ACCELERATING
AND
TRANSFORMING
Annual Report 2021
Contents Introduction
WE ARE ACCELERATING
PROFITABLE SALES GROWTH
AND TRANSFORMING COATS
FOR THE FUTURE
Find out more online:
See our online ‘Year in Review’ at
coats.com/ar2021
A full copy of this Annual Report can also be
downloaded from coats.com/investors
Throughout this document you will see
references to where supporting information can
also be found online at coats.com
Sustainability Report:
To read our Sustainability Report, and for more
on our policies, their impact and our approach to
‘Pioneering a sustainable future’, go to
coats.com/sustainability
This report details how we deliver our
purpose to support our customers, their
industries, our shareholders, our people and
the communities in which we operate.
Strategic report
1 2021 full year results and highlights
2 Coats at a glance
4 Investment case
6 Chair’s statement
8 Group Chief Executive’s statement
10 Our strategic goals
12 Our sustainability strategy
14 Market trends
16 Business model
18 Key performance indicators
20 Stakeholder engagement
24 S172 statement
26 Working responsibly
38 Our climate disclosures
46 Principal risks and uncertainties
60 Operating review
64 Financial review
Corporate Governance
68 Chair’s introduction
72 Board of Directors
75 Corporate Governance
83 Audit and Risk Committee Report
89 Nomination Committee Report
92 Directors’ Report
95 Directors’ responsibilities statement
96 Remuneration Committee Report
Financial statements
114 Independent Auditor’s Report
124 Primary nancial statements
130 Notes to the nancial statements
193 Company nancial statements
196 Notes to Company nancial statements
Other information
198 Group structure
207 Five-year summary
208 Shareholder information
Strategic report Corporate governance Financial statements Other information
Coats Group plc
partner delivering innovation, digital and sustainable
solutionswith lasting value to all stakeholders.
2021
2020
2019
Revenue ($m)
1,504
1,163
1,389
2021
2020
2019
Adjusted operating prot ($m)
193
111
198
2021
2020
2019
Operating prot ($m)
179
103
191
Annual Report and Accounts 2021
Strategic report
1
2021 full year results
and highlights
NEW PRODUCTS
LAUNCHED
$37 million of
incremental revenue
29%
Revenue growth
1.50C
Proposed nal dividend
$96M
EcoVerde sales up 159%
21
Financial performance
2021 2020 Change
CER
change
Organic
change
Continuing operations
Revenue* $1,504m $1,163m 29% 29% 29%
Adjusted
1
Operating prot* $193m $111m 75% 74% 75%
Basic earnings per share 6.8c 2.4c
Free cash ow* $113m $28m
Net debt (excl. IFRS 16) $147m $181m
Reported
2
Operating prot $179m $103m 74% 74% 74%
Basic earnings per share 6.1c 1.8c
Net cash generated by
operating activities $129m $66m
Final dividend per share 1.50c 1.30c
Highlights
• Accelerating Group sales growth of 29%
(6% vs 2019) with continued momentum:
– Apparel & Footwear: 33% sales growth
(5% vs 2019); demand recovery and
positive end market sentiment across
US, Europe and Asia
– Performance Materials: 19% organic
sales growth (8% vs 2019)
• Strong thread market share gains in A&F
(up 2% to 23%) and customer share wins
in PM, as customers prioritise reliability and
exibility of supply, sustainable products,
quality, speed, and innovation
• EcoVerde revenues up 159% to $96
million; signicantly enhanced
sustainability ambitions announced
• Continued innovation focus; 21 new
products contributing $37 million
incremental revenue
• Adjusted operating prot $193 million
(reported $179 million); inationary
pressures absorbed by successful pricing
actions and self-help productivity
programmes
• A&F adjusted operating margins 15%
1
; PM
adjusted operating margins 7%
1
, or 14%
1
excluding the US
• Adjusted EPS of 6.8c per share (reported
6.1c per share), vs 2.4c per share in 2020
• Strong cash generation; net debt (excl.
lease liabilities) of $147 million and strong
adjusted free cash ow of $113 million;
0.7x leverage
3
; building resilience and
creating a strong platform for growth
• Final dividend of 1.50 cents per share
proposed, +15% vs 2020 nal dividend
given the strong 2021 performance and a
sign of the Board’s condence into 2022
Key Performance Indicators
*Indicates our KPI measures. See pages 18-19
for more details and historical performance.
1. Adjusted measures are non-statutory measures
(Alternative Performance Measures). These are
reconciled to the nearest corresponding statutory
measure in note 12. Constant Exchange Rate (CER)
are 2020 and 2019 results restated at 2021
exchange rates. Organic vs 2020 on a CER basis
includes like-for-like contributions from Pharr HP
(post acquisition date of February 2020). Organic vs
2019 on a CER basis includes like-for-like
contributions from ThreadSol (post acquisition date
of February 2019) and excludes contribution from
Pharr HP (acquired in February 2020). Revenue
gures are an IFRS measure; however CER and
Organic growth rates constitute Alternative
Performance Measures.
2. Reported refers to values contained in the IFRS
column of the primary nancial 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.
Alternative Performance Measures – see note 35.
2021 revenue by division
73% Apparel
& Footwear
27% Performance
Materials
2021
Revenue
$1.504m
2021 revenue by region
56% Asia
25% Americas
19% EMEA
2021
Revenue
$1.504m
Manufacturing Site
Innovation Hub
HQ
Presence
Coats Group plc
Strategic report Corporate governance Financial statements Other information
2
Coats at a glance
$1.5BN
Group revenues
12.8%
Operating margins
0.7X
Leverage
Where we operate
6
Operating in six continents
c.40,000
Customers globally
>250
Years of textiles experience
Our Sustainability strategy
During 2021 we added ambitious new targets
to our Sustainability strategy, which focus on
transitioning to sustainable materials, net-zero
emissions and promoting circularity in all
we do. These new goals map our high-level
sustainability journey and run in tandem with
the strategy launched in 2019 that focussed
on the key issues facing our business,
which continue to be our high-priority
targets for delivery in 2022 and beyond.
For more information refer to page 12.
Our ve sustainability pillars are:
Water
Energy
Efuent
Social
Materials
We deliver innovative, value-adding and
premium product and service solutions
for our c.40,000 global customers to
meet specied design requirements. Our
products are a critical component in global
industries like Apparel and Footwear (A&F)
and Performance Materials (PM) including
products for the Personal Protection industry,
Composites and Performance Threads for
multiple but focussed end-use sectors.
Sustainability is at the core of our business
values, and we continuously strive to
support our customers in achieving their
sustainability goals. Whilst we continued
to see regional Covid outbreaks during
2021 we were able to use our exible
business model and supply chains to
maintain robust nancial performance.
Headquartered in the UK and quoted
on the London Stock Exchange, we
have a global sales presence and digital
platforms that enable us to serve
customers wherever they are located.
Our unrivalled global reach and footprint
serve as one of our competitive advantages.
Coats is the world’s leading industrial thread company. We are headquartered in the UK
and a FTSE 250 constituent with global operations generating revenues of $1.5bn in 2021.
Annual Report and Accounts 2021
Strategic report
3
Apparel & Footwear
Performance Materials
Overview
We are the trusted value-adding partner,
providing critical supply chain components
and services to the $1.4tn global apparel
and $350bn footwear industries. Our
portfolio of world-class products and services
exist to serve the needs and requirements
of our customers and brand owners.
Overview
We are experts in the design and supply of
a diverse range of technical products that
serve a variety of strategic end-use markets.
Derived from our longstanding global market-
leading A&F thread expertise, which has
been built up over 250 years, we are able
to innovate to provide highly engineered
solutions to meet our customer needs by
incorporating specic design features into
various thread and yarn-based products.
Product type End uses Key Coats brands
Apparel & Footwear and
accessories threads
(c.85% of sales)
Sport/athleisure, denim, ladieswear, menswear,
children’s wear, leather wear, workwear, footwear,
andintimates and underwear
Epic, Dual Duty, Seamsoft, Nylbond, Gral, Gramax,
Astra, Sylko, Knit, EcoVerde, Eloex and Drybond
Zips, trims and crafting
(c.14% of sales)
Zips, interlinings, reective tapes, and crafting products
(Latin America)
Opti, Signal and Connect
Software solutions
(c.1% of sales)
Enabling supply chain productivity gains, increasing
speed of supply and facilitating compliance
Coats Digital – including FastReactPlan, VisionPLM,
GSDCost, Intellocut and Intellobuy
End-use sector End uses Key Coats brands
Personal Protection
(c.40% of sales)
Combining comfort, safety and protection
– re retardant and cut resistant threads and yarns
Firey, FlamePro and Armoren
Composites
(c.25% of sales)
Telecoms and Energy, Automotive, Footwear Gotex, Synergex, Lattice
TM
, Ultrabloc, Aptan XU, Gral
Binder and Protos Ripcord
Performance Threads
(c.35% of sales)
High-performance threads and yarns for the
Automotive and Household & Recreation industries
aswell as other technical industrial applications such
asfeminine hygiene
Gral, Helios, Gral Quilt, Protos Fil, Epic, Gramax,
Admiral and Neophil
Main customer markets
We ultimately supply products and services
to global brands across many markets
such as mid-market, premium lifestyle,
value/mass, fast fashion, luxury/affordable
luxury, footwear, and apparel tailoring.
30,000
Apparel and footwear manufacturers
4,000
Retailers and brands
Main customer markets
We develop high-technology Performance
Materials including products for the
Personal Protection industry, Composites
and Performance Threads for multiple
but focussed end-use sectors.
8,500
PM customers
$1,094M
2021 revenue
$164M
2021 operating prot
15.0%
Margin
$409M
2021 revenue
$29M
2021 operating prot
7.1%
Margin
Coats Group plc
Strategic report Corporate governance Financial statements Other information
4
Investment case
There are six elements to our investment case – each element is a
strength in itself but together they combine to set us apart from our
competitors. This provides a solid platform from which we can
innovate, grow and deliver consistently strong shareholder returns.
Throughout 2021 we continued to review each element of our
investment case and looked to align these more closely to the future
core operations of our key business segments and the ongoing
integration of recent acquisitions.
Element 1. Global market leader in the
apparel and footwear
market
2. Leading player in the
performance materials
market
3. Focus on digital, innovation
and sustainability
Element 4. Track record of delivering
continuous improvements
and operational excellence
5. Track record of delivering
free cash ow
6. Value-adding acquisitions
Which provides us as an
organisation with
A strong and defendable core
business representing some 73%
of Group sales.
Ability to build scale through
technology, innovation and
acquisition. Representing some
27% of Group sales.
Ability to focus on the continuing
challenges from macro trends that
are shaping the world and give us
the tools that enable us to deliver
value to all our stakeholders.
Which provides us as an
organisation with
Focussed improvement
programmes and experienced
management to deliver margin
and other nancial improvements.
Strong Adjusted Free Cash Flow
and high Return on Capital
Employed (ROCE).
Ability to build scale in the
strategic focus areas which
arecurrently fragmented
competitively.
Key attributes of this element Global leader in A&F thread
market, consistently increasing
market share in a stable market
(pre/post-Covid).
Leading the response to meet
changing industry needs – speed,
personalisation, innovation, cost,
quality, responsibility and
sustainability.
Performance Materials has a global
presence; building scale both
organically and inorganically. It
includes products for the Personal
Protection industry, Composites
products and Performance Thread
products for multiple but focussed
end-use sectors.
Performance Materials offers
products that deliver performance
and safety, and solves industry
problems through applying our
vast textile expertise.
Innovation in developing or
acquiring new competencies and
technologies – such as carbon and
glass composites.
Thinking ‘beyond the stitch line’
tocollaborate with internal and
external stakeholders to repurpose
our products into new ones and
use machine learning for new
ways of operating – t for the
digital age.
Innovation and big, bold game-
changing ideas are crucial to our
success.
Industry leader in sustainability
agenda, giving us competitive
advantage as well as to support
our customers’ ambitious
sustainability agendas.
Key attributes of this element Ensuring the Group is ‘t for
purpose’ and agile in the modern
high-paced world.
Productivity gains and
procurement initiatives.
Investing in energy/waste
reduction to improve operational
efciencies.
Cost and Cash discipline around
the organisation.
Balancing key cash demands of
organic investment, pension
schemes and shareholder returns.
The Group’s acquisition strategy
looks to identify companies with
complementary capabilities that
can further strengthen the core,
technology, innovations, or
Intellectual Property and which can
be scaled to deliver growth and
value for customers and
shareholders.
Highlights
33%
Sales growth
23%
Thread market share (up 2%
versus 2020)
159%
Increased revenues from our
EcoVerde product range
19%
Organic sales growth
Continued customer share gains
Strong demand across all
sub-segments
21
New products generating $37m
incremental revenue across A&F
and PM
4
Bold new sustainability targets
Our Science Based Targets were
approved by the Science Based
Targets initiative
Highlights
12.8%
Adjusted operating prot margin,
well ahead of 2020
Inationary pressures absorbed by
successful pricing actions and
self-help productivity programmes
$113M
Strong cash generation
0.7X
Leverage; building resilience and
creating a strong platform for
growth
Growth through acquisitions is a
key element of the Group’s
strategy and the Group will
continue to be disciplined in the
assessment of acquisition
opportunities as they arise.
For more information visit coats.com/investors
Annual Report and Accounts 2021
Strategic report
5
Element 1. Global market leader in the
apparel and footwear
market
2. Leading player in the
performance materials
market
3. Focus on digital, innovation
and sustainability
Element 4. Track record of delivering
continuous improvements
and operational excellence
5. Track record of delivering
free cash ow
6. Value-adding acquisitions
Which provides us as an
organisation with
A strong and defendable core
business representing some 73%
of Group sales.
Ability to build scale through
technology, innovation and
acquisition. Representing some
27% of Group sales.
Ability to focus on the continuing
challenges from macro trends that
are shaping the world and give us
the tools that enable us to deliver
value to all our stakeholders.
Which provides us as an
organisation with
Focussed improvement
programmes and experienced
management to deliver margin
and other nancial improvements.
Strong Adjusted Free Cash Flow
and high Return on Capital
Employed (ROCE).
Ability to build scale in the
strategic focus areas which
arecurrently fragmented
competitively.
Key attributes of this element Global leader in A&F thread
market, consistently increasing
market share in a stable market
(pre/post-Covid).
Leading the response to meet
changing industry needs – speed,
personalisation, innovation, cost,
quality, responsibility and
sustainability.
Performance Materials has a global
presence; building scale both
organically and inorganically. It
includes products for the Personal
Protection industry, Composites
products and Performance Thread
products for multiple but focussed
end-use sectors.
Performance Materials offers
products that deliver performance
and safety, and solves industry
problems through applying our
vast textile expertise.
Innovation in developing or
acquiring new competencies and
technologies – such as carbon and
glass composites.
Thinking ‘beyond the stitch line’
tocollaborate with internal and
external stakeholders to repurpose
our products into new ones and
use machine learning for new
ways of operating – t for the
digital age.
Innovation and big, bold game-
changing ideas are crucial to our
success.
Industry leader in sustainability
agenda, giving us competitive
advantage as well as to support
our customers’ ambitious
sustainability agendas.
Key attributes of this element Ensuring the Group is ‘t for
purpose’ and agile in the modern
high-paced world.
Productivity gains and
procurement initiatives.
Investing in energy/waste
reduction to improve operational
efciencies.
Cost and Cash discipline around
the organisation.
Balancing key cash demands of
organic investment, pension
schemes and shareholder returns.
The Group’s acquisition strategy
looks to identify companies with
complementary capabilities that
can further strengthen the core,
technology, innovations, or
Intellectual Property and which can
be scaled to deliver growth and
value for customers and
shareholders.
Highlights
33%
Sales growth
23%
Thread market share (up 2%
versus 2020)
159%
Increased revenues from our
EcoVerde product range
19%
Organic sales growth
Continued customer share gains
Strong demand across all
sub-segments
21
New products generating $37m
incremental revenue across A&F
and PM
4
Bold new sustainability targets
Our Science Based Targets were
approved by the Science Based
Targets initiative
Highlights
12.8%
Adjusted operating prot margin,
well ahead of 2020
Inationary pressures absorbed by
successful pricing actions and
self-help productivity programmes
$113M
Strong cash generation
0.7X
Leverage; building resilience and
creating a strong platform for
growth
Growth through acquisitions is a
key element of the Group’s
strategy and the Group will
continue to be disciplined in the
assessment of acquisition
opportunities as they arise.
For more information visit coats.com/investors
Coats Group plc
Strategic report Corporate governance Financial statements Other information
6
Chair’s statement
Accelerating protable
sales growth and
transforming Coats
todeliver sustainable
stakeholder value
Dear Shareholder
Our priority is accelerating protable
sales growth and transforming Coats to
deliver sustainable stakeholder value.
We started 2021 with condence, clarity
and a strong balance sheet. We delivered
exceptional growth versus 2020 and strong
growth vs 2019 despite regional Covid
disruption in Vietnam and India. This clearly
demonstrates the strength of our global
operations and the underlying resilience of
the business model. We will continue to focus
on strengthening our core business by putting
our customers at the heart of everything
we do, whilst investing in our people.
Delivering stakeholder value
Having spent many years in leading global
businesses with complex supply chains, Ihave
watched businesses successfully transform
by staying alert to changing consumer
trends. Accelerated protable sales growth
is achieved by focussing on the core to drive
market share as well as a disciplined drive to
purchase, integrating strategic acquisitions
internationally, and so establishing new
markets in new geographies and categories,
whilst divesting where necessary.
At Coats, we have the right growth strategy
and agility to transform our business. We will
move at pace to adopt new ways of working,
capturing emerging opportunities, delivering
further efciencies, whilst remaining true
to our purpose of delivering sustainable
value for all our stakeholders. The Group
has commenced a number of strategic
projects to improve margins by optimising
the portfolio and footprint, improving the
overall cost base efciency, and mitigating
structural labour availability issues in the US.
A key component of our strategy is
value creation and the disciplined use of
capital to fund inorganic opportunities to
build scale and acquire new capabilities,
technology and talent. We have a robust
pipeline of M&A opportunities.
We are committed to developing strategies
that will build our competitive advantage
and this will be the differentiator between
us and our competitors. In our Apparel &
Footwear segment, we are growing faster
than the market because of our excellent
value proposition, our global footprint, our
reputation for quality and our drive towards
innovative and sustainable products. In the
Performance Materials segment, there remain
further high-growth opportunities in both
composites and personal protection that
offer exciting new prospects for Coats.
Sustainability and innovation
Sustainability is a core strength for Coats
which constantly gives us commercial wins in
the market place. Innovation is at the heart of
everything we do and is crucial to our success,
and our dedicated Innovation Hubs mean
that we continue to evolve and adopt new
innovative products and techniques. We have
recently announced that our Asia Innovation
Hub in Shenzhen, China, will be refocussed
on the research and development of new
biomaterials for the future. As a pioneering
company we continually aim to deliver
further revenue growth from creating value-
enhancing new products that do not currently
exist. It is pleasing to note that we launched
21 new products in 2021, generating $37m
of incremental revenue, with a healthy
pipeline of opportunities ahead of us.
In November, Rajiv and I attended the World
Climate Summit, an ofcial side event of
COP26, the annual United Nations climate
change conference, and it was here that
we announced the acceleration of our
Sustainability strategy. We publicly committed
to our sustainability goals and our milestones
along the way to achieve a net-zero carbon
footprint. Refer to page 12 for more detail.
With the ever-increasing importance of
the social and environmental impacts of
businesses, and the focus on governance
and reporting of non-nancial performance
data, we have set up a new Board
Sustainability Committee. This Committee
will be responsible for Coats’ Sustainability
strategy, its governance and the monitoring
of progress. We are proud to commit that
over time we will move all our products
to environmentally friendly materials and
chemicals. The recent approval of our
Science Based Targets (SBTs) supports
our goals to reach net-zero emissions by
2050. Linked to these very important
goals we have decided that 20% of the
shares granted to our senior management
under the Long Term Incentive Plan (LTIP)
will be linked to ESG measures ensuring
direct accountability for our sustainability
goals. Refer to page 18 for more detail.
Strategic report
Coats has a leading market position, with
a sound strategy, a positive culture and
a talented team. I am looking forward
to using my experience and expertise,
and working with the leadership team
to help Coats transform by focussing on
everyday efciencies, innovation, brand
building, and global supply chain excellence
to ensure sustainable value creation.
A world-class team
We have continued to focus on the health,
safety and wellbeing of our employees. The
results of this year’s ‘Your Voice Matters’
survey continue to reect high levels of
employee engagement with a 90% response
rate and an engagement score of 83 which
is well above the Glint benchmark of 74. It is
encouraging that 82% recommend Coats as
a Great Place to Work (GPTW). The results
also recognised the wellbeing programmes
we provide, with 81% of respondents telling
us that Coats takes a genuine interest in
employees' wellbeing. We have emerged
stronger as we remain focussed on our
Annual Report and Accounts 2021
Strategic report
7
strategic priorities coupled with protecting
our business and our customers. I am
extremely proud of the whole Coats team
which has demonstrated great resilience
and dedication, and on behalf of the Board
I would like to thank all our employees for
their part in contributing to this success.
I am very proud that in our rst year of
external certication, 83% of our employees
now work in an accredited GPTW and the
overall score of 92 in our Health and Safety
survey demonstrates our strong safety culture.
We recognise the fact that good business
behaviour is fundamental to strong nancial
performance, and our global code of conduct,
‘Doing the right thing’ is reinforced through
continuous communication throughout the
year, educating our workforce on open and
honest behaviour and promoting ethical
standards in their day-to-day work.
Changes to the Board
The Coats Board continues to drive diversity
from the top. The current composition of
the Board demonstrates this commitment
with good ethnic, gender and geographical
representation. A number of Board changes
have occurred during the year. Jackie
Callaway joined Coats, taking on the role
of Chief Financial Ofcer at the start of
2021, and she has already made a valuable
contribution to both the Board and the
Group Executive Team. With my move to
Chair of the Board, I have stepped down as
Chair of the Remuneration Committee and
I am delighted that Non-Executive Director,
Echo Lu has now taken on this position,
bringing her strong background in general
management and track record of delivering
positive change experience to this role. Full
details of the changes are provided in the
Nomination Committee Report on page 86.
Coats has a leading
market position,
withasound strategy,
apositive culture and
atalented team
Stakeholder engagement by the Board
The Board has a vital role to play in engaging
and partnering with our stakeholders, and
throughout 2021 the Board continued to
engage either remotely or in person. During
the pandemic and as we emerge from
the challenges of the restrictions, there
has been an increased focus on ensuring
customers are supported appropriately
and we are committed to communicating
regularly with our customers to ensure
customers are at the heart of decision-
making. Employee engagement is key to a
motivated and connected workforce and
Fran Philip, our designated Non-Executive
Director for Workforce Engagement has
been very active this year meeting a wide
range of employees, including senior
executives, across our global business.
The Board has also undertaken reviews in our
different international operations to listen
directly to leaders from around the world and
hear about how Coats’ strategies are being
implemented on a country-by-country basis,
whilst gaining local knowledge of competition
and customer insights. Our people continue to
provide a rich source of ideas and perspectives
which are invaluable to the Board.
In 2021, we undertook an independent
investor audit and I have personally talked
to several of our top 20 shareholders to
consider their insights on our strategy and
hear about their future requirements. Read
more about our approach to stakeholder
engagement on pages 20-23.
Dividend
The Board is mindful of the importance of
returns to shareholders and, as a result of
the strength of the Group’s balance sheet,
the strong growth and recovery out of
the Covid pandemic, and its condence
in the strategy and growth outlook for
the Group, it is pleased to propose a nal
dividend of 1.50 cents per share, +15% vs
the 2020 nal dividend (of 1.30c). Subject
to approval at the forthcoming AGM, the
nal dividend will be paid on 25 May 2022
to ordinary shareholders on the register at
29 April 2022, with an ex-dividend date
of 28 April 2022. This recommendation is
a good demonstration that we are back
on track with a return to our previously
published progressive dividend policy.
Going forward, the Board aims to use
the Group’s free cash ow to fund its
capex, pension schemes, progressively
increase the ordinary dividend, nance
acquisitions, and make further returns
to shareholders as appropriate.
Looking ahead
Our leading market position, as well as our
broad portfolio and geographical footprint
provides a foundation for sustainable value
growth. Our priority is to accelerate protable
sales growth whilst transforming Coats for
our future. We will continue to manage costs
and deliver on our sustainability goals. The
combination of our strong leadership team
and our talented and resilient workforce
ensures we are in an excellent position in
the marketplace. This is supported by a
sound strategy and a positive culture.
I would like to express my thanks on behalf
of the Board to all our employees across
the world for their exceptional commitment
and dedication and I look to the future
with condence. Coats is well placed
to deliver transformation and protable
sales growth and to create long-term
sustainable value for all our stakeholders.
David Gosnell
Chair
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
8
Group Chief Executive’s statement
I am particularly pleased
with the further strong
growth of our EcoVerde
range of recycled threads
and our continued
progress towards our
2024 target
Dear Shareholder,
Purpose and strategy
Our priorities are to accelerate protable
sales growth and to transform Coats to
deliver sustainable stakeholder value.
2021 results overview
2021 was a year of demand recovery and
strong market share gains. Coats delivered
sales growth of 29% over 2020 and an
organic sales growth of 6% over 2019.
Momentum increased throughout the
course of 2021 with the nal two months
of the year seeing growth of 20% vs 2019
in both Apparel & Footwear (“A&F”) and
Performance Materials (“PM”), vs 6% for the
Group for the four months ended October
and 1% in the rst half of the year.
2021 was also a year of signicant supply
chain challenges. Our global scale,
technology infrastructure, health and safety
focus, talented teams and strong supplier
relationships meant we were able to navigate
Covid-related lockdowns in some of our key
markets, as well as inationary pressures,
supply chain disruption and labour availability
issues. We quickly identied and reacted to
these challenges by successfully implementing
pricing and self-help programmes to offset
increased raw material, freight and labour
costs and, at the same time, continuing
to provide our customers with the high
quality service they expect from Coats.
The Group saw strong thread market
share gains in A&F (up 2% to 23%) and
customer share wins in PM as customers
prioritised sustainability, quality, speed,
supply chain exibility and innovation.
Adjusted operating prot was $193 million
for the full year. Adjusted operating prot
margin of 12.8% was well ahead of 2020
(9.5%) and slightly lower than 2019 (14.3%)
primarily due to labour disruption in the wider
US business, and lockdown impacts in Asia in
Q2 and Q3. A&F adjusted operating margins
were 15.0%, with PM adjusted operating
margins of 7.1%, or 14.4% excluding the
US. Earnings saw a strong recovery towards
pre-Covid levels as operating prot recovery
was accompanied by a normalisation of
our tax rate and lower interest charges.
Strong adjusted free cash ow of $113
million has led to net debt (excl. lease
liabilities) at the end of the period of
$147 million, giving 0.7x leverage, below
the lower end of our target leverage range
of 1-2x, providing a strong platform to
take advantage of attractive organic and
inorganic investment opportunities to
further accelerate growth in the future.
Strategic enablers: Sustainability,
Digitaland Innovation
Our strategic enablers of Sustainability,
Digital and Innovation underpin our strategy
to accelerate protable sales growth and
to deliver sustainable stakeholder value.
Sustainability
A key part of our company purpose is to
make a better and more sustainable world.
When we launched our sustainability strategy,
‘Pioneering a sustainable future’, in 2019, we
laid out ambitious targets for 2022 and 2024.
We remain committed to those targets and
have signicantly increased our ambitions in
order to evolve our sustainability strategy and
increase momentum, as well as to further
enhance our competitive advantage. We will
reduce emissions by 46% in this decade and
reach net-zero by 2050. By 2030, 70% of our
global energy consumption will come from
renewables. Our other new targets are:
• Eco materials: By 2030, all Coats products
will be made completely independently of
new oil-extraction materials such as
polyester and nylon
• Circularity: We will shift to circularity,
creating products and packaging solutions
that enable recycling and reuse, both
within our own operations and across the
wider garment industry
We will continue to invest in our sustainability
strategy and have earmarked $10m to fund
the scaling up of green technologies and
materials that are relevant to our industry
supply chain. Our Asia Innovation Hub in
Shenzhen, China is being re-purposed to
focus on the application of biomaterials.
Annual Report and Accounts 2021
Strategic report
9
Meanwhile we have made very good
progress on our 2022 targets, in particular:
• One of our 2019 targets was to have
external social certications, such as Great
Place to Work, across all our key sites, with
over 80% of our employees in certied
sites by 2022. Last year, we achieved 83%,
reaching the target a year early
• We also saw excellent sales growth in
EcoVerde, our range of 100% recycled
products, with revenues for the full year up
159% to $96 million (FY2020 $37 million),
on track for our 2024 target for all our
premium polyester threads to be made
from 100% recycled material
• We have almost achieved our energy
reduction target of 7% (6.9% reduction)
ayear early, and expect to deliver
substantially better than the target in2022
Digital
Our investment in technology infrastructure
and digital tools has allowed us to ex our
supply chain, react to situations with speed
and ensure we are focused on customer,
shareholder and employee value creation.
