to reclassify the results of the European Zips
business from continuing operations to discontinued operations. Note 32 provides further details of the sale.
Joint ventures
Joint ventures are entities in which the Group has joint control, shared with a party outside the Group. The
Group reports its interests in joint ventures using the equity method.
Going concern
The Directors are satisfied that the Group and the Company has sufficient resources to continue in operation
for the period from the date of this report to 30 June 2025. Accordingly, they continue to adopt the going
concern basis in preparing the consolidated financial statements. In assessing the Group’s going concern
position, the Directors have considered a number of factors, including the current balance sheet position and
available liquidity, the current trading performance as set out in the Full Year Results Overview section of the
Chief Executive’s Review included in the 2023 Annual Report, the principal and emerging risks which could
impact the performance of the Group and compliance with borrowing covenants.
In order to assess the going concern status of the Group management has prepared:
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
Covenant testing
– A base case scenario, aligned to the latest Group budget for 2024 as well as the Group’s updated Medium
Term Plan for 2025, which takes into account the repayment of $125 million of US Private Placement debt
that matures during the going concern assessment period;
– A number of downside scenarios have been prepared, which all assume that the global economic
environment is depressed over the assessment period. One of these scenarios assumes trading broadly
in line with 2023, this scenario is considered to be severe but plausible as 2023 was impacted by high
inflation, elevated interest rates and the unprecedented industry destocking, which is not expected to
reoccur given improving sales trends and normalising customer inventory levels. Further, even more
severe downside scenarios, which assume declines in trading performance relative to that seen in the
past 12 months, continue to show significant liquidity and covenant headroom; and
– A reverse stress test flexing sales to determine what circumstance would be required to either reduce
headroom to nil on committed borrowing facilities or breach borrowing covenants, whichever occurred
first.
As more fully described in the Outlook section on page 9, the Directors expect the Group to make
good progress in 2024 underpinned by modest but accelerating revenue growth, with a weighting to the
second half and the base case scenario reflects these expectations. The severe but plausible downside
scenario includes further management actions that would be deployed if required (for example further
reduction in costs).
The reverse stress test noted an implausible decrease in trading performance, with revenues almost 30%
below the base case, would be required. The test also includes further controllable management actions that
could be deployed if required (for example no bonus payments, reduced discretionary costs and significantly
reduced capital expenditure). The outcome of the reverse stress test was that the leverage covenant would
be breached, however, at the breaking point in the test the Group still maintained sufficient liquidity on
committed borrowing facilities. The Directors consider the likelihood of the condition in the reverse stress
test occurring to be remote on the basis that the Group has not experienced such a decline historically.
Liquidity headroom
As at 31 December 2023 the Group’s net debt (excluding IFRS 16 leases liabilities) was $384.1 million (2022:
$394.4 million). The Group’s committed debt facilities total $835 million across its Banking and US Private
Placement group, with a range of maturities from December 2024 through to 2030. In the base case, severe
but plausible downside scenario and reverse stress test scenario it has been assumed that the $125 million
of US Private Placement maturing during the going concern assessment period in December 2024 will be
repaid in full through a drawdown in the Group’s revolving credit facility. The Directors expect that the
revolving credit facility, which matures in April 2026, will be refinanced on similar terms. As of 31 December
2023 the Group had around $315 million of headroom against these committed banking facilities. In all three
scenarios liquidity headroom exists throughout the assessment period.
The Group’s committed borrowing facilities are subject to ongoing covenant testing. Covenants are
measured twice a year, at full year and half year on a twelve month rolling basis and are measured
under frozen accounting standards and therefore exclude the effects of IFRS 16. The financial covenants
under the borrowing agreements are for leverage (net debt / EBITDA) less than 3.0 and interest cover
(EBITDA / interest charge) to be in excess of 4.0. All banking covenants tests were met at 31 December
2023, with leverage of 1.5x and interest cover of 8.2x. The base case forecast indicates that banking
covenants will be met throughout the assessment period. Under the severe but plausible downside
scenario covenant compliance is still projected to be achieved throughout the assessment period.
Conclusion
In conclusion, after reviewing the base case, the severe but plausible downside scenario and considering
the remote likelihood of the scenario in the reverse stress test occurring, the Directors have formed the
judgement that, at the time of approving the consolidated financial statements, there are no material
uncertainties that cast doubt on the Group’s and the Company’s going concern status and that it is
appropriate to prepare the consolidated financial statements on the going concern basis for the period
from the date of this report to 30 June 2025.
c) Functional currency
The functional currency of Coats Group plc the company continued to be United States dollars (USD) during
the year ended 31 December 2023.
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.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
Group companies
Assets and liabilities of subsidiaries whose functional 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
Chinese Renminbi
Indian Rupee
Turkish Lira*
Sterling
Euro
Chinese Renminbi
Indian Rupee
Turkish Lira
2023
0.80
0.92
7.08
82.56
23.79
0.79
0.91
7.10
83.19
29.48
2022
0.81
0.95
6.73
78.59
16.57
0.83
0.93
6.90
82.72
18.69
* Cumulative inflation rates over a three-year period exceeded 100% in Turkey in May 2022 and since then Turkey is considered as hyperinflationary.
As a result, IAS 29 “Financial Reporting in Hyperinflationary Economies” was applied for the first time for the year ended 31 December 2022. In
accordance with IAS 29, the financial statements of the Company’s subsidiary in Turkey are translated into the Group’s US Dollar presentational
currency at the year end exchange rate. Monetary assets and liabilities are not restated. All non-monetary items recorded at historical rates are
restated for the change in purchasing power caused by inflation from the date of initial recognition to the year end balance sheet date. The income
statement of the Company’s subsidiary in Turkey is adjusted for inflation during the reporting period. The translation adjustment resulting from the
initial application of IAS 29 of $5.0 million was recognised in equity. A net monetary gain of $2.3 million for the year ended 31 December 2023 (2022:
$1.9 million) was recognised within finance income on non-monetary items held in Turkish Lira. The inflation rate used is the consumer price index
published by the Turkish Statistical Institute, TurkStat. The movement in the price index for the year ended 31 December 2023 was 65% (2022: 64%).
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. 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 financing 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, non-actuarial gains or losses arising from significant one off changes to 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.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
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.
i) Business combinations and Intangible assets
Business combinations
Acquisitions of businesses are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, which is measured at acquisition date fair
value. Acquisition-related costs are recognised in the consolidated income statement, as incurred, in
operating costs.
If the initial accounting for a business combination is incomplete by the end of the reporting period in
which the combination occurs, the Group reports provisional amounts for the items for which the accounting
is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or
additional assets or liabilities are recognised, to reflect new information obtained about facts and
circumstances that existed as of the acquisition date that, if known, would have affected the amounts
recognised as of that date.
The measurement period is the period from the date of acquisition to the date the Group obtains complete
information about facts and circumstances that existed as of the acquisition date and is subject to a
maximum of one year.
Goodwill
Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any
non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest
in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and
the liabilities assumed. 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 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 15 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, right-of-use assets 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.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its
value in use. In assessing value in use, the estimated future cash flows are discounted to their present value
using a pre-tax discount rate that reflects current market assessments of the time value of money and the
risks specific to the asset for which the estimates of future cash flows have not been adjusted. For the
purposes of assessing impairment, assets are measured at the CGU level.
Research and development
All research costs are expensed as incurred.
An internally-generated intangible asset arising from development is recognised only if all of the following
conditions are met:
– an asset is created that can be separately identified;
– it is probable that the asset created will generate future economic benefits; and
– the development costs can be measured reliably.
Internally-generated intangible assets are amortised on a straight-line basis over their useful lives.
Where no internally-generated intangible asset can be recognised, development expenditure is recognised
as an expense in the period in which it is incurred.
j) Leases
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.
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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130
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
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 maturing in less than three months. 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.
(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.
(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 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 fair value or 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.
(ii) Borrowings
(v) Fair value hedges
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. Financial liabilities designated as
hedged items in a fair value hedge are subsequently measured at fair value.
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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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
(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 (net of taxes) 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.
132
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
(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.
p) Government grants
Government grants are not recognised until there is reasonable assurance that the Group will comply with
the conditions attaching to them and that the grants will be received. Government grants are recognised in
profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related
costs for which the grants are intended to compensate.
Government grants that are receivable as compensation for expenses or losses already incurred or for the
purpose of giving immediate financial support to the Group with no future related costs are recognised in
profit or loss in the period in which they become receivable.
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133
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
q) 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.
r) 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.
When some or all of the economic benefits required to settle a provision are expected to be recovered from
an insurer, a receivable is recognised as an insurance reimbursement asset and included separately within
other receivables if it is virtually certain that reimbursement from the insurer will be received and the amount
of the receivable can be measured reliably.
s) 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.
t) 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.
u) 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 major line of business or
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.
v) Climate change
In preparation of the consolidated financial statements, consideration has been given to the impact of climate
change on the Group’s key accounting policies, estimates and judgements. As noted in the Taskforce on
Climate-related Financial Disclosures (TCFD) on pages 181-197 we are exposed to specific transitional and
physical climate related risks. The key areas in the consolidated financial statements that were identified for
consideration of potential impacts from these climate related risks were the assumptions used to support
impairment reviews of cash generating units (CGUs) and accounting policies on estimated useful lives of
tangible fixed assets.
(i) Impairment of assets
The key climate related risks considered were the introduction of carbon taxes, disruption of water supply
and extreme weather events (floods and extreme heat). These risks as well as any potential mitigations were
considered when assessing the appropriateness of the assumptions used to project future cash flows to
support the value in use of a CGU. No specific significant financial impacts were identified in relation to the
CGUs that were subject to an impairment review during the year ended 31 December 2023 (see note 13).
In addition, no significant short to medium term (pre 2045) climate related impacts have been identified for
individual assets or other CGUs in the Group.
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134
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
1 Principal accounting policies cont.
(ii) Fixed asset useful lives
From the year beginning 1 January 2025:
– Lack of Exchangeability (Amendments to IAS 21).
Consideration was given as to whether the impact of physical risks relating to extreme weather events (e.g.
flood risk damage) may require a reassessment of the estimated useful lives of fixed assets. As noted in the
physical risks section in our TCFD disclosures, no significant impacts are currently expected in the short to
medium term (pre 2045), after which point the majority of the Group’s current fixed asset portfolio will be fully
depreciated. As such, the reassessment of fixed asset useful lives to reflect potential impacts of climate
change was not deemed necessary.
In light of the above, the Group’s current assessment is that the climate related risks detailed in the TCFD
disclosures section of the Annual Report do not have a material impact on the key accounting policies,
estimates and judgements that form the basis of these consolidated financial statements.
New IFRS accounting standards, interpretations and amendments adopted in the year
During the year, the Group has adopted the following standards, interpretations and amendments:
– Classification of Liabilities as Current or Non-current (Amendments to IAS 1);
– IFRS 17 Insurance Contracts and amendments to IFRS 17 Insurance Contracts;
– Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2);
– Definition of Accounting Estimates (Amendments to IAS 8); and
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.
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) in deciding how to allocate resources and in assessing performance.
Following the acquisitions of Texon and Rhenoflex in July and August 2022 respectively, effective 1 January
2023 the Group’s organisational structure and reporting structure consists of three divisions: Apparel,
Footwear and Performance Materials (year ended 31 December 2022: two divisions Apparel & Footwear
and Performance Materials).
The Group’s customers are grouped into three segments Apparel, Footwear and Performance Materials
which have distinct different strategies and differing customer/end-use market profiles. The Footwear
Division consists of the footwear thread business and the acquired structural components businesses,
Texon and Rhenoflex.
– Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
The adoption of these standards has not had a material impact on the financial statements of the Group.
From 1 January 2023, this is the basis on which financial information is reported internally to the chief
operating decision maker (CODM) for the purpose of allocating resources between segments and assessing
their performance.
The Group has applied the exception issued by the IASB in May 2023 from the accounting requirements for
deferred taxes in IAS 12 Income taxes in respect of Pillar Two income taxes. Accordingly, the Group has not
recognised or disclosed information about deferred tax assets and liabilities related to Pillar Two income
taxes (see note 9).
As a result of the above, the reportable segments were changed in 2023 to Apparel, Footwear and
Performance Materials and comparative information for the year ended 31 December 2022 has been
restated on a consistent basis. Previously the reportable segments for the year ended 31 December 2022
comprised Apparel & Footwear and Performance Materials.
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 UKEB, are expected to be effective as follows:
From the year beginning 1 January 2024:
– Non-current Liabilities with Covenants and classification of Liabilities as Current or Non-current
(Amendments to IAS 1);
– Lease liability in a Sale and Leaseback (Amendments to IFRS 16); and
– Supplier Finance Arrangements (Amendments to IAS 7 and IFRS 7).
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135
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
2 Segmental analysis cont.
a) Segment revenue and results
Year ended 31 December 2023
Continuing operations
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 2022*
Continuing operations
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
b) Geographic information
Apparel
US$m
Footwear
US$m
Performance
Materials
US$m
Total
US$m
Year ended 31 December
Europe, Middle East & Africa (EMEA)
689.4
120.4
368.4
84.1
336.4
28.9
UK
1,394.2
Rest of EMEA
233.4
(49.4)
184.0
1.1
4.6
(33.9)
155.8
Americas
USA
Rest of Americas
Asia & Rest of World
India
China and Hong Kong
Vietnam
Other
Revenue by origin
Revenue by destination
Non-current assets
2023
US$m
2022*
US$m
2023
US$m
2022*
US$m
2023
US$m
2022
US$m
29.8
295.5
141.9
104.4
163.4
228.4
198.4
232.4
23.1
262.1
219.4
121.2
184.4
234.9
213.5
279.0
12.5
257.2
155.9
99.6
162.1
192.5
173.5
340.9
13.0
237.8
238.7
118.1
184.0
198.4
215.0
332.6
1,394.2
1,537.6
1,394.2
1,537.6
258.7
182.3
37.6
62.0
34.6
277.6
34.7
60.2
947.7
256.8
195.0
51.0
52.8
39.7
301.8
38.7
63.7
999.5
Apparel
US$m
Footwear
US$m
Performance
Materials
US$m
Total
US$m
817.5
130.4
299.7
68.2
420.4
34.1
1,537.6
232.7
(51.6)
181.1
1.1
2.6
(33.4)
151.4
Non-current assets excludes derivative financial instruments, investments, pension surpluses and deferred
tax assets.
3 Revenue
An analysis of the Group’s revenue is as follows:
Year ended 31 December
Goods transferred at a point in time
Software solutions services transferred over time
Other operating income
Finance income
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
The software solutions business is included in the Apparel segment.
2023
US$m
2022*
US$m
1,385.1
1,527.4
9.1
10.2
1,394.2
1,537.6
5.8
4.6
1.2
2.6
1,404.6
1,541.4
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* Represented to reflect the results of the European Zips business as a discontinued operation (see note 1) and restated following the change in
reportable segments to Apparel, Footwear and Performance Materials (previously Apparel & Footwear and Performance Materials).
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.
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
3 Revenue cont.
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
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 profit before taxation from continuing operations
for the year ended 31 December 2023 were $49.4 million (2022: $52.7 million) comprising exceptional items
for the year ended 31 December 2023 of $27.9 million (2022: $28.9 million) and acquisition related items for
the year ended 31 December 2023 of $21.5 million (2022: $23.8 million). Taxation in respect of exceptional
and acquisition related items is set out in note 9.
1,394.2
1,537.6
Exceptional items
Exceptional items charged/(credited) to operating profit during the year ended 31 December 2023 are set out
below:
2023
US$m
2022*
US$m
822.6
246.3
325.3
911.8
340.6
285.2
689.4
368.4
336.4
817.5
299.7
420.4
Year ended 31 December
1,394.2
1,537.6
Exceptional items:
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
The Group had no revenue from a single customer which accounts for more than 10% of the Group’s revenue.
4 Exceptional and acquisition related items
The Group’s consolidated income statement format is presented before and after exceptional and acquisition
related items. Adjusted results exclude exceptional and acquisition related items on a consistent basis with
the previous reporting period to provide valuable additional information for users of the financial statements
in understanding the Group’s performance and reflects how the performance of the business is managed
and measured on a day-to-day basis. Further details on alternative performance measures are set out
in note 37.
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, non-actuarial
gains or losses arising from significant one off changes to 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.
Strategic project costs:
– Cost of sales
– Distribution costs
– Administration costs
Profit from sale of property and businesses:
– Other operating income
Costs from integration of Footwear acquisitions:
– Cost of sales
– Distribution costs
– Administration costs
Lower Passaic River non-cash impairment charge:
– Administration costs
Total exceptional items charged to profit before taxation from continuing operations
27.9
28.9
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
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2023
US$m
2022*
US$m
13.4
1.3
9.1
23.8
9.9
3.8
16.4
30.1
(5.8)
(1.2)
4.8
1.3
0.2
6.3
3.6
–
–
–
–
–
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
4 Exceptional and acquisition related items cont.
Strategic project costs – At the end of 2021 the Group commenced a strategic project to improve margins by
optimising the portfolio and footprint, improving the overall cost base efficiency, and mitigating structural
labour availability issues in the US. During the year ended 31 December 2023 activities were undertaken to
establish a second new plant in Mexico at Toluca. Further initiatives in the US to deliver operating efficiencies
and mitigate structural labour availability were advanced. In addition the Group undertook optimisation
initiatives in China and India. In China, manufacturing activities of lower-margin zip production ceased and
were outsourced to a third party supplier. In India, there have been headcount reductions, with office and
warehouse space being consolidated.
During the year ended 31 December 2022 a new facility was established in Huamantla, Mexico,
manufacturing processes were transferred from the US and a legacy facility in the US was exited. In EMEA
thread operations in Romania were consolidated in a purpose-built logistics facility and warehouses in
Poland and Hungary were exited. Corporate and overhead activities in the UK and US were moved closer
to the Group’s operations and customers and UK and US offices were exited.
As a result of these activities, exceptional restructuring costs totalling $23.8 million were incurred during the
year ended 31 December 2023 (2022: $30.1 million) which included:
– severance and related employee costs of $11.1 million (2022: $22.0 million);
– non-cash impairment charges of property, plant and equipment, right-of-use assets and inventories of
$5.2 million (2022: $4.7 million); and
– legal, advisers, closure and related costs of $7.5 million (2022: $3.4 million).
Profit from sale of property and businesses– During the year ended 31 December 2023 profit from the sale
of land and buildings as part of the above strategic project was $5.8 million (2022: $1.2 million). In addition
the Group completed the sale of its businesses in Mauritius and Madagascar in January 2023 for a cash
consideration of $1.4 million resulting in a profit on disposal of $nil. The net assets disposed totalled $1.4
million comprising property, plant and equipment of $0.1 million, inventories of $0.6 million, debtors of $0.6
million, cash of $0.6 million and current liabilities of $0.5 million.
Costs from integration of Footwear acquisitions– During the year ended 31 December 2023 exceptional
costs of $6.3 million were recognised relating to the integration of the Texon and Rhenoflex businesses,
which were acquired in July 2022 and August 2022 respectively. These exceptional costs primarily relate
to the elimination of duplicated roles and from the consolidation of back-office activities and costs
associated with the commencement of a strategic project to consolidate the under-utilised UK-based
footwear production site into the Group’s existing facility in Indonesia. Non-cash impairment charges of
property, plant and equipment incurred during the year ended 31 December 2023 were $0.3 million.
Lower Passaic River non-cash charge– A non-cash exceptional impairment charge of $3.6 million has been
made for the year ended 31 December 2023 relating to the full amount of an insurance asset that had
previously been recognised for the expected partial recovery of future remediation costs and associated
legal and professional costs in connection with the Lower Passaic River legacy environmental matter. The
impairment charge was recognised for accounting purposes because at the end of 2023 the insurer was
placed into liquidation. This is without prejudice to any future claims against the insurer in the liquidation
proceedings.
Acquisition related items
Acquisition related items are set out below:
Year ended 31 December
Acquisition related items:
Administrative expenses:
Amortisation of acquired intangible assets
Acquisition transaction costs
Finance costs:
Acquisition transaction costs
Total acquisition related items charged to profit before taxation from continuing operations
2023
US$m
2022
US$m
21.5
–
21.5
–
21.5
10.8
11.9
22.7
1.1
23.8
Acquisition transaction costs charged to administrative expenses during the year ended 31 December 2022
of $11.9 million included transaction costs relating to the acquisitions of Texon and Rhenoflex (see note 31).
Acquisition transaction costs charged to finance costs during the year ended 31 December 2022 of $1.1
million related to the $240.0 million term loan acquisition facility used to finance the acquisition of Texon.
Acquisition transaction costs and amortisation of intangible assets acquired through business combinations
are not included within adjusted operating profit and adjusted earnings per share. These costs are
acquisition related and management consider them to be capital in nature and are not included in profitability
measures by which management assess the 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 operating results as management
consider these cost to be part of the trading performance of the business.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
4 Exceptional and acquisition related items cont.
The Group has made acquisitions in prior years 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.
