REG - Coats Group PLC - Final de-risking of UK pension scheme

CoatsAnnouncement

04/09/2024 07:00

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RNS Number : 7843C  Coats Group PLC  04 September 2024

4 September 2024

 

Coats Group plc

 

Final de-risking of UK defined benefit pension scheme

Coats Group plc ("Coats", the "Company" or the "Group") is pleased to announce
that the trustee of the Coats UK Pension Scheme (the "scheme") has purchased
a c.£1.3 billion ($1.7 billion) bulk annuity policy ("buy-in") from Pension
Insurance Corporation plc ("PIC") which insures benefits payable under the
scheme in respect of the remaining 80% of the scheme's liabilities.   This
is further to the purchase of a bulk annuity policy for 20% of the scheme
liabilities in December 2022.

As a result of the buy-in, all the financial and demographic risks relating to
the scheme's liabilities are now fully hedged, with the two policies paying
the scheme a regular stream of income that matches its pension payments to all
members.

This buy-in is the final and most significant step in Coats' fully insuring
its UK pension obligations.  Subject to customary post-transaction data
reconciliations and the scheme liquidating certain assets in order to meet a
deferred element of the PIC premium, it will also give Coats the option to
remove the scheme fully from the Group balance sheet in the future at very
limited further administrative cost.

The agreement with PIC is anticipated to require up to c.£100 million ($128
million) of additional funding from the Group, with Coats making a £70
million ($90 million) upfront cash contribution to the scheme and a further
£30 million ($38 million) provided initially as a loan to the scheme(1).

As previously reported, deficit repair contributions to the scheme, of around
$30 million per annum, were temporarily switched off in January 2024 and will
now permanently cease as a result of this agreement.  Reflecting the
additional scheme funding described above, leverage will increase modestly in
2024(2), but remain well within the Group's target range of 1-2x. Moving
forward, the structural improvement to cash generation will allow increased
investment in growth or the return of excess capital to shareholders.

Jackie Callaway, Chief Financial Officer, said:

"The purchase of this bulk annuity policy represents a critical final step in
de-risking our UK defined benefit pension scheme.  It means we have
achieved our ultimate plan of fully insuring the scheme's pension liabilities
in a cost-effective manner and should allow us, in due course, to remove it
from our balance sheet.

This brings us close to the end of a lengthy journey of funding our UK
pensions. From having $3 billion of liabilities across three schemes in 2016
with a Technical Provisions deficit of c.$750 million, we are now securing
fully insured benefits for our pensioners and removing volatility and
uncertainty for our investors."

"Now that the scheme is fully funded and cash contributions have ceased this
will lock in a significant improvement in the Group's free cash generation.
The completion of the buy-in reflects the constructive and collaborative
working relationship between the Group and the trustee and I would like to
thank everyone involved for helping us get to this position, which will
benefit all stakeholders."

 

 

Conference call

The Group will host a webcast for analysts and investors at 09.00 BST today to
cover this statement. The webcast can be accessed via this link
(https://www.investis-live.com/coats/66d1c36626e9bc120079ee52/fgwe) . A short
presentation is also available at www.coats.com (http://www.coats.com/) .

 

Notes:

1.         The loan is required to help the scheme meet the PIC
premium and provide it with cash until certain long-term assets are
realised.  It also includes advance provision for future scheme foreseen
exposures such as GMP equalisation, the expected costs of finalising all of
the administration in relation to the potential future scheme wind-up, and the
existing BAU administrative expenses of c.$5 million p.a.  These factors will
vary over time, meaning that Coats' ultimate cash funding will differ from the
£100 million estimate and the partial loan structure ensures that any
positive cost variations will not lead to surplus assets becoming trapped in
the scheme.

2.         As a result of this transaction the anticipated leverage at
31 December 2024 is expected to be in the range of 1.6-1.7x (June 2024
leverage: 1.4x).

 

 

 Enquiry details
 Investors         Chris Dyett                     Coats Group plc  +44 (0)797 497 4690
 Media             Richard Mountain / Nick Hasell  FTI Consulting   +44 (0)20 3727 1374

 

The information contained within this announcement is deemed by the Company to
constitute inside information stipulated under the Market Abuse Regulation
(EU) No. 596/2014 as it forms part of UK domestic law by virtue of the
European Union (Withdrawal) Act 2018. Upon the publication of this
announcement via the Regulatory Information Service, this inside information
is now considered to be in the public domain. For the purposes of Article 2 of
Commission Implementing Regulation (EU) 2016/1055, the person responsible for
arranging for the release of this announcement on behalf of Coats Group plc is
Jackie Callaway, Chief Financial Officer.

 

 

About Coats Group plc

Coats is a world leader in thread manufacturing and structural components for
apparel and footwear, as well as an innovative pioneer in performance
materials. These critical solutions are used to create a wide range of
products, including ones that provide safety and protection for people, data
and the environment. Headquartered in the UK, Coats is a FTSE250 company and a
FTSE4Good Index constituent. Revenue in 2023 was $1.4 billion.

Trusted by the world's leading companies to deliver crucial, innovative, and
sustainable solutions, Coats provides value-adding products including apparel,
accessory and footwear threads, structural footwear components, fabrics, yarns
and software applications. Customer partners include companies from the
apparel, footwear, automotive, telecoms, personal protection, and outdoor
goods industries.

With a proud heritage dating back more than 250 years and spirit of evolution
to constantly stay ahead of changing market needs, Coats has operations across
some 50 countries with a permanent workforce of more than 15,000, serving its
customers worldwide.

Coats connects talent, textiles, and technology, to make a better and more
sustainable world. Worldwide, there are four dedicated Coats Innovation Hubs,
where experts collaborate with partners to create the materials and products
of tomorrow. It participates in the UN Global Compact and is committed to
validated Science Based sustainability targets for 2030 and beyond, with an
aspiration of achieving net-zero by 2050. Coats is also committed to achieving
its goals in Diversity, Equity & Inclusion, workplace health & safety,
employee & community wellbeing, and supplier social performance. To find
out more about Coats visit www.coats.com
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