In 2021 we enhanced our digital customer
ecosystem, ShopCoats, through which
customers can, for example, use automated
bulk and sample ordering and status
management. We onboarded valuable
key accounts through system integration,
refreshed our front-end order system and
used Microsoft Dynamics CRM to further
professionalise our sales and customer service
systems. These tools give us speed, agility,
lower cost and more customer satisfaction.
We continue to evaluate
acquisitions in line with
our strategy and
investment criteria and
will remain disciplined in
our assessment of these
as they arise
Innovation
We continue to create innovative new
solutions to solve our customers’ current
and emerging challenges. During 2021 we
launched 21 new products across both
A&F and PM (FY2020 22 new products),
delivering incremental revenues of $37
million (FY2020: $13 million). Examples of
innovation within A&F include Lattice Lite
Eco, a revolutionary bre-laying technology
using sustainable materials to create
footwear composite materials for the next
generation of high performance supershoe.
We also launched EcoRegen during 2021,
a biodegradable thread made from 100%
lyocell, and part of Coats’ Eco Journey
roadmap to produce innovative sustainable
products which support our drive towards
a circular economy. In PM, the largest
selling innovation was a new FlamePro
product called FlamePro Orbit with lighter
weight, higher performance and improved
strength and protection qualities. We also
developed Epic Patriot for US non-ame
retardant military applications with a specially
formulated lubricant. Our innovation pipeline
to deliver further incremental revenues in the
future remains strong and we will continue
to accelerate our innovation credentials and
solutions in order to deliver tailored solutions
to meet customers’ design requirements.
Dividend
The Board is mindful of the importance of
returns to shareholders and, as a result of
the strength of the Group’s balance sheet,
the strong growth and recovery out of the
Covid pandemic, and its condence in the
strategy and growth outlook for the Group,
it is pleased to propose a nal dividend of
1.50 cents per share, +15% vs the 2020
nal dividend (1.30c). Subject to approval
at the forthcoming AGM, the nal dividend
will be paid on 25 May 2022 to ordinary
shareholders on the register at 29 April
2022, with an ex-dividend date of 28 April
2022. Alongside the interim dividend of
0.61 cents per share, this makes a total of
2.11 cents per share for the full year 2021.
Strategic Projects
The Group has commenced a number of
strategic projects to improve margins by
optimising the portfolio and footprint,
improving the overall cost base efciency,
and mitigating structural labour availability
issues in the US. These projects will
result in anticipated incremental adjusted
operating prot of $50 million by
2024. Total cash exceptional costs are
expected to be around $35 million.
Outlook
The strong end to the year has continued
into the start of 2022, and despite some
evidence of stock replenishment from
customers during this period, we expect
continued growth for 2022 as a whole.
We remain condent in our ability to offset
inationary pressures through pricing and
productivity actions. We now anticipate
the Group’s FY 2022 performance to be
modestly ahead of our previous expectations.
Rajiv Sharma
Group Chief Executive
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
10
Our strategic goals
We have three strategic goals to work towards in order to achieve
ourvision
Our vision is to be the global textiles leader and trusted partner delivering innovation, digital and sustainable solutions with lasting value to all
stakeholders.
Goal Description
1. Protable sales growth Apparel & Footwear
Increasing our market share by delivering sustainable, innovative and value-adding product
andservice solutions to our global customer base.
Performance Materials
Lead with innovative and sustainable developments in highly engineered products creating
textile-based industry solutions for attractive and growing end markets.
2. Continuing to strengthen the core Employee investment
Continued investment in the development of our employee capabilities so they can reach their
full potential in a safe, respectful and inclusive workplace.
Customer centricity
Maintain focus to ensure we meet industry demand for speed, personalisation, innovation,
cost,quality, reliability and sustainability in support of critical elements within the supply chain.
3. Value creation Disciplined use of capital to fund inorganic opportunities to build scale and acquire new
capabilities, technology and talent.
Our goals are underpinned by the following strategic enablers:
Digital Innovation Sustainability
To stay relevant, we recognise the need to
evolve in new directions. This requires us to
think ‘beyond the stitch line’ to collaborate
with internal and external stakeholders, to
repurpose our products into new areas and
use machine learning and articial
intelligence to inform new ways of operating,
t for the digital age.
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
customer solutions to meet their design
requirements.
Sustainability has long been at the core of how
we do business and is a key driver of our
strategic decisions. Our sustainability agenda
isimportant to all our stakeholders. Not only
does it give us a competitive advantage, but
italso allows us to help our customers with
their own sustainability agendas.
For details refer to coats.com/sustainability,
and pages 30-45 in this report.
Annual Report and Accounts 2021
Strategic report
11
Case studies
DIGITAL: NEXT GENERATION
E-COMMERCE
ShopCoats is our next generation
customer-centric e-commerce platform,
built using modern, highly secure and
scalable cloud technologies to facilitate
sales growth and increased market share
through rapid digital innovation and new
applications. As a one-stop portal,
ShopCoats enhances the customer
experience from requesting a sample to
placing complex bulk orders across
multiple product lines. This enables Coats
to execute new business strategies aimed
at customer growth and new product
innovation across its entire customer base.
The data-driven view of all of our
customers and their behaviour means that
they are able to make better informed
decisions on their business, sales and
marketing strategies. It also provides them
with the speed and service that they
demand by automatically interfacing with
our ERP and bespoke product and
manufacturing systems, giving
comprehensive product availability and
delivery lead times.
In an industry with an ever-increasing
focus on agility, visibility, sustainability,
and ease of doing business, the
digitisation of the key ordering process
differentiates our offering from
competitors. This places us in a position to
deliver new features in weeks rather than
months; build on our end-to-end
digitisation of the customer experience;
and turn opportunities into realities.
INNOVATION: THE FUTURE OF
ELECTRIC VEHICLES
Coats joined a team to develop a tailored
bre-reinforced composites solution for
volume manufacturing of structural
battery enclosures in electric vehicles
under a US Department of Energy
cooperative agreement.
This collaboration builds on previous work
in developing lightweight, intrusion
resistant composite oor reinforcement
structures. We are providing expert
knowledge and innovation in tailored
bre-reinforced composites technology to
help develop a lightweight, high-
performance and cost-effective structural
battery enclosures. Coats proposed the
use of Lattice™ and Lattice Conductive™
technologies to design and manufacture
ultra-light composite material products.
Lattice is an optimised continuous bre
laying technique which creates preforms
with no waste while Lattice Conductive
allows for integration of conductive paths
and electronic circuitry in moulded
composite components. We then use our
proprietary Computer Aided Engineering
tools to create a 2D Lattice continuous
bre preform that can be fabricated into a
3D preform mould.
Lattice technology reduces cost by
generating zero-waste preforms by
placing bres only where needed. It is also
cost effective because there is a 50%
reduction in the steps required to
fabricate the 3D preform for moulding.
The development will be resourced from
our Innovation Hub in Sevier. The project
is due to run until December 2023.
SUSTAINABILITY: CREATING A
CIRCULAR ECONOMY
Coats helps leading apparel and footwear
brands realise their sustainability
ambitions. One such example is our
partnership with a rapidly growing
premium athleisure company, with whom
Coats has a longstanding relationship
and through which we highlighted the
importance of thread and helped them
set a minimum thread standard. This
led to our rst orders received in 2018
as they moved to our higher quality
and more durable thread. Subsequently
we reinforced our strong relationship
by supporting the launch of their
innovation hub. In the next step of the
partnership, we are now supporting
them in the transition from virgin to
recycled polyester to achieve their
ambition of reaching 100% non-virgin
polyester in their products by 2025.
The strength of our relationship
with designers, testing and
manufacturing gives condence
that the quality, reliability, colour
matching and other characteristics of
our recycled offering is comparable
to virgin polyester equivalents.
We are also engaged in discussions to
explore the use of Eco-B and EcoCycle
as a part of their circular economy vision
and are aligned to advancements in
their supplier selection process, which
include water and carbon reduction,
through our own SBTi commitments.
Our sustainability roadmap, our
investments into innovation, and strong
relationship mean we are ideally placed
to help the brand meet their own
sustainability goals, and in doing so secure
and enhance our long-term relationship.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
12
Our sustainability strategy
Pioneering a sustainable future
Accelerating our journey
During 2021 we added ambitious new targets
to our Sustainability strategy, which focus on
transitioning to sustainable materials, net-zero
emissions and promoting circularity. These
targets map out our high-level sustainability
journey for the future. In 2019 we committed
to a range of short-term targets against the
key material issues facing our business and
while we have virtually achieved two of them
a year early, these targets continue to be our
immediate priority for delivery in 2022. The
targets that mature in 2022 will be replaced
with interim targets that will continue to focus
on our key issues. Sustainability practices
have always been embedded in the way that
Coats operates. There is a strong belief in
the Company that being sustainable is not at
odds with running an effective and successful
business, but that they are complementary.
Having a clearly dened Sustainability
strategy that is integrated into our business
strategy helps us to accelerate our progress
in delivering material improvements.
Net-zero
Coats commits to net-zero
by 2050. By 2030, 70%
ofour global energy
consumption will come
fromrenewables.
Circularity
Coats will shift to circularity,
creating products and
packaging solutions that
enable recycling and reuse,
within its own operations
and across the wider
garment industry.
Water
Water is currently an
essential solvent in our
industrial processes.
Our goal is to reduce
the amount we use,
reuse where we
can and promote
the development of
technologies that use
less or no water.
Energy
We use energy to run
our processes both for
powering motors and for
providing process heat.
Our aim is to reduce the
energy we require, as
well as to decarbonise
it, and hence reduce
our emissions.
Efuent
Water that we use in
our processes gets
contaminated and
our responsibility
is to minimise that
contamination and
to clean the water
prior to retuning it to
the environment.
Social
We have multiple
responsibilities towards
our employees and
we take them all very
seriously and use
measures of engagement
to track progress
alongside other key
indicators. We also have
a responsibility towards
our communities and
seek to engage them
through our employees.
Materials
Our aim is to use
materials as sparingly as
possible and to ensure
that those materials
are as sustainable as
possible. Reducing waste
and transitioning to
recycled raw materials
are our targets.
Social impact
Coats commits to making
sustained progress and will
develop 2030 targets for
DE&I, workplace health and
safety, employee and
community wellbeing and
supplier social performance.
Eco materials
By 2030, all products will
bemade completely
independently of new
oil-extraction materials.
Our low-carbon online annual review
More details on our progress to reduce our carbon footprint can be found in our
Sustainability Report online.
2021 Emissions prole
5% Scope 1 – 63k tonnes CO
2
e
78% Scope 2 – 891k tonnes CO
2
e
17% Scope 3 – 191k tonnes CO
2
e
Tonnes CO
2
e
5%
78%
17%
Annual Report and Accounts 2021
Strategic report
13
Our commitment to innovation
Roadmap for reducing emissions
Our innovation fund
Over the next ve years we will invest
$10m in scaling up the development of the
green technologies and materials that will
accelerate delivery of our sustainability goals.
Science Based Targets (SBTs)
Our approved Science Based Targets on the 1.5°C pathway are shown below.
Scope 1 and 2 emissions
-46.2%
By 2030
Coats Group plc commits to reduce absolute
scope1and 2 GHG emissions 46.2% by 2030
froma2019base year.
Renewable electricity
100%
By 2030
Coats Group plc also commits to increase annual
sourcingof renewable electricity from 5% in
2019to100% in2030.
Scope 3 emissions
-33%
By 2030
Coats Group plc further commits to reducing
absolutescope 3 emissions 33% within the
sametimeframe.
Focus on biomaterials
The Coats Innovation Hub – Asia, in
Shenzhen, China, will have a new
mission and be re-purposed to focus
on the application of biomaterials.
Over the long term, Coats aspires to
move all products to environmentally
friendly materials and chemicals.
$10M INVESTMENT
Scope 1
This is our direct use of fuels in our
factories. This is mainly used to provide
heat energy for our processes, but also
includes fuels used to generate electricity
and power vehicles on our sites.
Scope 2
This is mainly our use of electricity bought
from third parties, where the emissions are
caused in the generation of the electricity.
In some locations we also buy heat energy
from third parties and this is included here.
Scope 3
This includes all the indirect upstream
and downstream emissions that relate
to our entire product value chain. The
bulk of these emissions are caused in the
production of our raw material and in the
transport of materials from suppliers to us,
between our units and to our customers.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
14
Market trends
What markets do we serve?
Apparel & Footwear (A&F)
Coats is the global market leader in supplying
premium sewing thread to the A&F industries,
and is estimated to be over twice the size of
the nearest thread competitor with a c.23%
thread market share. The global thread
market is estimated to be c.$4bn and whilst
thread only represents 1-2% of the cost of a
typical garment, it is a critical component in
the manufacturing process and for the quality
and performance of the nished product.
We are one of the few global players of a
key supply chain component in the $1.4tn
global apparel and c.$350bn footwear
industries which are projected to grow at
low single digits in the medium term. We
also supply selected zip and trim products,
and our fashion tech business provides
software solutions for speed, productivity
and transparency in customers’ operations.
Whilst Covid and supply chain constraints
continued to impact our industry in 2021,
we expect industry growth rates to return
to previous levels medium term. In A&F we
are growing faster than the market because
of our excellent reputation for quality, our
value proposition, our global footprint
and our strong sustainability agenda.
Performance Materials (PM)
We are global experts in the design and
supply of highly engineered, performance
threads, yarns and lightweight composites
used in a range of industries including
thermal and cut protective wear, telecom
infrastructure, automotive and feminine
hygiene. We estimate the addressable
market (ie into which we currently or could
realistically serve near term) is c.$3bn, of
which c.$2.4bn relates to highly-engineered
end uses, and hence we estimate we have
a market share of around 14%. In PM, we
anticipate mid-high single digit organic
growth medium-term, with higher growth
opportunities in both Composites and
Personal Protection. In Personal Protection we
expect medium term growth of high single
digits, in Composites we expect double-
digit growth, and in Performance Thread we
expect growth to be at or around global GDP.
Trends that are impacting
ourbusinesses:
1. Supply chain exibility
Across the industries we serve, speed to
market is increasingly a critical differentiator,
accelerating processes through design,
development, manufacturing, sourcing
and retail. Our customers are increasingly
looking at their own supply chain resilience,
including reviews of their supply base
and sourcing geographies. During 2021
specically, we saw signicant industry supply
chain disruption with reduced availability
of raw materials, labour constraints and
disruption of sea freight operations, all
contributing to increased inationary
pressures. We expect these challenges
to continue into 2022, increasing the
importance of speed, agility and supply
resilience across the industries we serve.
Trend #1: Our response in the year
We have continued to pivot quickly,
responding to and supporting our
customers’ needs in a highly volatile
environment. Our unrivalled global
footprint, our scale and agility proved
invaluable as we delivered high
levels of customer service and supply
through multiple external challenges.
In response to increasing inationary
pressures we reacted by successfully
implementing pricing and self-help
programmes. In China, we progressed
in meeting changing customer needs
leading to higher share of the growing
domestic market. Beyond Asia,
we were able to respond to higher
demand in EMEA and the Americas
as customers sought out more
balanced and resilient supply chains.
2. Living sustainably
Sustainability continues to increase in
importance across the industries we serve,
driven by consumer pressures, customer
strategies and legislative changes. COP26
delivered further global progress across the
environmental agenda. This signicant 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.
Trend #2: Our response in the year
When we launched our Sustainability
strategy, ‘Pioneering a sustainable
future’, in 2019, we laid out ambitious
targets for 2022 and 2024. We remain
committed to those targets and have
signicantly increased our ambitions
in order to evolve our Sustainability
strategy and increase momentum, as well
as to further enhance our competitive
advantage. We will reduce emissions by
46% in this decade and reach net zero
by 2050. By 2030, 70% of our global
energy consumption will come from
renewables. Our other new targets are:
• Eco materials: By 2030, all Coats
products will be made completely
independently of new oil-extraction
materials such as polyester and nylon
• Circularity: We will shift to circularity,
creating products and packaging
solutions that enable recycling and
reuse, both within our own
operations and across the wider
garment industry
We will continue to invest in our
Sustainability strategy and have
earmarked $10m to fund the scaling up
of green technologies and materials that
are relevant to our industry supply chain.
Our Asia Innovation Hub in Shenzhen,
China is being re-purposed to focus
on the application of biomaterials.
Annual Report and Accounts 2021
Strategic report
15
3. Innovative uses of threads,
yarnsandfabrics
Consumers are demanding more innovative
products in every area of their lives and so
new thread-based application end uses
continue to be identied. As a global market
leader, we are at the forefront of innovating
threads and yarns to enhance the functionality
and performance of products in multiple
end markets. This is a core competency
in Performance Materials where we have
developed and grown sales in many new
products such as ame retardant yarns
and fabrics used in protective wear and
composites that deliver high performance,
lightweight solutions in industries such
as oil and gas (eg deep water pipes),
telecom infrastructure and automotive. In
A&F, we continue to partner closely with
global brands to support their ambitious
innovation agendas with a particular focus
on sustainable and circular thread solutions.
Trend #3: Our response in the year
We have three Innovation Hubs around
the world which reduce innovation lead
times for customers. Our innovation
ecosystem gives us dedicated capacity
to develop new product solutions
as well as products in collaboration
with customers. We launched 21 new
products in 2021, delivering revenues of
$37 million. Examples within Composites
include Lattice Lite Eco, a revolutionary
bre-laying technology using sustainable
materials to create footwear composite
materials for the next generation of
high-performance supershoe. In Personal
Protection, the largest selling innovation
was a new FlamePro product called
FlamPro Orbit with lighter weight,
higher performance, improved strength
and multi-protection qualities. We also
developed Epic Patriot for US non-
ame retardant military applications
with a specially formulated lubricant.
4. Growth of Asian domestic markets
andAsia brands
Domestic consumer demand in Asia is both
signicant and expected to grow faster
than JUSE (Japan, USA, Europe) markets.
Globally, as a derived demand component,
sewing thread markets are expected to
grow by low single digits percentage over
the medium term, but with higher growth
in Asia as demographics and consumer
wealth expands. This is reected in the
growth of domestic fashion retail, most
notably, but not only, in China and India.
Demand for Composites is increasing due
to the pace of urbanisation (eg the rollout
of bre optic cable networks) and economic
growth, which means consumers purchase
more products needing high performance
materials (eg outdoor goods and passenger
vehicles). In personal protection, demand is
being driven by increasing levels of worker
protection, industry regulation and the need
for comfort with multi-hazard protection.
Trend #4: Our response in the year
We continued to develop and execute
our domestic market growth strategies
in China and India, building on our
competitive advantages of product
range, quality, technical application
and brand strengths. In Apparel &
Footwear, we delivered market share
gains and signicant growth in China
and made strong progress coming out
of Covid disruption. In Performance
Materials we delivered signicant share
gains in China in Performance Threads
with multiple new programme wins
for automotive safety critical and trim
applications as well as a very successful
start to producing and selling FlamePro
branded ame retardant fabrics in India
mainly for use in garments destined for
the middle eastern oil and gas market.
5. Digital
Industry adoption of digital technology
has accelerated signicantly during the
Covid pandemic as companies look to
drive faster speeds, increased productivity,
lower waste and end-to-end supply and
materials transparency. For example, in the
apparel industry, adoption of 3D sampling
technologies has increased rapidly, with
several brands now developing 30% of
samplings virtually. Customers have likewise
adopted production planning, product
lifecycle, quality systems and material usage
software in far greater numbers. As a result of
these trends, customers are demanding higher
levels of digital integration with their strategic
partners. We believe that this trend will only
accelerate further during 2022 and beyond.
Trend #5: Our response in the year
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 oor execution. In 2021 bookings
saw high double-digit growth ahead
of reported sales growth, indicating
condence for continued future growth.
The order pipeline remains strong for
2022. We enhanced our digital customer
ecosystem, ShopCoats, through which
customers can, for example, use
automated bulk and sample ordering
and status management. We onboarded
valuable key accounts through system
integration, refreshed our front-end
order system and used Microsoft
Dynamics CRM to further professionalise
our sales and customer service systems.
These tools give us speed, agility, lower
cost and more customer satisfaction.
For more information about our
market environment refer to our
Investor section online.
Our purpose
is to connect talent, textiles and technology
to make a better and more sustainable world
Pioneering
a sustainable
future
Developing
innovative textile
solutions
Delivering
industry leading
digital services
and embracing
new technologies
Investing in
and growing
our talent and
technical expertise
Coats Group plc
Strategic report Corporate governance Financial statements Other information
16
Business model
The value we create
>18,000
Employees across
theglobe
Employees
We are committed to the health, safety, rights
andwellbeing of our employees. Our diverse
international workforce is highly engaged
withcommitted employees who operate in
aninnovative and solution-focussed culture.
4
Bold new sustainability
targets
Environment
Building on our ‘Pioneering a sustainable future’,
we laid out ambitious new targets toevolve its
Sustainability strategy, increase momentum and
take it to the next level.
40,000
Number of
globalcustomers
Customers
As customer expectations evolve, we are
continuing to focus on responsibly sourced,
sustainably produced products.
7,900
More than 40% of our
employees participated
in volunteering initiatives
Communities
We actively engage with our local communities
under our three global pillars of Education,
Health and Wellbeing and Textiles providing
educational support to children, food donations,
DE&I events, thread donations andtree planting.
2.11C
Total dividend for 2021
Shareholders
We are committed to delivering superior returns
and aim to deliver long-term value for our
investors.
$1BN
Paid tosuppliers
Suppliers
We look for the right balance of global, national
and local capability and create local, exible
supply chains.
Read more about stakeholder engagement on pages 20-23.
Annual Report and Accounts 2021
Strategic report
17
Our key strengths
Ambitious sustainability targets providing
acompetitiveadvantage
A key part of our purpose is to make a better and more
sustainableworld. We have a very ambitious set of sustainability
targets across ve pillars of sustainability: water, energy, efuent,
socialand materials. We gain competitive advantage from helping
ourcustomers to de-risk their own supply chains. We also have
afast-growing range of sustainable products made from recycled
threads, as well as innovations in biodegradable and
waterdissolvable threads.
Strong customer relationships
We have longstanding relationships across all levels of our customers’
organisations that provide deep market insight. Ourglobal brand
teams work with top retailers and brands globally. We work with
30,000 apparel, footwear and accessories customers, 8,500
Performance Materials customers and c.4,000 retailers and brands
globally.
Longstanding culture of innovation
We have a longstanding culture of innovation. Our Innovation
Hubsprovide spaces to collaborate with customers, in which we
canprovide new solutions to solve their problems or to improve
theirnished products.
Global asset and supplier base
We are uniquely positioned across the globe to deliver consistently
high service levels on short lead times, with the ability to ex our
supply chain to meet customer needs in a fast-moving and ever-
evolving environment. We manufacture on 50 sites, across six
continents, with 100+ warehouses, the majority of which are
connected by a global ERP system which allows us to ex our
supplychain in a volatile environment. We have a diverse and
globalsupplier base and carefully manage and monitor our
supplychain.
Strong sales and marketing capabilities
Our close interactions with leading global retailers, brands and
manufacturers give us the ability to quickly respond to specic needs
and pressures. Our global brand teams liaise closely with our top
brand customers to ensure a strong network of relationships.
Highly engaged and committed workforce
We have an innovative and solution-focussed culture with a
highlyengaged, diverse and committed workforce of over
18,000employees.
World-class manufacturing and quality
We manufacture to high ethical, labour and environmental
standardswhilst delivering consistent colour and exceptional
productquality. Our products are tested and measured against
stringent safety standards.
Longstanding reputation for responsibility
‘Doing the right thing’ is in our DNA – we have a longstanding
ethical reputation amongst suppliers to the global garment
industry,with strong ESG and sustainability credentials.
Industry-leading digital and technical capabilities
We have been at the forefront of digital innovation by component
suppliers to the global garment industry for several years. We have
an industry-leading set of digital services including colour sampling,
online training, e-commerce and supply chain management. We also
provide technical support to our customers across the shop oor,
with thousands of digital and technological interventions.
Read our investment case on pages 4-5.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
18
Key performance indicators
Financial KPIs
KPI Denition Why we measure this
Performance
(% Year-on-year) 2021 commentary
Revenue growth
1
Linked to our strategic goal
Annual organic growth in sales
at like-for-like exchange rates.
Measures the ability of
theCompany to grow sales
byoperating in selected
geographies and segments
andoffering differentiated,
costcompetitive products
andservices.
2021 – 29%
2020 – (19%)
2019 – 1%
Signicant end market
recovery across all
segments and regions after
Covid impacts in 2020.
Sales returned to above
pre-Covid levels.
Adjusted operating
protgrowth
2
Linked to our strategic goal
Annual organic growth in
operating prot, adjusted for
exceptional and acquisition
related items, at like-for-like
exchange rates.
Measures the underlying
protability progression of
theCompany.
2021 – 75%
2020 – (43%)
2019 – 6%
Prot recovery after
signicant Covid disruptions
to manufacturing
operations in 2020.
Adjusted earnings per
sharegrowth
Linked to our strategic goal
Annual growth in reported
EPSfrom continuing activities,
excluding exceptional and
acquisition related items.
Measures the underlying
progression of the returns
generated for shareholders.
2021 – 181%
2020 – (65%)
2019 – 1%
Signicant growth
underpinned by operating
prot recovery, a
normalisation of effective
tax rate and lower interest
charges.
Adjusted free cash ow
Linked to our strategic goal
Cash generated from
continuing activities less capital
expenditure, interest, tax,
dividends to minority interests
and other items, and excluding
exceptional and discontinued
items, acquisitions, and UK
pension recovery payments.
Measures the Company’s
underlying cash generation
thatis available to service
shareholder dividends,
pensionobligations and
acquisitions.
2021 – 113
2020 – 28
2019 – 107
All gures are in $(m)
Strong cash ows
underpinned by operating
prot recovery, alongside
disciplined approach to
working capital and capital
expenditure.
Return on capital employed
(ROCE)
Linked to our strategic goal
Pre-exceptional operating
protfrom continuing
operations for the year divided
by capital employed (property,
plant and equipment plus net
working capital) at year end.
Measures the ability of the
Company’s assets to deliver
returns.
2021 – 40%
2020 – 22%
2019 – 42%
Operating prots back to
around pre-Covid levels,
alongside a continued well
controlled asset base.
Business critical non-nancial KPIs
KPI Denition Why we measure this
Performance
(% Year-on-year) 2021 commentary
Recordable accident rate
(RAR)
Linked to our strategic goal
Number of work-related injuries
and illnesses per 100 Full Time
Employees (FTEs) per year that
are considered recordable by
the US Occupational Safety and
Health Administration (OSHA).
Measures the performance
ofthe Company in delivering
asafe and healthy working
environment for employees.
2021 – 0.45
2020 – 0.59
2019 – 0.50
Increased focus on training
and hazard reporting and
remediation delivered a
strong reduction in
incidents.
Employee engagement
score
Linked to our strategic goal
Set a number global surveys
using the Glint platform.
Measures the Company’s
performance in delivering
aneffective and efcient
workplace culture and how
proud and willing people
aretowork towards
achievingcommon goals.
2021 – 83%
2020 *
2019 *
2018 – 83%
The rst survey with a new
system had good
participation rates and
showed that engagement
had been maintained at
previous high levels.
Performance measures of the Group’s progress
During 2021 we continued to monitor our performance and progress using the consistent range of key performance indicators (KPIs) used in the
prior year, each of which is a non-GAAP measure. For further details of how these nancial Alternative Performance Measures are reconciled to the
nearest corresponding statutory measure, see note 35 on page188.
Annual Report and Accounts 2021
Strategic report
19
2022 Sustainability KPIs
We have ve targets that mature in 2022, one for each pillar of our sustainability strategy. During 2022 we will be formalising our post 2022
targets for each pillar and these will align with our 2030 commitments as described on pages 12-13 and in more depth on pages 27 onwards,
including our approved Science Based Targets for emissions reduction.
KPI Denition Why we measure this Performance 2021 commentary
Water Intensity
Target of 40%
reductionby2022
Litres of water used per kilo
ofnished production.
Water is a precious and
oftenscarce resource.
2021 – 67
2020 – 76
2019 – 83
2018 – 86
Litres per kilo
ofproduction
We have made strong
progress in 2021, achieving
a reduction of 22%
against our 2018 baseline.
Energy Intensity
Target of a 7%
reductionby 2022
kWh of energy used per kilo
ofnished production.
Energy is a signicant cost
tous.
2021 – 8.6
2020 – 9.1
2019 – 9.4
2018 – 9.3
kWh per kilo
ofproduction
We have nearly achieved
our 2022 target a year
early with a reduction
of6.9% against out
2018baseline.
Efuent quality
Target is for 100%
by 2022
Percentage of efuent
thatiscompliant to ZDHC
Foundational standards
forefuent and sludge.