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
2023
US$m
30.3
5.6
(4.4)
2.4
33.9
2022
US$m
18.9
4.9
0.5
9.1
33.4
5 Profit for the year (including discontinued operations)
Year ended 31 December
Profit for the year is stated after charging/(crediting):
Amortisation of intangible assets
Depreciation of owned property, plant and equipment
Depreciation of right-of-use assets
Profit on disposal of property, plant and equipment
Fees charged by EY LLP (2022: Deloitte LLP)
Group audit fees:
– Fees payable for the audit of the Company’s annual accounts
– Fees payable for the audit of the Company’s subsidiaries
Other EY services (2022: Deloitte LLP):
– Taxation services
– Other services
Total fees charged by EY LLP (2022: Deloitte LLP)
Research and development expenditure
Expected credit losses
Net foreign exchange losses
Rental income from land and buildings
Inventory as a material component of cost of sales
Inventory write-downs to net realisable value
6 Finance income
Year ended 31 December
Income from investments
Net monetary gain arising from hyperinflation accounting (see note 1)
Other interest receivable and similar income
2023
US$m
2022
US$m
22.9
27.0
18.8
(5.9)
2.1
1.8
–
0.6
4.5
6.5
1.6
4.4
12.6
26.5
19.4
(1.1)
1.0
1.7
0.1
0.1
2.9
6.2
1.1
3.5
(0.1)
585.4
5.1
(0.2)
728.2
4.1
2023
US$m
0.1
2.3
2.2
4.6
2022
US$m
0.1
1.9
0.6
2.6
Other finance costs for the year ended 31 December 2022 included acquisition related transaction costs of
$1.1 million incurred in connection with the $240.0 million term loan acquisition facility used to finance the
acquisition of Texon (see note 4).
8 Staff costs
The average monthly number of employees was:
Year ended 31 December
Continuing operations1:
Manufacturing
Other staff
Discontinued operations2
Total number of employees
Comprising:
UK
Overseas
The total numbers employed at the end of the year were:
UK
Overseas
Discontinued operations
Total number of employees
2023
2022*
12,635
2,904
15,539
457
15,996
220
15,319
15,539
199
15,203
15,402
–
15,402
13,886
3,269
17,155
1,798
18,953
256
18,697
18,953
228
15,875
16,103
540
16,643
1. The 2022 average number of employees for continuing operations includes the acquired Texon and Rhenoflex businesses from their respective
acquisition dates of 20 July 2022 and 23 August 2022 through to 31 December 2022 (see note 31).
2. The 2023 average number of employees for the discontinued European Zips business are for the period until disposal on 31 August 2023 (see note
32). The 2022 average number of employees includes the discontinued Brazil and Argentina business for the period until disposal on 10 May 2022.
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
8 Staff costs cont.
Year ended 31 December
Employee aggregate remuneration comprised (including directors):
Wages and salaries
Social security costs
Other pension costs (note 10)
Discontinued operations
* Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
9 Tax on profit from continuing operations
Year ended 31 December
UK Corporation tax at 23.5% (2022: 19%)
Overseas tax charge
Deferred tax credit/(charge)
Total tax charge
2023
US$m
2022*
US$m
261.4
25.9
6.4
293.7
12.5
306.2
2023
US$m
–
(64.0)
9.0
(55.0)
272.6
24.5
9.0
306.1
25.2
331.3
2022
US$m
–
(56.2)
(0.2)
(56.4)
The overseas tax charge includes withholding tax charges for the year ended 31 December 2023 of $9.9
million (2022: $13.3 million).
For the year ended 31 December 2023 the tax credit in respect of exceptional and acquisition related items
was $2.9 million (2022: $3.7 million). This includes exceptional tax credits of $2.3 million (2022: $2.0 million)
in connection with the exceptional strategic projects and $0.6 million (2022: $1.7 million) relating to the
unwinding of deferred tax liabilities on the amortisation of acquired Texon and Rhenoflex intangible assets
and the impact of tax rate differences.
The tax charge for the year can be reconciled as follows:
Year ended 31 December
Profit before tax
Expected tax
charge/(credit) at
the UK statutory
rate of 23.5%
(2022: 19%)
Differences
between overseas
and UK taxation
rate
Non-deductible
expenses
Non-taxable income
Local tax incentives
Utilisation of
unrecognised
deferred tax assets
Potential deferred
tax assets not
recognised
Impact of changes
in tax rates
Prior year
adjustments
Withholding tax on
remittances (net of
double tax credits)
Income tax
expense/(credit)
Effective tax rate
Exceptional and
acquisition
related items
US$m
(49.4)
Adjusted
US$m
200.8
Other
adjustments1
US$m
2023
Total
US$m
4.4
155.8
Exceptional and
acquisition
related items
US$m
(52.7)
Adjusted
US$m
204.6
Other
adjustments1
US$m
2022*
Total
US$m
(0.5)
151.4
47.2
(11.6)
1.0
36.6
38.9
(10.0)
(0.1)
28.8
(7.7)
7.9
(2.5)
(0.4)
(3.3)
9.8
–
(2.8)
9.9
58.1
29%
–
8.7
–
–
–
–
–
–
–
(1.0)
(0.2)
–
–
–
–
–
–
–
(7.7)
15.6
(2.7)
(0.4)
(1.7)
(1.7)
(0.7)
(0.3)
(3.3)
(1.3)
9.8
–
(2.8)
9.9
55.0
35%
12.6
(0.5)
2.0
13.3
60.6
30%
1.8
4.5
–
–
–
–
–
–
–
–
–
–
–
–
0.1
2.8
(0.7)
(0.3)
(1.3)
(0.4)
12.2
–
–
–
(0.5)
2.0
13.3
56.4
37%
(2.9)
6%
(0.2)
5%
(3.7)
7%
(0.5)
100%
1. Other adjustments consist of net interest on pension scheme assets and liabilities of $4.4 million (2022: $0.5 million).
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
9 Tax on profit from continuing operations cont.
The Group’s adjusted effective tax rate is higher than the blended rate of the countries we operate in
primarily due to the impact of unrecognised tax losses and the impact of withholding taxes on the
repatriation of earnings and payment of intra-group charges to the UK.
Excluding exceptional and acquisition related items and the impact of IAS 19 finance charges, the adjusted
effective rate on pre-tax profits was 29% (2022: 30%). The lower rate was driven by recognition of deferred
tax assets in respect of UK and Germany accumulated tax losses and a substantial withholding tax refund
in Indonesia.
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.
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.
Pillar Two
Taxation paid
The Group has applied the temporary exception issued by the IASB in May 2023 from the accounting
requirements for deferred taxes in IAS 12. Accordingly, the Group neither recognises nor discloses
information about deferred tax assets and liabilities related to Pillar Two income taxes for the current
financial year.
On 20 June 2023, the government of the UK, where Coats Group plc is incorporated, enacted the Pillar Two
income taxes legislation effective from 1 January 2024. Under the legislation, the parent company will be
required to pay, in the UK, top-up tax on profits of its subsidiaries that are taxed at an effective tax rate of
less than 15%. The Group has performed a preliminary assessment of the potential exposure to Pillar Two
income taxes for the year ending 31 December 2024. This assessment is based on the profits and tax
expense in the Group’s consolidated financial statements for the years ended 31 December 2022 and 2023.
The main jurisdictions in which exposure to this tax may exist are expected to be Bulgaria, Honduras and
Hungary which either have statutory tax rates of less than 15% or where the Group is able to take advantage
of a tax holiday. The Group is continuing to assess the impact of the Pillar Two income taxes legislation on its
future financial performance but it is not expected to have a significant impact on the Group due to the low
level of profits in these jurisdictions.
Uncertain tax positions
The Group’s tax liability includes a number of tax provisions, which together total $29.2 million (2022: $26.3
million). The increase in the year is primarily due to re-measurement of Transfer Pricing provisions following
the 2022 acquisitions, internal reorganisations and developments in local tax environments offset by the
utilisation and release of a provision in respect of an Advanced Pricing Agreement in Indonesia. 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.
During the year the Group made Corporate Income Tax payments in respect of continuing operations
(including withholding and dividend distribution taxes) of $59.7 million (2022: $54.6 million). The amount
of tax paid in each jurisdiction is as follows:
Year ended 31 December
UK
Vietnam
Indonesia
Hong Kong
India
Others (28 countries each less than $2.5 million)
Total Corporate Income Tax paid
2023
US$m
8.2
12.3
11.0
4.4
4.1
19.7
59.7
2022
US$m
10.0
16.1
3.3
3.1
3.9
18.2
54.6
The taxes paid in the UK are withholding taxes on royalties, group charges and dividends, deducted and
paid at source. In the year ended 31 December 2023 the Group paid withholding taxes of $9.9 million
(2022: $11.4 million).
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements
b) Defined contribution schemes
a) Pension and other post-employment costs
The Group operates a number of defined contribution plans around the world to provide pension benefits.
Pension and other post-employment costs charged to operating profit for the year were (continuing and
discontinued operations):
Defined contribution schemes
Defined benefit schemes – Other funded and unfunded schemes
Past service (credit)/cost
Settlements
Administrative expenses for defined benefit schemes
Year ended
31 December
2023
US$m
Year ended
31 December
2022
US$m
3.1
3.3
(0.4)
0.3
4.6
10.9
5.5
3.9
1.3
0.1
4.7
15.5
c) Defined benefit schemes
The Group operates various defined benefit pension and other post-employment arrangements in most of
the countries in which it operates. The most significant defined benefit pension schemes are the Coats UK
Pension Scheme and the Coats North America Pension Plan (US Plan), both of which are closed to future
accrual.
Coats UK Pension Scheme
The Coats UK Pension Scheme (“the Scheme”) is administered by a trustee. Its assets are held in funds that
are legally separated from the Group and are subject to UK legislation with oversight from the Pensions
Regulator. It was formed in 2018 by bringing together three historic UK schemes, the last of which closed to
future accrual in 2016. 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 (for example the Group).
The sponsor of the Scheme is Coats Limited and the Company provides a guarantee to the Scheme.
The trustee board is responsible for setting the Scheme’s investment policy following consultation with the
wider Group. The trustee board operates an investment policy whereby a portion of the fund is invested
in assets (bonds, derivatives and a bulk annuity policy) 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, and hence lower volatility of the net position of the scheme.
Cash funding commitments
The Scheme is subject to full actuarial valuations every three years using assumptions agreed between the
trustee board and the wider Group. The purpose of this valuation is to design a cash funding plan to ensure
that the pension scheme has sufficient assets available to meet the future payment of benefits to Scheme
members. It is this funding valuation basis, not accounting valuations under IAS 19 (which is currently in a
surplus position), that determines the cash funding the Group provides to the Scheme. The next triennial
valuation will be as at 31 March 2024.
Currently, it is estimated that the value of the liabilities on the funding valuation basis is circa $2.0 billion
(uninsured liabilities of circa $1.6 billion), which is broadly matched to the value of the assets, whilst under
IAS 19 the liabilities are lower, leading to a net surplus position.
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A
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F
I
N
A
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
Latest funding valuation estimate and contribution switch-off
The valuation of liabilities for funding purposes differs from the IAS 19 valuation used for accounting
purposes, mainly due to the different actuarial assumptions used but also due to differences in market
conditions between valuation dates (31 March 2021 for funding valuations vs 31 December 2023 for IAS 19).
Whilst there are some specific differences relating to discount rates, in the round the assumptions used to
calculate the funding valuation liabilities (the “Technical Provisions”) are required to be set prudently, given
this drives cash funding contributions, whereas the assumptions used under IAS 19 are required to be the
Group directors’ best estimate of future experience. Taking two of the main assumptions as examples:
– Discount rates: For the Technical Provisions valuation this is set using a relatively cautious expectation of
future returns on the Scheme’s assets, a significant portion of which are liked to UK gilts, whilst under the
IAS 19 accounting valuation this is set using high-quality (AA rated) corporate bond yields with no linkage
to actual investment strategy the Scheme has. At the current time this typically means IAS 19 discount
rates are higher than Technical Provisions discount rates and so deliver a lower IAS 19 liability figure.
– Mortality: The Technical Provisions valuation, with the requirement for prudence, assumes Scheme
members live longer than the IAS 19 account valuation, where the requirement is to assume best
estimate of future life expectancy. This therefore delivers a lower IAS 19 liability figure.
The funding deficit has evolved significantly over the last 5-10 years. In 2015 the estimated total funding
deficit across the three historic UK schemes was just under £600 million. Significant Group contributions
and strong investment performance have helped reduce this to a broadly fully funded position.
In November 2021, the Group and the trustee board agreed the latest funding valuation of the Scheme
with an effective date of 31 March 2021. This showed a prudent funding deficit of £193 million ($246 million at
31 December 2023 exchange rates) and resulted in agreed ongoing deficit recovery payments of £22 million
per annum ($28 million) until 31 December 2028. These payments are uprated each year by the increase in
the UK Retail Prices Index, but capped at 5% in any year. The Group also meets the Scheme’s administrative
expenses and levies estimated at £4 million ($5 million) per annum.
Pensioner buy-in
In December 2022, the trustee board purchased a circa £350 million bulk annuity policy from Aviva,
which insures all the benefits payable in respect of around 3,700 pensioner members (a “pensioner buy-in”).
This policy will see all financial and demographic risks, including those related to longevity, covered for
approximately 20% of Scheme members. The bulk annuity policy is an asset of the Scheme and forms part
of the total Scheme assets disclosed below. Under IAS 19 it is deemed a qualifying insurance policy, due to it
exactly matching the amount and timing of benefits payable by the Scheme to the covered members. Under
IAS 19, the value of the bulk annuity policy is therefore set equal to the corresponding IAS 19 liabilities for
covered members; not the premium paid. Given the favourable pricing at the point of transaction, the
pensioner buy-in had no material impact on the Group’s balance sheet or future income statements on an
IAS 19 basis.
Updates provided to the Group in early 2023 showed that the funding deficit had fallen significantly due to
contributions from the Group, favourable movements in the market (mainly increasing discount rates) and the
de-risking actions that the Group have taken, for example the pensioner buy-in transaction referred to above.
As a result of this significantly improved funding position, and reflective of the collaborative working relationship
with the Trustees, the Group agreed a monitoring mechanism to switch off / switch on the regular cash
contributions to the Coats UK Pension Scheme based on monthly estimates of the latest funding position.
Further to this agreement, the Group subsequently agreed to make a one-off lump sum payment of £10
million ($12.6 million) in December 2023 to move the Scheme into an expected funding surplus position and
enable the switch off threshold to be comfortably met. Pension deficit repair contributions therefore switched
off from 1 January 2024, with no further contributions due to be paid in 2024 and will remain switched off
whilst the Scheme’s assets remain above 99% of the Technical Provisions. This agreement will result in a free
cash flow benefit of £2 million ($2.5 million) per month while the payments remain switched off.
Coats North America Pension Plan
The Coats North America Pension Plan (Coats US) is a defined benefit scheme, the assets of which are held
in funds that are legally separated from the Group. In 2019 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.
Overall Group position
The UK and US schemes represent around 96% of the Group’s total defined benefit obligations. Both
these schemes are pre-funded and report an accounting surplus, whereas the majority of the Group’s other
arrangements (most significantly in Germany) are unfunded and benefits are met on an ongoing basis by the
Group. The overall balance sheet position for the Group in respect of the defined benefit pension and other
post-employment arrangements shows a significant surplus under IAS 19 at the end of the financial year of
$62.8 million. This is due mainly to the pre-funded schemes’ assets exceeding the IAS 19 measure of their
liabilities. Importantly, the measurement of liabilities under IAS 19 differs from local requirements to
determine the Group’s cash funding of these schemes, which are currently more onerous in the UK in
particular and contrary to the IAS 19 position leaves the scheme in a Technical Provision deficit position
on the funding basis (albeit significantly improved in recent periods).
The following disclosures are required in accordance with the requirements of IAS 19 and do not include
information in respect of schemes operated by joint ventures. The information provided below for defined
benefit plans has been prepared by independent qualified actuaries based on the most recent formal
actuarial valuations of the schemes (effective at 31 March 2021 and 1 January 2023 for the UK and US
respectively), updated to take account of the valuations of assets and liabilities as at 31 December 2023.
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143
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
Risk
Description
Commentary
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
Description
Commentary
Interest rate
risk
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
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 impact of the movement in discount
rates are shown on page 149. The Trustees
of the UK and US schemes hedge these
sensitivities through physical bonds and
derivatives. The Coats UK Pension Scheme
is currently over 90% (2022: over 90%)
hedged against interest rate movements by
reference to the Technical Provisions liability.
The impact of the movement in inflation
rates are shown on page 149. The Trustees
of the UK and US schemes hedge these
sensitivities through physical bonds,
derivatives and real assets. The Coats UK
Pension Scheme is currently over 90%
(2022: over 90%) hedged against inflation
rate movements by reference to the
Technical Provisions liability.
The impact of an increase in life expectancy
is shown on page 149. Currently this is a risk
that is largely unhedged by the Group’s
pension schemes. However, the UK
scheme’s £350 million pensioner buy-in
with Aviva hedges roughly 20% of its
longevity risk.
Investment
risk
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.
Liquidity risk
The scheme needs available financial
resources to meet obligations when they fall
due. Not being able to sell assets in a timely
manner for the expected valuation could
lead to an increased disclosed deficit or
reduced surplus.
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 fixed
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.
The schemes’ investment policies recognise
the need to generate cash flows to meet
members’ benefits as they fall due.
In addition, the UK scheme’s hedging policy
is run using low leverage in order to
maintain strong liquidity, even after the
pensioner buy-in transaction. The scheme
suffered no meaningful impacts during the
well documented market issues over
September and October 2022, which faced
those UK schemes relying heavily on “LDI”
strategies.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
iii) Amounts recognised in the consolidated income statement
ii) Principal assumptions
Amounts recognised in income in respect of these defined benefit schemes are as follows:
The principal assumptions for the UK and US schemes are as follows:
Principal assumptions at 31 December 2023
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Principal assumptions at 31 December 2022
Rate of increase in salaries
Rate of increase for pensions in payment
Discount rate
Inflation assumption
Coats UK
Pension Scheme
Coats US
%
–
Various
4.5
3.2
%
–
–
5.0
–
Coats UK
Pension Scheme
Coats US
%
–
Various
4.8
3.3
%
–
–
5.2
–
Other
%
5.8
1.7
6.0
4.1
Other
%
5.7
4.1
5.7
4.5
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 2.9% (2022: 3.0%). For
former Staveley scheme members, the majority of the increases for pensions in payment fall within the range
2.1%–2.9% (2022: 2.2%–3.0%). For former Brunel scheme members, the majority of the increases for
pensions in payment fall within the range 3.4%–4.0% (2022: 3.4%–4.0%).
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 2023
Year ended 31 December 2022
Coats UK
Pension Scheme
Years
Coats US
Years
Coats UK
Pension Scheme
Years
Coats US
Years
25.0
27.9
26.1
29.0
25.0
27.2
26.6
28.7
25.6
28.5
27.1
29.9
24.9
27.1
26.6
28.6
Year ended 31 December 2023
Current service cost
Past service (cost)/credit
Settlements
Administrative expenses
Interest on defined benefit obligations – unwinding of discount
Interest income on pension scheme assets
Effect of asset ceiling
Year ended 31 December 2022
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 ceiling
Coats UK
Pension Scheme
US$m
Coats US
US$m
–
–
–
(4.0)
(4.0)
(84.9)
94.5
(3.1)
6.5
–
(0.2)
–
(0.5)
(0.7)
(1.4)
5.0
(1.4)
2.2
Coats UK
Pension Scheme
US$m
Coats US
US$m
–
–
–
(4.1)
(4.1)
(50.0)
52.2
–
2.2
–
(1.2)
–
(0.5)
(1.7)
(1.3)
3.9
(2.3)
0.3
Other
US$m
(3.3)
0.6
(0.3)
(0.1)
(3.1)
(4.8)
0.5
–
(4.3)
Other
US$m
(3.9)
(0.1)
(0.1)
(0.1)
(4.2)
(3.5)
0.5
–
(3.0)
Group
US$m
(3.3)
0.4
(0.3)
(4.6)
(7.8)
(91.1)
100.0
(4.5)
4.4
Group
US$m
(3.9)
(1.3)
(0.1)
(4.7)
(10.0)
(54.8)
56.6
(2.3)
(0.5)
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145
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
v) Amounts recognised in the consolidated statement of financial position
iv) Amounts recognised in the consolidated statement of comprehensive income
Actuarial gains and losses were as follows:
The amounts included in the consolidated statement of financial position arising from the Group’s defined
benefit arrangements are as follows:
Effect of changes in demographic assumptions
Effect of changes in financial assumptions
Effect of experience adjustments
Remeasurement on assets (excluding interest income)
Adjustment due to asset ceiling
Included in the statement of comprehensive income
Year ended
31 December 2023
US$m
Restated*
Year ended
31 December 2022
US$m
33.7
(63.0)
(39.9)
(33.4)
31.8
(70.8)
10.8
941.1
(67.7)
(855.5)
(13.4)
15.3
Year ended 31 December 2023
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
* Pension surplus amounts at 31 December 2022 for the Coats UK and US pension schemes have been restated to reflect a change in measurement
as further described in note 10, on page 150. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
Corporate bonds (Investment grade)
Corporate bonds (Non-investment grade)
Government/sovereign instruments
Global real estate
Derivatives:
Total return, interest and inflation swaps
Assets held by insurance company:
Insurance contracts
Diversified investment fund
Other
Total market value of assets
Actuarial value of scheme liabilities
Net asset/(liability) in the scheme
Adjustment due to asset ceiling1
Recoverable net asset/(liability) in the scheme
Coats UK
Pension Scheme
US$m
53.5
62.2
5.2
8.6
28.9
519.3
74.0
611.1
127.0
(7.5)
396.4
17.2
134.6
2,030.5
(1,894.3)
136.2
(34.0)
102.2
Coats US
US$m
0.5
13.1
1.2
4.2
7.0
46.7
1.4
26.8
–
–
0.2
–
–
101.1
(25.5)
75.6
(31.9)
43.7
Other
US$m
3.4
–
–
–
1.6
–
–
–
–
–
Total
US$m
57.4
75.3
6.4
12.8
37.5
566.0
75.4
637.9
127.0
(7.5)
0.8
–
0.2
6.0
397.4
17.2
134.8
2,137.6
(89.1)
(2,008.9)
(83.1)
–
(83.1)
128.7
(65.9)
62.8
1 The accounting surplus under IAS 19 for the Coats UK and US pension schemes is presented net of tax on the consolidated statement of financial position. Please see section viii for further details.
