Final de-risking of UK pension scheme
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 scheme1.
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 20242, 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. A short presentation is also available at 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).
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Investors |
Chris Dyett |
Coats Group plc |
+44 (0)797 497 4690 |
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Richard Mountain / Nick Hasell |
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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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