We need to make sure that
water we use is returned to
theenvironment in a good
state.
2021 – 82%
2020 – 74%
2019 – 34%
% efuent that
iscompliant with
standards
We continue to make
good progress with
achieving ZDHC
compliance in our units.
Employment certication
Target is for 80%
by 2022
Percentage of employees
inCoats units that have a
GreatPlace To Work (GPTW)
orequivalent certication.
Employee engagement is
criticalto our operations.
2021 – 83%
2020 – 6%
2019 – 19%
% of global Employees
covered by a GPTW
certicate
After a drop in 2020 due
to the pandemic, we have
made strong progress in
2021 and have achieved
our target a year early.
Waste %
Target is to reduce waste %
by 25% by 2022
Percentage of materials
usedbyCoats that are
classiedas waste at some
point in our processes.
Waste generates lost value. 2021 – 16%
2020 – 16%
2019 – 18%
2018 – 17%
Waste as a percentage
of materials used
We have achieved 3%
reduction against our
baseline. There are various
projects underway to
accelerate this in 2022.
2024 Sustainability KPI
We currently have one target that matures post 2022 and this will continue to be part of the targets that we develop for the post 2022 horizon.
KPI Denition Why we measure this Performance 2021 commentary
Sales of recycled material
Target is for 100% by 2024
Percentage of premium
productsales that are
madewith recycled material.
Recycled materials are more
resource efcient.
2021 – 19%
2020 – 13%
2019 – 2%
% of premium
product sales made
with recycled material
We continue to make
strong progress in this
area, steadily increasing
supply by broadening
oursupplier base.
1. Revenue growth excludes contribution from acquisitions made during the period.
2. Adjusted operating prot growth excludes contribution from acquisitions made during the period.
Link to strategy
1. Protable sales growth 2. Continuing to strengthen the core 3. Value creation
Paying for Performance
The incentive plans used to reward the Directors and selected senior managers include Performance Measures linked to our Key Performance
Indicators. For more detail see the Directors’ Remuneration Report on pages 96-113.
OUR
STAKEHOLDERS
Shareholders
Employees
Customers
SuppliersCommunities
Environment
Coats Group plc
Strategic report Corporate governance Financial statements Other information
20
Stakeholder engagement
How we create value for our stakeholders
Responsible business practice is at the core of everything we do.
Forover two centuries our purpose has remained the provision of good
service and the creation of long-term value for all our stakeholders.
Inorder to create this value, it is important to rst identify who our
stakeholders are and understand what matters to them.
Annual Report and Accounts 2021
Strategic report
21
Employees
Our 18,000 plus
workforce is at the
heart of making our
business a success and
we recognise that
listening to and
engaging with our
employees is essential
to our continued
success.
How the Board engaged in 2021
Fran Philip, Non-Executive Director and Board representative for workforce engagement continued her role in 2021
and was able to carry out a combination of in person and virtual meetings. She met with representative groups from all
our regions, continued her six-monthly calls with senior representatives of the regions and attended our quarterly
Diversity, Equity and Inclusion Network calls with a range of people from across the Company. Fran shared what she
had learnt with the Board in September and December. As well as hearing from Fran the Board also had a presentation
on the employee feedback from the Your Voice Matters survey – our employee engagement survey which took place in
May – and our Health and Safety survey which took place in September.
What we learnt
The themes from Fran’s meetings showed that employees continue to praise Coats for its handling of Covid. In
particular they felt safe within our premises and felt that by supporting employee families and local communities, we
were doing more than other companies. The feedback also showed that there are opportunities for more employee
recognition.
What we are going to do in 2022
In 2022 Fran will continue her virtual meetings and plans to meet with representatives from every region during the
year as well as continuing to meet twice per half with senior representatives of the regions and attending the quarterly
Diversity, Equity and Inclusion Network calls. Covid permitting, Fran will increase the number of in person meetings she
holds.
Customers
We have been helping
to connect and form
the fabric of daily life
on our planet for over
250 years, and our
global footprint
provides unrivalled
access to markets and
customers.
How the Board engaged in 2021
2021 marked the opening of a new chapter with Coats customers. We commissioned our rst Net Promoter Score
(NPS) survey, a build on previously commissioned research. This research showed that our customers have positive
feedback when it comes to quality, customer service and reliability. Our sustainability, innovation and technical service
engagement also drives increased satisfaction. In addition to global customer surveys, we have dedicated commercial,
sales and marketing teams who connect, collaborate and partner with customers and brands, constantly listening and
innovating to help bring their visions to life.
What we learnt
Speed and agility continue to be important to our customers and our ability to adapt and offer solutions to support
customers is a critical industry differentiator. Having a global manufacturing and supply chain presence is a key strength
for Coats, and has allowed us to be exible when facing unexpected circumstances such as the temporary closure of
our Vietnam site due to Covid. At that time, when our customers were struggling to manufacturing end products, we
were able to offer a speedy solution and had products shipped from China to Vietnam.
What we are going to do in 2022
When it comes to digital, we have spent 2021 refocussing and enhancing the end-to-end digital customer journey,
making sure that every channel or touchpoint makes it easy for the customer to get what they want or need from
Coats. For example, during the Covid pandemic, we created a digital app called TechConnect that made it easy for our
customers to get technical support online. We recently launched a new and enhanced e-commerce platform called
ShopCoats that allows our customers to seamlessly place orders with us. We have also recently launched a new
best-in-class Seamworks Cloud tool that helps customers calculate their thread usage and cost with minimal effort –
reducing cost and wastage. We will continue to enhance and improve customer end-to-end experience through future
digital applications.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
22
Stakeholder engagement continued
Shareholders
The Board maintains
and values regular
dialogue with
shareholders
throughout the year.
How the Board engaged during 2021
The Chairs of the Board Committees engage with shareholders as and when appropriate and in 2021 our new Chair
David Gosnell held a series of introductory investor meetings with our key shareholders. Our Senior Independent
Director, Nicholas Bull, also joined our Head of Sustainability and Head of Investor Relations on a broad series of
meetings with investors to discuss our sustainability agenda, targets and progress. The Board also engaged an external
provider to undertake a comprehensive investor audit of both existing and prospective shareholders, in order to
understand the effectiveness of our communications and address areas of improvement. The traditional face-to-face
methods of interacting with our shareholders were quickly made obsolete in 2020 as the Covid pandemic led to
blanket limitations on travel and this trend continued during 2021. We continued to embrace virtual formats for all
investor interactions, which included results roadshows, investor conferences as well as ad hoc group calls on specic
topics (eg broker arranged ‘reside chats’). Whilst we do not expect the virtual format to ever fully replace face-to-face
interactions, the quantum of investors we have been able to reach around the globe has increased as a result of us fully
embracing the virtual format. In addition, we have been able to facilitate wider shareholder access to our Board/
management through this virtual forum.
What we have learnt
Regular communication with our shareholders and prospective shareholders remains a key priority. We have continued to
proactively engage with our key shareholders to keep them updated on the developments in the business.
What we are going to do in 2022
As the world begins to normalise post-Covid, and as physical travel begins to return to normal levels, we will look to
return to a balance of physical meetings, whilst embracing the new virtual formats that became the norm during 2020
and 2021. This will allow us to leverage the benets from both physical interaction and the efciency benets of virtual
interactions. We will continue to engage around all major announcements, and also continue with our increased level
of engagement with investors on our sustainability agenda.
Environment
Coats is working
proactively with
customers and suppliers
to help them to
improve the
sustainability of their
products, and to
minimise the
environmental impact
of our industry.
How the Board engaged in 2021
During 2021 the Board has continued to increase its engagement regarding environmental matters. Climate change
continues to be the highest priority issue here, but efuent treatment and continued innovation in new, more
ecological, products are also high on the Board agenda. Apart from Board discussions members of the Board have
contributed directly to activities with an environmental focus. The Chair and CEO both attended the World Climate
Summit held in Glasgow in parallel to COP26 and our CEO participated in two panel discussions during those events.
The Board advocate for ESG, Nicholas Bull, also attended over 20 dedicated sustainability meetings with investors and
potential investors at which environmental issues were a major area of discussion. We published our third Sustainability
Report which detailed the progress towards our ambitious targets for 2022 and 2024 and included our second
Communication on Progress (COP) as Participants of the United Nations Global Compact, which detailed activities
supporting the environmentally-focussed Sustainable Development Goals that Coats aspires to contribute to. Having
signed up to the Science Based Targets programme under the more challenging Business Ambition for 1.5°C target at
the beginning of 2021 we have developed our proposed targets and these have now been validated by Science Based
Targets initiative.
What we learnt
We have to take urgent action to ensure that we are doing what we can to reduce and mitigate the climate
emergency. This will protect our business interests and provide opportunities for growth while also contributing to
reduce the risk of catastrophic climate change. We see that, not just in terms of climate change, protecting the
environment is not only a matter of behaving ethically and responsibly but also a means to enhance and grow our
business, delivering better outcomes to all our stakeholders. Increasingly we need to look at the full life-cycle impact of
our operations and the products that we produce and develop long-term strategies as a result.
What we are going to do in 2022
Having focussed on the development of our 1.5°C pathway targets in 2021 we are going to develop net-zero pathway
targets during 2022. Moving forward in the delivery of our 1.5°C targets will involve the Board in reviewing and
approving projects aimed at transitioning to renewable electricity. We will also focus on delivering our efuent target
for 2022 and review and agree the next horizon targets for efuent quality. We will also be focussing on the plans to
deliver the new commitments announced in 2021 and detailed in the Working Responsibly section on pages 26-45.
Annual Report and Accounts 2021
Strategic report
23
Communities
We operate in 50
countries across six
continents and seek to
understand and respect
the needs of the
communities in which
we operate and to
work together with
them to our mutual
benet.
How the Board engaged in 2021
There is an obvious overlap between our employees and the communities in which we operate, and hence a common
interest, but beyond that we share the local environment and resources with our neighbouring communities. For these
reasons Coats needs to work in partnership with these communities. The Board fully recognises this need and supports
the efforts of the Company to work constructively with communities, but does not have a lot of direct contact with
community groups, especially as travel has continued to be constrained during 2021. After a difcult year in 2020
where many community activities had to be curtailed and the remaining activities were mainly focused on pandemic-
related support. The Company has managed to signicantly increase its activities in 2021 and return to a broader range
of activities centred around our core concerns of education, health and wellbeing and textiles, with pandemic-related
activities around education, and health and wellbeing being at the core of this. In total over 200 programmes were
undertaken in 2021, which is more than three times what we achieved in 2020. The number of participants in these
activities has also grown by more than ve times compared to 2020. Because of the continued pandemic controls,
much of this work has taken place remotely or with Covid protocols in place. The Board reviews these programmes and
is supportive of the actions undertaken.
What we learnt
While the global impacts of the pandemic might have diminished in 2021 there were still serious waves of infection in a
number of countries in which we operate, requiring continued community engagement activities with this focus, and we
expect that this pattern will continue as different countries are affected by new variants or periodic are-ups. Being able to
respond quickly and in a way that is appropriate to the circumstances will continue to be necessary. We have also recognised
that the nancial and mental hardship caused by the pandemic will continue even after the immediate impacts of infections
wane, and activities focussed on these areas will be required for the future. We have seen that these kinds of
engagement build strong links with our communities. Working in partnership with our value chain is an emerging
opportunity, especially the opportunities of working closely with customers and brands to deliver joint projects in shared
communities.
What we are going to do in 2022
We have seen in 2021 that our engagement focus areas continue to be relevant to our communities and we anticipate
continuing to build on the successes from 2021 with increased activities and greater participation from our employees.
Sharing ideas between units is important because while local situations are never exactly replicated we have seen
greater commonality due to the pandemic. The global team managing our community programme has and will
continue to build greater internal transparency and sharing of ideas. We anticipate that there will be additional
opportunities to develop broader partnership projects during 2022 and the Board is highly supportive of this approach.
The Board continues to be strongly committed to proactive engagement with our communities and more details of our
activities can be found in our Sustainability Report online.
Suppliers
Our suppliers do not
just supply
components, products
and services to us, but
are true partners in our
full process and aligned
to our requirements on
compliance, quality,
sustainability and
innovation ethos.
How the Board engaged in 2021
Our long-term partnerships with our suppliers remain a key element to our business performance, where they
offeradditional value in our manufacturing and innovation process. The Board maintains a close alignment with our
management of our key suppliers and their operating subsidiaries, where we review the performance and alignment
toour joint goals and objectives. Key areas of attention remain the alignment to our Modern Slavery Statement in
ourSupplier Code of Conduct. We continue to audit and work with our suppliers to maintain this level of commitment
and address any issues or concerns on an ongoing basis. This has been especially challenging during thecurrent
pandemic, but we have maintained the audits and checks to ensure adherence.
What we learnt
Our suppliers remain positive about our focus on compliance within our Code of Conduct and support our reviews,
enabling us all to continue to develop a strong and interlinked mode of working. The standardised process offers a
deep understanding of Coats’ approach and expectations, and sets a strong base for understanding our working
relationships while the audit process ensures continued alignment. With the development of our sustainability
approach, suppliers remain close to our evolution and remain a committed partner in this regard.
What we are going to do in 2022
We will continue developing our close links with our supplier partners and engage with them through our audit
process and more to ensure we maintain the close alignment and relationship. We continue to introduce measures
todemonstrate this performance and utilise these as the basis for progressive and positive discussions, where our
suppliers contribute strongly to our overall partnership relationship.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
24
Section 172 statement
Section 172 of the Companies Act 2006
requires the Directors to promote the success of
the Company for the benet of the members
as a whole, having regard to the interests of
stakeholders in their decision making (S172
Factors). The Directors understand the
importance of taking into account our
stakeholder expectations and needs, to
achieve our strategy and accordingly our
long-term sustainable success. On pages
20-23 we outline the ways that the Board has
engaged with our six groups of stakeholders,
what was learnt and how their input has shaped
our decisions and what we will do as a result of
this engagement.
The Board has had regard to S172 Factors in
all of its key decisions and you can read more
about these in the disclosures set out below.
Further examples of Board engagement are
set out on page 68.
A summary of our procedures for ensuring the
correct balance of inputs into the decision
making process and providing the correct
conditions to enable the Board, in good faith,
to make decisions that balance the S172
Factors include:
Board information
Leadership and management receive training
on Directors’ duties and best practice tips for
preparing and presenting Board papers to
ensure awareness of the Board’s responsibilities.
Our Board papers identify the key stakeholders
for the matters under consideration and provide
relevant information relating to them. The Board
also continues to engage with stakeholders to
understand their views. The Board considers
relevant metrics in its decision making
including employee engagement and
customer NPS scores.
Strategic discussions and decisionmaking
S172 factors are considered in the Board’s
discussions on strategy, including how they
underpin long-term value creation and the
risk implications for business resilience. The
Group’s culture helps ensure that there is
proper consideration of the potential impacts
of decisions in the long-term. See more on
page 47. The Chair ensures decision making is
sufciently informed by S172 Factors and
appropriately balances the interests of the
various stakeholders. Additionally, the Board
reviews and probes the information presented
and receives assurance where appropriate.
Long-term consequences and high
standards of business conduct
The Board’s intent is always to maintain
highstandards of business conduct and
governance in all of the Company’s
operations, which is critical in maintaining our
reputation for doing the right thing. On pages
46-59, read about the ways we considered
our stakeholders, the long-term impact of our
decisions and our determination to maintain
our high standards of business when
considering our Principal and Emerging risks.
S172 factor Relevant disclosures
(a) The likely consequences
of any decision inthe
long-term.
• Market trends (page 14)
• TCFD and Sustainability strategy (Working responsibly
(page 38) andSustainability strategy (page 12))
• Principal risks and uncertainties (page 46)
(b) The interests of the
Company’s employees.
• Employee engagement (Keyperformanceindicators
(page18))
• Stakeholder engagement (page 20)
• Culture, DE&I, and employee health and wellbeing
(Working responsibly and Sustainability Report
(coats.com/sustainability (page 26))
(c) The need to foster the
Company’s business
relationships with
suppliers, customers
andothers.
• Our strategic goals (page 10)
• Stakeholder engagement (page 20)
• Principal risks and uncertainties (page 46)
• Operating review (page 60)
(d) The impact of the
Company’s operations
onthe community and
the environment.
• Stakeholder engagement (page 20)
• Working responsibly (page 26)
• Sustainability Report (coats.com/sustainability (page 26))
Principal risks and uncertainties (page 46)
(e) The desirability of the
Company maintaining
areputation for high
standards of business
conduct.
• Culture and values (Working responsibly (page 26) and
Sustainability strategy (page 12))
• Principal risks and uncertainties (page 46)
• Whistleblowing and Group Policies (page 36)
• Audit and Risk Committee Report (page 83)
(f) The need to act fairly
asbetween members
oftheCompany.
• Business model (page 16)
• Investment case (page 4)
• Stakeholder engagement (page 20)
• Investor information and AGM (page 68)
EMPLOYEES
CUSTOMERS
SHAREHOLDERS
ENVIRONMENT
COMMUNITIES
SUPPLIERS
Annual Report and Accounts 2021
Strategic report
25
Board discussions
during the year
Regional deep dives case study
During the course of 2021, the leadership
team for each of the seven geographical
regions presented an overview of the
end-to-end business activities and
risks for their area of the business.
Using this bottom-up lens to review the
components of the business and understand
how they contributed to the success,
including the protability, of the whole
Group allowed the Directors to understand
the culture and range of stakeholders'
inputs and impacts in each region. This
information fed into further discussion and
decisions during the course of the year.
Detailed pre-read was circulated in advance
which set out how the region contributed
to the Group strategy, including the
ambitions for A&F and PM, and how the
Group purpose was evident locally.
There was an overview of the market
growth opportunities with consideration
of the different needs of key customers
that were identied by management,
including a review of NPS survey insights
where appropriate. Being able to contrast
the case studies of customer and supplier
experience across regions enabled insights,
such as the impact on speed and agility of
supply chain complexity, that were then
appropriately shared across the Group.
Through their review of people
information, including feedback from
the workforce, and relevant data from
employee engagement survey, relating
to each region, as well as interacting
directly with the regional management
teams, the Board gained further insights
into culture, inclusivity and diversity and
succession planning as well as providing
further context for long-term planning.
Local risk reviews provided a fresh
perspective and included an overview
of the risks (including in relation to
reputation and business conduct),
mitigation strategies and the impact
of those strategies, and consideration
of how this affected the Group.
Each region also provided an overview of
sustainability, environmental and community
initiatives and impacts. This pre-read
was discussed in detail with the regional
management teams and best practice from
other areas was shared appropriately.
Board decision making during the year
Board decision Examples of Board decision making
during the year
Stakeholders considered Board decision/outcome
Change to Group
Executive Team
(GET) and
management
structure to move
from seven
geographic regions
to three
The Board considered the changes in
ways ofworking as a result of the
pandemic, the operational impacts of
supply chain disruption and changes to
demand from customers. The long-term
consequences of realigning reporting
structures and the impactof ensuring
practicality of workforce collaboration
across time zones were noted, and the
opportunity was taken to align the
reporting lines for health and safety and
sustainability. Consideration of the
employee impact of these changes also
informed the nal decision on structure.
See what we have learnt from
Customer and Suppliers
through our Stakeholder
Engagement on pages 20-23.
Noting the advantages of increasing the speed
and agility of decision making toallow more
effective supply chain management and quicker
responsiveness to customers’ requirements, it
was agreed to change the reporting lines for the
markets into three regions. The Board recognised
the need to ensure the appropriate leadership
for this new model for employees and the
execution of the 2022priorities, and it was
agreed that the role of Chief Supply Chain
Ofcer would bereinstated to the GET together
with the addition of three new chief operating
ofcer roles for Asia, Americas and EMEA.
Sustainability
– increasing the
Group’s ambition
The Board considered the long-term
consequences of increasing the Group’s
sustainability ambitions, when reviewing
the inputs from each of the perspectives
of brands, consumers, regulators,
investors, current and future employees
and competitors. The important link to
the Group purpose was recognised as
were the challenges in the supply chain.
See what we have learnt from
theEnvironment and Suppliers
through our Stakeholder
Engagement on pages 20-23.
It was agreed to increase the Group’s
sustainability ambitions as set out on page 12.
The Directors further agreed to set up a
Sustainability Committee to oversee the
sustainability agenda for the Group. When
making these decisions, the Board recognised
the expectations of investors to see ESG matters
embedded in strategy and the need to continue
to minimise impact on the environment. You can
read more about the Sustainability Committee
on page 78.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
26
Working responsibly
Highlights of 2021
• 83% of our employees work in a
certied ‘Great Place To Work’
• 94% participation in our Health and
Safety survey with an overall score
of92
• Covid Prevention, Protection and
Education approach
• 55,000 hours of training delivered
• Movement of our key people
processes to SuccessFactors
• Launch of our Career Management
Framework
Priorities for 2022
• Develop long-term goals for our social
impact priorities
• Holistic approach to health, safety and
wellbeing
• Introduction of continuous
performance conversations
• Continuation of DE&I actions through
a concerted focus on Inclusion
• Capability building for Commercial
and Manufacturing
• Maturing the listening strategy
People
During 2021 our key areas of focus
forour people were health, safety
andwellbeing; listening to our people;
learning and development; improving
the employee experience through
digitisation; and diversity, equity
andinclusion.
In addition, we established our long-
term social impact priorities that focus on
DE&I, safety, employee and community
wellbeing and ensuring that our suppliers
are working to aligned social priorities.
Having established these priorities, we will
be working on the long-term goals and the
intermediate milestone targets during 2022.
Health, safety and wellbeing
In 2021 Covid continued to be an important
focus for our health and safety efforts.
While in some countries the impact of
Covid lessened, in others our teams still
faced signicant risks. In India there
was a very serious second wave and
that was later followed in Vietnam.
To support our employees and keep them
safe from Covid we have put in place several
measures across the Coats world exing
our approach based on the location specic
circumstances. Our strategy focussed on
the three pillars of Prevention, Protection
and Medical Care, and Education.
In the area of Prevention we have facilitated
Covid vaccinations for our employees by
delivering them on site, providing paid time
off for those countries where the local
government has supplied them and paying
for vaccinations in countries where they
are not funded. To date, the percentage of
employees who have voluntarily submitted
their Covid vaccination status to us is as
follows: 52.03% have had their rst, 42.39%
have had their second, and 11.01% have
had a third vaccination or booster jab. On
our sites we have enhanced our protection
through contactless systems, social distancing
enablement through our webcam system
and providing private buses for commuting
as an alternative to public transport.
The pillar of Protection and Medical Care
saw us continuing to provide the basics
such as hand sanitiser and face masks
and building on this by expanding our
telemedicine provision, private medical
inpatient insurance, testing and employee
assistance programmes across the globe.
Education focussed on mental health
and wellness programmes, working from
home assistance and broader topics
impacted by Covid such as addiction
prevention, health and nutrition
awareness raising and rst aid training.
Specic examples of our approach to Covid
include India and Vietnam where we faced
challenges from signicant second waves.
In India we delivered remote medical
support for physical and mental health
to all employees including telemedicine,
counselling and monitoring of vital statistics.
In Vietnam where the government enforced
a lockdown we gave our employees the
option to live on site. 350 of our employees
volunteered to stay on site and in 48 hours
our team put in place living arrangements
as well as all the appropriate measures to
ensure everyone who stayed was safe.
As well as Covid protection we refocussed
on our journey to zero strategy in 2021. This
included running our second Journey To
Zero week, to engage all of our employees
worldwide. The theme for the event was
‘Journey to Zero Hero’ which saw more
than 300 nominations for employees to
be recognised as going above and beyond
in the area of health and safety. It also
incorporated a focus on slips, trips and falls
which is our number one cause of accidents.
We were really pleased that our proactive
health and safety initiatives lead to a
record reduction in recordable incident
rates, which reduced from 0.59 in 2020
to 0.45 in 2021. Refer to our Sustainability
Report for more detailed information.
Our Whistleblowing Hotline has continued
to provide support to our employees and
received 98 incidents (compared to 88 in
2020). Of the investigations that have been
completed (86%) 30% have been upheld
Annual Report and Accounts 2021
Strategic report
27
83%
Employees work in a certied ‘Great Place To
Work’ facility
55,000
Employee training hours
90%
Employees took part in our Your Voice
Matters employee survey
94%
Employees took part in our Health and Safety
survey
(versus 22% in 2020). Nearly half of the
upheld incidents relate to disrespectful
behaviour while ethics code violations, health
and safety issues and unfair employment
practices make up most of the rest. In all
cases we take robust action where an incident
is found to be justied. The geographical
distribution of incidents by region is broadly
aligned with our employee distribution which
indicates that our work to broadly publicise
the availability of the whistleblowing system
is successful. For the past few years we have
used an internally managed hotline, and
during 2022 this will be complemented by
an external web-based channel. We feel
this is an important move so as to offer
our employees greater condence that
the process is secure and independent.
Listening to our people
Our employee listening strategy is
designed to understand the overall
employee experience. We respond to the
feedback to enhance employee engagement
as well as taking targeted actions to address
concerns and continuously improve. In
2021 we ran our own in-house surveys
and also took part in the external Great
Place To Work (GPTW) surveys – one of
the targets of our Sustainability strategy
is to have GPTW or equivalent awards
for all key sites by the end of 2022.
In 2021, we continued with our
comprehensive programme of engagement
surveys, this time with an external digital
provider. Our Your Voice Matters survey
results were extremely encouraging. 90%
of our employees took part in the survey
and our engagement score was 83 – well
above the benchmark of 74. Our switch
to the new digital survey provider meant
that, for the rst time, our employees could
leave a comment on any question and we
received more than 9,500 comments.
In addition to the Your Voice Matters survey,
in 2021 we ran a Health and Safety survey
to understand how employees felt about
our health and safety culture, as well as
some country specic pulse surveys, pulse
surveys related to ethics and compliance and
surveys in advance of opening our ofces.
Feedback from the latter informed our
policies and helped us address concerns of
our employees. These pulse surveys were in
addition to our employee lifecycle surveys
that take place for new starters and leavers
providing us the opportunity to compare
our results with an external benchmark.
In addition to our series of in-house surveys,
we have also been working with the GPTW
organisation to achieve its accreditation.
GPTW uses a combination of employee
feedback and analysis of our people
practices to assess our workplace culture.
By the end of 2021 we were delighted
that 83% of our employees belonged to
a certied GPTW. Whether or not the
teams achieve certication, they all receive
feedback from the GPTW organisation
on actions that can be taken to further
improve the working environment.
Learning and development
We built on our successful switch to 100%
online learning in 2020 and delivered
more than 55,000 hours of training to our
employees in 2021 through a variety of
training platforms. These included Minerva,
our online learning library, Learning zones,
our remote classroom learning, and Subject
Matter Expert training. In addition we
added some new elements to our suite of
learning programmes including Manager
Excellence, focussing on critical manager
skills through short relevant sessions of an
hour every month for 12 months, and a
new Mentoring Programme called Unlock
Your Potential in which senior managers
are paired with other employees for three
months to support them to achieve particular
objectives. While introducing some new
programmes for our leaders, we continued to
offer learning opportunities to our individual
contributors and manufacturing employees.
At the end of the year we moved our
online learning to SuccessFactors as well as
introducing an even more comprehensive
online learning library with a greater breadth
of modules in multiple languages delivered
via a wider variety of methods. In the area
of development, 2021 saw the launch of our
career management framework. Modern
career journeys are not simply linear, and
about upward mobility, they are about
gaining a broad range of experiences. They
can be lateral, cross functional, project work
Coats Group plc
Strategic report Corporate governance Financial statements Other information
28
Working responsibly continued
and/or alternative types of employment
arrangements, for example, part-time.
Our Career Management Framework gives
greater visibility to what career options are
available and helps everyone understand
what modern career journeys look like
at Coats. The Framework consists of our
Career Management Philosophy and Process
as well as career maps detailing which
roles are available and how to transition
between them and supporting materials
such as career conversation guidelines.
Digitising our processes and connecting
our people
2021 saw us re-double our efforts on
the digitisation of our people processes.
We moved three of our key processes to
SuccessFactors – performance management,
learning and recruitment. This is part of the
continuation of our HR digitisation journey
to make our processes more efcient
and enhance the employee experience
by introducing more user friendly and
consistent tools. All our people related
information is now in one place which
improves data protection and enhanced
reporting through SuccessFactors enables
more informed decision making.
In addition we have rolled out our employee
mobile app – Coats Link. For the rst time,
over 18,000 of our employees can be digitally
connected. We can already reach more
employees directly via the app than via email.
The roll out has been supported by technical
infrastructure to allow employees without
their own mobile device to connect and we
have also provided free wi for employees
to connect to with their personal device.
Coats Link is used to share both global
and locally specic information through
targeted channels and it gives employees the
opportunity to both post and engage with
content as well as translate information at the
touch of a button into their own language.