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146
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
The amounts are presented in the consolidated statement of financial position as follows:
Coats US
US$m
1.6
Other
US$m
4.2
Year ended 31 December 2022
Cash and cash equivalents
Equity instruments:
US
UK
Eurozone
Other regions
Debt instruments:
Corporate bonds (Investment grade)
Corporate bonds (Non-investment grade)
Government/sovereign instruments
Global real estate
Derivatives:
Total return, interest and inflation swaps
Assets held by insurance company:
Insurance contracts
Diversified investment fund
Other
Total market value of assets
Actuarial value of scheme liabilities
Net asset/(liability) in the scheme
Adjustment due to asset ceiling1
Coats UK
Pension Scheme
US$m
64.6
47.6
3.1
8.4
20.1
428.2
89.4
562.9
238.5
(20.7)
391.6
5.5
127.7
1,966.9
(1,786.2)
180.7
(63.2)
12.3
1.1
4.5
7.0
43.6
1.7
24.7
–
–
0.5
–
–
97.0
(29.3)
67.7
(27.3)
8.4
2,072.3
(96.7)
(88.3)
–
(1,912.2)
160.1
(90.5)
Year ended 31 December
Non-current assets:
Funded
Current assets:
Funded
Current liabilities:
Funded
Unfunded
Non-current liabilities:
Funded
Unfunded
2023
US$m
Restated*
2022
US$m
148.2
186.9
1.6
2.0
(0.8)
(7.7)
(2.9)
(75.6)
62.8
(27.6)
(5.0)
(3.3)
(83.4)
69.6
* Pension surplus amounts at 31 December 2022 for the Coats UK and US pension schemes have been restated to reflect a change in measurement
as further described in note 10, on page 150. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
The schemes disclosed as part of the ‘other’ column in the tables above include surplus positions of
$3.8 million (2022: $3.7 million).
Restated*
Total
US$m
70.4
60.5
4.2
12.9
28.3
473.4
91.1
587.6
238.5
(20.7)
392.9
5.5
127.7
0.6
–
–
1.2
1.6
–
–
–
–
0.8
–
–
Recoverable net asset/(liability) in the scheme
1 The accounting surplus under IAS 19 for the Coats UK and US pension schemes is presented net of tax on the consolidated statement of financial position. Please see section viii for further details.
117.5
(88.3)
40.4
69.6
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
vi) Assets without a quoted price in an active market
Movements in the present value of defined benefit obligations were as follows:
At 1 January
Current service cost
Decrease in liabilities on settlements
Past service credit/(cost)
Interest on defined benefit obligations – unwinding of discount
Actuarial gains on obligations
Contributions from members
Benefits paid
Net movement due to acquisitions and disposals of subsidiaries
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)
Decrease in assets on settlements
Contributions from members
Contribution from sponsoring companies
Benefits paid
Net movement due to acquisitions and disposals of subsidiaries
Administrative expenses paid from plan assets
Exchange difference
At 31 December
Year ended
31 December 2023
US$m
Restated*
Year ended
31 December 2022
US$m
(1,912.2)
(3,196.7)
(3.3)
3.8
0.4
(91.1)
(69.2)
–
154.1
1.1
(92.5)
(3.9)
0.4
(1.3)
(54.8)
884.2
(0.1)
157.2
(3.6)
306.4
(2,008.9)
(1,912.2)
2,072.3
3,301.5
100.0
(33.4)
(4.1)
–
56.1
(154.1)
–
(0.6)
56.6
(855.5)
(0.5)
0.1
46.3
(157.2)
(4.7)
(0.6)
101.4
(313.7)
2,137.6
2,072.3
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
90.5
4.5
(31.8)
2.7
65.9
79.7
2.3
13.2
(4.7)
90.5
For the Coats UK Pension Scheme, all assets in the table in section v of this note, except for cash and cash
equivalents, do not have a quoted price in an active market. For the Coats US scheme, included in the in
section v of this note are $46.7 million (2022: $43.6 million) of corporate bonds (Investment grade), $1.4
million (2022: $1.7 million) of corporate bonds (Non-investment grade) and $0.2 million (2022: $0.5 million)
of insurance contracts without a quoted price in an active market. All other assets have a quoted price in an
active market.
vii) 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:
– Equities and bonds listed on recognised exchanges are valued at closing bid prices;
– Other bonds are measured using a combination of broker quotes and pricing models making assumptions
for credit risk, market 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.
viii) Recoverability of plan surplus
The recoverable surplus on the Coats US scheme has been recognised in line with the annual refunds
expected from the scheme to fund the US post-retirement medical scheme in accordance with relevant US
legislation, and the residual surplus recognised net of applicable US taxes. The pension scheme was in a
surplus position of $75.6 million at 31 December 2023 of which a recoverable surplus of $43.7 million is
recognised on the Balance Sheet.
The Coats UK Pension Scheme moved into an IAS 19 surplus position during 2021. The Group has an
unconditional right to a refund of the surplus (net of withholding taxes) assuming the gradual settlement of
the liabilities over time and therefore no additional minimum funding requirement has been recognised.
* Pension surplus amounts at 31 December 2022 for the Coats UK and US pension schemes have been restated to reflect a change in measurement
as further described in note 10, on page 150. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
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E
R
N
A
N
C
E
F
I
N
A
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L
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148
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
ix) Duration of plan liabilities
The weighted average duration of benefit obligations is 12 years (2022: 12 years) for the Coats UK scheme
and 11 years (2022: 9 years) for the Coats US scheme.
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.
x) 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
2023
-0.25%
US$m
58.7
0.7
(36.6)
–
+0.25%
US$m
(55.9)
(0.7)
32.3
–
Year ended
31 December
2022
-0.25%
US$m
53.9
0.7
(30.1)
–
+0.25%
US$m
(51.4)
(0.7)
28.0
–
An increase of 1.0% in the discount rate would result in the Coats UK Pension Scheme and the Coats US
scheme liabilities decreasing by $208.7 million and $2.7 million (2022: $192.3 million and $2.6 million).
A decrease of 1.0% in the discount rate would result in the Coats UK Pension Scheme and the Coats US
scheme liabilities increasing by $253.1 million and $3.1 million (2022: $232.2 million and $3.1 million)
respectively. The above sensitivity analysis (on a IAS 19 basis) considers the impact on the scheme liabilities
only and excludes any impacts on scheme assets from changes in discount and inflation rates. As noted on
page 144, the Coats UK Pension Scheme is currently over 90% hedged against interest rate and inflation rate
movements. Therefore on a Technical Provision basis, to the extent there is a change in the scheme liabilities
due to movements in discount and inflation rates there would be offsetting impacts from the scheme assets
due to the hedging in place.
If members of the Coats UK Pension Scheme live one year longer the scheme liabilities will increase by
$66.3 million (2022: $59.8 million). If members of the Coats US scheme live one year longer scheme
liabilities will increase by $0.4 million (2022: $0.4 million), however, there would be no overall impact on
the recoverable surplus.
Sensitivity of medical schemes to medical cost trend rate assumptions:
Effect on total service cost and interest cost components of other
schemes
Effect on defined benefit obligation of other schemes
xi) Expected contributions for 2024
Year ended
31 December
2023
-1%
US$m
–
(0.5)
+1%
US$m
–
0.5
Year ended
31 December
2022
-1%
US$m
(0.1)
(0.7)
+1%
US$m
0.1
0.8
The total estimated amount to be paid in respect of all of the Group’s retirement and other post-employment
benefit arrangements during the 2024 financial year (excluding administrative expenses paid by the
Company) is $7.4 million.
d) United Kingdom Pension Benefits — High Court of Justice Ruling on Actuarial Confirmations
In June 2023, the High Court ruled in the case between Virgin Media and the NTL Pension Trustees II
Limited (and others) that the absence of a “Section 37” certificate accompanying an amendment to benefits
in a contracted-out pension scheme would render the amendment void. If upheld, the High Court’s decision
could have wider ranging implications, affecting other defined benefit pension schemes in the United
Kingdom that were contracted-out on a salary-related basis, and made amendments between April 1997
and April 2016.
Whilst the Coats UK Pension Scheme was only formed in 2018, after the end of contracting out, historic
schemes whose benefits were transferred into the Scheme did exist in the relevant time period and may
have had amendments subject to the Section 37 certificate requirement. The Trustee of the Coats UK
Pension Scheme is undertaking an exercise to review historical scheme documents, and to date no Section
37 certificate issues have been identified.
There is still further uncertainty with a Court of Appeal hearing for the case set for June 2024 as well as the
potential for overriding government legislation to be introduced. Given this and the status of the ongoing
review, at this time the Group’s current expectation is that no adjustments to the Coats UK Pension Scheme
defined benefit obligations will be required. The Group and the Trustee of the Coats UK Pension Scheme will
continue to keep this matter under review.
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149
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
10 Retirement and other post-employment benefit arrangements cont.
e) Prior period restatement of pension surplus amounts
Amounts as of 31 December 2022 and 31 December 2021 and for the year ended 31 December 2022 have
been restated as set out below:
The Coats UK Pension Scheme accounting surplus under IAS 19 has been recognised on the basis that
the future economic benefits are unconditionally available to the Group, which is assumed to be via a
refund. As at 31 December 2023 the Group determined that the accounting surplus should be recognised
after deducting withholding tax, which would be levied prior to the future refunding of any surplus and
would be payable by the Trustees of the Scheme. The pension surplus has been presented on a net
basis at 31 December 2023. The Coats UK Pension scheme also had an accounting surplus under IAS 19
at 31 December 2022 and 31 December 2021 but as originally reported the accounting surplus was not
recognised after deducting the withholding tax. Prior period amounts of the pension surplus included
in the consolidated statement of financial position at these dates have been restated to recognise the
withholding tax and present the accounting surplus on a net basis consistent with the accounting treatment
at 31 December 2023. The withholding tax rates that were applied were 25% at 31 December 2023 and 35%
at 31 December 2022 and 31 December 2021. In addition amounts for remeasurements of defined benefit
schemes and the foreign currency Great Britain pound sterling translation impact to US dollars included in
the consolidated statement of comprehensive income have also been restated. There has been no impact
on either the Group’s profits or cash flows for the respective periods as a result of this remeasurement.
The Coats UK Pension Scheme accounting surplus under IAS 19 in the restated consolidated statement
of financial position is $117.5 million and $70.2 million at 31 December 2022 and 31 December 2021
respectively. This represents a decrease of $63.2 million and $37.8 million at 31 December 2022 and
31 December 2021 respectively from the original reported amounts of $180.7 million and $108.0 million.
Pension surplus amounts at 31 December 2022 and 31 December 2021 have also been restated for the US
pension scheme to reflect a change in measurement. As originally reported the IAS 19 accounting surplus for
the US pension scheme was not recognised in full but recognised based on the expected utilisation of the
accounting surplus for transfers to a US medical plan and future pension scheme administrative costs. Prior
period amounts have been restated to recognise the accounting surplus in full on the basis that the future
economic benefits are unconditionally available to the Group, which is assumed to be via a refund net of
applicable US taxes. There is no impact on either profits or cash flows for the year ended 31 December 2022.
The US pension scheme accounting surplus under IAS 19 in the restated consolidated statement
of financial position is $40.4 million and $53.4 million at 31 December 2022 and 31 December 2021
respectively. This represents an increase of $27.4 million and $41.8 million at 31 December 2022 and
31 December 2021 respectively from the original reported amounts of $13.0 million and $11.6 million.
Consolidated statement of financial position
31 December 2022
Non-current assets:
Pension surpluses
Total assets
Deferred tax liabilities
Total liabilities
Net assets and total equity
31 December 2021
Non-current assets:
Pension surpluses
Total assets
Deferred tax liabilities
Total liabilities
Net assets and total equity
Consolidated statement of comprehensive income
Year ended 31 December 2022
Remeasurements of defined benefit schemes
Tax on items that will not be reclassified
Exchange differences on translation of foreign operations
Net comprehensive income and expense for the year
As Reported
US$m
UK Pension
Adjustment
US$m
US Pension
Adjustment
US$m
As restated
US$m
222.7
1,924.6
(65.3)
(1,225.3)
(63.2)
(63.2)
–
–
699.3
(63.2)
159.7
1,511.3
(6.8)
(927.2)
584.1
(37.8)
(37.8)
–
–
(37.8)
27.4
27.4
(12.9)
(12.9)
14.5
41.8
41.8
(19.7)
(19.7)
22.1
186.9
1,888.8
(78.2)
(1,238.2)
650.6
163.7
1,515.3
(26.5)
(946.9)
568.4
59.8
(1.4)
(31.9)
48.8
(30.1)
(14.4)
–
4.7
(25.4)
6.8
–
(7.6)
15.3
5.4
(27.2)
15.8
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P
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G
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N
A
N
C
E
F
I
N
A
N
C
I
A
L
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150
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
11 Earnings/(loss) per 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/(loss) per ordinary share from continuing and discontinued operations is
based on the profit/(loss) 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 shares relating to awards under the Group Deferred Bonus Plan which have been awarded
but not yet reached the end of the three year retention period 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/(loss) 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/(loss) per ordinary share
Diluted earnings/(loss) per ordinary share
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
2023
US$m
83.2
56.5
2022*
US$m
73.0
(14.7)
2023
Number of
shares
m
2022
Number of
shares
m
1,605.0
1,516.0
16.4
9.3
1,621.4
1,525.3
2023
cents
2022*
cents
5.18
5.13
3.52
3.48
4.82
4.79
(0.98)
(0.97)
Profit from continuing operations attributable to equity shareholders for the year ended 31 December 2023
of $83.2 million (2022: $73.0 million) comprises the profit from continuing operations for the year ended
31 December 2023 of $100.8 million (2022: $95.0 million) less non-controlling interests for the year ended
31 December 2023 of $17.6 million (2022: $22.0 million) as reported in the income statement.
12 Dividends
Year ended 31 December
2023 interim dividend paid – 0.81 cents per share
2022 final dividend paid – 1.73 cents per share
2022 interim dividend paid – 0.70 cents per share
2021 final dividend paid – 1.50 cents per share
2023
US$m
13.0
27.6
–
–
40.6
2022
US$m
–
–
11.1
21.8
32.9
The proposed final dividend of 1.99 cents per ordinary share for the year ended 31 December 2023 is not
recognised as a liability in the consolidated statement of financial position in line with the requirements of
IAS 10 Events after the Reporting Period and, subject to shareholder approval, will be paid on 30 May 2024
to ordinary shareholders on the register on 3 May 2024, with an ex-dividend date of 2 May 2024.
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N
A
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F
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A
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151
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
13 Intangible assets
Cost
At 1 January 2022
Currency translation differences
Acquisition of subsidiaries (see
note 31)
Additions
Disposals
At 31 December 2022
Currency translation differences
Disposal of subsidiaries
Additions
Disposals
26.2
–
98.5
–
–
124.7
1.4
–
–
–
Goodwill
US$m
Brands &
trade names
US$m
243.3
0.3
Acquired intangibles
Technology
US$m
17.2
(0.3)
Customer
relationships
US$m
6.8
1.0
Total
acquired
US$m
267.3
1.0
40.9
40.5
158.8
240.2
–
–
284.5
0.6
–
–
–
–
–
57.4
0.8
–
–
–
–
–
166.6
2.4
–
–
–
–
–
508.5
3.8
–
–
–
Computer
software
US$m
77.6
(1.7)
0.6
2.1
(2.5)
76.1
0.6
(1.7)
2.0
(2.1)
Total
US$m
371.1
(0.7)
339.3
2.1
(2.5)
709.3
5.8
(1.7)
2.0
(2.1)
At 31 December 2023
126.1
285.1
58.2
169.0
512.3
74.9
713.3
Cumulative amounts charged
At 1 January 2022
Currency translation differences
Amortisation charge for the year
Disposals
At 31 December 2022
Currency translation differences
Amortisation charge for the year
Disposal of subsidiaries
Disposals
At 31 December 2023
Net book value at
31 December 2023
Net book value at
31 December 2022
–
–
–
–
–
–
–
–
–
–
1.7
–
2.1
–
3.8
–
4.5
–
–
8.3
10.7
(0.7)
3.6
–
13.6
0.4
6.1
–
–
2.9
(0.1)
5.1
–
7.9
0.2
10.9
–
–
15.3
(0.8)
10.8
–
25.3
0.6
21.5
–
–
72.9
(1.6)
1.8
(2.5)
70.6
0.7
1.4
(1.7)
(1.9)
88.2
(2.4)
12.6
(2.5)
95.9
1.3
22.9
(1.7)
(1.9)
20.1
19.0
47.4
69.1
116.5
126.1
276.8
38.1
150.0
464.9
124.7
280.7
43.8
158.7
483.2
5.8
5.5
596.8
613.4
The carrying value of the Coats brand at 31 December 2023 and 31 December 2022 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 brand, and the brand is therefore assessed as having an indefinite useful
life, and as such, is reviewed for impairment annually. The recoverable amount of the Coats brand 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 the Coats brand. The fair value
measurement is categorised in its entirety in line with level 3 of the fair value hierarchy. The valuation has
been based on the latest budget and Medium Term Plan approved by the Board, covering the period to
31 December 2026, applying a pre-tax discount rate of 11.6% (2022: 11.6%) and long-term growth of 2.5%
(2022: 2.7%). Management believes that no reasonable potential change in any of the above key
assumptions would cause the carrying value to exceed its recoverable amount. The Coats brand is allocated
to cash-generating units (CGUs) that are expected to benefit from the Coats brand for the purposes of
impairment testing of CGUs.
Goodwill acquired in a business combination is allocated, at acquisition, to the CGUs that are expected to
benefit from that business combination. The Group completed two acquisitions during 2022 obtaining
control of both Texon and Rhenoflex, leading manufacturers of structural footwear components supplying
the world’s leading footwear brands (see note 31). The provisional goodwill arising from these acquisitions
was initially allocated to a Structural Footwear Components CGU. Following the organisational change to
the three divisions, effective from 1 January 2023, the Texon and Rhenoflex businesses have been integrated
into the Footwear division, which includes the pre-existing Coats footwear thread business. Under the new
divisional structure, these businesses have an aligned strategy and are being managed as a single business
by the Footwear leadership team. The Group has integrated a number of key business processes, as well as
commencing projects to optimise footprint, in order to maximise synergies.
As such, the Group has allocated the goodwill arising from Texon and Rhenoflex acquisitions to the single
CGU of Footwear.
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Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
13 Intangible assets cont.
The carrying amount of goodwill has been allocated as follows:
Year ended 31 December
Footwear
Gotex
US and Mexico
Coats Digital
Other
The pre-tax discount rates applied to the cash flow forecasts are derived from the Group’s post-tax weighted
average cost of capital. The Group’s weighted average cost of capital 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. The pre-tax base discount rate of 11.6%
(2022: 11.6%) has been adjusted for economic risks that are not already captured in the specific operating
assumptions. This results in the impairment testing using a pre tax discount rate of 13.0% for Footwear, 14.0%
for Gotex, 11.4% for US and Mexico, and 14.2% for Coats Digital.
The following scenarios would result in headroom being completely eliminated in the value in use impairment
assessments:
2023
US$m
100.8
12.6
2.6
8.4
1.7
2022
US$m
100.1
12.3
2.6
8.0
1.7
126.1
124.7
– the discount rate increasing by 1,470 bps in Footwear, 840 bps in Gotex, 410 bps in US and Mexico and
850 bps in Coats Digital; or
– cumulative 2024–2028 revenue is 54% lower in Footwear, 32% lower in Gotex, 20% lower in US and
Mexico and 33% lower in Coats Digital; or
– cumulative 2024–2028 operating profit is 66% lower in Footwear, 42% lower in Gotex, 26% lower in US
and Mexico and 59% lower in Coats Digital.
In light of this, 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.
The carrying value of the goodwill allocated to the Footwear, Gotex, US and Mexico and Coats Digital 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 2026;
– 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 2024 to 2026 and relate
to revenue forecasts and forecast operating margins. A short-term growth rate is applied to the December
2026 plan to derive the cash flows arising in 2027–2028 and a long-term rate is applied to 2028 to
determine a terminal value. Revenue growth and operating margin improvement assumptions in 2027–2028
are as follows:
Footwear
Gotex
US and Mexico
Coats Digital
Revenue
growth
2027
Revenue
growth
2028
%
8.6
7.0
4.6
20.3
%
8.1
6.5
4.9
7.0
Operating
margin
improvement
Operating
margin
improvement
2027
%
0.2
1.4
0.7
6.0
2028
%
0.2
0.7
0.7
–
Terminal
value
growth
rate
%
2.5
1.9
1.8
2.5
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A
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F
I
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A
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A
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153
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
14 Property, plant and equipment
Cost
At 1 January 2022
Currency translation differences
Application of IAS 29
Acquisition of subsidiaries
Disposal of subsidiaries
Additions
Disposals
At 31 December 2022
Currency translation differences
Application of IAS 29 (see note 1)
Disposal of subsidiaries (see note 32)
Additions
Transfer to non-current assets held for sale
Disposals
At 31 December 2023
Cumulative amounts charged
At 1 January 2022
Currency translation differences
Depreciation charge for the year
Impairment charge
Disposal of subsidiaries
Disposals
At 31 December 2022
Currency translation differences
Depreciation charge for the year
Impairment charge (see note 4)
Transfer to non-current assets held for sale
Disposal of subsidiaries (note 32)
Disposals
At 31 December 2023
Net book value at 31 December 2023
Net book value at 31 December 2022
Plant and
equipment
Vehicles and
office equipment
Land and
buildings
US$m
160.9
(4.9)
–
10.2
(8.9)
3.4
(3.3)
157.4
(0.3)
–
(9.0)
0.5
(2.5)
US$m
551.2
(24.8)
7.3
12.9
(30.2)
24.4
(11.7)
529.1
(6.1)
1.5
(40.3)
23.9
–
(15.1)
131.0
(49.2)
458.9
79.1
(2.9)
4.7
–
(3.7)
(1.8)
75.4
–
5.1
1.2
(1.5)
(7.6)
(11.9)
60.7
70.3
82.0
397.8
(18.5)
19.3
1.7
(25.5)
(11.6)
363.2
(3.9)
19.3
0.5
–
(39.3)
(46.5)
293.3
165.6
165.9
Analysis of net book value of land and buildings 31 December
Freehold
Leasehold improvements:
Over 50 years unexpired
Under 50 years unexpired
15 Leases
2023
US$m
57.8
2.5
10.0
70.3
2022
US$m
64.2
2.7
15.1
82.0
The Group leases several assets including buildings, plants, vehicles and office equipment. The average
lease term is 4 years (2022: 5 years). The Group’s consolidated balance sheet includes the following amounts
relating to leases:
Right-of-use assets
Net carrying amount
At 1 January 2023
At 31 December 2023
Depreciation expense for the year ended
31 December 2022
31 December 2023
Land and
buildings
US$m
87.5
67.3
14.1
15.0
Plant and
equipment
Vehicles and
office equipment
US$m
3.7
1.7
2.5
1.4
US$m
5.3
5.4
2.8
2.4
Total
US$m
96.5
74.4
19.4
18.8
Additions to the right-of-use assets during the year ended 31 December 2023 were $9.6 million (2022: $23.9
million).
Lease liabilities
Year ended 31 December
Current
Non-current
2023
US$m
17.5
69.3
86.8
2022
US$m
19.0
86.4
105.4
Total
US$m
777.5
(32.2)
7.3
23.7
(43.0)
30.2
(16.1)
747.4
(6.2)
1.5
(53.5)
25.9
(2.5)
(70.8)
641.8
533.0
(23.6)
26.5
1.8
(32.2)
(14.4)
491.1
(3.7)
27.0
1.7
(1.5)
(51.1)
(64.9)
398.6
243.2
256.3
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
154
US$m
65.4
(2.5)
–
0.6
(3.9)
2.4
(1.1)
60.9
0.2
–
(4.2)
1.5
–
(6.5)
51.9
56.1
(2.2)
2.5
0.1
(3.0)
(1.0)
52.5
0.2
2.6
–
–
(4.2)
(6.5)
44.6
7.3
8.4
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
15 Leases cont.
Lease liability maturity analysis
Payable within one year
Payable between one and two years
Payable between two and five years
Payable after more than five years
At 31 December 2023
Undiscounted
2023
US$m
Undiscounted
2022
US$m
Discounted
2023
US$m
Discounted
2022
US$m
Year ended 31 December
Interests in joint ventures (see below)
16 Non-current investments
22.0
16.0
38.8
30.6
24.2
20.9
43.5
46.6
107.4
135.2
17.5
12.3
31.5
25.5
86.8
19.0
16.5
32.9
37.0
105.4
Investments in equity securities: Unlisted investments
Interests in joint ventures
At 1 January 2023
Disposals
Dividends receivable
Share of profit after tax
At 31 December 2023
Year ended 31 December
Share of net assets on acquisition
Disposals
Share of post-acquisition retained profits
Share of net assets
The net decrease in lease liabilities during the year ended 31 December 2023 was $18.6 million (2022:
increase $6.4 million) which includes foreign exchange gains on lease liabilities of $1.1 million (2022: $6.6
million). The total cash outflow for leases in the year ended 31 December 2023 was $24.1 million (2022: $23.0
million).
The Group’s consolidated income statement includes the following amounts relating to leases:
Year ended 31 December
Depreciation expense
Interest expense on lease liabilities
Expenses relating to short-term leases
Expenses relating to leases of low value assets
Expense relating to variable lease payments not included in the measurement of the lease
liability
Impairment of right-of-use assets
Income from subleasing right-of-use assets
2023
US$m
18.8
5.6
0.3
0.1
1.7
4.6
(0.1)
2022
US$m
19.4
4.9
0.6
0.1
0.5
2.9
(0.2)
The Group subleases some of its right-of-use assets. At the balance sheet date, the Group had contracted
with tenants for receipt of the following minimum lease payments:
Year ended 31 December
Receivable within one year
Receivable between one and two years
2023
US$m
0.1
–
0.1
2022
US$m
0.1
0.1
0.2
2023
US$m
12.8
0.9
13.7
2023
US$m
11.3
(0.7)
2.2
12.8
2022
US$m
13.1
5.9
19.0
US$m
13.1
(0.7)
(0.7)
1.1
12.8
2022
US$m
11.3
–
1.8
13.1
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
155
The following table provides summarised financial information on the Group’s share of its joint ventures,
relating to the period during which they were joint ventures, and excludes goodwill:
Year ended 31 December
Summarised income statement information:
Revenue
Profit before tax
Taxation
Profit after tax
Year ended 31 December
Summarised balance sheet information:
Non-current assets
Current assets
Liabilities due within one year
Net assets
2023
US$m
2022
US$m
24.7
1.5
(0.4)
1.1
2023
US$m
4.8
16.1
20.9
(8.1)
12.8
28.7
1.2
(0.3)
0.9
2022
US$m
5.5
15.4
20.9
(7.8)
13.1
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
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 of subsidiaries
(Charged)/credited to the income statement
Charged to other comprehensive income and expense
At 31 December
18 Inventories
Year ended 31 December
Raw materials and consumables
Work in progress
Finished goods and goods for resale
2023
US$m
18.0
2022
US$m
24.4
2023
US$m
24.4
(1.1)
–
(5.1)
(0.2)
18.0
2023
US$m
84.9
22.0
66.6
173.5
2022
US$m
20.7
–
3.3
1.8
(1.4)
24.4
2022
US$m
98.0
32.3
81.1
211.4
19 Trade and other receivables
Year ended 31 December
Non-current assets:
Trade receivables
Other receivables
Prepaid pension contributions
Current assets:
Trade receivables
Current income tax assets
Prepayments and accrued income
Derivative financial instruments
Prepaid pension contributions
Other receivables
2023
US$m
2022
US$m
2.9
14.0
2.6
19.5
0.9
15.3
4.0
20.2
238.1
235.5
1.2
7.6
1.3
2.3
41.5
292.0
7.0
7.4
1.6
1.6
33.2
286.3
The fair value of trade and other receivables is not materially different to the carrying value. Other
receivables includes VAT and other taxes receivable.
Interest charged in respect of overdue trade receivables is immaterial.
Included within trade receivables is $11.1 million (2022: $6.6 million) relating to software solutions revenue
contracts, for which performance obligations are fulfilled over a period of time (see note 21).
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 $7.3 million (2022: $7.6 million).
The Group monitors receivables for any significant increases in credit risk, and fully provides for trade
receivables which are more than 6 months overdue, unless there are specific circumstances which would
indicate otherwise. For all other trade receivables, when determining expected losses, the Group takes into
account the historical default experience and the financial position of the counterparties, as well as the future
prospects considering various sources of information. Impairment has been considered for other receivables,
and is considered not to be significant.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
156
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
19 Trade and other receivables cont.
The loss allowance has been determined as follows:
Expected loss rate
Gross carrying amount (US$m)
Loss allowance provision (US$m)
Expected loss rate
Gross carrying amount (US$m)
Loss allowance provision (US$m)
Current
0.2%
213.5
0.4
Current
0.3%
204.8
0.6
The movements in the expected loss allowance are analysed as follows:
At 1 January
Currency translation differences
Acquisition of subsidiaries
Disposal of subsidiaries
Charged to the income statement
Amounts written off during the year
At 31 December
1–3 months past
due
3–6 months past
due
6+ months past
due
Total
2023
21 Trade and other payables
The fair values of these financial instruments are calculated by discounting the future cash flows to net
present values using appropriate market interest and foreign currency rates prevailing at the year end.
2%
25.4
0.4
27%
2.2
0.6
79%
7.2
5.9
Year ended 31 December
248.3
7.3
Amounts falling due within one year:
Trade payables
Amounts owed to joint ventures
1–3 months past
due
3–6 months past
due
6+ months past
due
Total
2022
Other tax and social security payable
2%
29.2
0.5
26%
2.7
0.7
79%
7.3
5.8
2023
US$m
7.6
(0.1)
–
(0.9)
1.6
(0.9)
7.3
Other payables
Accruals
Contract liabilities
244.0
7.6
Derivative financial instruments
Employee entitlements
2022
US$m
8.9
(0.5)
0.7
(2.1)
1.1
(0.5)
7.6
Amounts falling due after more than one year:
Other payables
Contract liabilities
Employee entitlements
Derivative financial instruments
The fair value of trade and other payables is not materially different to the carrying value.
2023
US$m
2022
US$m
163.2
151.3
15.3
5.6
33.7
38.7
11.1
3.6
14.4
285.6
–
1.6
1.6
–
3.2
15.0
8.9
30.8
43.9
7.9
6.0
14.6
278.4
20.7
1.5
1.1
3.0
26.3
As at 1 January 2022, trade receivables amounted to $241.5 million (net of loss allowance of $8.9 million).
Interest paid to suppliers in respect of overdue trade payables is immaterial.
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
Amounts shown within current assets
As at 31 December 2023, amounts relating to uncertain tax positions are included as income tax liabilities
within current liabilities in the consolidated statement of financial position (previously disclosed as other
payables within non-current liabilities).
Contract liabilities amounting to $5.9 million (2022: $6.6 million) which were outstanding at 31 December
2022 were released to revenue during the year ended 31 December 2023, with the remainder expected to
be released in 2024 and 2025.
2023
US$m
2022
US$m
1.3
1.3
1.6
1.6
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
157
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
22 Derivative financial instruments – liabilities
Derivative financial instruments within non-current and current liabilities comprise:
Year ended 31 December
Fair value through the income statement:
Forward foreign currency contracts
Interest rate swap contracts
Amounts shown within non-current liabilities
Amounts shown within current liabilities
2023
US$m
2022
US$m
1.8
1.8
3.6
–
3.6
5.9
3.1
9.0
3.0
6.0
The fair values of these financial instruments are calculated by discounting the future cash flows to net
present values using appropriate market interest and foreign currency rates prevailing at the year end.
23 Borrowings
Year ended 31 December
Bank overdrafts
Borrowings repayable within one year
Due within one year
Borrowings repayable between one and two years
Borrowings repayable between two and five years
Due after more than five years
Due after more than one year
Bank overdrafts
Series A and Series B Senior Notes
Bank and other borrowings
2023
US$m
20.9
123.4
144.3
–
272.7
99.5
372.2
20.9
472.3
23.3
516.5
2022
US$m
14.7
2.0
16.7
360.4
189.7
–
550.1
14.7
222.3
329.8
566.8
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.
In April 2021 the Group entered into a $360.0 million three year bank facility, with the ability for two one-year
extensions. The facility bears interest at the risk free rate plus a credit adjustment spread and a margin. The
facility also includes an ESG component which impacts the margin based on performance against three of
the Group’s published sustainability targets.
In February 2023, the Group completed the refinancing of the Texon acquisition term loan of $240 million,
which had been fully drawn down in July 2022, via the US Private Placement (USPP) market with $250
million of notes. $150 million 5.26% Series A Senior Notes are due on 16 February 2028 and $100 million
5.37% Series B Senior Notes are due on 16 February 2030. The cash inflow from the USPP issuance was
$248.6 million, net of fees.
Series A and Series B Senior Notes at 31 December 2023 of $472.3 million includes a fair value adjustment
to the nominal amount outstanding of $1.8 million, for which the Group has interest rate swaps which are
accounted for as fair value hedges.
The currency and interest rate profile of the Group’s borrowings is included in note 34 on page 171.
24 Deferred tax liabilities
At 1 January
Currency translation differences
Acquisition of subsidiaries (note 31)
(Credited)/charged to the income statement
Credited to the other comprehensive income and expense
Credited to equity
At 31 December
2023
US$m
78.2
(0.2)
–
(14.1)
–
–
63.9
Restated*
2022
US$m
26.5
2.0
54.8
2.0
(6.8)
(0.3)
78.2
* Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension schemes have been restated to reflect a
change in measurement as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
158
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
24 Deferred tax liabilities cont.
The Group’s net deferred tax liabilities/(assets) are analysed
as follows:
Accelerated tax depreciation on tangible fixed assets
Other temporary differences
Revenue losses carried forward1
Capital losses carried forward
Investment in subsidiaries
Acquired intangibles
Retirement benefit obligations
2023
Restated*
2022
Provided/
(recognised)
Unprovided/
(unrecognised)
US$m
US$m
Provided/
(recognised)
Unprovided/
(unrecognised)
US$m
US$m
(3.8)
(5.8)
(65.2)
–
10.0
104.3
6.4
45.9
0.1
(7.3)
(330.1)
(362.8)
8.6
–
(0.7)
(692.2)
14.8
(13.8)
(10.6)
–
4.5
51.8
7.1
53.8
(17.8)
(7.6)
(242.1)
(355.7)
6.8
–
(1.5)
(617.9)
The amount of the deferred tax asset that can be recognised is dependent on the time period over which
the taxable temporary difference reverses. This is due to the UK restriction on utilisation of brought forward
tax losses, after utilisation of current year tax attributes. For the purpose of deferred tax asset recognition
the Group takes the view that any future reversal of the taxable temporary difference on the Coats brand
intangible will take place over an extended period of time, and consequently any taxable income will be
fully offset by available losses and other tax attributes in each individual accounting period.
At 31 December 2023 the Group had approximately $1.6 billion (2022: $1.5 billion) of unused gross revenue
losses, approximately $1.4 billion (2022: $1.3 billion) of unused gross capital losses and approximately $536.1
million of gross other temporary differences available for offset against future profits. A deferred tax asset of
$65.2 million (2022: $10.6 million) has been recognised in respect of $277.2 million (2022: $40.7 million) of
such income tax losses. No deferred tax asset has been recognised in respect of the remaining losses and
other temporary differences due to lack of certainty regarding the availability of future taxable income. Such
losses and other temporary differences are only recognised in the financial statements to the extent that it is
considered more likely than not that sufficient future taxable profits will be available for offset.
The Group’s income tax losses can be analysed as follows:
1 Revenue losses include restricted interest amounts available for future reactivation.
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax
balances (after offset) for financial reporting purposes:
Expiring within 5 years
Expiring in more than 5 years
2023
Restated*
2022
Available indefinitely
Deferred tax assets (note 17)
Deferred tax liabilities
Provided/
(recognised)
US$m
(18.0)
63.9
45.9
Provided/
(recognised)
US$m
(24.4)
78.2
53.8
* Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension schemes have been restated to reflect a
change in measurement as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
A deferred tax liability is recognised in respect of the taxable temporary difference on the Coats brand
intangible asset owned in the UK. This is fully offset by an equivalent deferred tax asset recognised in
respect of tax attributes in the same jurisdiction. These tax attributes are expected to be utilised against the
taxable income arising on a reversal of the taxable temporary difference in respect of the brand. As a result
of this offset there are no gross amounts of deferred tax liabilities or deferred tax assets included in the
consolidated statement of financial position at 31 December 2023 and 31 December 2022 in respect of this.
In the analysis of the Group’s deferred tax balances above, the amounts are disclosed on a gross basis at
31 December 2023 and were disclosed on a net basis at 31 December 2022.
At 31 December 2023, the aggregate amount of temporary differences associated with undistributed
earnings of subsidiaries for which deferred tax liabilities have not been recognised is $8.6 million (2022: $6.8
million). Deferred tax on distribution of these profits of $116.1 million at 31 December 2023 (2022: $67.7
million) has not been provided on the grounds that the Group is able to control the timing of the reversal of
the remaining temporary differences and it is probable that they will not reverse in the foreseeable future.
25 Provisions
Year ended 31 December
Provisions are included as follows:
Current liabilities
Non-current liabilities
2023
US$m
2022
US$m
17.1
19.3
36.4
18.2
25.4
43.6
2023
US$m
23.2
19.0
2022
US$m
17.0
10.5
1,573.5
1,615.7
1,457.8
1,485.3
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
159
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
25 Provisions cont.
Provisions are analysed as follows:
Year ended 31 December
Property related provisions
Other provisions
At 1 January 2023
Currency translation differences
Disposal of subsidiaries (see note 32)
Utilised in year
Charged to the income statement
At 31 December 2023
2023
US$m
3.4
33.0
36.4
Other
provisions
US$m
42.7
0.1
(0.6)
(31.4)
22.2
33.0
2022
US$m
0.9
42.7
43.6
Total
US$m
43.6
0.1
(0.6)
(31.4)
24.7
36.4
Property related
provisions
US$m
0.9
–
–
–
2.5
3.4
Other provisions include amounts in relation to strategic projects (see note 4) of $3.2 million (2022: $7.8
million) as well as amounts set aside to cover certain legal and other regulatory claims, including in respect of
the Lower Passaic River (see note 28 for further details), which are expected to be substantially utilised within
the next ten years.
26 Share capital
Year ended 31 December
Ordinary Shares of 5p each
Number
1,597,810,385
2023
US$m
99.0
Number
1,597,810,385
2022
US$m
99.0
As at 1 January 2022 the company had 1,452,570,385 Ordinary shares in issue. During the year ended 31
December 2022 the company issued 145,240,000 Ordinary shares. The company has one class of Ordinary
shares which carry no right to fixed income.
The own shares reserve of $6.1 million at 31 December 2023 (2022: $0.1 million) represents the cost of shares
in Coats Group plc purchased in the market and held by an Employee Benefit Trust to satisfy awards under
the Group’s share based incentive plans. The number of shares held by the Employee Benefit Trust at 31
December 2023 was 6,124,223 (2022: 805,501).
Details of share awards outstanding under the Group’s LTIP and Deferred Bonus Plans are set out in note 33.
27 Reserves and non-controlling interests
At 1 January 2023 (as restated)*
Dividends
Currency translation differences
Actuarial gains on employee
benefits
Tax on actuarial gains
Remeasurement of equity
investment at fair value
Purchase of own shares
Movement in own shares
Share based payments
Profit for the year
Share
premium
account
US$m
111.4
–
–
–
–
–
–
–
–
–
Own
shares
US$m
(0.1)
–
–
–
–
–
(10.1)
4.1
–
–
Translation
reserve
US$m
(116.6)
–
6.9
–
–
–
–
–
–
–
Capital
reduction
reserve
US$m
Other
reserves
US$m
59.8
246.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31 December 2023
111.4
(6.1)
(109.7)
59.8
246.3
Retained
profit
US$m
216.7
(40.6)
–
(70.8)
(0.2)
(6.7)
–
(4.5)
7.0
56.5
157.4
Non-
controlling
interests
US$m
34.1
(19.7)
(0.7)
–
–
–
–
–
–
17.6
31.3
* Pension surplus amounts at 31 December 2022 and 31 December 2021 for the Coats UK and US pension schemes have been restated to reflect a
change in measurement as further described in note 1. There is no impact on ether profits or cash flows for the year ended 31 December 2022.