Coats Link is modernising and simplifying
our employee communications and well as
making them more inclusive and secure.
Diversity, Equity and Inclusion (DE&I)
Work on our DE&I strategy continued in 2021.
Our DE&I Network calls remained a quarterly
xture in our global event calendar and we
also started to connect with our customers
on this important issue to drive the agenda
together. We were delighted to be ranked
45th in the 2021 Hampton Alexander
Report for FTSE 250 companies and
rst in the General Industries
Sector at which point we had 40% women on
the Board. This has since increased to 50%.
In 2021 we continued our work on living
wage. We have joined the Fair Wage
Network and using its data to carry out an
annual assessment of our remuneration
across the globe. In 2020 we addressed any
gaps and this year we assessed ourselves
against the benchmark again to ensure
we were still tracking at the right level.
We also initiated a data collection project
to expand our DE&I data records by asking
employees to provide some additional
personal information such as race, ethnicity
and sexual orientation. Providing additional
personal information is completely
voluntary. This initiative is part of a journey
and will support the development of our
DE&I strategy with more transparency.
Another important aspect of our DE&I
Strategy is the work we do in the local
communities in which we operate. In
2021, nearly 8,000 employees were
involved in carrying out more than 200
activities. These varied from supporting
our local communications with health
and safety initiatives such as supporting
Covid protection efforts and empowering
women through training programmes.
Looking to the future, as part of our social
impact priorities, it is our ambition to provide
a workplace where every single employee
is free from discrimination, feels respected
and is treated fairly and equally. We will
also strive to achieve gender parity in all
managerial roles, and higher than local labour
market representation for all other under-
represented communities at Coats locations.
Looking ahead to 2022
In 2022 we will develop our long-term
goals and intermediate milestones to help
us achieve our social impact priorities.
In addition, we will build on our
achievements in 2021 by focussing on a
more holistic approach to health, safety
and wellbeing based on the four pillars
of Physical, Emotional, Financial and
Community with interventions in the areas
of Prevention, Protection and Education.
In the area of people development
wewill continue the journey started in
2021 when we moved our Performance
Management process to SuccessFactors
by introducing continuous conversations
to help us to deliver a higher performing
culture. We will also continue to progress
two critical capability building projects
for the Commercial and Manufacturing
teams to provide clarity on ‘what good
looks like’ to drive personal development
and measurable business outcomes.
We will continue to mature our Listening
strategy through an integrated approach
to understanding the overall employee
experience in an agile way and we will
start leveraging DE&I data to identify
and support the relevant initiatives
andactions at group and local level.
Annual Report and Accounts 2021
Strategic report
29
Board engagement withtheworkforce
Introduction
Fran Philip was appointed Board Representative for Workforce Engagement in March 2019. In this role Fran attends a programme of events
agreed annually with the Chair and Chief HR Ofcer including meetings with regional managers and making contact with representatives
from the workforce. In 2021 virtual meetings continued with the same intensity notwithstanding the impact of Covid, travel restrictions
andlockdowns.
The process
• Due to continued challenges of Covid,
most meetings were carried out virtually
• Fran had face-to-face meetings in
theUSwith three separate groups
ofemployees
• Fran had two virtual meetings senior
representatives of the regions
• Fran hosted seven virtual sessions
with119 employees in 26 countries
• Fran attended our three DE&I Network
calls (each were attended by around
200employees globally)
• Fran summarised her ndings to the
Board in September and December
2021, as well as to the DE&I Network
Focus during the period
The focus of the employee engagement
sessions continued to relate to Covid,
althoughour various regions were all
indifferent stages of the pandemic.
• In Vietnam the conversation focussed
onthe government lockdown and the
speed with which the team managed to
transition the Ho Chi Minh site to allow
employees to live on site. There was a
sense of positivity from the collaboration
and resilience shown by the team
• There was general feedback from across
the clusters about how the workplace
ischanging, the challenges for some
ofworking from home and achieving
awork/life balance
Actions in response
Looking forward to 2022, in response
tothe feedback in the employee
engagement sessions which showed
employees feel safe within our premises
and praised our support of families and
local communities, we will look to build
onthe following areas:
• Continue to focus on the small things
that make a difference
• Health and wellbeing including
nutrition,exercise and mental health
• Community activities
In 2022, Fran will continue her virtual
meetings and aim to increase her in
personmeetings subject to Covid.
Employees The Board
Fran Philip
NED, Board
Representative
for Workforce
Engagement
Coats Group plc
Strategic report Corporate governance Financial statements Other information
30
Working responsibly continued
Highlights for 2021
• Developed and announced bold
newsustainability targets
• Developed and received approval
ofour Science Based Targets
• Launching new products that align
toour circular strategy
Priorities for 2022
• Our net-zero target and roadmap
• Deliver on our 2022 sustainability
targets (see page 12-13)
• Accelerate delivery on our energy
decarbonisation roadmap
Comparison of top material issues in 2021 and
2019 materiality assessments in ranked order:
2021 2019
Pollution Environmental
compliance
Materials Pollution
Water Talent attraction
Energy Energy
GH Emissions Water
Employee
engagement
Business ethics
Talent attraction Materials
Environmental
compliance
Waste
Sustainability
Sustainability strategy
Having launched our ve pillar Sustainability
strategy ‘Pioneering a sustainable future’
in 2019 with a range of ambitious targets,
in 2022 we announced a further set of
challenging targets, including longer term
ones around emissions reductions and more
sustainable materials. Most of our original
targets are focussed on a 2022 horizon so
it is appropriate that we are now reviewing
our strategy and looking beyond that horizon
towards the next challenges we need to
address and further raising our ambition.
During 2021 we have updated our
materiality assessment (as part of our
biennial programme of materiality reviews)
and, unsurprisingly, we are seeing increased
importance being given to climate-related
and social issues, reecting the twin crises
of climate change and the pandemic that
have had such a major impact in the last two
years. This new assessment followed the
same process as the 2019 one: developing
a list of issues, assessing them for relevance
to our commercial goals (Protable Sales
Growth, Strengthening the Core and Value
Creation) and for importance to each of
our key stakeholder groups (Employees,
Customers, Shareholders, the Environment,
Communities and Suppliers). Shown in
the sidebar are the 2021 top eight issues
compared to the 2019 materiality assessment.
We have assessed the changes taking place
and have adapted our strategy by increasing
our ambition in some of the key areas. These
new commitments were introduced on page
12 and are described in more detail below.
We are also, here and in our stand-
alone Sustainability Report, providing
an update on progress towards the
ambitious targets that we set in 2019.
Also in 2019 we joined the United Nations
Global Compact (UNGC) as a Participant, with
our Board conrming their full commitment
to the Ten Principles of the UNGC, and
to promoting action to deliver the United
Nations Sustainable Development Goals
(SDGs). This year, again, the Board has
reconrmed their commitment to the UNGC
Principles and the SDGs and the Company
has renewed its Participant membership.
We continue to participate in a number of
activities organised by the UNGC Network UK
and Coats employees participate in a number
of working groups within the Network.
As for the last two years, our 2021
Sustainability Report is our third formal
Communication on Progress as UNGC
Participants. That document formally
renews our commitment and reports on
our actions and outcomes in support of
the Principles, covering human rights,
labour, the environment and anti-
corruption and on the seven SDGs that
we believe we can materially impact:
• 3 Good health and wellbeing
• 5 Gender equality
• 6 Clean water and sanitation
• 7 Affordable and clean energy
• 8 Decent work and economic growth
• 12 Responsible consumption
• 13 Climate action
Raising our ambition
Using the platform of our participation at
theWorld Climate Summit that took place
inGlasgow alongside the COP26 conference,
weannounced that over the next ve years
we will invest $10m in scaling up the
development of the green technologies and
materials that will accelerate delivery of our
sustainability goals. Furthermore, the Coats
Innovation Hub – Asia, located in Shenzhen,
China, will have a new mission and be
re-purposed to focus on the application
ofbiomaterials. Over the long term,
Coatsaspires to move all products to
environmentally friendly materials and
chemicals. We have identied four new
targets that are aligned with our ve existing
strategy pillars and further our commitments
in key areas. These new targets include:
Annual Report and Accounts 2021
Strategic report
31
1. Net-zero
We are committed to achieving net-zero
inour value chain by 2050. As a rst step
towards that we have had our Science Based
Targets (SBTs) to 2030 approved and will be
reducing our emissions in line with those by
reducing energy use, switching to renewable
energy sources and switching to recycled or
bio-based materials. During 2022 we will be
submitting our net-zero roadmap to Science
Based Targets initiative (SBTi) for approval.
Furthermore, while our SBTs commit us to
transitioning to 100% renewable electricity by
2030, which would account for 63% of our
total energy, we intent to go beyond this and
ensure that 70% of our energy is renewable
by 2020.
2. Social impact
We are committed to making further progress
across our social agenda. This will include
continued focus on diversity, equity and
inclusion, workplace health and safety,
employee and community wellbeing and
supplier social alignment with our practices.
3. Eco materials
Our commitment is that, by 2030, all
ourproducts will be made completely
independently of new oil-extraction materials
such as polyester and nylon. This will be
achieved by expanding our programme of
switching to recycled materials and increasing
the use of bio-sourced materials. We have
already launched, in 2021 our rst new
bio-sourced thread which is a regenerated
cellulosic thread produced from sustainably
managed forestry materials.
4. Circularity
We will shift increasingly to a circular model
for our products and packaging. We will also
provide our customers with product and
packaging solutions that enable recycling and
reuse, and the launch of our new dissolvable
thread that assists in garment dismantling at
the end of life is one step on this journey.
Our ve sustainability pillars
1. Water
Like many parts of the textile industry, water
is currently an important resource in our
production processes. It is used principally
in direct or indirect connection to our
dyeing processes. It is the solvent we use
for transferring dyes onto bres and then
for rinsing and washing our threads. It is
also the means by which we apply heat to
the dyeing processes, using super-heated
steam. Elsewhere in our operations we use
it for applying coatings, for humidication
and for chilling. Our aim, in the long term,
is to dramatically reduce, or eliminate
entirely, the use of water in dyeing, and we
are actively involved in developing digital
dyeing technology through our investment in
Twine. This is one of the promising routes to
reducing water use in textile dyeing. During
2021 we have had a Twine dyeing machine
in our Innovation Centre in Turkey and have
been developing the colour management
systems that will allow us to deploy it as a
sampling technology in the rst instance.
In the meantime we are focussed on reducing
our current water use, both by identifying
and eliminating any water wastage and
by redesigning our processes to require
less water. Our ambitious goal is to reduce
our water use intensity (litres per kilo of
production) by 40% by the end of 2022
against our 2018 baseline. This is a very
challenging goal as it came after a 28%
water use reduction which we achieved
in the period from 2013 to 2018. After
a difcult year in 2020 due to pandemic
disruptions, we have accelerated progress
towards our 2022 target with a number of
global working groups, established under
our 'Cleaner and Lighter' programme, being
dedicated to identifying and spreading
best practice from unit to unit. As a result
of this our water intensity in 2021 reduced
by 22% compared to our 2018 baseline.
We still have a long way to go to reach our
2022 target, but in the last quarter of 2021
our rate of reduction accelerated to 28%
so we are in a good position going into the
nal year for achievement of this target.
2. Energy
We use energy in our operations in two
forms: heat energy, in the form of super-
heated steam, which is normally generated
by the burning of fuels in our boilers, and
electrical energy that is mainly used for
powering motors to run machines or drive
pumps. The dyeing process utilises most of
our heat energy, while spinning and twisting
operations are heavy users of electrical
energy, as is dyeing, both for running pumps
and for powering dryers. Overall dyeing is our
most energy intensive process and there is an
obvious link between the above mentioned
activities to reduce water use and a benet in
energy use reduction in dyeing. Our target is
to reduce our energy intensity by 7% in 2022
compared to our 2018 baseline. During 2021
we have implemented a pilot programme
for extensive metering and dynamic energy
management across ve major sites and are
planning to extend this to additional sites in
2022. We also had a major focus on energy
reduction on our Indian spinning sites, the
single largest users of electrical energy in the
Group, and through focussed team working
across all areas to identify and measure
savings opportunities a reduction of 9%
of energy consumption had been achieved
by year end, with further improvements
expected in 2022. The work described
above in terms of water saving has also had
a signicant impact in energy reduction as
around 50% of our energy is used to heat
water, so the savings have impacted both
targets. Because of the pandemic, the focus
of energy saving activities in 2020 were
limited to smaller projects at individual site
level rather than global projects, but in
2021 we have seen a signicant recovery
in energy saving work. Because of these
projects we have made good overall progress
in 2021 with a reduction of intensity of
6.9% compared to 2018, so we have nearly
achieved our 2022 target a year early.
Energy saving activities will continue to
deliver further reductions during 2022.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
32
Working responsibly continued
The full detail of emissions both absolute
and relative is shown below.
Absolute Greenhouse gas emissions
Thousands of tonnes of CO
2
e 2021 2020 2019¹
Scope 1 Direct 62.7 51.3 64.6
Scope 2 Indirect
Location based 216.1 186.2 235.3
Market based 190.7 165.9 209.2
Scope 3 Value Chain
4
891.3 671 849.2
1 2019 data includes Pharr HP (acquisition completed
11 February 2020) numbers to provide a like-for-like
comparison.
2 Direct emissions relate to the use of fuels to
generate energy on group facilities. This is mainly
the use of oil and gas to generate heat in the form
of steam for use in processing, but it also includes
some on-site generation of electricity using diesel or
gas red generators and the use of diesel, petrol and
LPG for on-site transport.
3 Indirect emissions relate mainly to the purchase of
electricity from third party suppliers. Most of this is
electricity that is taken from local grids, but does
include some on-site generation of electricity or
steam from third party suppliers.
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
theirlife.
Scope 1 and 2 emissions from our ve UK
ofce locations in 2021 were 59 tonnes CO
2
e
and represented 0.02% of our total global
emissions.
Scopes: Scope and category denitions
% of total
emissions
in2019
Scope 1 Emissions from fuels we burn directly (gas, oil, diesel etc) 6%
Scope 2 Emissions from energy we buy from third parties (electricity and steam) 19%
Scope 3
All other
upstream and
downstream
emissions
related to our
value chain
Category 1 Emissions from purchased products
andservices
52%
Category 3 Upstream energy emissions 4%
Category 4 Emissions from transport anddistribution 7%
Other Scope 3 emissions 12%
We also have a commitment under our
energy pillar to shift as much as possible of
our sources of energy to certied renewables.
While 34% of our energy in 2018 came from
renewable sources according to our supplier
data, only 3% was certied as renewable. We
have been using energy contract negotiations
to extend the certication cover we have for
existing renewable sources and also pursuing
new suppliers that are expanding renewable
energy supplies in markets that allow that.
We have an agreement in place in Mexico
that will see us transition to renewable
electricity there by the middle of 2022,
although the government is showing signs of
renationalising the energy market which could
void this contract. We are in discussions with
developers for off-site renewable electricity
supply in Vietnam, Indonesia and the USA.
By the end of 2021, 7% of our electrical
energy was certied as renewable.
Subsequent to our target setting in 2019
we made the commitment at the beginning
of 2021 to develop Science Based Targets
(SBTs) that align to the Business Ambition
for 1.5°C pathway (under the Science Based
Targets initiative (SBTi)) and to achieve net-
zero by 2050. During 2021 we developed
our baseline inventory and our targets for
the 1.5°C pathway and submitted them
to SBTi for validation. These targets were
approved and published early in 2022. SBTi
have also now established their framework for
submission and validation of net-zero targets
and we will be working on submissions
for these during the early part of 2022.
Our roadmap to achieve reductions
in our Scopes 1 and 2 are focused on
energy and water reduction activities as
outlined above, but principally also on
the conversion of our Scope 2 energy to
certied renewable sources. For Scope 3
the principal routes to reduction in the
three categories mentioned in the table
above are conversion to recycled materials,
transitioning to renewable energy and
switching to low or zero carbon transport.
In 2021 our absolute emissions for all three
Scopes increased from the 2020 level as our
industrial activity increased subsequent to
pandemic disruptions in 2020. Our Scopes 1
and 2 absolute emissions were 7% below our
2019 baseline notwithstanding a 5% increase
in production. Our Scopes 1 and 2 relative
emissions (emissions intensity in kilos
CO
2
e
/
kilo of production and tonnes
CO
2
e
/$million
of sales) reduced by 12% and 7% respectively
against out 2019 baseline and 7% and 10%
against 2020. These reductions have largely
been achieved by energy saving activities as
there has not been a signicant transition
yet to renewable energy sources. Scope 3
absolute and relative emissions increased
mainly due to logistics challenges during 2021
leading to higher transport emissions and an
increase in the upstream energy conversion
factors. We expect to see the shift to recycled
raw materials and the switch to renewable
energy sources having an increasing impact
on Scope 3 emissions in the near future.
Annual Report and Accounts 2021
Strategic report
33
Greenhouse gas emissions intensity
Greenhouse gas emissions intensity per unit
of production (kg
CO
2
e
per kg of nished
product)
2021 2020 2019
Scopes 1 & 2 2.64 2.84 2.99
Scope 3 9.27 8.78 9.26
Total 11.91 11.62 12.24
Greenhouse gas emissions intensity per sales
value (tonnes
CO
2
e
per million $ sales)
2021 2020 2019
Scopes 1 & 2 169 187 182
Scope 3 593 577 564
Total 761 764 746
1 We have used these two ratios for several years. The
rst uses volume of nished goods production in
tonnes and hence relates directly to the industrial
activity that drives emissions, while the second
usesgroup turnover and hence relates to overall
commercial activity.
2 Figures are calculated on a market basis for
Scope2emissions
3 2019 data includes Pharr HP (acquisition
completed11 February 2020) numbers
toprovidealike-for-like comparison.
Full details on emissions of all reportable
greenhouse gas emissions and details
on the reporting methodology used
for the above gures can be found in
our Sustainability Report online.
Energy Consumption
Million kWH 2021 2020
1
2019
1,2
Direct (Fuels) 319.7 260.3 317.5
Indirect (Electricity,
Steam) 481.1 409.2 513.9
1 Figures for 2020 and 2019 have been restated
compared to the 2020 report as some purchased
steam was previously incorrectly classied as direct
energy
2 2019 data includes Pharr HP (acquisition completed
11 February 2020) numbers to provide a like-for-like
comparison.
Energy consumption in our ve UK ofce
locations in 2021 was 0.312 million kWh and
represented 0.04% of our global energy
consumption.
The following methodology is used for calculating emissions and energy consumption:
Boundary All emissions from operating companies that are consolidated in the Group
nancial statements are included. Operational joint ventures are included
based on equity share.
Scope 1 Fuel consumption data is collected from all units monthly, based on metered
orinvoiced consumption converted into kWh. This is converted into emissions
using DEFRA gross caloric value conversion factors published each year.
Scope 2 Electricity or steam purchase volumes are collected from all units monthly.
Allelectricity kWhs are converted using IEA country level conversion factors
for the location based data. For the market based data certied renewable
electricity purchased is not included and the remainder isconverted at the
same IEA country factors.
Scope 3 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.
More detail on methodology is available in our Sustainability Report online.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
34
Working responsibly continued
3. Efuent
While our long-term vision is to cease to use
water for dyeing, as long as we continue to
use water-based technology we will need
to carefully manage our efuent to avoid
detrimental impacts on the environment and
to ensure that the water we discharge can
be used by others where necessary. Since
2011 all of our units have been working to a
stringent, internal set of efuent standards.
We have now, since 2019, replaced these
with the Zero Discharge of Hazardous
Chemicals (ZDHC) standards. We joined
ZDHC in 2016 as we recognised that this
association was gathering momentum
across the textile industry offering, for the
rst time, the goal of creating common
standards that would be applicable across
the whole industry. Our target is to have all
units meeting the ZDHC standards by 2022.
Work on upgrading treatment processes and,
crucially, ensuring that they are run reliably
and consistently has continued during 2021,
and thanks to this 82% of our efuent was
compliant by the end of 2021 (74% in 2020).
This gure combines treated efuent and
sludge compliance as appropriate according
to the ZDHC standards. Our Cleaner and
Lighter programme has been instrumental
in continuing to make progress in this area
and as part of this process we are not only
looking at ensuring adequate treatment of
post dyeing efuent, but also reducing the
amount of chemicals used in the dyeing
process as that reduces the treatment load in
the efuent plant. We will continue to pursue
our goal of 100% compliance during 2022.
4. Social
For this pillar of our Sustainability
strategy please refer to the Working
Responsibly, People section on page 26.
5. Materials
Our target is to transition all of our premium
polyester products to recycled polyester raw
material by 2024. We have continued to make
good progress towards this goal in 2021 with
19% of our premium sales coming from our
EcoVerde range of recycled products, up
from 13% in 2020. The supply of high quality
recycled bres continues to be challenging,
and is the main factor determining the rate of
conversion. Prior to 2021 all of our material
came from Japanese waste collection and
processing sources because of the high
quality of material achieved. We have now
successfully expanded our supply chain to
include materials from China and will be
looking to qualify further sources of supply
in 2022 and beyond. We are also initiating
work on chemically recycled polyester from
textile waste as we consider this to be an
essential component in the recycled and
largely circular supply chain of the future.
Waste reduction is our other target, with
a goal of reducing by 25% in 2022 from
our 2018 baseline. Having completed the
introduction of a new and comprehensive
waste reporting catalogue in 2020 we have
focused in 2021 on the high volume waste
areas, most of which are not related to our
products themselves but are packaging
materials from suppliers and sludge from
efuent treatment plants. Through our
Cleaner and Lighter programme we have
a number of workstreams focused on
reductions in these areas. During 2021 we
have reduced our waste percentage against
our 2018 baseline by 3%, and expect to
see this reduction accelerate in 2022 as
the programmes continue to deliver.
Sustainability management
Sustainability at Coats is led by the Board and
the creation of a new Board Sustainability
Committee from the start of 2022 reinforces
this involvement. Strategy development and
monitoring of action plans at an executive
level is championed by the Group Chief
Executive and the whole Group Executive
Team (GET). Delivery of the strategy is
managed by the Sustainability Delivery
Team (SDT). This is led by three members of
the GET, the Chief Legal & Risk Ofcer and
Group Company Secretary, the Chief Supply
Chain Ofcer and the President, Apparel &
Footwear. The Head of Sustainability manages
the SDT which comprises around 25 other
members from a range of functional areas
working in four sub-teams. Each of these has
a designated area of responsibility for delivery
of SDT workstreams or representation for
stakeholders in the SDT. There are then a
large number of people in the organisation
associated to the SDT via their participation in
projects related to sustainability. We are clear
that delivery of our Sustainability Strategy
requires the participation and support of
the whole organisation. The SDT meets
monthly, and there are a number of sub-team
meetings as per the needs of their workplans.
Underpinning all of our sustainability efforts is
a deep commitment to running our business
in an ethical, responsible and transparent way.
We expect our employees and our suppliers
to behave ethically in all their dealings relating
to our business. All our senior employees
and those with customer or supplier facing
roles receive regular training in ethics and
compliance, including on modern slavery.
Annual Report and Accounts 2021
Strategic report
35
These training programmes, available in 12
languages, form part of the induction for
new starters and are done biennially for all
relevant employees. This regular training was
last done in 2020, and was delivered to over
4,200 employees during that year and will
be repeated during 2022. We support the
United Nations Guiding Principles on Business
and Human Rights in all our operations.
Underpinned by our global policies, we
uphold the requirements of the United
Nations Declaration of Human Rights and
the Convention on the Rights of the Child,
the core International Labour Organisation
Conventions and The Organisation for
Economic Co-operation and Development
Guidelines for Multinational Enterprises.
We uphold the aims of the California
Transparency in Supply Chains Act of 2010
and the UK Modern Slavery Act 2015 and
publish on our website a statement on
our actions to prevent modern slavery in
our operations and in our supply chain.
Reporting
Our goal is to make our sustainability
reporting as clear and transparent as possible,
and we fully support the aims of the Taskforce
on Climate-related Financial Disclosures
(TCFD) and are progressively including their
recommendations into our reporting and
our 2021 disclosures are included on page
38. We want to make it as easy as possible
for all of our stakeholders to understand the
sustainability prole of our business. Each year
we are broadening the scope of our reporting
and making it easier for interested parties
to nd the information that they need. A
full data pack that contains all our published
sustainability data is available to download
on the sustainability section of our website.
We have used the Global Reporting Initiative
(GRI) reporting guidelines since 2011 and
this year again we report against the latest
version, the GRI Standard. A full mapping
of our report against the GRI Standard is
available on our website, and we have also
developed and made available again this
year a mapping of our data against common
Environmental, Social and Governance
(ESG) criteria. We will be following closely,
during 2022, the development of the
newly formed International Sustainability
Standards Board (ISSB) in order to be
able to adopt the recommendations as
appropriate at the earliest opportunity.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
36
Policy Description
People principles
Health and Safety Policy This policy outlines our commitment and actions for the prevention of injury and ill health,
andensuring health and safety excellence across our business.
Ethics Code The purpose of the Ethics Code is to ensure that employees across Coats have a clear
understanding of the principles and ethical values that the Company wants to uphold.
Itapplies to all employees in all Coats Group companies globally.
Speak Up Whistleblowing Policy The policy outlines the reasons for maintaining high standards of ethical and legal business
conduct and describes the procedures for reporting acts which are thought to contravene
these standards. Also outlined are the actions to be taken by the Company.
Employment Standards As a global employer, Coats strives to follow ethical employment standards and believes the
human rights of its employees are an absolute and universal requirement. Coats subscribes
tothe United Nations Universal Declaration of Human Rights and the Convention of the
Rightsof the Child.
Equal Opportunities Statement The Company supports equal opportunities in employment and considers it to be an integral
part of our employee relations policy.
Modern Slavery statement
(includinga statement on
transparency in supply chains)
This statement has been prepared for the year ending 31 December 2020 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.
Living Wage Policy The Committee also reviewed and approved the adoption of a policy to establish a minimum
Living Wage, as an enhancement to any local legally mandated requirements, across all of our
locations and based on sourcing data from independent organisations.
Non-Financial Information Statement
Working responsibly continued
Annual Report and Accounts 2021
Strategic report
37
Policy Description
Governance
Anti-bribery and Anti-corruption
Policy
This policy outlines the control of actual and suspected corruption and bribery within Coats,
and the processes to be followed in the event of actual or suspected instances of corruption
orbribery being discovered.
Gifts and Entertainment Policy This policy sets forth the rules related to employees accepting and offering gifts,
entertainment, hospitality and meals from and to current customers, suppliers, joint venture
partners, brand representatives and others conducting (or proposing to conduct) business,
directly or indirectly, with Coats.
Competition Law Policy This policy supports Coats’ commitment to observing and complying with all applicable
competition laws, rules and regulations wherever it operates around the world while acting
with the highest ethical standards, in an open and honest way.
Suppliers
Supplier Code The Supplier Code outlines our expectations required of suppliers and covers labour practices,
environmental management, responsible sourcing of materials and products, and business
conduct.
Restricted Substances List 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.
Conict Minerals Policy 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 specically to our approach to avoiding ‘Conict Minerals’ entering our supply
chain and supplements our wider supply chain management standards.
Environment
Environmental Policy We take our responsibility to the environment very seriously and this policy lays out our
approach. Coats senior management has dened objectives and targets to ensure that we
deliver on this policy and additional details on progress can be found in our Sustainability
Report.
Animal Welfare Policy Materials sourced from animals are present in a tiny proportion of our products (less than
0.01% of sales). Nevertheless, the policy covers all the materials and products we buy, and
special attention is given to Angora and Merino wool, as they can raise specic ethical
concerns.
Climate Change Policy We are committed to doing what we can to limit the impact of climate change and will
always follow the scientic consensus on future impacts in assessing how to address this
challenge.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
38
Taskforce on Climate-related Financial Disclosures (TCFD) report
Coats Group plc has complied with the requirements of LR 9.8.6R by including climate-related nancial disclosures consistent with the TCFD
recommendations and recommended disclosures. We started working on TCFD disclosures in 2019 and during 2020 we developed Board and
management governance structures and completed our rst iteration of scenario risk analysis by developing three 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. The three scenarios we built are shown below.
Global Temperature increase over pre-industrial levels
CO
2
e emissions level SSP used Scenario name 2030 2045 2070 2100
Low SSP1 Sustainability ‘Taking the Green Road’ 1.47°C 1.56°C 1.49°C 1.35°C
Medium SSP3 Regional Rivalry ‘A Rocky Road’ 1.52°C 2.03°C 2.91°C 4.07°C
High SSP5 Fossil Fueled Development ‘Taking the High Road' 1.60°C 2.25°C 3.50°C 5.05°C
For each of these scenarios we modelled the physical impacts on our operations and supply chain and looked at the risks and opportunities
thatmight occur, focusing on 2030, 2045 and 2070 horizons. During 2021 we have taken the risks and opportunities identied in that rst
iteration and explored the likely nancial implications. Further work on this will continue during 2022 and beyond, as we enhance our analyses.