Other reserves of $246.3 million in the above table relate to legacy non-distributable reserves, which arose
during the period when the Group was part of the Guinness Peat Group.
The table below shows financial information of non-wholly owned subsidiaries of the Group that have
non-controlling interests:
EMEA
Asia & Rest of World
Profit allocated to
non-controlling interests
Accumulated
non-controlling interests
Year ended
31 December
2023
US$m
Year ended
31 December
2022
US$m
31 December
2023
US$m
31 December
2022
US$m
0.9
16.7
17.6
0.7
21.3
22.0
1.7
29.6
31.3
1.4
32.7
34.1
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 198 to 203.
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G
O
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A
N
C
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F
I
N
A
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A
L
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A
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M
E
N
T
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F
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I
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F
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160
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
28 Contingent liabilities and environmental matters
Environmental matters
As noted in previous reports, in December 2009, 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. Over 100 PRPs
have been identified by EPA. In 2011, CC joined a cooperating parties group (‘CPG’) of companies formed
to fund and conduct a remedial investigation and feasibility study of the area.
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,
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. In September 2021, EPA issued a Record of
Decision selecting an interim remedy for the upper 9 miles of the LPR (involving targeted removal of
contaminants and ongoing monitoring to assess whether additional contaminant removal would be
necessary), at an estimated cost of $441 million on a net present value basis.
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 created a liquidating trust to pursue
potential claims against Maxus’ parent entity, YPF SA, and potentially others. A settlement of those claims is
expected to result in additional funding for the LPR remedy.
While the ultimate costs of the remedial design and the final remedy for the full 17-mile LPR are expected to
be shared among more than a hundred parties, including many who are not currently in the CPG, a pending
settlement involving CC and other parties has not yet been approved by the court and the share of payments
for other 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 that they were eligible for early cash out settlements. As expected, EPA did not identify CC as one
of those 20 parties. EPA 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 allocation, CC presented 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 or even smaller de micromis party. The allocation process concluded in December
2020. The EPA-appointed allocator determined that CC is in the lowest tier (Tier 5) of allocation parties, and
is responsible for only a de micromis share of remedial costs.
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 addressed in the EPA sponsored
allocation process, and does not alter CC’s defences or CC’s continued belief that it is a de micromis party.
In 2015, a provision totalling $15.8 million was recorded for remediation costs for the entire 17 miles of the
LPR and the estimated associated legal and professional costs in defence of CC’s position. The provision
for remediation costs was based on CC’s estimated share of de minimis costs for (a) EPA’s selected remedy
for the lower 8 miles of the LPR and (b) the remedy for the upper 9 miles proposed by the CPG, which was
later substantively adopted by the EPA. This charge to the income statement was net of insurance
reimbursements and was 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 to cover legal and professional fees.
At the end of 2023, CC’s insurer was placed into liquidation. As a result, the previously recognised insurance
receivable for future expected partial recovery of remediation costs and associated legal and professional
costs was treated for accounting purposes as being impaired in full resulting in an exceptional charge of $3.6
million being recognised for the year ended 31 December 2023, without prejudice to any future claims
against the insurer in the liquidation proceedings.
At 31 December 2023, the remaining provision was $12.2 million (31 December 2022: $9.2 million taking into
account expected insurance reimbursements). The process concerning the LPR continues to evolve and
these estimates are subject to change based upon legal defence costs associated with the EPA process and
OCC’s lawsuit, 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.
S
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G
O
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N
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F
I
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A
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161
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
28 Contingent liabilities and environmental matters cont.
30 Notes to the consolidated cash flow statement
In 2022, CC and other parties entered into a settlement with EPA in which the settling parties agreed to pay
$150 million toward remediation of the full 17-mile LPR in exchange for a release for those matters addressed
in the settlement. CC’s share of the cash-out settlement is consistent with a de micromis share of total
remedial costs for the full 17-mile LPR. EPA has indicated it will seek the balance of LPR remedial costs from
OCC and a small number of other parties that EPA has determined were not eligible to participate in a cash-
out settlement. These other parties would be responsible for most remedial costs over-runs. The settlement
does not address claims for natural resource damages by federal natural resource trustees. The Group
believes that CC’s share, if any, of such costs would be de micromis.
In late 2022, the cash-out settlement for the full 17-mile LPR was lodged with the court by the Department
of Justice (DOJ) on behalf of EPA. On 31 January 2024, DOJ moved for entry of the settlement on behalf of
EPA, with amendments that are not material to CC. Court approval is necessary for the settlement to go
into effect, and OCC has indicated that it will oppose such approval. DOJ and EPA have asserted that the
settlement is fair and reasonable and that it should be approved by the court, and courts have generally
deferred to EPA’s judgment on such matters. However, it is nonetheless possible that the court may not
approve the settlement. It is also possible that the court may approve the settlement but permit OCC’s
litigation against the settling parties to continue in whole or in part. Because of these continued
uncertainties, the Group is maintaining its current provision for the LPR for the present time.
a) Reconciliation of operating profit to cash generated from operations
Year ended 31 December
Operating profit1
Depreciation of owned property, plant and equipment
Deprecation of right-of-use assets
Amortisation of intangible assets
Decrease in inventories
(Increase)/decrease in debtors
Increase/(decrease) in creditors
Provisions and pension movements
Foreign exchange and other non-cash movements
Discontinued operations
2023
US$m
184.0
27.0
18.8
22.9
21.1
(22.8)
18.9
(53.1)
4.5
(4.0)
217.3
Cash generated from operations
1 Refer to the consolidated income statement for a reconciliation of profit before taxation to operating profit from continuing operations.
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
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 the EPA-appointed allocator correctly concluded that it has a de micromis
share of the total remediation costs, and that OCC and other parties will be responsible for a significant share
of the ultimate costs of remediation. As this matter evolves, the provision may be reduced if the settlement is
approved by the court and if the court bars further litigation against CC and other settling parties. It is
nonetheless still possible that additional provisions could be recorded and that such provisions could
increase materially based on further decisions by the court, 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.
b) Interest paid
Year ended 31 December
Interest paid
Discontinued operations
c) Taxation paid
Year ended 31 December
Overseas tax paid
d) Investment income
29 Capital commitments
As at 31 December 2023, the Group had commitments of $8.7 million in respect of contracts placed for
future capital expenditure (2022: $5.6 million).
Year ended 31 December
Dividends received from joint ventures
2023
US$m
(33.7)
–
(33.7)
2023
US$m
(59.7)
2023
US$m
0.6
2022*
US$m
181.1
26.1
18.9
12.6
45.2
10.1
(74.8)
(43.2)
8.8
(8.3)
176.5
2022
US$m
(24.8)
(0.7)
(25.5)
2022
US$m
(54.6)
2022
US$m
0.5
S
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G
I
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P
O
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P
O
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A
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G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
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F
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162
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
30 Notes to the consolidated cash flow statement cont.
e) Capital expenditure and financial investment
Year ended 31 December
Purchase of property, plant and equipment and intangible assets
Purchase of other equity investments
Proceeds from disposal of property, plant and equipment
Discontinued operations
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
f) Acquisitions and disposals of businesses
Year ended 31 December
Acquisition of businesses (note 31)
Disposal of business (note 32)
g) Summary of net debt
Year ended 31 December
Cash and cash equivalents
Bank overdrafts
Net cash and cash equivalents
Borrowings (see note 23)
Net debt excluding lease liabilities
Lease liabilities (see note 15)
Total net debt
2023
US$m
(31.0)
(0.4)
11.8
(0.1)
(19.7)
2022*
US$m
(33.7)
(0.1)
2.8
(0.6)
(31.6)
2023
US$m
–
(1.2)
(1.2)
2022
US$m
(271.2)
(17.0)
(288.2)
2023
US$m
132.4
(20.9)
111.5
(495.6)
(384.1)
(86.8)
(470.9)
2022
US$m
172.4
(14.7)
157.7
(552.1)
(394.4)
(105.4)
(499.8)
The components of net debt and movements during the periods are set out below:
At 1 January 2022
Financing cash flows
Other cash flows
Acquisition of subsidiaries
(note 31)
Non-cash movements
Foreign exchange
At 31 December 2022
Financing cash flows
Other cash flows
Disposal of subsidiaries (note 32)
Non-cash movements
Foreign exchange
Series A
and Series B
Senior Notes
US$m
(227.5)
–
–
–
5.2
–
(222.3)
(248.6)
–
–
(1.4)
–
Bank
loans
US$m
(10.4)
(256.7)
–
(62.5)
(1.0)
0.8
(329.8)
307.0
–
–
(1.3)
0.8
Lease
liabilities
US$m
(99.0)
18.1
4.9
–
(36.0)
6.6
(105.4)
18.5
5.6
0.9
(7.5)
1.1
Total
financing
activity
liabilities
US$m
(336.9)
(238.6)
4.9
(62.5)
(31.8)
7.4
(657.5)
76.9
5.6
0.9
(10.2)
1.9
Bank
overdrafts
US$m
(16.4)
–
1.7
–
–
–
(14.7)
–
(6.2)
–
–
–
Cash
at bank
and in hand
US$m
107.2
–
70.4
–
–
(5.2)
172.4
–
(36.0)
(1.2)
–
(2.8)
Net debt
US$m
(246.1)
(238.6)
77.0
(62.5)
(31.8)
2.2
(499.8)
76.9
(36.6)
(0.3)
(10.2)
(0.9)
At 31 December 2023
(472.3)
(23.3)
(86.8)
(582.4)
(20.9)
132.4
(470.9)
The non-cash movement during the year ended 31 December 2023 of $1.4 million (2022: $5.2 million) within
Series A and Series B Senior Notes predominantly represents the movement in the fair value adjustment to
the nominal amount outstanding of $475.0 million and relates to interest rate swaps which are accounted for
as fair value hedges.
The non-cash movement during the year ended 31 December 2023 of $7.5 million (2022: $36.0 million)
within lease liabilities relates to the following: the unwind of lease liabilities of $5.6 million (2022: $4.9 million)
and the impact of entering into new leases, disposals and modification of existing leases of $1.9 million
(2022: $31.1 million).
For financial covenant purposes, the Group’s leverage is calculated on the basis of net debt without IFRS 16
lease liabilities and at the Coats Group Finance Company Limited level. Net debt excluding IFRS 16 lease
liabilities at the Coats Group Finance Company Limited level at 31 December 2023 for covenant purposes
was $388.8 million (31 December 2022: $399.9 million).
Total interest paid during the year ended 31 December 2023 was $33.7 million (2022: $25.5 million), which
primarily relates to the above Senior Notes, bank loans and overdrafts and lease liabilities. Total interest
charged to the profit and loss account for the year ended 31 December 2023 for the above Senior Notes,
bank loans and overdrafts and lease liabilities was $35.9 million (2022: $23.8 million).
S
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G
I
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P
O
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C
O
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P
O
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A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
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M
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163
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
30 Notes to the consolidated cash flow statement cont.
Total net debt is presented in the consolidated statement of financial position as follows:
Year ended 31 December
Current assets:
Cash and cash equivalents
Current liabilities:
Bank overdrafts and other borrowings
Lease liabilities
Non-current liabilities:
Borrowings
Lease liabilities
Total net debt
31 Acquisitions
The assessment of the fair value of assets and liabilities acquired was completed within twelve months of the
acquisition dates. No changes were necessary to the provisional fair values recognised in the year ended 31
December 2022.
2023
US$m
2022
US$m
Goodwill and intangible assets acquired for Texon and Rhenoflex totalled $338.7 million.
132.4
172.4
The purchase consideration was paid in cash with the amounts included in the statement of consolidated
cash flows for the year ended 31 December 2022 as follows:
(144.3)
(17.5)
(372.2)
(69.3)
(470.9)
(16.7)
(19.0)
(550.1)
(86.4)
(499.8)
Purchase consideration paid to previous owners
Cash and cash equivalents acquired
Acquisition of businesses – investing cash flows
External bank borrowings settled on completion – financing cash flows
Total cash out flow on respective acquisition dates
Texon
US$m
211.0
(16.8)
194.2
24.4
218.6
Rhenoflex
US$m
81.5
(4.5)
77.0
38.1
115.1
Total
US$m
292.5
(21.3)
271.2
62.5
333.7
The Group completed two acquisitions during the prior year ended 31 December 2022 obtaining control of
both Texon and Rhenoflex, leading manufacturers of structural footwear components supplying the world’s
leading footwear brands. Both have operations in Asia and Europe and are complementary additions to
Coats’ existing footwear business with opportunities to leverage existing footprints and combine expertise in
the attractive athleisure footwear market.
– On 20 July 2022, the Group acquired the entire share capital of Torque Group International Fortune
Limited (‘Texon’) for $211.0 million. On completion, the Group immediately settled all Texon’s external bank
debt of $24.4 million such that the total cash outflow was $235.4 million.
– On 23 August 2022, the Group also purchased the entire share capital of Rhenoflex GmbH (‘Rhenoflex’)
for $81.5 million. On completion, the Group immediately settled all of Rhenoflex’s external bank debt of
$38.1 million such that the total cash outflow was $119.6 million.
The Texon transaction was funded through a $240.0 million term loan acquisition facility, which was
refinanced in February 2023 and the Rhenoflex transaction was predominately financed through an equity
raise of $109.8 million net of costs.
These acquisitions were accounted for as business combinations using the acquisition method in accordance
with IFRS 3 ‘Business Combinations.’ For each acquisition, a provisional assessment of the fair values of
identified assets acquired and liabilities assumed had been undertaken during the year ended 31 December
2022 with assistance provided by external valuation specialists.
The repayment of the external bank borrowings of Texon and Rhenoflex on the respective completion dates
of the acquisitions was presented as financing cash flows for the year ended 31 December 2022. The total
cash outflow for the acquisitions of Texon and Rhenoflex in the year ended 31 December 2022 was $346.0
million comprising the total cash outflow on the respective acquisition dates of $333.7 million plus
transaction costs paid of $12.3 million.
For the period from 1 January 2022 to their respective acquisition dates, Texon and Rhenoflex revenue was
$145.9 million and adjusted operating profit before exceptional and acquisition related items was $16.0
million.
32 Discontinued operations
Sale of European Zips business
On 30 June 2023 the Group entered into an agreement to sell its European Zips business to Aequita, a
German family office. The sale was completed on 31 August 2023, the date which control passed to the
acquirer. The European Zips business is included in the Apparel segment. The exit from the European Zips
business was in line with Coats’ previously announced strategic initiatives to optimise the Group’s portfolio
and footprint, and improve the overall cost base efficiency.
The results of the European Zips business has been presented as a discontinued operation in the consolidated
income statement for the year ended 31 December 2023. Amounts for year ended 31 December 2022 in the
consolidated income statement have been represented to reclassify the results of the European Zips business
from continuing operations to discontinued operations.
S
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A
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G
I
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E
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O
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P
O
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A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
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F
D
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164
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
32 Discontinued operations cont.
Sale of Brazil and Argentina
During the prior year ended 31 December 2022, the Group completed the sale of its business in Brazil and
Argentina to Reelpar SA, an entity backed by a Sao Paulo Private Equity Firm. The sale was completed on 26
May 2022. The results of the business in Brazil and Argentina were presented as discontinued operation in
the consolidated income statement for the year ended 31 December 2022.
a) Discontinued operations
The results of the discontinued operations are presented below:
Year Ended 31 December
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating loss
Finance costs
Loss before taxation
Taxation
Loss from discontinued operations for the year
Loss on disposal (note 32 (b))
Exchange losses transferred to income statement on disposal
Total loss from discontinued operations
2023
European Zips
Total
US$m
25.3
(23.7)
1.6
(2.6)
(2.0)
(3.0)
–
(3.0)
–
(3.0)
(17.1)
(6.6)
(26.7)
European
Zips
US$m
46.2
(37.8)
8.4
(4.1)
(4.4)
(0.1)
–
(0.1)
–
(0.1)
–
–
(0.1)
Brazil &
Argentina
US$m
26.3
(22.6)
3.7
(3.8)
(3.3)
(3.4)
(0.3)
(3.7)
–
(3.7)
(68.9)
(15.0)
(87.6)
2022*
Total
US$m
72.5
(60.4)
12.1
(7.9)
(7.7)
(3.5)
(0.3)
(3.8)
–
(3.8)
(68.9)
(15.0)
(87.7)
The operating loss before exceptional items of the European zips business for the year ended 31 December
2023 was $1.3 million (2022: operating profit before exceptional items of $2.2 million). Exceptional items
charged to operating loss from discontinued operations was $1.7 million (2022: $2.3 million). As a result the
operating loss of the European Zips business for the year ended 31 December 2023 was $3.0 million (2022:
$0.1 million).
Exceptional items – discontinued operations
Exceptional items charged to loss from discontinued operations are set out below:
Year Ended 31 December
Strategic project costs:
– Cost of sales
– Administrative expenses
Loss on disposal (note 32(b))
Exchange losses transferred to income statement on disposal
Total exceptional items – discontinued operations
2023
US$m
2022*
US$m
(1.5)
(0.2)
(17.1)
(6.6)
(25.4)
–
(2.3)
(68.9)
(15.0)
(86.2)
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
Strategic project costs – At the end of 2021 the Group commenced a strategic project to improve margins by
optimising the portfolio and footprint and improving the overall cost base efficiency. As a result of these
activities, exceptional restructuring costs million were incurred during the year ended 31 December 2023 of
$1.7 million (2022: $2.3 million) which included severance costs incurred in connection with the closure of the
zips plant in Poland and legal, advisers, closure and related costs. Non-cash impairment charges of property,
plant and equipment and right-of-use assets incurred during the year ended 31 December 2023 were $0.8
million.
Loss per ordinary share from discontinued operations
The loss per ordinary share from discontinued operations is as follows:
Year Ended 31 December
Loss per ordinary share from discontinued operations:
Basic loss per ordinary share
Diluted loss per ordinary share
Cash flows from discontinued operations
The table below sets out the cash flows from discontinued operations:
Year ended 31 December
Net cash outflow from operating activities
Net cash outflow from investing activities
Net cash flows from discontinued operations
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
2023
Cents
2022*
Cents
(1.66)
(1.64)
(5.80)
(5.76)
2023
US$m
(4.0)
(0.1)
(4.1)
2022*
US$m
(9.0)
(0.6)
(9.6)
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
165
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
32 Discontinued operations cont.
b) Loss on disposal
The major classes of assets and liabilities disposed relating to the European Zips business was as follows:
Property, plant and equipment
Right-of-use assets
Inventories
Trade and other receivables
Cash and cash equivalents
Total assets
Trade and other payables
Lease liabilities
Retirement benefit obligations
Provisions
Total liabilities
Net assets disposed
Consideration paid
Disposal costs and completion adjustments
Exceptional loss on disposal – discontinued operations
US$m
2.4
0.8
8.9
8.3
1.2
21.6
(5.1)
(0.9)
(1.1)
(0.6)
(7.7)
13.9
(1.9)
5.1
17.1
The consideration received on the date of disposal of the European Zips business was $1.9 million and, net
of cash and cash equivalents and bank overdrafts disposed, there was a net inflow of $0.7 million. Disposal
costs of $2.7 million were paid in the year ended 31 December 2023 and as a result the cash outflow in the
year ended 31 December 2023 on the sale of the European Zips business was $2.0 million.
The consideration received from the sale of the Mauritius and Madagascar business in January 2023 was
$1.4 million and, net of cash and cash equivalents disposed of $0.6 million, there was a net inflow in the
year ended 31 December 2023 of $0.8 million (see note 4). The results of the Mauritius and Madagascar
businesses are included in continuing operations in the Apparel segment.
As a result of the disposals of the European Zips and Mauritius and Madagascar businesses, the total cash
flow outflow in the year ended 31 December 2023 from the disposal of businesses was $1.2 million.
33 Related party transactions
Remuneration of key management personnel
The Group Executive Team and Non-Executive Directors are deemed to be the key management personnel
of the Group. The remuneration of the Group Executive Team and Non-Executive Directors, is set out below
in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. Further information
regarding the remuneration of individual directors is provided on pages 88 to 99 in the audited part of the
Directors’ Remuneration Report.
Year ended 31 December
Short-term employee benefits
Share based payments
Trading transactions
2023
US$m
6.2
3.0
9.2
2022
US$m
10.3
2.1
12.4
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on
consolidation and are not disclosed in this note. Transactions between the Group and its joint ventures are
disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not
members of the Group:
Joint ventures
Sale of goods
Purchase of goods
2023
US$m
1.4
2022
US$m
1.4
2023
US$m
55.7
2022
US$m
63.2
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.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
166
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments
The Group’s main financial instruments comprise:
Financial assets:
– cash and cash equivalents;
– trade and other receivables that arise directly from the Group’s operations; and
– derivatives, including forward foreign currency contracts and interest rate swaps.
Financial liabilities:
– trade, other payables and certain provisions that arise directly from the Group’s operations;
– bank borrowings and overdrafts; and
– derivatives, including forward foreign currency contracts and interest rate swaps.
Financial assets
The Group’s financial assets are summarised below:
Year ended 31 December
Financial assets carried at amortised cost:
Cash and cash equivalents
Trade receivables (note 19)
Other receivables (note 19), net of non-financial assets $35.6 million (2022: $29.8 million)
Financial assets carried at fair value through the income statement:
Derivative financial instruments (note 20)
Other financial assets carried at fair value through the statement of comprehensive income:
Other investments (note 16)
Financial liabilities
The Group’s financial liabilities are summarised below:
Year ended 31 December
Financial liabilities carried at amortised cost:
Trade payables (note 21)
Amounts owed to joint ventures (note 21)
Other financial liabilities
Provisions (note 25)
Lease liabilities (note 15)
Borrowings (note 23)
Financial liabilities carried at fair value through the income statement:
Derivative financial instruments (note 22)
2023
US$m
2022
US$m
Total financial liabilities
2023
US$m
2022
US$m
163.2
15.3
72.4
0.8
86.8
516.5
855.0
151.3
15.0
74.7
0.9
105.4
566.8
914.1
3.6
9.0
858.6
923.1
Other financial liabilities include other payables, other than taxation, contract liabilities, employee
entitlements and other statutory liabilities.
132.4
241.0
19.9
393.3
1.3
1.3
0.9
0.9
172.4
236.4
18.7
427.5
1.6
1.6
5.9
5.9
Total financial assets
395.5
435.0
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
167
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
Fair value of financial assets and liabilities
The fair value of the Group’s financial assets and liabilities is summarised below:
Year ended 31 December
Primary financial instruments:
Cash and cash equivalents
Trade receivables
Other receivables
Other investments
Trade payables
Amounts owed to joint ventures
Other financial liabilities and provisions
Borrowings
Derivative financial instruments:
Forward foreign currency contracts
Interest rate swaps
Net financial liabilities
Book value
US$m
132.4
241.0
19.9
0.9
2023
Fair value
US$m
132.4
241.0
19.9
0.9
(163.2)
(163.2)
(15.3)
(73.2)
(15.3)
(73.2)
Book value
US$m
172.4
236.4
18.7
5.9
(151.3)
(15.0)
(75.6)
2022
Fair value
US$m
172.4
236.4
18.7
5.9
(151.3)
(15.0)
(75.6)
Financial assets measured at fair value
Year ended 31 December
2023
Financial assets measured at fair value through the income
statement:
Trading derivatives
Financial assets measured at fair value through the statement of
comprehensive income:
Other investments
2022
Financial assets measured at fair value through the income
statement:
Trading derivatives
(516.5)
(516.5)
(566.8)
(566.8)
Financial assets measured at fair value through the statement of
comprehensive income:
(0.5)
(1.8)
(0.5)
(1.8)
(4.3)
(3.1)
(4.3)
(3.1)
Other investments
(376.3)
(376.3)
(382.7)
(382.7)
Financial liabilities measured at fair value
Unlisted investments are stated at fair value. For floating rate financial assets and liabilities, and for fixed
rate financial assets and liabilities with a maturity of less than 12 months, it has been assumed that fair values
are approximately the same as book values. Fair values for forward foreign currency contracts have been
estimated using applicable forward exchange rates at the year end. All other fair values have been calculated
by discounting expected cash flows at prevailing interest rates.
Fair value measurements recognised in the statement of financial position
Year ended 31 December
2023
Financial liabilities measured at fair value through the income
statement:
Trading derivatives
Derivatives designated as effective hedging instruments
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:
2022
– Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Financial liabilities measured at fair value through the income
statement:
Trading derivatives
– Level 2 fair value measurements are those derived from inputs other than quoted prices that are
Derivatives designated as effective hedging instruments
observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
– Level 3 fair value measurements are those derived from valuation techniques which include inputs for the
asset or liability that are not observable market data (unobservable inputs).
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
1.3
0.9
1.6
5.9
7.5
–
–
–
0.9
0.9
1.3
–
–
0.9
1.6
–
1.6
–
5.0
5.0
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
(1.8)
(1.8)
(3.6)
(5.9)
(3.1)
(9.0)
–
–
–
–
–
–
(1.8)
(1.8)
(3.6)
(5.9)
(3.1)
(9.0)
–
–
–
–
–
–
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
168
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
Currency risk
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 and other entities. The Group has elected to measure the equity investments
currently held at fair value through other comprehensive income, as they are not held for trading. The
investments are measured at fair value at each reporting date (as required under IFRS 9), with changes in fair
value of the investments recognised within other comprehensive income. Unlisted investments are stated at
fair value based on directors’ valuation, which is supported by external experts’ advice or other external
evidence.
During the year ended 31 December 2023 a charge of $6.7 million (2022: $nil) was recognised within other
comprehensive income following an assessment at 31 December 2023 of the fair value of the Group’s equity
investments that are classified as level 3 financial instruments.
The main risks arising from the Group’s financial instruments are as follows:
– currency risk;
– interest rate risk;
– capital risk;
– market price risk;
– liquidity risk; and
– credit risk.
The Group’s policies for managing those risks are described on pages 169 to 173 and, except as noted, have
remained unchanged since the beginning of the year to which these financial statements relate.
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 and Indian Rupee. 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 2023, 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 $360.0 million, of which $25.0 million had been
drawn down at year end, and $475.0 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. Interest rate swaps are accounted for as fair value or cash flow hedges,
depending on initial designation. 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.
As at 31 December 2023 the Group has fixed to floating interest rate swap contracts designated as fair value
hedges against $65.0 million of fixed interest Senior Notes. The fair value of these hedges as at 31 December
2023 was $1.8 million (see note 22) and borrowings includes a corresponding fair value adjustment to the
nominal amount outstanding in the Consolidated Statement of Financial Position.
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.
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
169
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
A reasonably possible change of one per cent in market interest rates would reduce profit before tax by
approximately $1.8 million (2022: $5.0 million), and would reduce shareholders’ funds by approximately
$1.8 million (2022: $5.0 million). If interest rates fluctuate by a different rate, the aforementioned approximate
impact can be linearly interpolated.
Trade and other receivables and trade and other payables are excluded from the following disclosure (other
than the currency disclosures) as there is limited interest rate risk.
Functional currency 2022
Sterling
United States dollars
Euros
Indian Rupees
Other currencies
Capital risk management
Net foreign currency financial assets/(liabilities)
Sterling
US$m
US dollars
US$m
–
(8.4)
–
–
(0.2)
(8.6)
(0.3)
–
5.1
(6.0)
14.3
13.1
Euro
US$m
1.9
(6.6)
–
(0.1)
7.7
2.9
Indian Rupees
US$m
–
0.5
–
–
–
0.5
Other
US$m
0.2
7.5
–
–
1.3
9.0
Total
US$m
1.8
(7.0)
5.1
(6.1)
23.1
16.9
The Group manages its capital so as to ensure that the Company and the Group will be able to continue as
a going concern.
The following table shows the impact on pre-tax profit and shareholders’ funds of reasonably possible
changes in exchange rates against each of the major foreign currencies in which the Group transacts:
The Group’s capital structure comprises cash and cash equivalents and borrowings (see summary of net
debt on page 163), and share capital and reserves attributable to the equity shareholders of the Company.
Currency exposure
The table below shows the extent to which Group companies have financial assets and liabilities, excluding
forward foreign currency contracts, in currencies other than their functional currency. Foreign exchange
differences arising on retranslation of these assets and liabilities are taken to the Group income statement.
The table excludes loans between Group companies that form part of the net investment in overseas
subsidiaries on which the exchange differences are dealt with through reserves, but includes other Group
balances that eliminate on consolidation.
Net foreign currency financial assets/(liabilities)
2023
Increase in US dollar exchange rate
Decrease in profit before tax
Increase in shareholders’ funds
2022
Increase in US dollar exchange rate
(Decrease)/increase in profit before tax
Increase/(decrease) in shareholders’ funds
Sterling
US$m
10%
(0.8)
13.9
Sterling
US$m
10%
(1.1)
21.6
Euro
Indian Rupees
US$m
10%
(2.5)
7.9
Euro
US$m
10%
(1.1)
(0.8)
US$m
10%
(0.3)
5.3
Indian Rupees
US$m
10%
0.6
5.0
Functional currency 2023
Sterling
United States dollars
Euros
Indian Rupees
Other currencies
Sterling
US$m
–
(16.0)
–
(0.2)
(0.8)
(17.0)
US dollars
US$m
(9.4)
–
17.5
3.3
20.7
32.1
US$m
0.8
(7.0)
–
–
8.4
2.2
US$m
–
0.7
–
–
–
Other
US$m
0.5
6.0
(0.6)
0.9
4.6
0.7
11.4
Total
US$m
(8.1)
(16.3)
16.9
4.0
32.9
29.4
Euro
Indian Rupees
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
170
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
Currency profile of financial assets
The currency profile of the Group’s financial assets was as follows:
Details of fixed and non interest-bearing liabilities (excluding derivatives and trade and other payables) are
provided below:
31 December
Currency:
Sterling
United States dollars
Euros
Indian Rupees
Other currencies
Total financial assets
Cash and
cash
equivalents
Trade and
other
receivables
Derivative
financial
instruments
Investments
Total
Investments
US$m
US$m
US$m
US$m
US$m
US$m
Cash and
cash
equivalents
US$m
Trade and
other
receivables
Derivative
financial
instruments
US$m
US$m
2023
2022
Total
US$m
–
–
0.1
0.5
0.3
0.9
0.9
6.2
2.9
10.0
70.9
127.8
(18.7)
180.0
9.4
19.5
31.7
36.5
26.0
64.4
(0.4)
0.5
45.6
46.5
17.0
113.4
132.4
260.9
1.3
395.5
–
5.0
0.1
0.8
–
5.9
1.7
97.1
8.6
18.9
46.1
6.2
10.7
18.6
114.3
(26.7)
189.7
42.1
26.3
66.2
(3.9)
(0.5)
22.0
1.6
46.9
45.5
134.3
435.0
172.4
255.1
The investments included above comprise unlisted investments in shares and bonds.
Year ended 31 December
Currency:
Sterling
United States dollars
Other currencies
Weighted average
Fixed rate
financial
liabilities
Weighted
average
interest
rate
%
–
4.79
–
4.79
Weighted
average
period for
which rate
is fixed
(months)
–
49
–
49
Currency and interest rate profile of financial liabilities
Currency profile of foreign exchange derivatives
The currency and interest rate profile of the Group’s financial liabilities was as follows:
Floating
rate
US$m
Fixed rate
US$m
Interest
free
US$m
Lease
liabilities
US$m
Derivative
financial
instruments
US$m
Total
US$m
Floating
rate
US$m
Fixed rate
Interest free
US$m
US$m
Lease
liabilities
US$m
Derivative
financial
instruments
US$m
Total
US$m
Currency:
Sterling
2023
2022
Year ended 31 December
31 December
Currency:
Sterling
United States
dollars
Euros
Indian Rupees
Other currencies
Total financial
liabilities
0.8
–
6.1
3.6
(15.1)
(4.6)
0.3
–
4.1
3.8
(44.3)
(36.1)
102.4
410.0
102.8
25.5
(0.4)
3.3
–
–
–
–
–
21.5
10.3
15.9
43.0
2.2
(2.7)
42.5
78.3
45.2
5.9
129.4
–
–
640.3 400.5
4.0
51.0
160.0
–
–
2.0
99.5
26.9
37.4
74.0
28.5
12.2
6.6
54.3
41.3
22.7
(2.4)
729.8
65.8
41.6
(8.3) 122.0
106.5
410.0
251.7
86.8
3.6
858.6 404.8
162.0
241.9
105.4
9.0
923.1
United States dollars
Euros
Indian Rupee
Other currencies
Market price risk
The benchmark for determining floating rate liabilities in the UK is the risk-free rate for both sterling and
US$ amounts.
The Group has equity investments at 31 December 2023 of $0.9 million (2022: $5.9 million) held for strategic
rather than trading purposes. The Group does not actively trade these investments and is not materially
exposed to price risk.
The sensitivity analyses below have been determined based on the exposure to reasonably possible price
changes for the investments held at the year end.
2023
Financial
liabilities
on which
no interest
is paid
Weighted
average
period until
maturity
(months)
18
Fixed rate
financial
liabilities
Weighted
average
interest
rate
%
–
4.00
25.56
18
4.27
2023
US$m
18.0
26.1
–
3.2
21.9
69.2
Assets
2022
US$m
55.0
39.2
–
3.7
43.3
141.2
2022
Financial
liabilities
on which
no interest
is paid
Weighted
average
period until
maturity
(months)
18
–
–
18
Liabilities
2022
US$m
–
(104.1)
(26.6)
(1.8)
(13.0)
(145.5)
Weighted
average
period for
which rate
is fixed
(months)
–
46
6
45
2023
US$m
–
(42.7)
(16.3)
–
(10.7)
(69.7)
S
T
R
A
T
E
G
I
C
R
E
P
O
R
T
C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
171
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
Maturity of undiscounted financial liabilities (excluding derivatives)
Year ended 31 December
Impact of a 10% increase in prices:
Increase in pre-tax profit for the year
Increase in equity shareholders’ funds
Liquidity risk
2023
US$m
2022
US$m
–
0.1
–
0.6
The Group typically holds cash balances in deposits with a short maturity. Additional resources can be drawn
through committed borrowing facilities at operating subsidiary level. During the year the Group has complied
with all externally imposed capital requirements.
The Group had the following undrawn committed borrowing facilities in respect of which all conditions
precedent had been met at the year-end:
The expected maturity of the Group’s financial liabilities, using undiscounted cash flows, was as follows:
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2023
US$m
417.6
16.1
313.8
131.9
879.4
2022
US$m
282.3
383.2
233.5
48.1
947.1
The above table comprises the gross amounts payable in respect of borrowings (including interest thereon),
lease liabilities, trade and other non-statutory payables and certain provisions, over the period to the
maturity of those liabilities.
Year ended 31 December
Expiring between one and two years
Expiring between two and five years
2023
US$m
–
2022
US$m
–
335.0
270.0
Maturity of undiscounted financial derivatives
The maturity of the Group’s financial derivatives (on a gross basis), which include interest rate and foreign
exchange swaps, using undiscounted cash flows, was as follows:
Maturity of undiscounted financial assets (excluding derivatives)
The expected maturity of the Group’s financial assets, using undiscounted cash flows, was as follows:
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
In more than two years but not more than five years
In more than five years
2023
US$m
387.9
5.4
–
0.9
2022
US$m
419.6
5.0
2.9
5.9
394.2
433.4
Year ended 31 December
In one year or less, or on demand
In more than one year but not more than two years
2023
US$m
69.2
–
69.2
Assets
2022
US$m
126.6
14.5
141.1
2023
US$m
(71.9)
–
(71.9)
Liabilities
2022
US$m
(131.3)
(17.7)
(149.0)
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A
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E
G
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C
R
E
P
O
R
T
C
O
R
P
O
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A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
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M
E
N
T
S
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F
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I
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F
O
172
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
34 Derivatives and other financial instruments cont.
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
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 (see note 19).
2023
US$m
2022
US$m
When determining expected losses for trade receivables, 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.
Hedges
During 2023, the Group has hedged the following exposures:
– interest rate risk – using interest rate swaps which are designated as fair value or cash flow hedges; and
– currency risk – using forward foreign currency contracts.
At 31 December 2023, the fair value of such instruments was a net liability of $2.3 million (2022: net liability
of $7.4 million).
Interest rate swap fair value hedges outstanding at 31 December are expected to decrease the income
statement in the following periods:
Year ended 31 December
Within one year
Within one to two years
2023
US$m
(1.8)
–
(1.8)
2022
US$m
(1.6)
(1.5)
(3.1)
The interest rate swaps settle on a quarterly basis. The floating rate on the interest rate swaps is USD SOFR
plus a margin.
132.4
1.3
241.0
19.9
394.6
0.9
395.5
19.6
3.7
1.7
1.6
1.3
27.9
213.1
241.0
0.6
0.1
0.1
0.6
5.9
7.3
172.4
1.6
236.4
18.7
429.1
5.9
435.0
21.0
5.5
2.2
2.0
1.5
32.2
204.2
236.4
0.6
0.2
0.3
0.7
5.8
7.6
Trade receivables consist of a large number of customers, spread across diverse geographical areas and
industries.
Customers requesting credit facilities are subject to a credit quality assessment, which may include a review
of their financial strength, previous credit history with the Group, payment record with other suppliers, bank
references and credit rating agency reports. All active customers are subject to an annual, or more frequent
if appropriate, review of their credit limits and credit periods.
S
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G
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P
O
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C
O
R
P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
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C
F
D
O
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H
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I
N
F
O
173
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
35 Share-based payments
The total cost recognised in the consolidated Income Statement in respect of equity settled share-based
payment plans was as follows:
The fair value of the market-based component of these awards was calculated using the Monte Carlo
simulation method to reflect the likelihood of the market-based Total Shareholder Return (TSR) performance
condition, which attach to 20% (2022: 20%) of the award, being met, using the following assumptions:
Year ended 31 December
Long Term Incentive Plan (LTIP)
Deferred bonuses
2023
US$m
6.1
0.9
7.0
2022
US$m
3.7
0.9
4.6
The average share price for the year ended 31 December 2023 was 72.1p (2022: 66.0p).
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:
Vesting period
Share price at valuation date
Exercise price
Risk free rate
Expected dividend yield
Expected volatility
Fair value per share
Deferred bonuses
2023
2022
3 Years
78.4p
Nil
3.29%
0%
35.84%
56.5p
3 years
66.0p
Nil
1.04%
0%
39.93%
48.4p
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 50% 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.
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
2023
Options
40,895,571
11,100,414
(10,718,829)
(2,819,551)
(2,887,229)
35,570,376
3,188,382
42,003,141
12,221,204
(6,467,817)
(4,422,917)
(2,438,040)
40,895,571
3,692,768
The options outstanding at 31 December 2023 had a weighted average remaining contractual life of
7.5 years (2022: 7.5 years).
2022
Options
The options outstanding at 31 December 2023 had a weighted average remaining contractual life of 8.4
years (2022: 7.9 years).
36 Post balance sheet events
There are no material post balance sheet events requiring adjustment or disclosure.
37 Alternative performance measures
This Annual Report contains both statutory measures and alternative performance measures which, in
management’s view, provide valuable additional information for users of the financial statements in
understanding the Group’s performance.
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.
S
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G
O
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R
N
A
N
C
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F
I
N
A
N
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A
L
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A
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M
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N
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F
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174
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
37 Alternative performance measures cont.
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 United Kingdom adopted international
accounting standards (‘IFRS’) 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 below.
A reconciliation of alternative performance measures to the most directly comparable measures reported in
accordance with IFRS is provided on pages 175 to 177.
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:
– removing from the year of acquisition, their revenue and operating profit; and
– 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.
The effects of currency changes are removed through restating prior year revenue and operating profit at
current year exchange rates. The principal exchange rates used are set out in note 1.
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 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 acquisitions1
Organic revenue on a CER basis
Year ended 31 December
Operating profit from continuing operations2
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 acquisitions1
Organic adjusted operating profit on a CER basis
2023
US$m
184.0
49.4
233.4
–
233.4
(16.9)
216.5
2022*
US$m
181.1
51.6
232.7
(7.5)
225.2
–
225.2
%
Growth
2%
–
4%
(4)%
1. Revenue and operating profit from acquisitions relates to Texon and Rhenoflex for the period from January to July 2023 and January to August
2023 respectively so as to include like-for-like contributions from Texon (acquired July 2022) and Rhenoflex (acquired August 2022).
2. Refer to the consolidated income statement for a reconciliation of profit before taxation to operating profit from continuing operations.
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance measure to show the operating performance
of the Group excluding the effects of depreciation of property, plant and equipment and right-of-use,
amortisation and impairments and excluding exceptional and acquisition related items.
Operating profit from continuing operations before exceptional and acquisition related items and before
depreciation of property, plant and equipment and right-of-use assets and amortisation (Adjusted EBITDA)
is as set out below:
Year ended 31 December
Profit before taxation from continuing operations
Share of profit of joint ventures
Finance income (note 6)
Finance costs (note 7)
Operating profit from continuing operations1
Exceptional and acquisition related items (note 4)
Adjusted operating profit from continuing operations
Depreciation of owned property, plant and equipment
Amortisation of intangible assets
Adjusted EBITDA including IFRS 16 depreciation of right-of-use assets (Pre-IFRS 16 basis)
2023
US$m
2022*
US$m
1,394.2
1,537.6
–
(49.8)
%
Growth
(9%)
1,394.2
1,487.8
(6%)
Depreciation of right-of-use assets
(119.3)
–
Adjusted EBITDA
2023
US$m
155.8
(1.1)
(4.6)
33.9
184.0
49.4
233.4
27.0
1.4
261.8
18.8
280.6
2022*
US$m
151.4
(1.1)
(2.6)
33.4
181.1
51.6
232.7
26.1
1.7
260.5
18.9
279.4
1,274.9
1,487.8
(14%)
1. Refer to the consolidated income statement for a reconciliation of profit before taxation to operating profit from continuing operations.