The rst full set of TCFD recommended disclosures is shown below.
Our climate disclosures
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 prole 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.
Group Executive Team
Responsible for operational delivery of Group’s sustainability strategy,
including day-to-day management of operations and responsibility for
monitoring detailed performance of all related aspects of Group’s
business. Necessarily, this includes many elements of practical
climate-related risk management.
Group Risk Management Committee
Responsible for formulating risk management
strategies and monitoring and rening risk
management activities, metrics and proles for
climate-related risks across Group.
Audit and Risk Committee
Monitors and reviews effectiveness of climate-
related risk management systems and internal
controls, as well as approving reporting
statements on those internal controls and
climate-related risk management.
Key
Report for
evaluation
Direct and
monitor
Coats governance structure for climate-related risks and opportunities
Annual Report and Accounts 2021
Strategic report
39
Governance
a) Describe the board’s oversight of
climate-related risks and opportunities.
The Board of Directors is ultimately accountable for climate related risks and opportunities. The
Board receives regular updates from the Group Executive Team (GET) and from relevant Board
sub-committees. 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 newly
established Sustainability Committee primarily oversees sustainability strategy and governance
including on climate-related issues, and in this role it receives updates on KPI performance from
the GET including on mitigating actions related to climate change. The Audit and Risk
Committee monitors and reviews the effectiveness of climate-related risk management systems
and relevant internal controls, as well as approving reporting statements, such as TCFD
disclosures, on those internal controls and climate-related risk management.
b) Describe management’s role in
assessing and managing climate-related
risks and opportunities.
The Group Executive Team (GET), led by the Group Chief Executive, is responsible for
operational delivery of the Company's sustainability strategy, including day-to-day management
of operations and responsibility for monitoring detailed performance of all related aspects of
Group’s business. Necessarily, this includes many elements of practical climate-related risk
management. Progress on agreed actions are reported directly to the Board, the Sustainability
Committee and the executive Group Risk Management Committee (GRMC) as appropriate.
Management of the specic climate related risk management processes lies with the GRMC,
which is responsible for formulating risk management strategies and monitoring and rening
risk management activities, metrics and proles for climate-related risks across Group. The Head
of Sustainability is responsible for the delivery of climate-related risk assessment work which is
reported into the GET and the GRMC where it is evaluated and decisions on proposed strategy
changes and action plans are discussed prior to Board endorsement. Heconvenes a cross
functional team to assess the risks and opportunities. The cross functional team includes
representation fromsupply chain, commercial and nancial functions. Monitoring of progress
on agreed actions is reported to theGET on a bimonthly basis.
Risk Management
a) Describe the organisation’s processes
for identifying and assessing climate-
related risks.
As noted above, the company has established a scenario-based approach to assessing climate-
related risks. Three scenarios have been developed using IPCC Shared Socioeconomic Pathway
(SSP) data, supplemented by WRI Aqueduct data and climate predictions that are site specic to
company locations. A cross functional team works through the scenarios and timelines,
envisaging the future described in the scenario and explores all the potential impacts that it
could have on the business. These are then distilled down into identied risks and the team sets
about building a narrative of how each risk could manifest under each scenario and timeline,
both at a wider business model level and at a site specic level. Assessment of the nancial
impact of the risks is done to identify those that could have a material impact onthe business.
The company uses an external regulatory register, Enhesa, to identify current and potential
climate-related regulatory issues and these are taken into account in the risk assessment.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
40
Our climate disclosures continued
b) Describe the organisation’s processes
for managing climate-related risks.
The nature of climate risks and opportunities is that they are long term and themselves change
relatively gradually, unless there is a substantive change in the scientic consensus such as
through a new IPCC report that requires urgent reconsideration of the impacts on our
scenarios. There are short terms mitigating actions that are identied for immediate action,
and these address both risks that have a nancial 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 but they also form part of our company
strategy and are built into operational plans for the year and are managed through the GET on
an ongoing basis. The Board Sustainability Committee provides oversight on a quarterly basis.
An example of this in practice is the action plan agreed to commit to Science Based Targets
which was, in part, a mitigating action to manage transitional customer expectation risks. The
GET and the GRMC have both reviewed progress towards submission on a regular basis up to
the targets being approved in early 2022.
c) Describe how processes for
identifying, assessing and managing
climate-related risks are integrated into
the organisation’s overall risk
management.
Climate change has been identied as a Principal Risk within the company’s risk management
system. This means that it is a permanent item for review and assessment at regular, quarterly
GRMC meetings and that the Board reviews it as a risk on at least an annual basis. Through
thismechanism climate related risks are fully integrated into the company’s risk management
system. In addition to this the Board reviews key sustainability KPIs on a monthly basis including
KPIs relating to climate issues, where appropriate.
Metrics and Targets
a) Disclose the metrics used by the
organisation to assess climate-related
risks and opportunities in line with its
strategy and risk management
processes.
The company measures Scopes 1, 2 and 3 emissions. To manage the principal emissions
reduction opportunities within these it measures the electricity source mix and the amount
ofcertied renewable electricity within that. It also measures energy and water intensity metrics
as these are both contributory to emissions reductions. It measures the sales growth of recycled
materials and the percentage they represent of all sales, and the sales growth in light-weighting
products.
b) Disclose Scope 1, Scope 2, and, if
appropriate, Scope 3 greenhouse gas
(GHG) emissions, and the related risks.
Scopes 1, 2 and 3 emissions are disclosed separately in this report and, in more detail, in our
Sustainability Report (Link). The principal risks related to these emissions are the ones that could
endanger delivering on the company’s targets for reduction in line with the 1.5°C Pathway and
Net-Zero by 2050. The most material of these risks are inadequate opportunities to transition to
renewable electricity and lack of reliable supply of recycled raw materials, and the company has
robust programmes to manage these risks.
c) Describe the targets used by the
organisation to manage climate-related
risks and opportunities and
performance against targets.
The company has developed proposed Science Based Targets which have been validated and
approved by Science Based Targets initiative. These commit to emissions reductions of Scopes 1,
2 and 3 emissions in line with the 1.5°C Pathway, and are crucial in managing the risk of not
meeting customer expectations. The wording of these targets is as follows: Coats Group plc
commits to reduce absolute scope 1 and 2 GHG emissions 46.2% by 2030 from a 2019 base
year. Coats Group plc also commits to increase annual sourcing of renewable electricity from
5% in 2019 to 100% by 2030. Coats Group plc further commits to reducing absolute scope 3
emissions 33% within the same timeframe.
The main lever for Scope 3 emissions reductions is the transition to recycled materials and the
company has announced a target to be using no new oil-based materials by 2030. The rst
milestone on this is the long-established goal to transition all premium polyester to recycled
rawmaterials by 2024.
Annual Report and Accounts 2021
Strategic report
41
Strategy
a) Describe the climate-related risks
andopportunities the organisation
hasidentied over the short, medium
and long term.
In general terms the transitional risks relate to our low carbon scenario and have a greater short
term potential impact while the physical risks are signicantly greater in the high carbon
scenarios and increase in their potential impact over time. In determining the materiality of risks
and opportunities we have taken into account the absolute magnitude of the nancial impact,
the level of future certainty and the horizon in which the impact manifests and the relationship
of the impact to the life of any impacted asset.
Transitional Risks
Risk Short term (<10 years) Medium term (~25 years) Long term (~50 years)
Failure to meet
customer
expectations
interms of
transitioning
toalow carbon
model and
thereby losing
sales.
At the time of completing our initial scenario analysis work in 2020 this
was classied as a substantial risk, but since then the actions taken by
thecompany have effectively mitigated this risk. It will continue to be
monitored as a risk in the future as failure to deliver on our emissions
reduction targets and to develop and launch new low carbon products
and processes would immediately raise the prole of this risk.
The potential for this risk
will continue over this
horizon as brands continue
to work, with their supply
chains towards a net-zero
target by 2050, but as in
the supply chain, the risk
for Coats is failing to
delivery on the strategy we
have put in place and
therefore this is not seen,
today, as a signicant risk.
No identied risk.
Introduction
ofcarbon taxes
leading to
increased
energyprices.
Our low carbon scenario includes the assumption that carbon taxes will
necessarily be one of the levers used to achieve rapid de-carbonisation
ofenergy and industrial products and processes. This is unlikely to be an
issue under the higher carbon scenarios.
We anticipate the carbon
taxes will continue to be an
important lever on the road
to net-zero, but the
likelihood of them having
to increase is probably low
as the scale advantages in
low carbon energy should,
by this time, be well
established. Therefore our
scenario models a high
initial (short term) tax and a
drop in tax in subsequent
horizons.
No identied risk.
Inability to
sourcesufcient
renewable energy
to meet emissions
reduction targets.
Energy market regulatory challenges still exist in many of the countries
inwhich we operate, and these can make the transition to renewable
electricity difcult or impossible at the moment. We have also seen cases
of governments stepping back from delivering on the regulatory changes
that they have committed to, so there are uncertainties around our ability
to fully transition. We assess this risk as the alternative cost of buying
Energy Attribute Certicates (EACs) to cover our requirements where
wecannot gain access to certied 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
inthis horizon as more
countries establish
functioning renewable
energy markets.
No identied risk.
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Strategic report Corporate governance Financial statements Other information
42
Transitional Risks continued
Risk Short term (<10 years) Medium term (~25 years) Long term (~50 years)
Inability to obtain
sufcient recycled
raw material
toenable full
transition of
product range
tolower carbon
footprint
products.
When we completed our initial scenario analysis work in 2020 the
supplyof high tenacity recycled polyester bre 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 bre this is a risk in terms of achieving our emissions
reduction targets. This supply constraint has eased as we have managed
to expand the number of approved suppliers considerably in the last
18months and currently there is no supply constraint on our growth
ofrecycled produce sales and the growth is dependent on customer
dynamics. With the aid of external consultants, we have also established
that the number of projects underway to increase the supply of recycled
polyester for the textile industry in general will mean that supply will
consistently exceed demand beyond 2025 and that therefore for the
horizon we are looking at here this is not a material risk.
No identied risk. No identied risk.
Physical Risks
Risk Short term (<10 years) Medium term (~25 years) Long term (~50 years)
Increase in ood
damage risk, in a
few Asian units.
We have made extensive use of the World
Resources Institute Aqueduct tools to model
water related issues under our different scenarios
in all of our operations. We have established the
current baseline for ood risk in all of our units,
both for riverine and coastal ooding, and
assessed how that changes in different scenarios
and timelines. While in some locations the riverine
ood risk diminishes, there are others where, by
2030, we can start to see an increase in risk that,
under the higher carbon scenarios, accelerates
thereafter. Coastal ood risk either remains static
(for those units not exposed to it) or increases, but
not substantially in this horizon.
Under the higher carbon scenarios
wesee an increase in both riverine
andcoastal ood risks in this horizon.
In our low carbon scenario the risks
remain relatively at. Most of these
increased ood risks occur in Asian
units, with Indian and Bangladesh
units being most exposed to riverine
ooding, with Chittagong, Bangladesh
being the only major plant with a
relatively high exposure. Shenzhen,
China, is the unit most exposed to
increased coastal ooding risk while
some other units in Bangladesh and
Vietnam also appear to be at growing
risk in this horizon, and we will
bedoing more granular work on
understanding the nature of these
risks during 2022.
Riverine and coastal ood
risks will continue to increase
in the high carbon scenarios.
Chittagong, Bangladesh
continues to be at the highest
risk for a major plant, with
risks also growing in Dakar,
Bangladesh and Hanoi,
Vietnam as well as for a
number of smaller units
inIndia. Shenzhen, China
continues to be the unit at
most risk of coastal ooding,
while the increasing risks in
Bangladesh and Vietnam will
be explored further as for the
medium term horizon.
Our climate disclosures continued
Annual Report and Accounts 2021
Strategic report
43
Physical Risks continued
Risk Short term (<10 years) Medium term (~25 years) Long term (~50 years)
Disruption of
water supply in
some units.
We have been using the Aqueduct tool for some
years to assess water stress at all of our locations
and have used this to identify locations where
thehigh level of water stress might lead to future
disruption of water supply. There are no
signicant short term risks identied.
Our high carbon scenarios would see
the risks of water stress increasing and
extending to additional units during
this time horizon. The highest risks for
major plants are in our Pakistan plants.
Turkey, Egypt, Brazil and Sevier USA
are also major plants with increasing
risks. Increased water recycling would
be required across these and some
other smaller units to ensure continued
access to water.
High carbon scenarios see
continued growth of water
stress in the same locations as
before with the same need to
increase water recycling levels
to prevent shortages.
Possible need for
plant relocation
in a small number
of locations most
impacted by high
heat.
No identied risk. Under our different scenarios we have
modelled the number of extreme heat
days that are likely to occur in our
different locations. We see the
potential for high heat days (days over
35°C ) to be happening sufciently
frequently in a small number of units
inThailand, India and Pakistan for this
to be an area of growing concern,
though probably not to the extent
thatwould require plant relocation.
In the high carbon scenarios
the number of extreme heat
days continues to climb with
Thailand, India, Pakistan and
Vietnam all being areas of
concern. It is possible that
during this horizon we reach
the point at which some
planned realignment of plant
capacities and withdrawal
from extreme heat locations
begins to become advisable.
We anticipate that this would
happen in conjunction with
realignments by our
customers.
Opportunities
Opportunity Short term (<10 years) Medium term (~25 years) Long term (~50 years)
Growth in
light-weighting
products aimed
at transport
markets.
Several years ago we identied an opportunity to build a new business
segment in producing lightweight components for the transport industry,
especially in automotive. The need to reduce emissions from transport
andto extend the range of electric vehicles means that the demand for
light-weight components will continue to grow as it spreads progressively
from luxury to utilitarian models.
Light-weighting
opportunities will continue
to spread across the
transport sector, but
probably at a reduced rate
of growth.
It is difcult to
anticipate this
opportunity
onsuch a time
horizon.
Increased market
share with
apparel and
footwear brands.
While loss in market share with brands was identied as a potential
climate-related risk, building market share on the back of meeting their
expectations for supply chain partners that will help them to cut their
Scope 3 emissions is a clear opportunity and one that some leading
brands have already made explicit to their partners.
Consolidation of brand
supply chains around
suppliers that deliver on
climate change
commitments will continue,
but at a reduced rate.
It is difcult to
anticipate this
opportunity
onsuch a time
horizon.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
44
b) Describe the impact of climate-
related risks and opportunities on the
organisation’s businesses, strategy and
nancial planning.
The company has assessed the risks and opportunities above and has attempted to quantify
thescale of these in nancial terms under the different scenarios and time frames and,
usingthis methodology, has created a range of nancial impacts per issue before applying
anymitigation actions. The company has then looked at mitigating actions and the impact
thattheycan have on the potential risks, and has thus created a post-mitigation range of
nancial impacts per issue. At the moment the assessment of mitigation actions has focussed
on transitional risks as these are the shorter term risks. Physical risk mitigation from extreme
weather has to be addressed at site level as that is where the physical risks are manifested
andthis will require more detailed analysis of possible mitigating options – for the moment,
therefore, we have assumed that there is no mitigation possible for those physical risks,
whichisa worst case scenario. The one exception to this is the risk of water shortages due
toincreased water stress and this is detailed below.
The transitional mitigation actions proposed have also been analysed in terms of the potential
costs. Most of them do not incur any additional cost to the business (for example developing
Science Based Targets), and where there is some additional cost then that is immaterial. Most
ofthe mitigating actions are already agreed within the company strategy and are currently in
various stages of implementation.
The principal opportunities have also been assessed and quantied in the same way as the risks,
with a range of possible outcomes according to the scenarios and timeframes. Actions are
already underway to ensure that the business is able to make best use of these opportunities
and the activities related to these are described elsewhere in the strategic report.
As noted above the risk of loss of sales from failing to meet customer expectations has
currentlybeen fully mitigated under the company’s climate strategy and so is not seen as a
material nancial risk at this moment. This risk will be reassessed continuously as any failure to
deliver on the company climate strategy will raise the possibility of this risk becoming material.
The most signicant nancial risk is of carbon taxes. Under our low carbon scenario, SSP1,
these could be introduced in the next few years and increase rapidly through to 2030 after
which they would stabilise. Our high carbon scenarios, SSPs 3 and 5, don’t envisage there
being any carbon taxes. Under SSP 1 we expect that the range of carbon taxes could be
between $80 and $160 per tonne of
CO
2
e
, and we anticipate that this would apply to our
Scopes 1 and 2 emissions. Clearly this will only happen if there is the sort of global political
consensus on tackling climate change required to convert aspirations into actions, which has
not so far been the case. Without remediation, and hence based on current emissions levels
persisting, the potential for carbon taxes under scenario SSP1 would see an additional annual
cost of between $24m and $48m by 2030. Post-mitigation, where mitigation is taken as
delivery of our Science Based Targets for emissions reduction, this annual cost increase would
range from $13m to $26m. 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.
Not being able to transition to renewable electricity as quickly as necessary means that there
isa risk of having to purchase EACs to meet emissions reduction targets. We have evaluated
this cost based on a weighted basket of current EAC prices across some of our units and we
consider that this nancial risk is currently immaterial across all time horizons . We recognise
that prices for EACs, which currently have a wide range (from around $0.25/MWh to $13/
MWh), might increase or decrease in the coming years and we will need to continue reviewing
this risk in case an increasing price trend makes this risk material. We consider anyway that
thisrisk to be largely remediated by our current plans for transitioning to renewable electricity,
though in some signicant countries (eg China) the regulatory framework to allow this is not
yet in place, so there are some unknowns in terms of the speed of transition.
Our climate disclosures continued
Annual Report and Accounts 2021
Strategic report
45
Analysis of the risks from extreme heat and riverine oods has shown that these are immaterial
risks through 2030 and 2045. Further work is needed to conrm the level of risk in 2070 but
on current assessments this is also immaterial.
In the case of coastal ooding risk this is focussed in a small number of units and even
underthe worst case, high carbon, scenario it has been assessed as immaterial across all time
horizons. As noted above additional work will be done in 2022 to better assess at a more
granular level the risks across some of the units that have been identied as being at risk in
2045 and 2070.
The risk of water shortages in terms of plant stoppages is very difcult to quantify, so the
approach taken here is to assess the potential capital and operational costs of the efuent
treatment plant upgrades that would be necessary to recycle enough water to mitigate this
risk. We have assessed this across all units and the potential capital implication is consistent
with the rate of investment that we have been making in efuent treatment plants for a many
years now and so is seen as an immaterial additional cost. The additional operational costs are
also immaterial.
In terms of the opportunities, the potential additional operating prot in 2030 ranges from
around $45m to $70m. This comes from increased market share with apparel and footwear
brands and growth in sales of our light-weighting products, mainly into the transport market.
To achieve this growth we anticipate a capex cost of between $6m and $9m in 2030 (in the
light-weighting opportunity the assumption is that the company will use manufacturing
partners). Looking beyond 2030 at this stage is difcult, but continued growth in these
segments will continue to be an opportunity.
c) Describe the resilience of the
organisation’s strategy, taking into
consideration different climate-related
scenarios, including a 2°C or lower
scenario.
The short term risks are principally transitional risks related to the company’s low carbon (SSP1)
scenario. The strategy that the company has in place to implement Science Based Targets for
emissions reduction, to transition to renewable electricity and to convert to recycled materials
is a robust response to these risks. Regulatory access to renewable electricity in some countries
and ongoing growth in supply of recycled material are both key uncertainties, but the company
has in place very active programmes in both of these areas to mitigate these risks The company
is also actively developing the main new business opportunity in the short term. The medium
to long term risks are mainly physical risks more closely associated with higher carbon scenarios
(SSPs 3 and 5). The nature of these risks is that they are location specic. Our robust business
continuity plans which are regularly updated and rened will assist in ensuring that we have
robust contingency plans in place. Nevertheless, the company has not yet developed climate-
related unit-specic mitigation plans and these will be addressed in the near future as part of
the ongoing management of these risks. Currently our overall assessment indicates that the
opportunities are of the same broad order of magnitude as the risks and are linked to the
samescenarios so are well balanced.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
46
Principal risks and uncertainties
Overview
Risk is inherent in all business activities,
and as a global industrial manufacturer, we
maintain a comprehensive risk management
framework that serves to identify, assess
and respond to such risks. Our approach is
focussed on the timely identication of risks
and related opportunities, combined with
their appropriate mitigation and escalation.
We have embedded throughout the Group
the structural means to identify, prioritise
and manage the risks involved in all of our
activities, including through consideration
of those risks on a combined basis as was
clearly the case when considering and
managing the various ongoing potential
impacts of Covid. This enables us to run our
business effectively and deliver our strategy
in the knowledge that the likelihood and/
or impact associated with such risks is
understood and managed within our risk
tolerance and the opportunities associated
with those risks are appropriately leveraged.
Governance structure
The Group is constantly alert to new and
emerging risks. We operate a formal
governance structure to manage risk across
the Group and assign clear accountability
for managing our risks. Overall responsibility
for reviewing the Group’s risk prole and
setting risk tolerance, as well as assessing
the Group’s principal risks, rests with the
Board. However, the management of
risk using our common risk management
framework is embedded throughout our
global manufacturing, distribution, sales and
other business operations, as well as our
enabling functions, with all our employees
having an important role to play. The current
unpredictable environment presents us
with heightened levels of risk whilst the
pandemic persists, and with added pressure
from ination and as global supply chains
are squeezed. In order to address those risks
as swiftly and efciently as possible, the
membership of the Group Risk Management
Committee has been extended to include
senior operational executives from each of the
geographic regions across the Group, which
will further enhance the joining up of the
top-down and bottom-up approach set out
in the chart below. Additional relevant subject
matter experts are invited to contribute
to discussions on specic issues such as
climate change, cyber security, efuent
treatment, specic people-related issues etc.
The Board*
Identies which risks are most important for the Group, effectiveness of risk management and reviews the Group’s
risk prole
Sets risk tolerance in the aggregate and, in particular, for each of the principal risks
Monitors risk experience
Group Executive Team (GET)
Responsible for operational delivery of the
Group’s 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
Group Risk Management Committee (GRMC)
Responsible for formulating risk management
strategies and policies and monitoring risk
management throughout the Group
Business Units/Enabling Functions/Senior
Management/Risk Champions
Responsible for identifying, managing and
mitigating appropriate sets of risks
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
Audit and Risk Committee (ARC)
Supports Board in monitoring the effectiveness of
the 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
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 more about this on pages 21-22 in the
S172Statement.
Top-down
Dene risk
tolerance,
monitor
exposure,
oversight of
risk
management
Identify,
monitor,
report
Bottom-up
Effective risk management is essential to smartly
andprudentlyachieveour strategic goals
Annual Report and Accounts 2021
Strategic report
47
Culture Risk tolerance structure
Our well established and embedded risk tolerance structure is determined using four categories
which are listed below:
Identication and management of risk
The Board is keenly aware that the
effectiveness of our risk management is
dependent not only on systems and processes,
but also on behaviours. At Coats, there is a
culture of openness and transparency in how
we make decisions and manage risk. During
2021, we continued to review and reinforce
our Ethics Code and supporting policies,
training, communications and compliance
activities – this also included further training
and auditing in relation to our comprehensive
Supplier Code. Our focus on reinforcing
ethical business behaviour and compliance has
been enhanced through an ongoing Coats
Ethical Culture programme – ‘Doing the Right
Thing’ – at both Group and local levels.
Ethics and integrity, along with health and
safety, are at the core of our organisation’s
DNA, and we continue to reinforce our ethical
culture in order to mitigate against potential
scenarios which could put the organisation at
risk. Employees are proactively encouraged,
through training, discussions, recognition
and other means, to act with integrity and
to question any unethical behaviour.
During 2021, the Company also procured
an externally hosted whistleblowing
hotline to complement the robust existing
arrangements that were already in place.
Ethics training has continued throughout
2021 and we have continued to broaden that
training, making it ever more inclusive. As we
became accustomed to a remote working
environment, we took ever-increasing
advantage of the technology we have and
continued to leverage the opportunities of
remote working. We increased the number
of training sessions, and since there was no
necessity to travel, we continued to extend
training to more people across the business.
We pursued our programme of ‘Doing the
Right Thing’ with the use of different forms of
technology. We used tools such as Coats Link
(the Group’s new employee mobile app) and
Microsoft Teams to maximise the effectiveness
of our communications with our workforce
which drove greater understanding,
engagement and transparency amongst
employees across the Group. See page
78 for further information on the Board’s
role in monitoring culture and ensuring
alignment with strategy, values and purpose.
Understanding the risks that our business is
exposed to, and deploying strategies that
ensure residual exposures remain within
acceptable parameters, is key to managing our
business well. Our risk framework is based
around four categories of principal risks
(strategic, external, operational and legacy), as
well as key and emerging risks which are used
to build the Group Risk Register, which is
managed by our GRMC. The Board Directors
oversee the management and mitigation of the
principal risks, while senior executive
management oversee the management and
mitigation of the key risks.
Principal risks are overseen by Board Directors
and key risks are overseen principally by senior
executive management. Minutes from this
Committee are reviewed by the Audit and Risk
Committee (ARC). We also ensure that, beyond
specic risk deep dives, risks are appropriately
considered in the decisions that are made at
Boardroom level – see S172 on pages 24-25.
During 2021, the ARC and the Board received a
number of presentations from senior executives
on a number of risks including the principal risks,
and gave input on the steps planned to mitigate
these risks. The risks are considered not only in
isolation but also the correlation between risks
and the likelihood of one risk occurring at the
same time as another or even triggering it, and
the potential combined impact of that and any
further mitigating actions that can be taken. In
2021, the Board and the ARC also reviewed the
effectiveness of the Company’s risk
management and internal controls. Asignicant
number of recurring reviews of the Group’s key
internal controls and mitigating actions, including
their linkage to managing the Group’s principal
risks appropriately, took place. Examples include:
standing and regular updates from the CEO/
Group Executive Team to the Board on Health &
Safety, Sustainability, People, Performance, M&A
and legal and environmental matters. The Board
also received updates on regional and unit-level
risk governance, management and mitigation as
part of the regional deep-dive presentations
from India, Bangladesh, Vietnam, China, EMEA,
North and Central America, and South America.
The identied principal and key risks for the
Group form a key part of the work performed
in the above reviews to ensure that the most
pertinent risks are being regularly monitored on
a day-to-day basis, with ndings on this
reported to the ARC and Board for review,
input and direction. Based on the principal and
key risks of the organisation, our Group Internal
Audit (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.
Every quarter, GIA reviews the Group Risk
Register and local Risk Registers from the
cluster management committees. This review
includes an assessment of the risk management
practices of the business units/regions in areas
such as the frequency and adequacy of the
regional risk management committee meetings,
minutes of the meetings and following through
Very risk averse Where we are very cautious and seek to minimise the nancial and
reputational risk as far as possible. Mitigation costs are accepted albeit that
they might exceed the potential loss
Risk averse Where we are cautious and seek to reduce the nancial and reputational risk.
Mitigation actions are proportional and based on cost effectiveness
Somewhat risk
tolerant
Where we are willing to take some nancial and reputational risk to achieve
our objectives. Mitigation actions are again proportional and based on cost
effectiveness
High degree of
risk tolerance
Where we are willing to take signicant nancial risk to achieve our objectives.
Mitigation involves an active management of risk-return trade-offs
Coats Group plc
Strategic report Corporate governance Financial statements Other information
48
on actions contained in the local risk register. Periodically, a horizontal scanning of risks is also conducted and is discussed as a standing item in the
GRMC. GIA also reviews how risks are identied and mitigated across various clusters in the organisation and provides suggestions for improvement as
required. This provides an assurance that risk management activities are carried out regularly and consistently throughout the Group and that the risks
are reviewed and kept up to date by the respective stakeholders. These updates/key highlights are then presented and discussed in the GRMC meetings.
Taking the insights from these GIA and business unit/cluster risk management activities and focussing on the risks that may impact the strategic
objectives of Coats, the Board has dened 11 principal risks, as well as a number of additional key and emerging risks within that Group Risk Register.
These risks, and the steps we have taken to mitigate these risks, are detailed on the following pages. Throughout the year, the Board has kept each of
the principal risks under review with support from the GET and the GRMC. The Board also undertook a comprehensive assessment of the principal risks
facing the Group, along with the current levels of risk tolerance for each of those risks. Due to the ever-changing global risk environment, the following
risks have been updated since the last report:
CHANGE OF RISK DESCRIPTION
1. Mergers and Acquisitions (M&A) scale ambition risk has been re-named M&A programme ambition risk, in light of the Group’s
increasing ambition in the scale of its acquisition programme and its ability to source, satisfactorily acquire and integrate suitable targets.
2. Talent and capability risk has been changed to: Risk of failure to attract, retain and develop talent and capability, given business
changes, growth in new areas and labour availability challenges.
3. Economic and geopolitical risk arising from political, economic and demand uncertainty – across both key Asian and developed markets
– including risk to free trade conventions has been changed to: Economic and geopolitical risk arising from political, economic and demand
uncertainty – across both key Asian and developed markets – including risk to free trade conventions as well as global inationary pressures.
4. Environmental non-performance risk given changing standards and increasing scrutiny resulting in disruption of existing business, nes
and/ or reputational damage has been changed to: 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,
nancial and reputational risks as well as opportunities.
PROMOTED Risk of supplier non-performance and/or unavailability and/or price increases of raw materials,
labour and freight is promoted to being a principal risk with an emphasis on the freight/logistical
challenges element given, in particular, the widespread freight and logistical challenges. Consequently the
risk trend for this risk has also increased from stable to increasing.
DEMOTED Pensions risk has been demoted from a principal risk to a key risk, given that the latest valuation has been
completed and signed off with no amendment in decit recovery payments and with additional robust
hedging strategies in place. See page 58 for more information.
FROM STABLE TO INCREASING Risk of failure to attract, retain and develop talent and capability trend has increased from stable to
increasing, in light of the heightened labour availability challenges in various parts of the world.
FROM INCREASING TO STABLE Mergers and Acquisitions (M&A) programme ambition risk trend has decreased from increasing to stable,
in light of the robust process being followed under the regular oversight of the Board.
FROM INCREASING TO STABLE Risk of ever-increasing customer expectations and the Group’s continuing ability to meet and
exceed those expectations as part of its strategic growth ambitions has decreased from increasing to
stable, due to the very close ongoing attention and actions taken by the management team under the
regular oversight of the Board.
FROM INCREASING TO STABLE The risk trend for Health & Safety has decreased from increasing to stable, in light of the actions taken by
the Executive team and the pattern of the various metrics presented to the Board regularly throughout 2021.
Link to strategy
1. Protable sales growth 2. Continuing to strengthen the core 3. Value creation
Risk trend
Increase Stable Decrease
Principal risks and uncertainties continued
Annual Report and Accounts 2021
Strategic report
49
Our principal risks, along with a summary of the measures we have put in place to manage and mitigate them, are set out in the table below. As
stated above, the Board will continue to keep 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 the Group’s
increasing ambition in the scale of
its acquisition programme and its
ability to source, satisfactorily
acquire and integrate suitable
targets.
Risk trend
Link to strategy
Originating and executing M&A opportunities is a key focus for the Group. A key component of our
strategy is value creation and very carefully considered and disciplined use of capital to fund inorganic
opportunities to build scale and acquire new capabilities, technology and talent. The Board has approved a
set of criteria to source and evaluate acquisition opportunities, aligned to Group divisional strategy. These
criteria include both nancial parameters, such as revenue growth and EBITDA margins, and non-nancial
parameters, such as innovation and sustainability credentials. All M&A projects are overseen and closely
monitored by the Board and by senior executive management. Clear M&A processes have been developed
and include identication and evaluation of opportunities, specied roles and responsibilities for all aspects
of M&A projects, along with focussed project management resources during both execution and
integration phases.
Specic M&A risks and mitigations include failing to achieve required nancial returns by either overpaying
for a target or under-delivering on the business case. This risk is managed by deep sector knowledge
brought by executive management, an experienced M&A team which leverages specialist external advice on
valuations, and focussed diligence to satisfy the Board that the commercial fundamentals are robust.
The risk of failing to fully integrate the target company into the Group is managed by a dedicated
integration management ofce (IMO), involved from the diligence phase onwards and leveraging internal
and external diligence resources, to facilitate successful integration of the target company. A key focus of
the IMO is enabling delivery of the business case, whilst managing people and culture change to ensure
sustained success.
The risk of failing to capture synergies is managed by ensuring that synergy cases are robust and achievable,
and are reviewed by internal and external experts. The IMO plays a key role in ensuring the integration
allows for effective synergy delivery in line with the business case. In addition to a well-resourced
acquisitions team, we leverage wider internal resources and external advisers in specialist areas such as
valuation, nancing, due diligence and integration. Post-completion/integration reviews are also conducted
to ensure that learnings are identied and built into subsequent projects as part of a continuous
improvement process. Signicant work has been completed in 2021 and we have a robust pipeline of
opportunities.
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Strategic report Corporate governance Financial statements Other information
50
Principal risk Action/mitigation
Risk of ever-increasing
customer expectations
and the Group’s continuing
abilityto meet and exceed
thoseexpectations as part of
itsstrategic growth ambitions.
Risk trend
Link to strategy
Faced with unprecedented challenges as the world emerges from Covid, customer expectations continue to
evolve across speed to market, productivity, innovation, quality and sustainability. Coats as a global supplier,
industry partner and thought leader is well-placed to help our customers meet their own challenges by
rising to these higher expectations. To this end, we continue to engage intensively with our customers on a
daily basis to understand, anticipate and meet these expectations. In 2021, we carried out customer surveys
with manufacturers, brands and OEMs and continue to engage daily with multiple customer and industry
stakeholders, inuencers and decision-makers. Furthermore, we engaged in an in-depth study with industry
experts to anticipate sustainability trends and expectations. This close engagement with customers has
allowed us to deliver outstanding customer value during 2021. In collaboration with our customers, we
helped them navigate the signicant disruption caused by Covid lockdowns in Asia, leveraging our
operational footprint and supply agility. In China, we have responded to the speed requirements of the
domestic market, eliciting favourable customer feedback and stronger orders. We have also supported
customers in their moves to build more resilient and closer-to-market supply models, servicing their needs
across multiple markets and new suppliers.
Our sustainability innovations have met and exceeded customer needs, evidenced by the signicant increase
in sustainable product sales, partnerships with customers like Decathlon in Diversity & Inclusion and the
development of new products to progress the industry circularity agenda. Our Technical Services teams in
both Apparel & Footwear and Performance Materials continued to support customers in their drive for
higher productivity, improved quality and accelerated innovation, delivering over 6,000 direct customer
engagements in the year. We have also acted to improve and automate customer service processes,
creating more time for customer value-adding activities in key markets. Responding to the accelerating pace
of industry change, Coats Digital has invested in SaaS transition for its industry-leading Fashion Tech
software solutions as well as developing technology partnerships for greater customer impact.
In 2021, we launched 21 new products across all our industry segments. In our Performance Materials
business, we started industrial production of preforms for a leading US automaker, using our Lattice
composite technology and our innovative Lattice Lite
TM
solution has now been adopted by a number of
high-prole sports brands for their high end running shoes. At the same time 2021 saw us extend the
Lattice range to Lattice Protect
TM
which offers lightweight, super strong components for safety shoes.
Amongst the other products launched were our new range of reective tapes – Signal Lucence which is a
sew-on tape phosphorescent powered by VizLite DT. These reective tapes offer a third layer of visibility
working when there is reduced light or no primary light. They are lightweight and recharge via UV rays
meaning there is no need for batteries.
We continue to develop our innovation ecosystem, building increased capacity to create new product
solutions as well as products in collaboration with customers and suppliers. At COP26 we announced the
repurposing of our Shenzhen Hub to focus on the research and development of bio-based and recycled
materials, working towards our commitment that by 2030 all Coats products will be made completely
independently of new oil-extraction materials. We are already making huge strides in this area with our
EcoVerde ranges, and in 2021 we launched our EcoRegen lyocell-based product which is made using bres
that are made from sustainably sourced wood pulp, which is a 100% cellulosic material and thus totally
biodegradable.
Principal risks and uncertainties continued
Annual Report and Accounts 2021
Strategic report
51
Principal risk Action/mitigation
Risk of ever-increasing
customer expectations
continued
The key mega trends inuencing Performance Materials demand intensied in 2021. We have seen
continued development of advanced composites with more innovation around processes, resins, bres,
substrates, matrices and nishes to build custom composite parts for numerous end uses. The race to
reduce weight in passenger cars continues, with more and more focus on EV and battery ranges. In
Personal Protection, increased worker protection remains a key theme with more industry regulation and
the need for comfort with multi-hazard protection. Our customers and their customers are becoming ever
more demanding, looking for increased performance from the materials they use, be this for chemical and
corrosion resistance, exibility, noise control or performing well at temperature extremes. At the same time
high-performance materials must be increasingly sustainable, whether this is with moves to more recycled
raw materials or increased material durability to minimise waste and product degradation. On top of the
direct sustainable benets of performance materials they are increasingly used to improve other production
processes, for example in clean energy production by improving the efciency of production methods.
Guided by our purpose, we will continue to strive to deliver sustainable value and long-term benets for our
customers and all our stakeholders.
Risk of failure to attract,
retainand develop talent
andcapability
given business changes, growth in
new areas and labour availability
challenges.
Risk trend
Link to strategy
Despite the economic challenges brought by the pandemic, 2021 has seen critical labour shortages and
specic skill gaps in the labour markets where Coats operates – particularly the US, Brazil and China, which
have become increasingly competitive. In order to ensure that Coats retains, attracts and develops the right
talent with the right skill sets, the Board’s and senior management team’s close focus on talent
development and wellbeing continued in 2021.
Following our successful switch to 100% online learning in 2020, we delivered more than 55,000 hours of
training to our employees in 2021 through a variety of training platforms. We added some new elements to
our suite of learning programmes including Manager Excellence, focussing on critical manager skills through
short, relevant sessions of an hour every month for 12 months, and a new Mentoring Programme called
Unlock Your Potential in which senior managers are paired with other employees for three months to
support them to achieve particular objectives. While introducing some new programmes for our leaders, we
continued to offer learning opportunities to our individual contributors and manufacturing employees. We
also initiated a capability building project for our commercial team which will be further reinforced in 2022.
As part of our employee listening strategy, which provides an integrated approach to understanding the
overall employee experience, we continued with our comprehensive programme of engagement surveys,
this time with our new external provider. The results were extremely encouraging. 90% of our employees
took part in the survey and our engagement score was 83 – well above the benchmark of 74. We also took
part in the external Great Place To Work surveys. By the end of 2021 we were delighted that 81% of our
employees belonged to a certied ‘Great Place To Work’. Whether or not the teams achieve certication,
they all receive feedback from the ‘Great Place To Work’ organisation on actions they can take to further
improve the working environment. We continued to deliver key employee health and wellbeing
interventions in 2021 covering three main areas – Prevention, Protection and Medical Care, and Education.
We introduced a range of global as well as local initiatives like mental health and wellness programmes. We
also actively monitored the Coats markets considering the minimum wage increases and we continued our
work on living wage to ensure that all employees receive a wage that is sufcient to afford a decent
standard of living in their country or location.
Coats Group plc
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Principal risk Action/mitigation
2. EXTERNAL
Economic and geopolitical risk
arising from political, economic
and demand uncertainty – across
both key Asian and developed
markets – including risk to free
trade conventions as well as
global inationary pressures.
Risk trend
Link to strategy
The Group closely monitors the impact of the Covid pandemic on demand as well as monitoring the
implications of other areas of economic risk on the Group. Our global reach and local knowledge give us
the agility and insights needed to operate and develop our business prudently and successfully during
periods of economic volatility. Additionally, the Group’s global footprint allows us to quickly respond to any
changes in regional supply chains that may arise as a result of the pandemic. Demand has been very strong
during 2021; however, the Covid pandemic continues to cause signicant uncertainty, particularly around
localised disruption to our operations and supply chain, but we have a clear playbook and proven
experience in dealing with such localised disruptions and minimising the impacts.
Regional lockdowns like in India and Vietnam during 2021 caused operational challenges for the Group,
although our fast response and global footprint meant that we were able to weather these challenges and
continue to serve our customers. To the extent that the pandemic has a more prolonged impact on the
global economic environment, there may be a negative impact on consumer spending and further potential
localised disruption to our operations and supply chain – a risk for which we remain alert and prepared.
During 2021 we also faced higher than normal ination for many, our key raw materials, freight, labour and
energy costs. For raw materials, freight and labour, the challenges were not just in relation to the high costs,
but went much wider with reduced availability and reliability impacting service lead times. We have taken
swift actions to counter this high ination through a combination of self-help initiatives (productivity
improvement and cost control measures) and pricing actions; we have also addressed supply chain
disruptions through leveraging our global footprint, long term relationships with global suppliers and
holding higher stocks as needed (see further actions referred to in Supply risk on page 54).
Cyber risk
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
2021 was another year where the pandemic dictated that the workforce remain not just socially distanced,
but also that the bulk of the administrative workforce was forced to work remotely. This was accomplished
with largely the same procedural and technical controls initiated in 2020, which allowed us to manage the
changing risk landscape that become more apparent with the remote workforce and the increase in attacks
against the employees themselves and their home networks. To minimise threats, we employed technical
controls and further education, informing our workforce about common attacks, social engineering
schemes, etc and informing them to be diligent in adhering to the Group-level processes to keep
themselves, their personal information, and the Company’s data and systems secure.
Our programme to defend against email-based threats, includes continuous security awareness training,
routine phishing simulation campaigns, and deployment of an additional context-based email security
solution (Q2 2021). Despite the increase in phishing threats being detected in both 2020 and 2021, we have
not seen an increase in phishing-related incidents, largely credited to the existing and additional protections.
Additional enhancements to our cyber programme added in 2021 were an improved cybersecurity asset
management solution in Q3 2021 and SASE solution in Q4 2021. The enhanced asset management solution
gives further insight to show any coverage gaps to security agents and controls. The SASE solution gives
additional visibility, control, and improves end-user experience. Coupling these with our managed Security
Operations Centre (SOC), which has been in place for the past three years, we continue to mature our
programme to better protect the data of our organization, our customers, and our business partners.
Principal risks and uncertainties continued
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53
Principal risk Action/mitigation
Climate change risk arising from
either (i) the impact of failing to
sufciently address the need to
decarbonise the Company’s
operations and reduce emissions,
leading principally to commercial
and reputational risks and the
nancial risk of emissions taxes or
other legislative changes, or (ii)
the physical impact of climate
change on the Company’s
operations andbusiness model,
and that of itscustomers in the
textile supplychain.
Risk trend
Link to strategy
During 2021 we have progressed our work on climate change risk analysis by moving from a largely
qualitative assessment of risks to a quantitative assessment of the potential nancial impacts. This has
allowed us to identify those risks that are more material to our business and where it is imperative to focus
on remedial actions.
As during 2020, this work has been carried out using the Taskforce on Climate-related Financial Disclosures
(TCFD) methodology, published as a technical supplement to their 2017 report. Included within this report
on pages 38-45 is our rst full report on the recommended TCFD disclosures, including the relevant
nancial disclosures.
The progress of this work has been reported to the GRMC at each of their quarterly meetings and was
reviewed by the ARC in their December 2021 meeting and again in February 2022.
Since we started work on climate risk analysis we have made substantial progress with our climate strategy,
which was early on identied as a critical mitigating action, and have developed and had approved Science
Based Targets for emissions reduction under the 1.5°C pathway. As a result of these actions, one of the
principal transitional risks we identied initially, that of failing to meet customer expectations and thus
losing sales, has been effectively mitigated and currently is not a risk. The most signicant remaining
transitional risk is from the possibility of the introduction of carbon taxes and this is detailed in our TCFD
disclosures. Obviously here also delivery of the emissions reduction targets that we have established will
have a very signicant mitigating effect on any carbon tax regimes that are introduced. There is a risk of
failure to achieve our emissions reduction targets because of inadequate opportunities to transition to
renewable electricity and a lack of reliable supply of recycled raw materials; however the Company has
robust programmes in place to manage these risks.
We have done a rst analysis of the growing physical risks and have established the nature and potential
scale of these risks, and the localities potentially impacted by ood and extreme heat risks under each of
our scenarios. As detailed in our TCFD disclosure, these risks apply to our longer term horizons under higher
carbon scenarios and are limited to specic units, mainly in Asia. More detailed work now needs to be done
to review these medium to long terms risks with our business continuity plans for these particular sites and
determine what, if any, mitigation options exist at each site potentially impacted.
In parallel to this risk analysis work, we have also identied and studied the potential opportunities coming
from climate change and these are detailed in our TCFD disclosures on pages 38-45. During 2022, we will
also be adjusting our methodologies, where necessary, to the revised TCFD guidelines issues in October
2021 (2021 TCFD Implementing Guidance and 2021 Metrics Targets Guidance 1).
Coats Group plc
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Principal risk Action/mitigation
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.
Risk trend
Link to strategy
The Group conducts scenario analysis and continuity planning in relation to each of our key raw materials,
as well as labour and freight, to assess what counter measures can be put in place if certain events were to
occur. Regular assessment of nancial performance of key suppliers and evaluation of suppliers’ own risk
management plans is undertaken, and our dependency on key suppliers and raw materials is reviewed
frequently. The ramications of the Covid virus continue to impact global supply chains, limiting availability
of certain feedstocks and raw materials. This, coupled with a difcult sea freight market dynamic, has
reduced the possibility of arbitrage and agility in global trade to respond to local shortages as they arise. To
mitigate that, we continue to assess our global stocking policy for strategic raw materials, taking forward
positions where possible where we can foresee shortages and expanding our supplier base where
necessary.
The Group applies a similar approach towards freight, where in 2021 the Group saw an extremely volatile
freight market with increasing rates for sea and air freight and with a very low reliability level mainly caused
by port congestions, equipment shortages and a high demand in the US to import goods from China. To
mitigate the risks, the Group is constantly enhancing planning accuracy and has increased the number of
global and local forwarders and moved to a monthly tender based on spot rates instead of a long term
agreement.
In relation to labour, where 2021 saw labour shortages coupled with labour ination, the Group, and
specically the Board and the senior executive team, remained intently focussed on talent development and
wellbeing as described in more detail in the Talent and capability risk on page 51.
Spanning all these areas, the Group has also moved quickly to implement a combination of self-help
initiatives (productivity improvement and cost control measures) and pricing actions as referred to in
Economic and geopolitical risk on page 52.
Principal risks and uncertainties continued
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55
Principal risk Action/mitigation
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,
nancial and reputational risks
as well as opportunities.
Risk trend
Link to strategy
Our Sustainability strategy, launched in 2019, is fundamental to our mitigation plan for this risk, as many of
the actions required are part of that strategy implementation. The progress on delivery of our strategy is
detailed in our annual Sustainability Reports that are published simultaneously with our corporate Annual
Reports. Detailed below are the principal actions taken during 2021 that impact and mitigate this risk. We
are implementing a harmonised global system to effectively manage our energy and environmental impacts
in a documented, systematic way. This includes an environmental management system (EMS) aligned to ISO
14001, and an energy management system aligned to ISO 50001 with many elements of the EMS now
digitised.
To assist us to achieve the energy and water targets detailed in the sustainability strategy and to more
closely align to ISO 50001, we are implementing an energy management software system that we are
currently piloting at ve of our sites. This project involves adding hundreds of electricity, gas and water
meters in addition to humidity and temperature sensors to understand how we can run production batches
more efciently, whilst minimising the energy and water used to do so. We further improved our
monitoring and measurement platform for sustainability reporting, to incorporate a digital analytical tool
that assists us to perform deep dives on sustainability metrics down to manufacturing site level. This allows
us to target underperforming sites whilst using best practice from those sites consistently meeting interim
targets.
These tools will help us meet our 2022 sustainability targets for water, energy and waste. Following the
completion of Environmental Health and Safety (EHS) legal compliance audits for all of our global
manufacturing units, we now track new and updated EHS legislative requirements, thereby improving our
compliance to EHS legal requirements. We also manage all environmental permits and licences we hold in
each country we operate in, on a permits management system.
Our environmental incident management system ensures that we have a consistent and transparent way of
managing environmental incidents that occur, and we implement corrective and preventative actions to
prevent reoccurrence through a risk-based approach. Online analytical monitoring equipment provides
real-time data for our efuent treatment plants that discharge direct to natural waterways, to ensure we
meet local permit conditions and Zero Discharge of Hazardous Chemicals (ZDHC) limits and to meet our
2022 efuent treatment plant targets. As a result of this, and other measures, we improved our compliance
to ZDHC in 2021 and continued to make strong progress towards our target of 100% compliance in 2022.
Our global Business Continuity Plan includes environmental emergency preparedness and response plans,
and we track environmental risks through an environmental aspects and impacts management system. Our
environmental management plans are run through a series of workstreams to ensure key stakeholders have
an input into their delivery through a dene, measure, analyse, improve and control (DMAIC) process. These
environmental and governance measures are managed through a digital energy and environmental
management system.
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Principal risk Action/mitigation
3. OPERATIONAL
Health and safety 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, nancial costs,
business disruption and/or
reputational damage; and/or (ii)
physical and mental health issues,
including as a result of the
pandemic, impacting wellbeing,
engagement, productivity and
talent retention.
Risk trend
Link to strategy
The Board has continued to receive and discuss with management – as a priority at each Board meeting –
detailed reviews of health and safety performance and monitoring of progress against established annual
health and safety targets and objectives. Senior management and employees throughout the Group
likewise remain intently focussed on creating an injury-free work environment.
A key focus for 2021 was to continue our effective pandemic response and to execute our plans for a safe
and effective recovery. Through the development and implementation of a comprehensive recovery matrix
and continuation of our previously effective workplace controls, we are successfully and safely managing
the risk of Covid in the workplace and resuming business as usual where and when it is safe to do so.
While the health of our workforce and effective pandemic response was a key focus of 2021, we also
continued pursuing our Journey to Zero safety strategy that was launched in 2019. While focussing on
proactive and preventive actions as well as leading indicators, we identied a series of targeted global
objectives, including a company-wide Journey to Zero week, various targeted prevention campaigns, a new
safety culture survey, and we conducted over 700,000 hours of safety training.
All of our proactive, preventive actions translated into the following results for 2021:
• 24% reduction in work-related recordable injury rate (0.45 vs 0.59 in 2020)
• 6% reduction in lost time case rate (0.34 vs 0.36 in 2020)
• 23% reduction in days lost per lost time injury
• 91% reduction in eye injuries
• 38% reduction in slip/trip injury rates
Bribery and anti-competitive
behaviour risk
of breach of anti-corruption law
or competition law, resulting in
material ne and/or reputational
damage.
Risk trend
Link to strategy
The Group continues to maintain clear and well-publicised policies and processes, spanning bribery,
anti-corruption and anti-competitive behaviour along with a number of other ethics issues, including in
relation to partners, contractors and suppliers. These are reinforced with those latter stakeholders through a
comprehensive Supplier Code (covering initial due diligence processes, onboarding, training, ongoing
compliance and auditing). These policies are reviewed and updated annually. There is extensive online
and face-to-face training and regular communications through a range of channels, including through
leveraging the support of our global ethical culture champions network. During the pandemic, the ethical
culture champions across the Group were asked to reinforce key ethical messages in light of the potential
heightened risk of corruption in these uncertain times. Additionally, a sub-committee of the GRMC
comprising key business and functional leaders, meets quarterly to consider a range of ethics risks (including
closely monitoring key risk indicators for those risks), legislative and regulatory developments and mitigation
plans. The risks are also considered at cluster level during regular local risk management meetings.
The Group actively maintains a whistleblower system, enabling employees and others who are aware of, or
suspect, unethical behaviour to report it condentially. Awareness of the system, together with the risks
and the policies, has been increased through an ongoing Ethical Culture Campaign which operates at a
Group and local level. As noted above, we have also now procured an externally hosted whistleblowing
hotline, which further strengthens the robust existing whistleblowing arrangements that were already in
place. See page 27 for more details.
Principal risks and uncertainties continued
Annual Report and Accounts 2021
Strategic report
57
Principal risk Action/mitigation
4. LEGACY
Lower Passaic River legacy
environmental matter
Detail of the Lower Passaic River
legacy environmental matter can
be found in note 28 on page 173.
Risk trend
Link to strategy
The Board continues to monitor developments very closely and oversees the strategy in relation to the
Lower Passaic River proceedings.
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Principal risks and uncertainties continued
Key risks
In addition to these principal risks, the Group has also identied a
number of key risks. These are monitored by the GET and the GRMC,
who receive regular updates, and periodic deep dives, on them from
the risk champions assigned to each risk.
An example of such a key risk is the risk of disruption to our business
operations as a result of events such as pandemics, re or water
shortages, or natural catastrophes (ood, hurricane, monsoon,
earthquake, etc). Discussions on this risk, and the steps taken to
mitigate it, include regularly stress testing the business continuity plans
prepared by units and functions across the Group, to ensure we are
able to respond quickly and effectively to any such event.
The 2020 outbreak of Covid resulted in these business continuity plans
being activated and remaining activated throughout 2021. This
included the immediate implementation of procedures to protect our
employees and anyone entering our premises, along with actions to
limit the nancial impact on the business and proactively leveraging our
global footprint and supply chain to provide the best possible service to
our customers.
The list of key risks also includes a number of potential disruptive risks
arising from, for example, new competitors and new technology. The
GET, GRMC and Board, as appropriate, continue to monitor these
potential disruptive risks and also the opportunities that these may
present.
Following the completion and sign-off of the 31 March 2021 triennial
valuation of the Coats UK Pension Scheme, Pensions Risk has been
reclassied from a principal risk to a key risk. The basis for this
reclassication is that there has been no amendment in decit recovery
payments, which will continue on the current terms until 31 December
2028. The Coats UK Pension Scheme is currently over 85% (2020:
80%) hedged against interest rate and ination movements by
reference to the Technical Provisions liability. Under the current decit
recovery plan, it is expected that the current decit for the Coats UK
Pension Scheme will be extinguished by 31 December 2028. See note
10 on pages 151-159 for more details.
Emerging risks
The 2018 UK Corporate Governance Code, which came into effect
from 1 January 2019, requires Boards to assess emerging risks in
addition to principal risks. In adherence with this, we have integrated
emerging risks into our current risk management practices monitoring
the internal and external business environment to identify and review
new and emerging risks to the Group.
The Board and management continue to remain alert to emerging
risks. These are identied through internal discussions and activities as
well as conversations with external third parties and insights from
observing and reecting on the broader environment in which the
Group operates.
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Strategic report
59
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 2024.
The Directors’ assessment has been made with reference to the
Group’s current position and prospects, as detailed in the Strategic
Report. This takes into account the Group’s business model, strategy,
approach to allocating capital and the potential impact of the principal
risks and how these are managed. The Directors have also considered
committed nance facilities which, following the renancing exercise
concluded in April 2021, have maturities which range from
approximately 31 months to over ve years.
The Group’s strategic objectives and associated principal risks are
underpinned by an annual budget and Medium Term Plan process,
which comprises nancial projections for the next three years (2022 –
2024). The Medium Term Plan represents a common process with
standard outputs and requirements at the Group level. The Board
reviews the Medium Term Plan annually. Although this period provides
less certainty of outcome, the underlying methodology is considered to
provide a robust planning tool against which strategic decisions
can be made.
The Directors have considered a range of severe but plausible scenarios
that explore the Group’s resilience to the potential impact of the
principal risks as set out on pages 49-57, as well as other risks that
could crystallise during the medium term.
After assessing the potential impact of the principal risks, a severe but
plausible scenario relating to the global economic environment was
modelled. The Directors have also taken into account a number of
assumptions that they consider reasonable within these assessments
including:
• The assumption that funding facilities will continue to be available
throughout the period under review: the core US private placement
borrowings are due in 2024 and 2027 and the revolving facility
matures in 2024, with the ability for two one-year extensions. It has
been assumed that the 2024 US private placement borrowings are
successfully renanced and that a one year extension is obtained for
the revolving facility in 2024;
• The assumption that following a material risk event, the Group
would adjust capital management to preserve cash; and
• The assumption that the Group will be able to mitigate risks
effectively through other available actions.
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.
Coats Group plc
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60
Operating review
2021
$m
2020
$m
2019
$m
FY 2021
vs FY 2020
inc/(dec)
%
CER
1
inc/(dec)
Organic
1
inc/(dec)
%
FY 2021
vs FY 2019
inc/(dec)
%
CER
1
inc/(dec)
Organic
1
inc/(dec)
%
Revenue
2
By segment
Apparel and Footwear 1,094 823 1,063 33% 33% 33% 3% 5% 5%
Performance Materials 409 341 326 20% 21% 19% 26% 29% 8%
Total 1,504 1,163 1,389 29% 29% 29% 8% 11% 6%
By region
Asia 846 629 800 34% 33% 33% 6% 6% 6%
Americas 375 315 323 19% 20% 19% 16% 23% 2%
EMEA 282 219 266 29% 31% 31% 6% 10% 10%
Total 1,504 1,163 1,389 29% 29% 29% 8% 11% 6%
Adjusted operating prot
2,3
By segment
Apparel & Footwear 164 96 156 72% 72% 72% 5% 6% 6%
Performance Materials 29 15 42 93% 92% 94% (30)% (28)% (28)%
Total adjusted
operatingprot 193 111 198 75% 74% 75% (2)% (1)% (1)%
Exceptional and acquisition
related items (14) (7) (7)
Operating prot
5
179 103 191 74% 74% 74% (6)% (4)% (4)%
Adjusted operating
margin
2,3
By segment
Apparel and Footwear 15.0% 11.6% 14.7% 340bps 340bps 340bps 30bps 10bps 10bps
Performance Materials 7.1% 4.4% 12.8% 270bps 260bps 280bps (570)bps (560)bps (420)bps
Total 12.8% 9.5% 14.3% 330bps 330bps 340bps (140)bps (160)bps (100)bps
1 Constant Exchange Rate (CER) are 2020 and 2019 results restated at 2021 exchange rates. Organic vs 2020 on a CER basis includes like-for-like contributions from Pharr HP (post acquisition date of
February 2020). Organic vs 2019 on a CER basis includes like-for-like contributions from ThreadSol (post acquisition date of February 2019) and excludes contribution from Pharr HP (acquired in February
2020). 2 Includes contribution from bolt-on acquisitions made during the period. 3 On an adjusted basis which excludes exceptional and acquisition-related items.