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
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O
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P
O
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A
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E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
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M
E
N
T
S
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F
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I
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175
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
37 Alternative performance measures cont.
d) Adjusted earnings per share
Net debt including lease liabilities under IFRS 16 at 31 December 2023 was $470.9 million (2022: $499.8
million).
This gives a leverage ratio of net debt including lease liabilities to adjusted EBITDA at 31 December 2023 of
1.7 (2022: 1.8).
Year ended 31 December
Net debt excluding lease liabilities under IFRS 16 at 31 December 2023 was $384.1 million (2022: $394.4
million).
Profit from continuing operations
Non-controlling interests
This gives a leverage ratio on a pre-IFRS 16 basis at 31 December 2023 of 1.5 (2022: 1.5).
The Group’s proforma leverage on a pre-IFRS 16 basis at 31 December 2022 was 1.4 after increasing EBITDA
of Texon and Rhenoflex from $11.0 million in the post-acquisition period to $30.1 million so as to include the
acquisitions as if they had taken effect from 1 January 2022.
For the definition and calculation of net debt excluding lease liabilities see note 30 (g).
c) Adjusted effective tax rate
The adjusted effective tax rate removes the tax impact of exceptional and acquisition related items and net
interest on pension scheme assets and liabilities to arrive at a tax rate based on the adjusted profit before
taxation.
A significant proportion of the Group’s net interest on pension scheme assets and liabilities relates to UK
pension plans for which there is no related current or deferred tax credit or charge recorded in the income
statement. The Group’s net interest on pension scheme assets and liabilities is adjusted in arriving at the
adjusted effective tax shown below and, in management’s view, were this not adjusted it would distort the
alternative performance measure. This is consistent with how the Group monitors and manages the effective
tax rate.
Year ended 31 December
Profit before taxation from continuing operations
Exceptional and acquisition related items (note 4)
Net interest on pension scheme assets and liabilities
Adjusted profit before taxation from continuing operations
Taxation charge from continuing operations
Tax credit in respect of exceptional and acquisition related items
Tax credit in respect of net interest on pension scheme assets and liabilities
Adjusted tax charge from continuing operations
Adjusted effective tax rate
2023
US$m
155.8
49.4
(4.4)
200.8
55.0
2.9
0.2
58.1
29%
2022*
US$m
151.4
52.7
0.5
204.6
56.4
3.7
0.5
60.6
30%
The calculation of adjusted earnings per share is based on the profit from continuing operations attributable
to equity shareholders before exceptional and acquisition related items as set out below. Adjusted earnings
per share growth measures the progression of the benefits generated for shareholders.
Profit from continuing operations attributable to equity shareholders
Exceptional and acquisition related items net of non-controlling interests (note 4)
Tax credit in respect of exceptional and acquisition related items
Adjusted profit from continuing operations
Weighted average number of Ordinary Shares
Adjusted earnings per share (cents)
Adjusted earnings per share (growth %)
2023
US$m
100.8
(17.6)
83.2
48.8
(2.9)
129.1
2022*
US$m
95.0
(22.0)
73.0
52.4
(3.7)
121.7
1,604,955,182
1,515,999,205
8.04
0.3%
8.02
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
The weighted average number of Ordinary Shares used for the calculation of adjusted earnings per share for
the year ended 31 December 2023 is 1,604,955,182 (2022: 1,515,999,205), 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 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.
Consistent with previous periods, adjusted free cash flow is defined as cash generated from continuing
activities less capital expenditure, interest, tax, dividends to minority interests and other items, and excluding
exceptional and discontinued items, acquisitions, purchase of own shares by the Employee Benefit Trust and
payments to the UK pension scheme.
S
T
R
A
T
E
G
I
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R
E
P
O
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C
O
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P
O
R
A
T
E
G
O
V
E
R
N
A
N
C
E
F
I
N
A
N
C
I
A
L
S
T
A
T
E
M
E
N
T
S
T
C
F
D
O
T
H
E
R
I
N
F
O
176
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
37 Alternative performance measures cont.
f) Adjusted return on capital employed
Adjusted free cash flow measures the Group’s cash generation that is available to service shareholder
dividends, pension obligations and acquisitions.
Year ended 31 December
Change in net debt resulting from cash flows (free cash flow)
Acquisition of businesses (note 31)
Disposal of businesses (note 32)
Net cash outflow from discontinued operations (note 32)
Payments to UK pension scheme
Net cash flows in respect of other exceptional and acquisition related items
Issue of ordinary shares
Purchase of own shares by Employee Benefit Trust
Dividends paid to equity shareholders
Tax inflow in respect of adjusted cash flow items
Adjusted free cash flow
*Represented to reflect the results of the European Zips business as a discontinued operation (see note 1).
2023
US$m
15.0
–
1.2
4.1
48.9
12.6
–
10.1
40.3
(1.7)
130.5
2022*
US$m
(247.1)
346.0
17.0
9.6
42.7
21.6
(109.8)
2.1
33.0
(1.4)
113.7
Adjusted return on capital employed (ROCE) is defined as operating profit before exceptional and acquisition
related items adjusted for the full year impact of acquisitions divided by period end capital employed as set
out below. Adjusted ROCE measures the ability of the Group’s assets to deliver returns.
Year ended 31 December
Operating profit from continuing operations before exceptional and acquisition related items
adjusted for full year impact of acquisitions1
Non-current assets:
Acquired intangible assets
Property, plant and equipment
Right-of-use assets
Trade and other receivables
Current assets:
Inventories
Trade and other receivables
Current liabilities:
Trade and other payables
Lease liabilities
Non-current liabilities
Trade and other payables
Lease liabilities
Capital employed
Adjusted ROCE
2023
US$m
2022*
US$m
233.4
248.7
349.6
243.2
74.4
19.5
173.5
292.0
366.6
254.0
95.4
20.2
201.5
279.8
(285.6)
(17.5)
(273.3)
(18.5)
(3.2)
(69.3)
776.6
30%
(26.3)
(85.5)
813.9
31%
1. Operating profit from continuing operations before exceptional and acquisition related items for the year ended 31 December 2022 has been
adjusted to include Texon and Rhenoflex as if the acquisitions had taken effect from 1 January 2022. Including full year proforma results for the year
ended 31 December 2022, rather than the actual consolidated results of these acquired businesses, better reflects the return from the capital
position at the 2022 year end. Therefore this provides reliable and more relevant information on the financial performance of the Group to a user of
the financial statements. Refer to note 4 for details of exceptional and acquisition related items.
* Represented to reflect the results of the European Zips business as a discontinued operation (see note 1). Amounts for non-current assets, current
assets, current liabilities and non-current liabilities at 31 December 2022 exclude the discontinued European Zips business.
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N
A
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C
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F
I
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A
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177
Notes to the financial statements cont.
Coats Group plc Annual Report and Accounts 2023
Company balance sheet
31 December
Fixed assets:
Investments
Current assets:
Trade and other receivables
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
The Company reported a profit for the financial year ended 31 December 2023 of $41.2 million (2022: $100.0
million).
Rajiv Sharma
Group Chief Executive
Jackie Callaway
Chief Financial Officer
Approved by the Board 6 March 2024
Company Registration No.103548
Company statement of changes in equity
Notes
2023
US$m
2022
US$m
4
1,354.0
1,354.0
1 January 2022
Share
capital
US$m
90.1
Share
premium
account
US$m
10.5
Capital
redemption
reserve
US$m
14.1
Share
options
reserve
US$m
18.5
Capital
reduction
reserve
US$m
59.8
Own
shares
US$m
(0.5)
Profit and loss
account
US$m
Total
equity
US$m
983.2
1,175.7
0.8
0.1
0.9
(7.5)
(0.8)
(7.4)
0.2
0.6
0.8
(1.7)
(0.5)
(1.4)
5
5
1,346.6
1,352.6
99.0
111.4
14.1
18.5
59.8
99.0
111.4
14.1
18.5
59.8
(6.1)
(0.1)
1,049.9
1,346.6
1,049.9
1,352.6
Profit and total
comprehensive
expense for
the year
Issue of ordinary
shares
Dividends to equity
shareholders
Purchase of own
shares
Movement in
own shares
–
8.9
–
–
–
–
100.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31 December 2022
99.0
111.4
14.1
18.5
59.8
Profit and total
comprehensive
expense for
the year
Dividends to equity
shareholders
Purchase of own
shares
Movement in
own shares
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31 December 2023
99.0
111.4
14.1
18.5
59.8
–
–
–
(2.1)
2.5
(0.1)
–
–
100.0
100.0
–
109.8
(32.9)
(32.9)
–
(0.4)
(2.1)
2.1
1,049.9
1,352.6
41.2
41.2
(40.6)
(40.6)
(10.1)
–
(10.1)
4.1
(6.1)
(0.6)
3.5
1,049.9
1,346.6
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Coats Group plc Annual Report and Accounts 2023
Company cash flow statement
Year ended 31 December
Net cash flows from operating activities:
Operating profit
Increase in debtors
Net cash flows from operating activities
Net cash flows from investing activities:
Investments in subsidiary undertakings
Net cash flows from investing activities:
Net cash flows from financing activities:
Issue of ordinary shares
Purchase of own shares
Drawdown/(repayment) of loans from subsidiary undertakings
Proceeds from sale of own shares
Dividends paid to equity shareholders
Net cash flows from financing activities
Net decrease in cash and cash equivalents
Cash at bank and in hand at the beginning of the year
Cash at bank and in hand at the end of the year
2023
US$m
2022
US$m
40.6
(0.6)
40.0
–
–
–
(10.1)
9.9
–
(40.3)
(40.5)
(0.5)
0.6
0.1
93.5
(0.2)
93.3
(109.8)
(109.8)
109.8
(2.1)
(60.5)
2.1
(33.0)
16.3
(0.2)
0.8
0.6
Notes to the company financial statements
1 Accounting policies
The principal accounting policies of the Company 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. The going concern basis is set out in Note 1 of the Group consolidated
financial statements. The Company is deemed a qualifying entity under FRS 102, and so may take advantage
of the reduced disclosures permitted under the standard. As a result, disclosures about share-based
payments under Section 26 (paragraphs 26.18(b), 26.19 to 26.21 and 26.23) of FRS 102 have not been
provided as equivalent disclosures are included in the consolidated financial statements of Coats Group plc.
Functional currency
The functional currency of the Company continued to be United States dollars (USD) during the year ended
31 December 2023.
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.
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Coats Group plc Annual Report and Accounts 2023
Notes to the company financial statements cont.
1 Accounting policies cont.
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 2023.
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.
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 $41.2 million (2022: $100.0
million profit). Fees paid for the audit of the Company’s annual accounts are disclosed on page 139.
Details of directors’ remuneration are set out on pages 88 to 99 within the Remuneration Report and form
part of these financial statements.
3 Dividends
Dividends amounting to $40.6 million in respect of the year ended 31 December 2023 were payable to
Coats Group plc shareholders (2022: $32.9 million). Details of the proposed final dividend for the year ended
31 December 2023 are set out in note 12 of the consolidated financial statements.
4 Investments
At 1 January 2022
Additions
At 31 December 2022
At 1 January 2023 and 31 December 2023
5 Share capital and reserves
Investments in
subsidiary
undertakings
US$m
1,244.2
109.8
1,354.0
1,354.0
There are 1,597,810,385 Ordinary Shares of 5p issued and fully paid at 31 December 2023
(2022: 1,597,810,385).
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 2023 of $6.1 million (2022: $0.1 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 2023 was 6,124,223 (2022: 805,501).
As at 31 December 2023 the Company had distributable profits of $281.3 million (2022: $287.3 million).
6 Related party transactions
Amounts due from and to other Group companies are disclosed on the face of the Balance Sheet on
page 178.
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180
Coats Group plc Annual Report and Accounts 2023
Taskforce on Climate-related Financial Disclosures
INTRODUCTION
The report has been prepared
with reference to TCFD All Sector
Guidance and Supplemental
Guidance for Non-Financial
Groups.
The Board has noted recommendations in relation to
the mandatory disclosures of climate-related financial
risk arising from FCA Listing Rule 9.8.6R(8). In
complying with the requirements of the new Listing
Rule on climate-related disclosures, we consider our
disclosure to be consistent with all of the Task Force
on Climate-related Financial Disclosures (TCFD)
Recommendations and Recommended Disclosures
as detailed in ‘Recommendations of the Task Force
on Climate-related Financial Disclosures’, 2017, with
use of additional guidance from ‘Implementing the
Recommendations of the Task Force on Climate-
related Financial Disclosures’, 2021. This report covers
all divisions where Coats has operational control, but
does not include divestments made during FY2023.
In this report references are made to other content
in this Annual Report and Accounts (ARA) and in our
Sustainability Report (SR).
The 2023 report covers our governance of climate
change and demonstrates how Coats incorporates
climate-related risks and opportunities into the Group’s
risk management, strategic planning and decision-
making processes, aligned to our net-zero ambition,
which is described on page 185 of this report. Climate
change is considered a principle risk to Coats as
outlined in the Principle Risks and Uncertainties
section of this report on page 52.
In 2023, we have set up a cross divisional and
functional TCFD working group which supports
our evaluation and assessments of physical and
transitional climate risks and opportunities.
This year we have built on our review of physical
risks with detailed bottom-up analysis, including the
Texon and Rhenoflex footwear structural component
businesses we acquired in 2022 and our two new
production facilities in Mexico, Huamantla and
Toluca. In 2023 we have further reviewed the base
scenarios to ratify whether there have been any
changes in the source physical data in the last year.
GOVERNANCE
GOVERNANCE
RISK
MANAGEMENT
STRATEGY
METRICS AND
TARGETS
In 2023, we also conducted analysis of transition risks and opportunities with associated financial impacts for
our new Footwear Division sites. This section of the annual report represents Coats’ third full set of TCFD
recommended disclosures, covering the four pillars as shown in the table below.
Recommendation
Governance
Disclose the organisation’s
governance around climate-
related risks and opportunities
Risk management
Disclose how the organisation
identifies, assesses, and
manages climate-related risks
Recommended disclosures
a) Describe the Board’s oversight of climate-related risks and
opportunities
Reference
Pages 57, 63-
65, 182
b) Describe management’s role in assessing and managing climate-
related risks and opportunities
Pages 49-50,
53, 182
a) Describe the organisation’s processes for identifying and
assessing climate-related risks
Pages 57, 183
b) Describe the organisation’s processes for managing climate-
related risks
Pages 57, 183
Strategy
Disclose the actual and potential
impacts of climate-related risks
and opportunities on the
organisation’s businesses,
strategy, and financial planning
where such information is
material
Metrics and targets
Disclose the metrics and targets
used to assess and manage
relevant climate-related risks and
opportunities where such
information is material
c) Describe how processes for identifying, assessing, and managing
climate-related risks are integrated into the organisation’s overall
risk management
Pages 49-57,
182-183
a) Describe the climate-related risks and opportunities the
organisation has identified over the short, medium and long-term
Pages 53, 183-
185
b) Describe the impact of climate-related risks and opportunities on
the organisation’s businesses, strategy and financial planning
Pages 185-196
c) Describe the resilience of the organisation’s strategy, scenarios,
including a 2°C or lower scenario taking into consideration different
climate-related
Pages 184-185
a) Disclose the metrics used by the organisation to assess climate-
related risks and opportunities in line with its strategy and risk
management process
b) Disclose Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks
Page 187
Page 105
c) Describe the targets used by the organisation to manage climate-
related risks and opportunities and performance against targets
Page 197
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181
Coats Group plc Annual Report and Accounts 2023
Taskforce on Climate-Related Financial Disclosures cont.
GOVERNANCE
The Group’s sustainability strategy, as well as the
assessment and management of climate-related risks
and opportunities, are supervised and ultimately
approved by Coats’ Board of Directors.
The Board endorses material decisions on climate-
related strategy, metrics and targets and expenditure,
both capital and operational, and examines the
connection between climate-related issues and
broader company strategic and material operational
issues through the sub-committees described below.
Our short- and long-term targets for climate change
management are intrinsically linked to our Net-Zero
target and science-based targets initiative reductions
in Scope 1, 2 and 3 emissions in line with the Paris
Agreement for 1.5°C. Our progress against these
and against several underlying interim targets, which
make up our Net-Zero transition plan, are monitored
by the Board.
At management level, the Group Executive Team
(GET) is responsible for climate-related deliverables,
with the Board and relevant Board sub-committees
receiving progress updates at every Board meeting
(generally eight times per year). The GET is
responsible for operational delivery of the Group’s
sustainability strategy, including day-to-day
management of operations and responsibility for
monitoring detailed performance of all related
aspects of the Group’s business.
Necessarily, this includes many elements of
practical climate-related risk management. Two
Board sub-committees have important roles to play
in managing climate-related risks and opportunities:
The Sustainability Committee is responsible for the
sustainability strategy and governance, including on
climate-related issues, and receives updates on KPI
performance from the GET including on mitigating
actions related to climate change.
Our Group Chair, David Gosnell, chairs our
Sustainability Committee, and Nicholas Bull,
our Senior Independent Non-Executive Director
is named as the Advocate for ESG, and also a
member. Christopher Dearing, Group Sustainability
Director is the Secretary. The Audit and Risk
Committee monitors and reviews the effectiveness
of climate-related risk management systems
and relevant internal controls, and approves
reporting statements, such as TCFD disclosures.
The GET reports progress on agreed actions directly
to the Board, the Sustainability Committee and the
executive Group Risk Management Committee
(GRMC) as appropriate. The GRMC is responsible
for formulating risk management strategies and
monitoring and refining risk management processes
and metrics for all risks, including climate-related risks
specifically and convenes on a quarterly basis. The
Sustainability Director is responsible for the delivery
of climate-related risk assessment work which is
reported into the GRMC quarterly as a short update
with a full report to the GET annually.
Following the acquisitions of Texon and Rhenoflex
in mid-2022 and the subsequent business
reorganisation into three discrete divisions at the
end of last year, we established a TCFD working
group in early 2023 that consists of Senior
Management from each Division and includes
representation from corporate functions.
The working group works closely with the Group
Sustainability Director, and is responsible for
contributing to the development of models for
assessing the physical risks and impacts of climate
change and determining the impacts of transitional
risks and opportunities on our business.
Monitoring of progress on agreed actions is
reported to the GET on a bi-monthly basis. The
collection of climate-related data for the timely
reporting of progress is largely achieved through an
internal cloud-based reporting system that collects
data from every operating unit on a monthly basis
and is reported automatically to multiple internal
stakeholders including the GET via dashboards.
The overall governance structure for climate-related
risks and opportunities is illustrated in the attached
graphic.
New Scope 1&2 emissions
reduction targets were approved
by the Board in December 2022,
and linked to senior management
Long Term Incentive Plans.”
David Gosnell,
Chair
Coats Board
– Overall responsibility for setting strategic direction, overseeing strategic implementation – including sustainability strategy and
delivery – and for overseeing effectiveness of climate risk management and controls, reviewing Group’s climate risk profile
and setting risk tolerance.
Sustainability Committee
– Primary responsibility is for sustainability strategy and
governance including on climate-related issues. As part
of its role in governance it receives updates on KPI
performance from the Group Executive Team and these
include on mitigating actions related to climate change.
Audit and Risk Committee
– Monitors and reviews effectiveness on climate-related
risk management systems and internal controls, as well
as approving reporting statements on those internal
controls and climate-related risk management.
TCFD Working Group
– Cross divisional and cross function working
group are responsible for assessment of
climate-related risks and opportunity as well as
evaluation and reporting on their impact.
Group Risk Management Committee
– Responsible for formulating risk management strategies
and monitoring and refining risk management activities,
metrics and profiles for climate-related risks across Group.
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Group Executive Team
– Responsible for operational delivery of Group’s sustainability strategy, including
day-to-day management of operations and responsibility for monitoring detailed
performances of all related aspects of Group’s business. Necessarily, this
includes many elements of practical climate-related risk management.
Key
Report for evaluation
Direct and monitor
182
Coats Group plc Annual Report and Accounts 2023
Taskforce on Climate-Related Financial Disclosures cont.
RISK MANAGEMENT
Coats is committed to managing the climate-
related risks and opportunities that affect our
business, our customers, our suppliers and our
stakeholders. We have adopted a systematic
approach to assess the potential impacts of
climate change on our operations, markets and
products, as well as the opportunities to enhance
our resilience to climate-related change.
Our approach does not change on a short-term
basis, as we consider climate change to be a
long-term strategic issue that requires continuous
monitoring and adaptation. Therefore, our
approach to risk assessment is aligned with what
we have reported in our 2022 TCFD report.
All physical and transition risk categories, as well
as current regulatory requirements, are taken into
account by Coats when we evaluate the climate-
related risks and opportunities that may affect
us. We look at how these risks may impact our
own operations, or the Group’s upstream and
downstream activities, and whether they may first
arise in the short- (< 10 years), medium- (~25 years)
or long-term (~ 50 years) time frames. These time
frames are selected because they correspond
roughly to the average remaining life of production
assets (short-term), the typical life span of
technologies (medium-term) and the possible plant
renewal cycle (long-term), as well as aligning to the
key milestones for climate science projections.
We use the existing Group Risk Tolerance
Structure to compare the climate-related risks
and opportunities with other Group risks and
integrate them into the Group risk management
framework. Since we take a scenario-based
approach to assessing climate-related risks,
the probability element of risk evaluation is
largely intrinsic to the alternative scenarios and
we focus mainly on building impact models
for different risks. Prioritisation of climate risks
is based on the overall impact across our 3x3
matrix of scenarios and time horizons.
We quantify risk in line with the following
financial materiality:
Impact
Low
Medium
High
Financial
Impact or
opportunity
of <$15m
Impact or
opportunity
of $15-30m
Impact or
opportunity
of >$30m
The Board reviewed the climate-related risk trend
in light of the external environment and the actions
being taken by the company, including delivery on
targets during the year, and determined that the
risk trend should continue to be noted as “stable”.
Further details of the Group’s risk assessment
process are on page 52 of this Annual
Report Principal Risks and Uncertainties.
Climate risks and opportunities are typically long-
term, and the change is gradual. We continue to
periodically review our scenario database to see if
it is still in line with the latest scientific consensus
and completed a further such review during 2023.
We consider short-term mitigating actions for
immediate action, and these address both risks that
have a financial impact and those that don’t. There
are other potential mitigating actions that can be
actioned at a suitable time in the future depending
on how climate change develops compared to our
scenarios. The immediate agreed mitigating actions
are reported to the GRMC on a quarterly basis and
also form part of our company strategy and are
built into operational plans for the year. Our primary
mitigating actions relate to continued focus on
energy intensity reduction, transition to renewable
sources of electricity, and materials transition to
non-virgin oil-based raw materials, all of which
are reported to the GET on a bi-monthly basis.
We continue to wait for approval of our Net-Zero
targets by SBTi, following their submission in 2023.
Climate change has been identified as a Principal
Risk within the company’s risk management system.
As a result, it is a permanent item for review and
assessment at regular, quarterly GRMC meetings
and the Board also reviews it as a risk on at least
an annual basis. Through this mechanism, climate-
related risks are fully integrated into the company’s
risk management system. In addition to this, the
Board reviews sustainability KPIs at every Board
meeting including KPIs relating to climate issues.
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183
Coats Group plc Annual Report and Accounts 2023
Taskforce on Climate-Related Financial Disclosures cont.
STRATEGY
At Coats, our commitment to sustainability is integral
to our strategic vision. Recognising the importance of
climate-related risks and opportunities is paramount
in steering our business towards resilience and long-
term prosperity. The Task Force on Climate-related
Financial Disclosures (TCFD) framework guides us in
identifying, assessing and managing climate-related
risks and opportunities that could have an impact on
our future financial performance.
Our evaluation of the risks and opportunities covers
all of Coats’ business units although some risks
and opportunities are specific to particular divisions,
and this is reflected in our assessment of impact
magnitude. Through 2023 we have incorporated our
footwear structural components acquisitions made
in 2022 into the analysis, and this is included within
the scope of this report.
As in previous TCFD reports, scenario analysis has
been used to improve our understanding of the
behaviour of certain risks to different climate
outcomes, which helps assess the resilience of our
business to climate change. We selected three
climate-related scenarios, based on the Shared
Socioeconomic Pathways (SSPs) endorsed by the
Intergovernmental Panel on Climate Change (IPCC)
and used in the development of the Sixth
Assessment Report on climate change. For all
countries in which Coats has manufacturing
operations the SSP base data used for the scenarios
included population and gross domestic product
(GDP), and hence GDP/head and growth rate. To
account for the non-linear impact of temperature on
human productivity and hence GDP, which is not
considered in the SSP data, we incorporated
modelling work done by Stanford University which
included country level GDP changes due to climate
change impacts. In most cases this depresses the
future GDP estimates as temperatures climb, but in
some Northern hemisphere countries which have a
colder baseline it increases the future GDP estimate.
This socioeconomic data is supplemented by World
Resources Institute Aqueduct tool data and climate
predictions from National Geographic models that are
site specific to company locations, together with more
detailed site level analysis where risks are identified.
This allows us to track a wide range of site-specific
measures across extended time horizons and under
the different scenarios. This includes winter and
summer temperature ranges, precipitation, water
stress, water depletion, groundwater table decline,
riverine and coastal flood risks and drought risk. This
gives us a very comprehensive view of future climate
impacts across our operations under the different
scenarios and focussed on three time horizons.
A cross functional team works through the scenarios
and timelines, and explores the potential impacts
that they could have on the business. For each
identified risk and opportunity a bespoke financial
impact model is developed and updated annually
as required.
CO2e emissions level
SSP used
Scenario name
Low
Medium
High
SSP1
SSP3
SSP5
Sustainability ‘Taking the Green Road’
Regional Rivalry ‘A Rocky Road’
Fossil-Fuelled Development ‘Taking the High Road’
Global Temperature increase over pre-industrial levels
2030
2045
2070
1.47°C
1.52°C
1.60°C
1.56°C
2.03°C
2.25°C
1.49°C
2.91°C
3.50°C
The three scenarios we built are outlined in the table
at the bottom left of this page.
The physical impacts on our operations and supply
chain are modelled for each of these scenarios, with
evaluation conducted on the risks and opportunities
that might occur, focussing across 2030, 2045 and
2070 time horizons. The rationale for selection of
these time horizons is as follows;
2030: this aligns with our near-term transitional
strategy.
2045: this aligns with our medium-term horizon and
is broadly aligned to our Net-Zero commitment and
is at the longer end of our machinery asset lifespan.
We also see clear divergence of physical climate
impacts across the different scenarios at that point.
2070: is considered our long-term horizon which is
beyond the lifespan of our current asset base, and
allows us to model the long-term impacts. As a
company with a heritage of over 200 years, it is
important for us to look far ahead to understand
issues that may impact the long-term viability of
the company, even beyond the life of our current
asset base.
Our identified transitional risks and opportunities
generally relate to our low carbon scenario and have
a greater short-term potential impact, whereas our
identified physical risks are significantly greater in
the high carbon scenarios with an increase in their
potential impact over time. The materiality of risks
and opportunities has been determined by
considering the financial impact, the level of future
certainty and the relationship of the impact to the
life of any impacted assets.
The scenarios and resultant financial models have
undergone an in-depth independent review by our
internal finance team in 2021, with follow-up reviews
conducted on new work conducted in 2022 and
2023, as well as on any changes to the models and
assumptions.
Further details are outlined on the following pages.
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Risks and opportunities matrix
Summary of our most material risks and opportunities
Impact
Opportunities
Low
Risks
Low
Medium
Medium
High
High
TCFD category
Potential financial impact
<10 years {short-term}
~25 years {medium-term}
~50 years {long-term}
Mitigation and strategic response
Related Metrics and Targets
Potential materiality
Transition:
Current and
Emerging Regulation
Risk 1: Introduction of carbon taxes leading to
increased energy prices
Transition:
Market and
Technology
Opportunity 1: Growth in light-weighting products in
transport, energy and telecom infrastructure markets,
enabling significant increase in market share, given
our competitive advantage both from product and an
operational sustainability perspectives.
Transition:
Market, Technology
and Reputation
Risk 2: Declining sales due to shifting customer
sentiment towards more environmentally friendly
product options.
Transition:
Market
Opportunity 2: Increased market share with apparel
and footwear brands for thread and footwear
structural components.
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
The strategy that the company has in place to
implement its Net-Zero transition plan, means
we continually focus on reducing the embodied
carbon in our supply chain. Where possible the
cost of increased carbon taxes will be passed on
to consumers.
Metric
Scope 1 and 2 GHG emissions
(Tonnes)
Target
46.2% reduction in Scope 1 & 2
GHG emissions by 2030 from our
2019 baseline
Investment in technology and product
development is already covered by our
Research and Development plans by 2030.
The strategy that the company has in place to
implement its Net-Zero transition plan means
we continually focus on reducing the embodied
carbon in our supply chain. We work closely with
brands to ensure new products are designed to
meet changing customer requirements.
Metric
Scope 1, 2 & 3 GHG emissions
(Tonnes)
Target
– 46.2% reduction in Scope 1 & 2
GHG emissions by 2030 from
our 2019 baseline.
– 33% reduction in Scope 3
emissions by 2030 from 2019
baseline.
Delivery of targets on operational sustainability
metrics viewed favourably by brands.
Particular focus on emissions reduction and
material transition and in both cases we have
strategies in place to meet expectations.
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Risks and opportunities matrix cont.
Summary of our most material risks and opportunities
Impact
Opportunities
Low
Risks
Low
Medium
Medium
High
High
TCFD category
Potential financial impact
<10 years {short-term}
~25 years {medium-term}
~50 years {long-term}
Mitigation and strategic response
Potential materiality
Transition:
Regulation and
Technology
Risk 3: Inability to source sufficient renewable energy
to meet emissions reduction targets.
Transition:
Regulation and
Technology
Opportunity 3: Cost benefits from transitioning
from fossil fuel generated to renewable electricity.
Transition:
Policy and
Technology
Risk 4: Inability to source sufficient recycled raw
material to fully transition to a low carbon product
range and hence achieve the SBTi targets.
Physical:
Acute
Risk 5: Increase in flood damage risk, particularly
in our Asian units presents a material risk to
the business.
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
SSP1
SSP3
SSP5
We consider this risk to be largely remediated by
our current plans for transitioning to renewable
electricity including reducing reliance on the grid
through solar panels as well as the use of
renewable energy contracts where available.
Our commitment to transition to 100% renewable
electricity by 2030 will deliver cost opportunities
as well as delivering reductions in carbon
emissions.
Since 2020 we have increased the number of
approved suppliers and worked with key
suppliers to further the development of recycled
polyester and other recycling plans for other raw
materials.
Our newly inaugurated Madurai sustainability
hub, working with our Shenzhen hub will
accelerate materials transition with exclusive
focus on building a pipeline of new sustainable
materials spanning across recycled, renewable
and bio based. Their work will involve close
collaboration with key upstream supply partners
as well as the key brands that we supply.
Our robust business continuity plans which are
regularly updated and refined will assist in
ensuring that we have robust contingency plans
in place.
Related Metrics and Targets
Metric
% renewable electricity
Target
100% renewable electricity by
2030
Metric
% renewable electricity
Target
100% renewable electricity by
2030
Metric
% raw materials from non-virgin
oil-based sources.
Target
100% of raw materials from non-
virgin oil-based sources by 2030
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STRATEGY cont.
Risks and opportunities matrix cont.
Summary of our most material risks and opportunities
Impact
Opportunities
Low
Risks
Low
Medium
Medium
High
High
TCFD category
Potential financial impact
<10 years {short-term}
~25 years {medium-term}
~50 years {long-term}
Mitigation and strategic response
Potential materiality
Physical:
Chronic
Risk 6: Disruption of water supply in some units.
SSP1
Physical:
Chronic
Risk 7: Extreme heat leading to possible
need for plant relocation to ones with better
temperature regulation.
SSP3
SSP5
SSP1
SSP3
SSP5
Plans are in place to gradually invest in further
water recycling capability as one of our key
sustainability goals and this will focus first on
the high water stress units, so the remediation
of this issue is now in progress. Contingency
plans to relocate plants if required.
Detailed scenario modelling has generated robust
business continuity plans which are regularly
updated and refined.
Related Metrics and Targets
Metric
% Water Recycling
Target
33% increase in water recycling
rate by 2026 from 2022 baseline
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TRANSITIONAL RISKS
Risk 1) Emerging Regulation: Introduction of
carbon taxes leading to increased energy prices.
An increase in the scope and level of carbon pricing
through new emerging regulations could impact
both our input materials and conversion costs as
the cost of carbon is factored into water, waste,
transportation and raw materials. Our low carbon
scenario assumes that carbon taxes will be one of
the levers used to achieve rapid decarbonisation
of energy and industrial produces and processes.
Our scenario models a high initial (short-term) tax
and a drop in tax in subsequent time horizons.
Under our low carbon scenario SSP1, these could
be introduced in the coming few years, increasing
rapidly through to 2030 after which we expect them
to stabilise. Our high carbon scenarios, SSPs 3 and
5, don’t envisage there being any carbon taxes.
We expect that the range of carbon taxes could
be between $90 and $160 per tonne of CO2e
under SSP1, and we anticipate that this would
be applicable to our Scope 1 and 2 emissions.
This range is derived from work conducted by
Wood MacKenzie on the level of carbon pricing
necessary to ensure global warming doesn’t
exceed a level of 1.5°C from pre-industrial
levels and work conducted by the International
Energy Agency for their Net-Zero Scenario.
We have not currently modelled the risk impact
of carbon tax application on our upstream Scope
3 emissions. Whilst the risk impact associated
with this would be high, we assume that cost
increases would be passed on to clients thus
lowering the risk impact to low-to-medium.
For determination of our 2023 financial impact
related to Scope 1&2 emissions, we have re-
calibrated the baseline of our emissions
model to include the Texon and Rhenoflex
footwear structural components businesses
acquired in 2022, and we have also excluded
emissions associated with business divestments
made through the course of 2023.
Without remediation, and hence based on
current Scope 1&2 emissions levels persisting,
the potential for carbon taxes under scenario
SSP1 would see an additional annual cost of
between $26 million and $45 million by 2030.
Mitigation:
Coats remains fully committed to achieving
our near term 2030 science-based targets for
emissions reductions which are a pathway to us
achieving our ultimate goal of Net-Zero by 2050.
As part of these targets, Coats commits to reduce
absolute Scope 1&2 GHG emissions 46.2% by
2030 from a 2019 base year. We also commit to
increase annual sourcing of renewable electricity
from 5% in 2019 to 100% by 2030. Coats further
commits to reducing absolute Scope 3 emissions
by 33% within the same timeframe. These targets
demonstrate Coats’ ambition to reduce its
carbon footprint and exposure to carbon pricing,
and to achieve a better competitive position
in the low carbon economy than its peers.
Post-mitigation, where mitigation is taken as
delivery of our science-based targets for reduction
of Scope 1&2 emissions (reduction of Scope
1&2 emissions by 46.2% in absolute terms from
a 2019 base year), this annual cost increase
would range from $14 million to $24 million
based on our above assumptions of carbon tax
rates. We see the pre-mitigation potential costs
remaining broadly constant through 2045 and
2070 while the post-mitigation costs would drop
to immaterial levels by 2045 and beyond.
We will achieve our Scope 1&2 emissions
reduction targets through two programmes. We
will continue to deliver improvements in energy
efficiency, through our very granular energy
monitoring programme that allows us to analyse
energy consumption down to machine level in
key plants and gain insights that we can deliver to
other units. We will also be switching our Scope
2 energy progressively to renewable sources. We
will do this through a hierarchy of approaches
according to the opportunities provided by the
regulatory environment in each country where
we operate. We will firstly support the creation of
new renewable assets through direct engagement
with on-site or off-site projects in partnership
with energy companies. Where this approach is
not possible we will support existing renewable
assets by purchasing their energy. If neither of
these approaches are possible we will support
the renewable industry through the energy
attribute markets. We recognise that regulatory
environments around energy supply are constantly
evolving and our approach is flexible to allow for
us to optimise our approach as changes occur.
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Risk 2) Market, Technology & Reputation:
Declining sales due to shifting customer
sentiment towards more environmentally
friendly product options
Consumer awareness of their carbon footprint
is continuing to increase and a growing desire
for sustainable living is resulting in changes to
demand patterns with an increased preference
for lower embedded carbon products. Meeting
this demand requires the increased use of
recycled, renewable or bio-based materials with
lower emission manufacturing processes.
Over the last couple of years, our teams have
worked hard to reduce the impact of this risk
by meeting supplier targets and standards
of our key brands both in terms of emissions
reductions and in the specification of the raw
materials we use to produce finished thread
and footwear structural component products.
Our materials transition strategy is geared towards
moving away from use of virgin oil-based raw
materials and thus reducing the embedded carbon
in our products. This is heavily supplemented by
the delivery of our energy transition commitments
where we are making positive progress in
migrating to renewable supplies of electricity.
Continued focus on energy and water intensity
reduction projects remains a core part of our
utilities strategy, delivering further reduction
to the carbon footprint of our products.
Mitigation:
In 2023 we have set a new near term target
to reduce our Scope 1&2 emissions by 22%
by 2026 from our 2022 baseline, keeping
us ahead of our committed and approved
science-based targets reduction trajectory.
We continue to proactively engage with
customers that are at advanced stages with
their climate expectations and we ensure that
our plans and targets are aligned with theirs.
In 2023 we inaugurated our Sustainability Hub
in Maduria, India, where we will spearhead
efforts to accelerate our transition to sustainable
materials, ensuring delivery of our new 2026
materials transition target of 60% sustainable
materials, which will lead to 100% transition
by 2030. Staffed with post graduate and PhD
expertise in textile engineering, this state-of-
the-art facility is working in close collaboration
with our Innovation Hub in Shenzhen, China,
with external innovation partners and customers
on development of highly innovative low
carbon materials and processes. Their product
development work is primarily focussed on
progressing new recycled, renewable and
bio-based materials which meet the stringent
end-use technical requirements with step
reductions in environmental impact.
Risk 3) Regulation and Technology: Inability to
source sufficient renewable energy to meet
emissions reduction targets.
Many of the countries in which we operate are still
subject to energy market regulatory challenges
which can make the transition to renewable
electricity difficult or impossible at the moment.
We assess this risk by considering the alternative
cost of buying Energy Attribute Certificates (EACs)
to cover our requirements where we cannot
gain access to certified renewable energy itself.
The potential cost impacts of sourcing EACs will
continue, but we expect that the regulatory hurdles
that lead to this requirement will have diminished
substantially in this time horizon as more countries
establish functioning renewable energy markets.
Where, due to regulatory constraints, we are
unable to transition to renewable electricity in the
required timeframe, we will meet our emissions
reduction targets through purchase of EACs. The
costs associated with this have been evaluated
on a weighted basket of current EAC prices
across a selection of our key facilities, and we
consider the financial risk associated with this
currently to be immaterial across all time horizons.
We recognise that prices for EACs, which
currently have a wide range (from around
$0.32/MWh to $3.5/ MWh and with a current
weighted average of around $1.25), might
increase or decrease in the coming years and
we will continue reviewing this risk in case an
increasing price trend changes the risk profile.
Mitigation:
Our mitigation strategy for this risk is underpinned
by our current plans to transition to renewable
energy, with a commitment to use 100% renewable
electricity by 2030. We acknowledge that in some
material countries (e.g. China, Turkey, Vietnam),
the regulatory framework is not yet supportive
of offsite supply of renewable electricity.
Our programme of installing onsite rooftop solar
panels under power purchase agreements with
energy suppliers will continue, however this will
only ever constitute a fractional portion of our
overall energy supply. Continued focus will be
given across our facilities on delivering energy
intensity improvements through actionable
insights delivered from our increasing programme
of smart energy metering which has been rolled
out across multiple key manufacturing locations.
Efficiency programmes for compressed air and
steam generation have been key initiatives in
this space, along with upgrades of machine
motors through use of invertor technology.
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Risk 4) Policy & Technology: Inability to source
sufficient recycled raw material to fully transition
to a low carbon product range and hence achieve
the SBTi targets.
Our initial scenario analysis work in 2020
highlighted the supply of high tenacity recycled
polyester fibre was constrained and was preventing
us from achieving a faster transition from virgin to
recycled polyester. Since recycled polyester has a
roughly 40% lower emissions footprint than virgin
fibre this is a risk in terms of achieving our emissions
reduction targets. Currently, 100% of our recycled
polyester comes from PET bottles as we require
high-quality material for our products.
PHYSICAL RISKS
We are committed to keeping our risk models up
to date, and in 2023 have updated for a number
of changes including updates on the Aqueduct
flood risk tool and new acquisitions and sites.
As a result of this analysis we have increased
the flood impact over the medium term, under
the SSP5 scenario to “high” from “medium”.
Risk 5) Acute: Increase in flood damage risk,
particularly in our Asian units presents a material
risk to the business.
The increased frequency and changing pattern
of flooding from both riverine and coastal
flooding presents a high risk to six out of 40
of our sites through safety-related evacuations
or damage to equipment from water ingress.
The impact would be a reduction in revenue
and increased capex due to repairs.
Mitigation:
In the last three years we have continued to
increase the number of approved suppliers
of recycled polyester and currently there
is no supply constraint on our growth of
recycled product sales, and the growth is
dependent on customer dynamics. With the
aid of external consultants, we have also
established that there are a large number
of projects underway to increase the supply
of recycled polyester for the textile industry.
These include research into biomaterial
alternatives to polyester. Their detailed analysis
has led to the conclusion that supply will
consistently exceed demand beyond 2025.
The 2023 inauguration of our new Sustainability
Hub in Madurai will see acceleration of new
materials innovation, supporting a move from
recycled PET bottle feedstock to increasing use
of feedstocks derived from post-industrial and
pre- and post-consumer textile waste streams.
In the short-term (
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