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61
2021 results overview
In A&F we are growing faster than the market because of our excellent reputation for quality,
our value proposition, our global footprint and our drive for innovative and sustainable products.
In PM we continue to grow our customer share, and we see high growth opportunities in both
Composites and Personal Protection, combining our innovative and differentiated product
offerings.
Group revenues of $1,504m increased 29% vs 2020 on a reported basis as the business
recovered from the Covid pandemic. Group revenues on an organic basis increased 6% vs 2019
with continued accelerating momentum, delivering a performance above pre-Covid levels; this
included accelerating momentum throughout the year with 20% growth vs 2019 in November
and December (vs 1% at the half year, and 6% in July to October).
Group adjusted operating prot of $193 million increased 75% (FY2020: $111 million, FY2019:
$198 million). Adjusted operating margins were up 330bps to 12.8% (FY2020: 9.5%, FY2019:
14.3%).
Adjusted earnings per share (EPS) for the period increased to 6.8 cents (2020: 2.4 cents, 2019:
7.0 cents), back towards pre-Covid levels as operating prots and tax rates normalised from the
signicant disruption seen in 2020.
Apparel & Footwear (A&F)
Our A&F business beneted from a robust recovery in demand and saw strong thread market
share gains (up 2% to 23%) as it leveraged its key customer relationships, its strong sustainability
credentials, its market-leading product ranges and technical services, and its exibility and agility
in a turbulent supply chain environment.
The division saw strong growth of 33%, demonstrating the strength of our global footprint and
ability to support customers during Covid lockdowns across Asia in Q2 and Q3. Our global
accounts programme, in which we dedicate customer relationship resources to our key brands
and retailers, saw excellent new customer and programme wins.
All of our regions (US, Europe and Asia) beneted from positive end market sentiment. Trends
towards Sports and Athleisure as well as casualisation continued to accelerate through the
second half whilst online adoption, a shift towards premium products and supply chain
digitisation advanced further. Supplier consolidation, nearshoring and the customer need for
speed were also prominent trends and unsurprisingly, our customers continue to place increasing
emphasis on their own sustainability agendas. The ongoing demand shift from West to East and
growth in domestic Asia also played to our strengths, with strong growth from domestic China
brands and revenue for our China domestic business up 36% vs 2020.
All of the A&F sub-segments had strong revenue growth in 2021; A&F thread up 34%, zips and
trims up 29%, Latin America Crafts up 8% and Coats Digital up 22%. Coats Digital, our Fashion
Tech business, enables fashion brands, sourcing companies, and manufacturers to optimise,
connect and accelerate business-critical processes seamlessly. In 2021 bookings saw high
double-digit growth ahead of reported sales growth, indicating condence for continued future
growth. The order pipeline remains strong for 2022.
Adjusted operating prot for A&F increased 72% vs 2020. Adjusted operating margin was up
340bps to 15.0% vs 2020. This was as a result of excellent commercial and operational delivery,
pricing actions and procurement self-help initiatives more than offsetting heightened inationary
pressures and the Covid disruptions during the year.
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2019 comparatives
As noted above, our A&F business had a strong year with revenues up 5% vs 2019 levels despite
Covid-related lockdowns in Asia. By sub-segment, A&F thread revenues (c.85% of segment
revenue) were up 6% vs 2019, with zips and trims (c.9% of segment revenue) up 13% in the
second half to end the year at vs 2019.
A&F adjusted operating margins were 30bps ahead of 2019 despite Covid-related lockdowns in
Asia as a result of excellent commercial and operational delivery, tight control of discretionary
spend, and supported by volume recovery.
Performance Materials (PM)
To more clearly align to the growth opportunities for the PM segment, the Group is changing
the way in which it operates and reports the sub-segments of the division. From 2022 the Group
will divide PM into Personal Protection (c.40% of divisional revenue), Composites (c.25%) and
Performance Thread (c.35%). Performance Thread will be made up of the majority of the former
Household & Recreation, Transportation and Other Industrial Applications sub-segments. The
medium-term growth rates expected for each sub-segment are high single digits for Personal
Protection, double-digit for Composites, and global GDP growth for Performance Thread. There
is no change to the overall growth expectations of the division of mid-high single digit growth
medium term.
Revenues recovered well in all segments, with organic growth of 19% vs 2020, including a
recovery in Personal Protection which grew by 40% in November and December to end the year
up 12% on an organic basis.
The division saw further customer share gains as well as new customer wins in the second half
across all sub-segments, such as a Composites programme with a leading sports footwear
manufacturer for its premium marathon shoe, increased share with automotive suppliers in
Performance Thread, and Oil & Gas customers in Personal Protection.
Overall, PM revenues grew 21% on a CER basis (20% reported), consisting of organic growth of
19% and a 2% contribution from the acquisition of Pharr HP. Organic revenue growth
performance vs 2020 was underpinned by all sub-segments with strong demand in Composites
(+32%), Personal Protection (+12%) and Performance Thread (+20%).
Adjusted operating prot increased 92% on a CER basis to $29 million and at an adjusted
operating margin level, PM margins were up 260 bps to 7.1%, in line with guidance of mid to
high single digits. PM margins for the year were however adversely impacted in the US by labour
availability issues and labour ination. Excluding the US business, PM margins were 14.4%
indicating a healthy recovery of margins elsewhere in the segment.
2019 comparatives
Compared to 2019 PM saw organic revenue growth of 8% with all segments performing
strongly (and in line with the trends described above); Composites was up 15%, Performance
Thread was up 10% and Personal Protection recovered in November and December to end the
year at vs 2019 on an organic basis.
Operating margins remained down on 2019 (560bps on a CER basis) primarily as a result of the
operational impacts of labour disruption in the wider US business, but saw an improving trend in
the second half.
Operating review continued
Annual Report and Accounts 2021
Strategic report
63
Geographical performance
We saw strong recovery across all regions with signicant growth vs 2020 driven by improving
end market sentiment and Coats’ strong customer proposition.
In Asia, we saw revenue increase by 33%, driven by key A&F markets. This was 6% up on 2019
revenue levels, as this region saw the fastest recovery from Covid, despite some ongoing impacts
in the period, most notably in India which suffered lockdowns in the second quarter and in
Vietnam in the third quarter. Performance in China saw strong sales to domestic brands and in
Bangladesh sales to the apparel export market were healthy. PM also performed well in Asia
with growth in China as well as in India which saw increased production due to US demand.
Our Americas business saw organic revenues grow by 19% vs 2020, with 2% organic growth vs
2019 after an improved second half and growth in Brazil and Colombia. Consumer demand
remains strong in the US across all PM segments. In Europe, which was also impacted
signicantly by Covid last year, we saw revenues grow by 31% vs 2020, and 10% above 2019.
This strong recovery was driven by the recovery in PM in telecom composites and transportation
as bre optics and automotive sales remained robust, led by our key markets in Spain and
Turkey. Zips also saw a recovery in demand.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
64
Financial review
Revenues
Group revenues increased 29% on a reported and organic CER basis, as all markets recovered
strongly having been adversely impacted by the Covid pandemic in 2020. All commentary below
is on a CER basis unless otherwise mentioned. Compared to pre-Covid (2019) levels, revenues in
the year were up 6% on an organic basis, as demand accelerated during the year, and this was
despite the ongoing Covid disruption seen across Asia in Q2 and Q3.
Operating prot
At a Group level, adjusted operating prot increased from $111 million in 2020 to $193 million
(2019: $198 million) and adjusted operating margins were up 330bps to 12.8% (2019: 14.3%).
The table below sets out the movement in adjusted operating prot during the year:
$m Margin %
2020 adjusted operating prot 111 9.5%
Volumes impact (direct and indirect) 129
Pricing/Mix 37
Raw material ination (25)
Freight ination (20)
Other cost ination (eg labour, energy) (17)
Productivity benets (manufacturing and sourcing) 22
Normalisation of SD&A costs (34)
Others (eg FX) (9)
2021 adjusted operating prot 193 12.8%
Exceptional and acquisition related items (14)
2021 reported operating prot 179 11.9%
The direct and indirect volume impact of the Covid disruption, particularly in H1 2020, was a
signicant headwind on prots and margins in the prior year, as lower utilisation of factories led
to an under recovery of manufacturing overheads. As a result of the ongoing strong Covid
recovery, these volume impacts were largely reversed during the year, albeit there was some
adverse impact felt, particularly in relation to Asia in Q2 and Q3 due to further lockdowns which
produced manufacturing under recoveries in those quarters.
As a result of increasing oil prices in the latter part of 2020 and throughout 2021 we saw
year-on-year inationary headwinds on raw material costs, sea freight as a result of container
availability and other costs such as labour and energy. As in previous periods we were successful
in mitigating these inationary pressures with productivity benets and pricing / surcharges. We
expect these inationary pressures to continue into 2022; the pricing actions taken throughout
2021 position us well to continue to offset these.
We moved decisively to underpin our SD&A cost base during 2020 by minimising discretionary
spend (for example travel, staff bonuses, Long Term Incentive Plans and consulting costs) and
variable costs of selling. As expected, these savings normalised in the year as the business
recovered, and resulted in a $34 million normalisation of our SD&A costs. As a result of these
factors, the Group’s adjusted operating margins signicantly increased to 12.8% (FY2020: 9.5%).
On a reported basis, Group operating prot (including exceptional and acquisition-related items)
was $179 million (2020: $103 million). See below for a breakdown of these exceptional items.
Exceptional and acquisition-related items are not allocated to segments, and as such the
segmental protability referred to above is on an adjusted basis only.
Annual Report and Accounts 2021
Strategic report
65
Foreign exchange
As the Company reports in US Dollars and given that its global footprint generates signicant
revenues and expenses in a number of other currencies, a translational currency impact can
arise. For the full year, this impact was minimal on sales, and a marginal headwind on an
adjusted operating prot, primarily due to movements in the Turkish Lira, Euro, and Colombian
Peso. At current exchange rates (31 December 2021) we expect a c.2% headwind on revenues
for the Full Year 2022.
Free cash ow
The Group delivered an adjusted free cash ow of $113 million in the year (2020: $28 million).
This was a signicant improvement on 2020 as the trading of the business continued to recover
from the Covid disruption in 2020, as well as a disciplined approach to capital expenditure in the
Covid recovery phase ($31 million), and despite some investment in working capital (inventory
levels up $63 million year-on-year) to support our service levels during the strong demand
recovery.
Non-operating results
Adjusted earnings per share (EPS) for the year increased to 6.8 cents (2020: 2.4 cents). This
signicant increase was due to the recovery in adjusted prot before tax (up from $86.4 million
to $172.5 million), and the expected normalisation in the underlying effective tax rate to 31%
(2020: 39%) as protability returned to pre-Covid levels. The increase in adjusted prot before
tax was due to the increase in adjusted operating prot ($82 million increase), and a net interest
charge which was $4 million lower year-on-year (see below for further details).
Net nance costs in the year were $21.8 million (pre-exceptional), a $3 million decrease
year-on-year (2020: $24.8 million). The key drivers of the decrease in net nance costs in the
year were a $0.5 million reduction in interest on bank borrowings due to lower interest rates,
and lower corporate facility utilisation compared to 2020. In addition, there was a $2.6 million
favourable movement year on year in relation to foreign exchange rate movements. These were
partially offset by a $1.3 million increase in interest on lease liabilities due to certain new leases
taken out during the year.
The taxation charge for the year was $54.4 million (2020: $37.4 million). Excluding the impact of
exceptional and acquisition-related items and the impact of IAS19 nance charges, the effective
tax rate on pre-tax prot was 31% (2020: 39%). As protability normalised to pre-Covid levels in
2021, so did the effective tax rate, as expected.
The reported tax rate was 33% (2020: 47%), which includes the impact of exceptional and
acquisition related items.
Prot attributable to minority interests was $19.7 million and was predominantly related to
Coats’ operations in Vietnam and Bangladesh (in which it has controlling interests). This was
25% above the 2020 level ($15.8 million), which is lower than the overall adjusted operating
prot growth for the Group (up 75% on 2020), which reects the relative strength of
performance of those territories during 2020.
Exceptional and acquisition-related items
Net exceptional and acquisition-related items before taxation were $9.5 million (2021: $6.8
million). These include strategic project costs of $3.7 million and acquisition-related items of
$15.8 million. Strategic project costs were offset by a credit in relation to the recognition of a
historic indirect tax claim within Brazil which is now deemed virtually certain and resulted in a
$5.8 million exceptional credit within operating prot and a further $4.2 million exceptional
interest income.
Strategic project costs of $3.7 million relate to the commencement of a number of strategic
initiatives during 2021. It is anticipated that cash exceptional costs in the order of $35 million will
Coats Group plc
Strategic report Corporate governance Financial statements Other information
66
be incurred in relation to these and further strategic initiatives across 2022 and 2023 in total.
The resulting benets are anticipated to deliver incremental adjusted operating prot of $50
million by 2024.
Acquisition-related items of $15.8 million consisted of the amortisation of intangible assets
acquired in previous acquisitions ($3.3 million), transaction costs in relation to the pursuit of
strategic acquisition opportunities during the year ($12.4 million), and acquisition earnouts ($0.1
million). Growth through acquisitions is a key element of the Group’s strategy and the Group will
continue to be disciplined in the assessment of acquisition opportunities as they arise. The Group
looks to identify companies with complementary capabilities that can further strengthen the
core, technology, innovations, or Intellectual Property and which can be scaled to deliver growth
and value for customers and shareholders.
Cash ow
The Group delivered $113 million of adjusted free cash ow in the year (2020: $28 million). This
free cash ow measure is before annual pension decit recovery payments, acquisitions and
dividends, and excludes exceptional items.
This adjusted free cash ow performance was signicantly ahead of 2020 as a result of the
recovery of adjusted operating prot, alongside continued well controlled net working capital
outows ($15 million outow) despite a number of inationary pressures on our cost base and
an investment in inventory to support supply chain disruption.
Capital expenditure was above 2020 ($15 million) at $31 million, as we invested selectively in the
most appropriate opportunities in the Covid recovery phase. Minority dividend payments of $17
million were incurred (2020: $18 million) which relate to the repatriation of cash from local
operations to the Group. Tax paid was $48 million, broadly in line with 2020, which was lower
than the P&L charge as it reects some timing benet from the lower tax charge in 2020, which
beneted the rst half.
The Group generated a free cash ow of $33 million in the year (2020: $23 million outow),
which primarily reects the adjusted free cash ow of $113 million, offset by UK pension
payments of $42 million (being $33 million of ongoing decit recovery payments and
administrative expenses, and $9 million catch up of deferred 2020 payments), shareholder
dividends ($27 million), and exceptional costs of $11 million.
As a result of the above free cash ow, net debt (excluding the impact of lease liabilities) as at
31 December 2021 was $147 million (31 December 2021: $181 million). Including the impact of
lease liabilities, net debt as at 31 December 2021 was $246 million (31 December 2020: $247
million).
Capital expenditure
Capital expenditure for the year was $31 million (2020: $15 million). As we continue to recover
out of Covid, and in order to continue to support our longer-term growth strategy and further
reinforce our strong environmental compliance credentials, we anticipate capital expenditure to
be in the $35-45 million range for 2022.
Pensions and other post-employment benets
The net surplus for the Group’s retirement and other post-employment dened benet liabilities
(UK and other Group schemes), on an IAS19 nancial reporting basis, was $21 million as at
31 December 2021, which was $247 million lower than 31 December 2020 ($226 million
liability). This decrease was primarily due to movements on the UK scheme.
The Coats UK Pension Scheme, which is a key constituent of the Group dened benet liabilities,
showed a $108 million IAS19 surplus at 31 December 2021 (£80 million), which was $237 million
better than at 31 December 2020 (decit of $129 million, or £94 million). This improvement
Financial review continued
Annual Report and Accounts 2021
Strategic report
67
predominantly relates to net actuarial gains of $203 million (higher discount rate due to higher
corporate bond yields, experience gains and asset outperformance), and $37 million employer
contributions (excluding administrative expenses).
In agreement with the trustees of the Coats UK Pension Scheme, and as part of the wider Covid
underpinning actions, in 2020 we agreed to defer the remaining decit recovery payments for
that year (April-December inclusive), to provide an additional c.$21 million of headroom cover.
The catch up of these payments commenced in May 2021 and will be evenly spread over a
period of around 18 months. As a result, total payments in 2021 were $42 million (which
includes $9 million in relation to the start of the catch-up of the 2020 deferred contributions).
UK triennial update
The effective date for the latest UK scheme triennial valuation was 31 March 2021. This valuation
was successfully completed and agreed with the Trustees during the year, ahead of schedule,
with a resulting Technical Provisions decit of £193 million which is £59 million lower than the
previously agreed valuation in 2018. As a result of this valuation, future contributions remain at
the previously agreed levels of £22 million ($29 million) per annum (indexing) up until 2028, and
result in the pay down of the decit slightly earlier than originally planned. The Group will
continue to pay the scheme administrative expenses and levies of around $5 million per annum.
Together with the remaining catch up of deferred 2020 contributions, 2022 payments are
expected to be around $46 million.
Balance sheet and liquidity
Group net debt (excluding lease liabilities) as at 31 December 2021 was $147 million ($246
million including lease liabilities), which was lower than 31 December 2020 ($181 million), and
reects strong cash management as noted above.
At 31 December 2021, our leverage ratio (net debt to EBITDA; both excluding lease liabilities)
was 0.7x and remains well within our 3x covenant limit, and slightly below the lower end of our
target leverage range of 1-2x. Our interest cover covenant also maintained signicant headroom
at 31 December 2021 at 28x vs a covenant of 4x. These covenants are tested twice annually at
June and December, and are monitored throughout the year. Committed headroom on our
banking facilities was around $330 million at 31 December, which remains at a comfortable level
allowing us strategic optionality to consider the most attractive organic and inorganic
investments in the post Covid recovery phase.
Going concern
On the basis of current nancial projections and the facilities available, the Directors are satised
that the Group has adequate resources to continue for at least the next 12 months and,
accordingly, consider it appropriate to adopt the going concern basis in preparing the nancial
statements. Further details of our going concern assessment, nancial scenarios and conclusions
can be seen in note 1.
Jackie Callaway
Chief Financial Ofcer
2 March 2022
The Strategic Report comprising pages1–67 was approved by the Board and signed on its
behalf by the Group Chief Executive.
Rajiv Sharma
Group Chief Executive
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
68
Chair’s introduction
Dear Shareholder,
On behalf of the Board, it is my pleasure to present the corporate
governance report for the year ended 31 December 2021, which
provides insights into the Board’s and its Committees’ activities
thisyear.
Our stakeholders
Central to enabling our ambitions is understanding the views of our
stakeholders by regular and meaningful engagement at all levels of the
Group. These views inform our decision making and you can read more
about who we have identied as our key stakeholders, our interactions
during 2021 and the impact this has had on our approach on pages 20
to 23. In an environment of continued uncertainty, I am proud of the
engagement of our people and their determination and commitment
to nding creative solutions to drive progress. The Board has had two
sessions reviewing the outcomes of and the actions taken in relation
tothe feedback received via the Your Voice Matters employee
engagement survey (more information is set out on page 27). Fran
Philip, our designated Non-Executive Director for Workforce
Engagement has had another busy year, engaging remotely and in
person with our workforce and the insights from this are detailed on
page 29. In addition, the Board has had regular talent reviews and a
health and wellbeing deep dive to deepen our people insights. During
the year, we also conducted a customer experience deep dive and the
Board continued to use analytical data, such as net promoter scores
(NPS), to monitor trends in customer satisfaction. We commissioned an
independent investor study to understand how the Company was
perceived and valued by existing and prospective shareholders, to again
ensure we were challenging our own views and assumptions. Upon
appointment, I engaged with some of our largest shareholders to
understand their views and expectations. Nicholas Bull, our Senior
Independent Director, has also attended numerous calls this year to
discuss environmental, social and governance (ESG) and sustainability
matters with some existing and prospective shareholders and he has
shared his insights with the Board.
Regional deep dives – a fresh view of governance
In 2021, the Board approved a programme of seven deep dives into
ourregions that were presented and discussed at Board meetings
throughout the year. The presentations covered a wide range of topics
including markets, performance and operations, competitors and risk,
as well as considering stakeholders through this lens such as key
customers and suppliers, our workforce in the markets and ESG
matters, including the impact on the communities in which they
operate. This fresh approach enabled the Board to review the business
on a holistic basis to gain greater understanding of each region’s role in
contributing to the success of the Group, including new stakeholder
insights. The Board invited members of the leadership team from each
of the seven regions to these meetings to engage directly and to
understand the talent within that business. The feedback from both
the Board and from the leadership teams was wholly positive with all
parties benetting from this new lens and it is intended that the Board
will continue to track progress against the agreed actions and monitor
alignment to overall strategy as part of the updates to be presented
in2022.
Board and Committee activities and effectiveness
Agile and exible ways of working and meeting are going to be key to
companies succeeding in the future and I am delighted that our Board
has transitioned to the ‘new normal’ seamlessly. The Board continued
to meet remotely for the rst half of 2021, in line with the guidance in
force at the time. Our AGM was held using electronic means with only
the Directors required to form a quorum attending in person.
Shareholders and the remainder of the members of the Board were
able to listen to the business of the meeting and ask questions via a
teleconference facility. However, during the second half of the year,
theBoard mixed virtual and face-to-face meetings to maximise
effectiveness and efciencies. We were able to proceed with our
planned away week in the USA to visit some of our factories and meet
with the workforce and some of our other stakeholders. This face-to-
face engagement provides additional value to the Board discussions
and you can read more about both the schedule of Board meetings
and the areas covered at the away week on page 80. Recognising that
the Board can meet effectively virtually and being ever mindful of our
environmental impact, we plan to continue holding several of our
scheduled meetings virtually in 2022 and beyond.
Continuing the theme of Board effectiveness, this year the Board and
its Committees again undertook an internally facilitated effectiveness
review in accordance with the requirements under the UK Corporate
Governance Code 2018 (Code). Details of the Board review, its
outcomes and how this will inform the development of the Board’s
objectives for 2022 can be found on pages 81 to 82. You can read
about the results of the surveys undertaken by the Committees in their
individual reports and review the results of the independent review of
effectiveness of our Internal Audit function, conducted by
theChartered Institute of Internal Auditors, in the Audit and Risk
Committee Report on page 87.
Annual Report and Accounts 2021
Corporate governance
69
Sustainability
As set out elsewhere in this Annual Report, and also in our
Sustainability Report (available on www.coats.com/sustainability),
wehave enhanced and added to our sustainability ambitions in 2021
and we have also taken decisions to further develop the governance
structure that supports and helps us to deliver these challenging goals.
Our newly formed Sustainability Committee is comprised of three
Non-Executive Directors and the Group Chief Executive, and it is
responsible for the oversight and monitoring of the Company’s
Sustainability strategy and initiatives. You can read more about this on
page 78 and review the Sustainability Committee’s Terms of Reference
on the Corporate Governance section of our website, www.coats.com.
The Sustainability Committee will enhance the Board’s focus on the
environmental and employee engagement-related social elements of
ESG. We have also updated the terms of reference for our other Board
Committees to reect their enhanced role in ESG monitoring and
oversight, by including the Remuneration Committee’s focus on the
remuneration-related social element, the Nomination Committee’s
focus on the diversity and inclusion-related social element and the
Audit and Risk Committee’s focus on the governance element. The
Board has also recently approved a climate change strategy as well as
reviewing and updating our other environmental policies. You can also
see information about our compliance with the Task Force on Climate-
Related Disclosures (TCFD) recommendations on pages 38 to 45. Coats
is a member of the FTSE4Good UK Index and I am pleased that we
have maintained ourposition on the 92nd percentile in 2021.
Governance, culture and goals
This is the third year of reporting under the Code and I am pleased to
conrm that Coats has applied the principles and our statement of
compliance with the relevant provisions is set out on page 70. We
continue to focus on the key themes of sustainability, diversity,
engagement with our stakeholders, fair remuneration structures and
the strengthening of corporate culture. This report gives an insight into
how we maintain and monitor our robust processes to ensure that
good governance and behaviours are at the heart of everything that
we do.
Our purpose, ‘to connect talent, textiles and technology to make a
better and more sustainable world’, continues to guide and inform
decisions made at every level of the Company. Coats has a strong and
established culture, which is supported by our foundations and our
principles, and shapes the way we work. Our resilience and
performance following the pandemic is due to our business model and
all our people continuing to act in line with our high standards of
ethical behaviour in ‘doing the right thing’ and driving our sustainable
growth and the customer outcomes we desire. The Board takes its role
of setting and monitoring culture, values and ethics seriously, as set out
on page 77, and led in our operations by the Group Chief Executive
and the rest of our Group Executive Team (GET) and senior
management teams.
We continue to ensure good governance is present at all levels and all
areas of the Group. There are reliable Group-wide systems in place to
monitor all aspects of governance and, as set out on the pages of this
Annual Report, the Board and its Committees regularly review
information about our strong health and safety culture (see page 26),
our approach to assessing and monitoring risk (see pages 46 to 58),
monitoring sustainability data in real time, and encouraging and
investigating any disclosures made by workforce or other stakeholders
either directly or through our internally hosted Group ethics channel or
via an externally hosted web service whistleblowing hotline. You can
read more about the statistics relating to whistleblowing allegations, as
well as the Board’s role in monitoring the regime, in the Directors’
Report on page 93.
Diversity and inclusion
Our people enable us to succeed. The way in which we attract and
retain talent has been revised as a result of Covid. The global workforce
is expecting increased exibility in when, where and how they work;
successfully managing these expectations, balanced with an attractive
company culture, while demonstrating the effective implementation of
an ambitious strategy, all combine to attract and retain a diverse and
highly effective team. You can read more about our Diversity Policies
and how we review and manage talent to ensure an inclusive working
environment in our Nomination Committee Report on pages 89 to 91
as well as in the People section on pages 26 to 28.
Board composition
I was honoured to succeed Mike Clasper as Chair of your Company in
May 2021. On both your and the Board’s behalf, I used the AGM as an
opportunity to formally thank Mike for his tremendous contributions to
our Company. Following these changes we took the opportunity to
review and refresh the composition of the Remuneration and Audit and
Risk Committees in line with Code and you can read more about this in
the Nomination Committee Report on page 90. During the course of
this year, Jackie Callaway succeeded Simon Boddie as Chief Financial
Ofcer. As set out in last year’s report, Simon stepped down from
theBoard in March 2021.
Dividend
The Board is mindful of the importance of returns to shareholders and
it is pleased to declare a nal dividend of 1.50 cents per share (2020
nal dividend: 1.30 cents). Subject to approval at the forthcoming
AGM, the nal dividend will be paid on 25 May 2022 to ordinary
shareholders on the register at 29 April 2022, with an ex-dividend date
of 28 April 2022.
David Gosnell
Chair
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
70
The UK Corporate Governance Code
Compliance Statement
Coats complied with all the relevant provisions of the 2018 UK Corporate Governance Code (Code) during the course of the year ended
31 December 2021, with the exception of provision 38 (alignment of executive director pension contribution rates with those available to the
workforce). Jackie Callaway was appointed in December 2020 with a pension benet which was aligned to the workforce. Phased arrangements
are in place for Rajiv Sharma which limited his pension benet with effect from 1 January 2020 to a xed amount and his pension benet will
reduce to 12% to ensure compliance by 31 December 2022, as detailed in the Remuneration Report on page 111. Similar arrangements were in
place for Simon Boddie prior to his retirement from the Board in March 2021. The Board considers it appropriate that there is a phased transition of
the pension benets for existing Executive Directors who originally had a contractual entitlement to a higher level of pension benet.
Other information relating to the corporate governance structures is set out over the followingpages.
Board leadership and Company purpose Read more
Promoting the long-term sustainable success of the Company Page 4
Generating value for shareholders Page 16
Contributing to wider society Page 20
Purpose, values and strategy, and how these and our culture are aligned Pages 16 and 77
Resources available to allow Coats to meet its objectives and measure
performance against them Page 18
Control framework Page 87
Stakeholder engagement Page 20
Workforce policies and practices Page 36
Division of responsibilities Read more
The Chair Page 75
Division of responsibilities Page 75
Non-Executive Directors Page 75
Information and support Page 78
Composition, succession and evaluation Read more
Succession planning Page 90
Board diversity Page 91
Board evaluation Page 81
Audit, risk and internal control Read more
Independence and effectiveness of internal and external audit functions Pages 87 to 88
Fair, balanced and understandable reporting Page 85
Principal risks Page 46
Remuneration Read more
Remuneration policies and practices support strategy and promote
long-term sustainable success Page 96
A formal and transparent procedure for developing policy on executive remuneration Page 96
Chair’s introduction continued
Annual Report and Accounts 2021
Corporate governance
71
Strategic goal
Protable sales growth
(Read more on page 10)
Key stakeholders
Shareholders Customers Suppliers Workforce
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.
Areas of focus in 2021:
• Deep dives conducted for seven regions covering operations,
strategy, stakeholders, risks and ESG matters
• In-depth review of Coats’ digital strategy and global accounts
• In-depth review of Composites strategy and the segmented
supply chain service model
• Reviewing the Group’s dividend policy
Strategic goal
Continuing to strengthen the core
(Read more on page 10)
Key stakeholders
Customers Suppliers Environment ShareholdersWorkforce
The Board’s governance role
The Board reviews the strategy for sustainable growth and leverages
its collective experience to advise on related matters.
Areas of focus in 2021:
• Received updates on employee views and engagement, and
reviewed results of Your Voice Matters survey and the progress
on actions
• Deep dive conducted into health and wellbeing
• Ensured the Company remains at the forefront of developing and
embedding best practice in responsible business behaviour
• Considered the appropriate management structure for the
business and approving changes to the GET and approving the
transition from seven to three regions
Strategic goal
Value creation
(Read more on page 10)
Key stakeholders
Shareholders Customers Suppliers Workforce
The Board’s governance role
The Board reviews key proposals relating to business capability.
Areas of focus in 2021:
• Regular review of people matters including talent and succession
plans and updates from our designated Non-Executive Director
for Workforce Engagement’s meetings with employees on culture
• Independent review of shareholders’ perceptions and how
Company was valued by existing and prospective investors
• Considering acquisitions and divestments as identied and
determining appropriate course
• Considering and monitoring the Group’s risk appetite and
principal risks and uncertainties and conducting appropriate
reviews of health and safety, with a focus on commuting and
‘lost time’ accidents
How governance supports strategy
“Good Board governance is key
for any organisationthat wants to
appropriately representallof the
Company’s stakeholders. Thisapplies
to risk management, resource
allocationat a high level and, very
importantly, allelements of talent
strategy, to name a few.”
Jakob Sigurdsson
Non-Executive Director
Coats Group plc
Strategic report Corporate governance Financial statements Other information
72
Board of Directors
Key to Committee memberships
Committee chair
Committee member
A
Audit and Risk
N
Nomination
R
Remuneration
S
Sustainability
David Gosnell OBE
N
S
Rajiv Sharma
S
Jackie Callaway
Chair of the Board since 19 May 2021 Group Chief Executive Chief Financial Ofcer since 1 April 2021
British Singaporean New Zealander
Appointed 2 March 2015 (David stepped
down as a member of the Audit and Risk
Committee and as the Chair and a member of
the Remuneration Committee on 1 May 2021,
ahead of his appointment as Chair of the
Board)
Appointed as an Executive Director in March
2015, Group Chief Executive since 1 January
2017
Appointed 1 December 2020
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 nance 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.
External appointments
Rajiv joined Coats in November 2010 as Global
CEO Industrial and was responsible for
developing and executing a growth strategy.
He has lived and worked in the US, Europe
and Asia.
Non-Executive Director of Senior plc. Rajiv has
been on the board of joint ventures at both
GE and Shell and held management positions
with Saab, Honeywell, GE and Shell.
External appointments
Previously Chief Financial Ofcer 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.
Member of Australian Institute of Company
Directors since 2017.
Qualications
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 89.
Qualications
Rajiv holds a degree in Mechanical
Engineering, as well as an MBA from the
University of Pittsburgh, USA.
See the Group Chief Executive’s statement on
page 8.
Qualications
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.
Annual Report and Accounts 2021
Corporate governance
73
Nicholas Bull
A
N
R
S
Anne Fahy
A
N
Hongyan Echo (Echo) Lu
N
R
Senior Independent Non-Executive Director Independent Non-Executive Director Independent Non-Executive Director
British Irish British/Chinese
Appointed as a Non-Executive Director and
Senior Independent Director on 10 April 2015
(Nicholas was appointed as a member of the
Remuneration Committee on 1 May 2021)
Appointed 1 March 2018 Appointed 1 December 2017
Key skills and experience
• Global nancial 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
• Experienced audit committee chair with
extensive nancial and internal controls
experience
• Global business and developing markets
experience
Key skills and experience
• Global business experience gained in
different sectors in Europe, Asia and the
US
• Strong background in general
management and track record of
delivering positive change
External appointments
Chair of Fidelity China Special Situations plc,
Deputy Chair of Conran Holdings 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 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
Non-Executive Director and Chair of the Audit
Committee of SThree plc and Non-Executive
Director of Nyrstar NV. Trustee of Save the
Children; formerly a Non-Executive Director of
Interserve. Previously at BP, Anne gained
extensive experience of global business,
developing markets, risk management,
internal control, compliance and strategy
development in the aviation, petrochemicals,
trading and retail sectors.
External appointments
A member of the Advisory Board for Diversity
in Hospitality, Travel and Leisure. Previously
Chief Executive Ofcer of Haulfryn Group Ltd,
a UK leisure business, and Managing Director,
International of Holland & Barrett
International, Managing Director of
Homebase Ltd as part of Home Retail Group
plc. Echo spent ten years at Tesco plc in a
variety of senior leadership roles. Echo was a
Non-Executive Director of Dobbies Garden
Centres.
Qualications
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.
Qualications
Anne is a Fellow of the Institute of Chartered
Accountants in Ireland and has a Bachelor of
Commerce in Economics, Accounting and
Business from University College Galway,
Ireland.
Anne’s extensive business experience and her
deep knowledge and understanding of
internal controls, combined with her
experience from service on other audit
committees, provides the Company with a
highly qualied Audit and Risk Committee
Chair with unique perspectives in the
Boardroom.
See the Audit and Risk Committee report on
page 83.
Qualications
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 became Chair of the Remuneration
Committee with effect from 1 May 2021,
having served on the Remuneration
Committee since her appointment to the
Board in December 2017. Her background and
qualications 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 96.
Relevant Functional Experience
21% People
10% Legal
21% Risk
21% Finance
10% Technology / Digital
17% Customer
Geographic Experience
29% Global Business Experience
19% US Market Experience
28% European Market Experience
24% Asia Market Experience
Length of service
17% 0–3 years
50% 3–6 years
33% 6–9 years
Coats Group plc
Strategic report Corporate governance Financial statements Other information
74
Board proles (excluding
Executive Directors)
Fran Philip
N
R
S
Jakob Sigurdsson
A
N
Independent Non-Executive Director,
Designated Non-Executive Director for
Workforce Engagement
Independent Non-Executive Director
American Icelandic
Appointed 1 October 2016 Appointed 1 October 2020
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
delivering positive change
External appointments
Non-Executive Director of Vera Bradley Inc.,
Sea Bags, Totes Isotoner and Vista Outdoor
Inc. Previously Fran worked for The Gap,
Williams-Sonoma and The Nature Company,
and LL Bean, where she initially served as
Director of Product Development, Home
Furnishings, going on to hold a number of
roles including Vice President, Afliated
Brands, before becoming Chief Merchandising
Ofcer until her retirement. Fran was
previously a Non-Executive Director of Regent
Holdings and an industry executive for
Freeman Spogli.
External appointments
Chief Executive Ofcer 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 Ofcer 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.
Qualications
Fran has a degree in English and Sociology
from Bowdoin College, Maine, and an MBA
from the Harvard Business School.
See the People section on page 29 for more
information about workforce engagement.
Qualications
Jakob has a BSc in Chemistry from the
University of Iceland and an MBA from the
Northwestern University.
Board of Directors continued
Annual Report and Accounts 2021
Corporate governance
75
Leadership and engagement
Corporate governance
The Board
The Board is collectively responsible for the long-term success of the Group and for ensuring leadership within a framework of effective
controls. The key roles of the Board are:
• setting the strategic direction of the Group, including consideration of strategic acquisitions;
• overseeing implementation of the strategy by ensuring that the Group is suitably resourced to achieve its strategic aspirations;
• encouraging entrepreneurial leadership by providing a framework of prudent and effective controls which enables risk to be assessed and
managed;
• ensuring that the necessary nancial and human resources are in place for the Group to meet its objectives;
• overseeing returns to shareholders and monitoring the share price; and
• setting and monitoring the Group’s culture, supported by its values, and ensuring alignment with the Company’s purpose and strategy.
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 agendas for the Board, administeringBoardeffectiveness
reviews, ensuring appropriate Board training and coordinating Board inductions.
• Provides advice on corporate governance matters. All Directors have access to the advice of the Company Secretary.
Chair
• Primarily responsible for overall
effectiveness of 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 regular contact
and interaction with the Group Chief
Executive.
• Ensures effective communication
withour shareholders.
Senior Independent Director
• Provides a sounding board to
theChair.
• Leads the appraisal of the Chair’s
performance with the other Non-
Executive Directors annually.
• Acts as intermediary for other
Directors, if needed.
• Available to respond to shareholder
concerns if contact through the
normal channels is inappropriate.
Non-Executive Directors
• Contribute to developing our strategy.
• Scrutinise and constructively challenge
the performance of management in
the execution of our strategy.
• Bring their diverse expertise to the
Board and Board Committees.
• Devote such time as is necessary
tothe proper performance of
theirduties.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
76
Governing documents
Articles of Association
The Articles of Association set out the
rules agreed between shareholders as
tohow the Company is run, including
thepowers and responsibilities of the
Directors.
Coats’ Articles of Association were
approved for adoption at the 2021 AGM
and these now reect best practice and
current legal and governance standards.
Service contracts
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 104.
These documents are available for
inspection at the registered ofce of the
Company during normal business hours
and at the AGM. 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
befound on our website at www.coats.
com/en/About/Corporate-Governance/
Board-Committees.
Directors’ indemnities
The Company maintains Directors’
andOfcers’ liability insurance, which
provides appropriate cover for 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 ofcer 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.
Delegated Authorities
The Coats Delegated Authorities policy
isan internal document that sets out
thedelegations below Board level. It is
reviewed and approved annually by
theBoard. It provides a structured
framework to ensure the correct level
ofscrutiny of various decisions covering
matters including contracts, capital
expenditure, tax, treasury and human
resourcing decisions.
“Better governance gives comfort to customers of the
quality of their supply chain, aids recruitment and
retention of high-quality staff, and underpins the
relationship with the capital markets enabling
nancing for growth.”
Nicholas Bull
Senior Independent Director
Corporate governance continued
Annual Report and Accounts 2021
Corporate governance
77
Strategy
The Board is focussed on strategic matters and has a forward-
looking agenda that considers economic, social, environmental and
regulatory issues and any other relevant external matters that may
inuence or affect the Company’s achievement of its goals,
including generating growth. The Board holds an annual strategy
meeting as well as considering strategic matters at all Board
meetings. In 2021, the Board considered a wide range of topics
including the Coats Digital business and our Composites strategy.
During the year, the Board also conducted deep dives into each of
our seven regions and these included a review of strategic priorities
as well as various other matters. You can read more about the
Company’s strategy on page 10 .
Performance and monitoring
The Board evaluates and oversees current performance and is
responsible for approving annual plans and budgets, results,
dividends and announcements, including the going concern and
viability statements. The Board also oversees returns to shareholders
and ensures pensioners’ interests are safeguarded.
Performance monitoring includes non-nancial performance such as
quality, customer NPS reviews, employee wellbeing, environmental
and social measures and ethical business practice.
Leadership and people
The Board is responsible for succession planning and the
Remuneration Policy for Board roles, Executive Directors, the
Company Secretary and senior management.
The Board engages directly with the wider workforce through a
variety of channels and monitors policies, practices and behaviour
and how they support strategy via reports given at Board meetings.
Governance and stakeholders
The Board ensures that there is continued compliance with the Code
(see page 69) 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 20 to 23.
Internal controls and risk management
The Board sets the Company’s risk appetite, assesses principal and
emerging risks and reviews mitigation plans. Responsibility for
monitoring the Company’s risk management and internal control
systems is delegated to the Audit and Risk Committee (see page 87).
You can read more about our principal and emerging risks on pages
46 to 58.
Health and safety and the environment
The Board is fully committed to providing a safe place in which our
people, suppliers and visitors can work and ensures that we are a
considerate neighbour. You can read more about our approach to
our enhanced Sustainability strategy on page 12 and about our
approach to health and safety on page 26.
Culture
The Board and its Committees assess and monitor culture through a
number of indicators and mechanisms including:
• Health and safety updates at every Board meeting (read more on
page 26)
• People updates including the results of Your Voice Matters
engagement survey and monitoring of follow-up actions such as
enhancing continuous feedback processes and deploying a
mentoring programme, designated Non-Executive Director for
Workforce Engagement updates, Great Place To Work
certications and diversity and inclusion updates
• review of whistleblowing cases and remedial actions (read more
on page 93)
• supplier audits
• Sustainability strategy and metrics review, including a
sustainability dashboard that is considered quarterly at
Boardmeetings
Ensuring alignment
The Board, with support from its Committees, plays a crucial role
insetting and monitoring the culture of the Group and ensuring its
alignment with the Company’s purpose and strategy. Following the
changes to the ways of working experienced over the last few years,
these assessments are even more important to ensure an understanding
of whether the culture continues to be appropriate, and whether
there are any further actions that are necessary. In addition to the
mechanisms already outlined, in 2021 the Board also discussed how
the Company’s purpose and values were brought to life in markets,
and the link to local strategy, with management as part of the deep
dives into the seven regions. People matters, including cultural
indicators, were also considered in these sessions. Alignment was
also considered, including from the viewpoints of our employees,
investors, customers, communities and suppliers, as part of the
discussion to build on our Sustainability strategy. The Board and its
Committees consider any trends in, and the insights from, the
information presented at and in between Board meetings, through
the lens of ensuring the desired alignment between culture, values,
strategy and purpose, and provides feedback and direction if
required.
The role of the Board
Coats Group plc
Strategic report Corporate governance Financial statements Other information
78
Committees
Other committees
Audit and Risk Committee
• Oversees and monitors the
Company’s nancial statements,
accounting processes and audits
(internal and external).
• Ensures that risks are carefully
identied 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 element
of ESG.
See page 83 for more information.
Disclosure Committee
The Disclosure Committee oversees the
Company’s compliance with its disclosure
obligations. The Group Chief Executive
chairs the Committee, and its other
members are the Chief Financial Ofcer
and the Group Company Secretary.
Sustainability Committee
The Sustainability Committee provides
strategic oversight and monitors the
execution of the Company’s
Sustainability strategy and initiatives. It
oversees the environmental and
employee engagement-related social
elements of ESG. The Chair of the Board
chairs the Committee, and its other
members are the Group Chief Executive
and two Non-Executive Directors. The
Committee was established in December
2021 and its terms of reference are
available on coats.com.
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 setting of Directors’
Remuneration Policy.
• Consults with shareholders on the
Remuneration Policy.
• Considers the business strategy of the
Group and how the Remuneration
Policy reects and supports that
strategy.
• Oversight of the remuneration-related
social element of ESG.
See page 96 for more information.
Nomination Committee
• Reviews the structure, size,
composition and mix of skills and
experience of the Board and its
Committees.
• Identies 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 89 for more information.
Corporate governance continued
See page 79 for information on our Group
Executive Team
Annual Report and Accounts 2021
Corporate governance
79
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.
Group Chief Executive
• Responsible for executive management of the Group as
awhole.
• Delivers strategic and commercial objectives within the Board’s
stated risk appetite (see page 46 for more detail on key risks).
• Builds positive relationships with all the Group’s stakeholders
(see page 20).
Chief Financial Ofcer
• Responsible for nancial management and implementing and
monitoring effective nancial controls.
• Supports the CEO in developing and implementing the
Company’s strategy.
• Oversees relationships with the investment and banking
community.
Ronan Cox, President, Performance Materials
• Responsible for delivering the overall strategy for Performance
Materials, including commercial activities and developing talent,
and Group innovation.
• Sector review is on page 3.
Adrian Elliott, President, Apparel & Footwear (A&F)
• Responsible for the overall strategy for A&F, including the
development and delivery of value-adding products and
customer propositions. Also responsible for Coats Digital and
Marketing.
• Sector review is on page 3.
Stuart Morgan, Chief Legal & Risk Ofcer and Group
Company Secretary
• Responsible for legal and compliance, governance, risk
management, sustainability, communications, and company
secretarial matters. He has oversight of the Group Internal
Auditfunction.
• You can read more about the Group Internal Audit function’s
work during the year on page 87.
Michael Schofer, Chief Transformation and Digital Ofcer
• Responsible for business transformation and Digital and
Technology.
Monica McKee, Chief Human Resources Ofcer, and Paul Turner, President, Business Operations, both left the business on 31 December 2021.
Jackie Callaway, CFO, is acting as interim Chief Human Resources Ofcer until a successor is appointed. The Chief Human Resources Ofcer is
responsible for delivering the global Human Resources strategy, including performance management, progression planning, reward and talent
acquisition.
From 1 January 2022, a new GET structure is in effect to reect the move to our three region operating structure. The changes to the GET
membership are summarised below:
• Michael Schofer is now Chief Operating Ofcer, Americas;
• Frederic Verague joined the GET as Chief Operating Ofcer, EMEA;
• Bill Watson joined the GET as Chief Operating Ofcer, Asia; and
• Tram Anh Tran joined the GET as Chief Supply Chain Ofcer.
There are no changes to the roles and responsibilities of the other GET members.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
80
Board and Committee attendance
The Directors’ attendance record at the last AGM, scheduled Board meetings and Board Committee meetings, for the year ended 31 December
2021 is set out in the table below. In line with recommendations and government guidance, the 2021 AGM was held as a combined physical and
electronic meeting with access to the physical location of the meeting being restricted to the number of Directors necessary to form a quorum. The
remaining members of the Board attended the meeting electronically but this did not count as formal attendance for the purposes of the Articles
of Association that were in force at the time of the AGM. At the AGM, the Company adopted new Articles of Association that allow the Company
to hold ‘hybrid’ general meetings going forward. 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.
Board Audit and Risk Nomination Remuneration AGM
David Gosnell 14/14 2/2
1
2/2 1/1
1
1/1
Mike Clasper
2
5/5 – 2/2 – 1/1
Rajiv Sharma 14/14 – 2/2 – 0/1
Jackie Callaway 14/14 – – – 0/1
Simon Boddie
3
1/1 – – – 0/0
Nicholas Bull 14/14 5/5 2/2 2/2
4
0/1
Anne Fahy 14/14 5/5 2/2 – 0/1
Echo Lu 14/14 – 2/2 3/3 0/1
Fran Philip 14/14 – 2/2 3/3 0/1
Jakob Sigurdsson 14/14 5/5 2/2 – 0/1
1. David Gosnell stepped down as Chair and a member of the Remuneration Committee and as a member of the Audit and Risk Committee on 1 May 2021 ahead of his
appointment as Chair of the Board, in line with the requirements of the Code.
2. Mike Clasper stepped down from the Board on 19 May 2021.
3. Simon Boddie stepped down from the Board on 31 March 2021.
4. Nicholas Bull was appointed as a member of the Remuneration Committee on 1 May 2021.
During the year, the Board held nine scheduled meetings and an additional ve Board calls were held to discuss business matters that the Chair and
Group Chief Executive decided should be considered by the Board. All Directors received papers for meetings in advance. The Board met virtually
using audio-video conferencing until July 2021 and subsequently mixed virtual and face-to-face meeting attendance to maximise effectiveness and
balance the ongoing risks of physical meetings. Noting the geographic diversity of our Board, Board meetings have often spanned two consecutive
days to ensure appropriate time to consider items recognising the different dynamic of meeting virtually. The Board has continued toadapt well to
the changing ways of working and intends to continue to hold some meetings virtually in 2022, recognising the environmental benets and other
efciencies in balancing a mix of virtual and physical meetings. This approach will be periodically reviewed to ensure that Boardeffectiveness is
optimised.
The Board was able to proceed with a hybrid annual strategy meeting in 2021, with most Directors meeting physically in London and certain
presenters also attending in person. This year, the Board held its annual away week in the USA in October and all Directors were able to visit
certain of our sites and engage with employees and other stakeholders face-to-face. You can read more about the Board’s engagement with
stakeholders on pages 20 to 23.
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.
Corporate governance continued
Annual Report and Accounts 2021
Corporate governance
81
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 2022. 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 ndings and progress help to
dene 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-related questionnaire focussed on the areas identied for improvement last year, and a summary of actions that were taken in relation
to this feedback is set out below.
Outputs for 2021
People strategy
Actions taken: Bi-annual talent reviews presented by the Chief
HumanResources Ofcer and succession planning update also
presented. Health and wellbeing deep dive presented at October Board
meeting. Reviews of the Your Voice Matters survey results and
monitoring of follow-up actions, as well as designated Non-Executive
Director for Workforce Engagement presentations continuing to
monitor culture and directworkforce feedback.
Executive succession planning
Actions taken: Appropriate reviews of CEO succession plans and
bi-annual review of below GET-level succession plans, with focus on
diversity in pipelines. The seven regional deep dives allowed the Board
to directly interact with leadership teams.
Inorganic M&A growth opportunities
Actions taken: appropriate review of strategic opportunities
whenavailable.
Continuing to focus on the full range of stakeholders in Board
discussion and decisions
Actions taken: Board papers continue to consider stakeholder impact,
toallow preparation before meetings. Independent investor study
undertaken in 2021 as well as a customer experience deep dive. The
regional deep dives referred to specic stakeholder impacts to allow
the Board to understand geographic differences.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
82
The 2021 Board evaluation also covered Board performance and dynamics, the relationships between the Directors and the GET, the content and
scope of topics covered at Board meetings, and consideration of each of our identied key stakeholder groups in Board decision making. The
questionnaire contained many of the questions that were asked in 2020, to allow year-on-year tracking. This consistency remained important in
2021 when our meetings were held using a mix of virtual and face-to-face attendance . Noting that there have been changes in the Chair of the
Board and the Remuneration Committee and other changes to the composition of the Board and its Committees, questions were added to allow
respondents to consider if there had been any impact on effectiveness following these transitions. Finally, it gave respondents an opportunity to
provide their candid thoughts: what was being done well and what needed to be improved. Views were also sought on the Chair and Senior
Independent Director, as well as the workings of the Committees of the Board.
The results were collated by the Company Secretariat on behalf of the Chair and the results were considered by the Board at its December meeting.
There was a detailed Board discussion and it was noted that the respondents considered that the Board’s effectiveness had increased in 2021
relative to 2020. In particular, the Chair’s transition was rated highly by all respondents. The Board reviewed both the absolute ratings and the
freeform comments that had been submitted. The areas identied by respondents for further focus in 2022 are set out below and the Board will
provide details of the actions that are taken in relation to these in the next Annual Report.
Actions for 2022:
Continue focus on ESG matters, particularly related to ‘social’ including culture, at Board meetings and through Committees, including the
newly formed Sustainability Committee
Continue to ensure that the Board engages appropriately with all stakeholder groups
Lead by example on simplication by reducing the demand on management time through the preparation of shorter, more-focussed Board
packs, that maintain the quality of information required for effective decision making
Corporate governance continued
Annual Report and Accounts 2021
Corporate governance
83
Audit and Risk Committee report
Name Member since
Anne Fahy (Chair) 2018
Nicholas Bull 2015
Jakob Sigurdsson 2020
Principal objectives of the Audit and
RiskCommittee
To monitor the integrity of the Group’s nancial reporting
processes.
To ensure that risks are carefully identied 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 nancial reporting and associated
announcements.
Oversee the appointment, independence, effectiveness and
remuneration of the Group’s external auditor, including the
policy on the supply of non-audit services.
Conduct a competitive tender process for the external audit
when required.
Review the resourcing, plans, reports and effectiveness of
Internal Audit, which is independent from the Group’s external
auditor.
Ensure the adequacy and effectiveness of the internal control
environment.
Monitor the Group’s risk management processes and
performance.
Ensure the establishment and oversight of fraud prevention
arrangements and reports under the whistleblowing policy in
conjunction with the Board.
Ensure the Group’s compliance with the 2018 UK Corporate
Governance Code.
Provide advice to the Board on whether the Annual Report and
Accounts, when taken as a whole, is fair, balanced and
understandable and provides all the necessary information for
shareholders to assess the Company’s performance, business
model and strategy.
Dear Shareholder,
As Chair of the Audit and Risk Committee, it is my pleasure to present
its report for the year ended 31 December 2021. This report sets out
how the Committee has discharged the duties delegated to it by the
Board, and the key topics and ndings during the year.
There is an increased scrutiny on the work being undertaken by audit
committees and auditors as the corporate governance requirements in
this area are reviewed and regulatory change is expected. While the
duties of the Committee are currently unchanged, we have continued
to focus on improving internal controls to continue to strengthen our
business in a context of continued global uncertainty. The Committee’s
annual work plan is aligned to the Group’s nancial reporting cycle and
ensures appropriate coverage of both the required areas as well as
identifying items that are relevant to the business’ priorities and the
external environment. In 2021, the Committee continued to focus on
reviewing and challenging the assumptions and judgements in relation
to the preparation of published nancial information and, in particular,
the going concern and long-term viability methodology and
disclosures. You can read more about this on page 85 of this report.
Our review of internal controls has continued to encompass a biannual
review of internal controls over nancial reporting, and there has been
a focus on Human Resources-related controls and policies in 2021, as
well as a continuation of the monitoring of the application of controls
in India, which was a focus area in 2020. Also this year, the Committee
has continued to review Environmental, Social and Governance (ESG)
external reporting requirements and has considered the Task Force on
Climate-related Financial Disclosures (TCFD) reporting regime in detail.
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The business understands the importance of the role of our internal
audit function, and the value that an effective third line of defence
provides is well recognised. Accordingly, this year the Committee
endorsed the appointment of the Chartered Institute of Internal
Auditors (IIA) to undertake a review of our Internal Audit function and
you can read more about their ndings on page 87. In accordance with
the requirements under the UK Corporate Governance Code 2018
(Code), the Committee again undertook an internally facilitated
effectiveness review process and this approach extended to the review
of the effectiveness of the external audit function.
David Gosnell stood down as a member of the Committee following
his appointment as Chair of the Board, in line with the requirements of
the Code. David still regularly attends the Committee in his new role
when appropriate.
Anne Fahy
Chair, Audit and Risk Committee
2 March 2022
Highlights of 2021
Ensuring that the disclosures made in response to the
recommendations of the TCFD are appropriate and that the
assumptions used in the nancial statements are consistent
with these disclosures (note 1, note 13).
Assessing the ndings of the independent review of the
Internal Audit function.
Monitoring the application of certain Human Resources policies
and controls to ensure Group-wide consistency, and
conducting focussed deep dives when appropriate.
Areas of focus for 2022
Audit tender.
Develop an assurance policy.
Developing regulatory environment for audit.
Deep dive into cyber security.
Audit and Risk Committee report
continued
Annual Report and Accounts 2021
Corporate governance
85
Membership and meetings
During the year, the Committee met four 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 80. The Committee met privately with the
external auditor and with the Internal Audit function. In addition to the
Committee members, the Group Chief Financial Ofcer, the Chief Legal
& Risk Ofcer and Group Company Secretary, the Group Financial
Controller, the Head of Group FP&A, the Head of Group Internal Audit,
and the external auditor attended parts of these meetings by invitation.
The Group Chair and Group Chief Executive may also attend meetings.
The Head of Secretariat 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.
The Committee meetings are scheduled to ensure that they are
arranged close to the end of the half and full year, as well as before the
publication of the associated half and full year nancial reports, so as to
ensure the Committee is informed fully, and on a timely basis, on areas
of signicant risks and judgement.
The Committee received sufcient, reliable and timely information from
management to enable it to full its responsibilities.
The Board has conrmed that it is satised that Committee members
possess an appropriate level of independence and depth of nancial
and commercial, including sectoral, expertise. For the nancial year
ended 31 December 2021, Anne Fahy and Nicholas Bull were the
members of the Committee determined by the Board as having recent
and relevant nancial experience. You can read more about the skills
and experience of the members of the Committee on pages 72 to 74.
Going concern and viability statements
The Committee reviewed the updated wording of the Group’s
longer-term viability statement, set out on page 59. To do this, the
Committee ensured that the model used was consistent with the
approved Business Plan and that scenario and sensitivity testing aligned
clearly with the principal risks of the Group. Committee members
challenged the underlying assumptions used and reviewed the results
of the detailed work performed. The Committee was satised 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 94 and conrmed its satisfaction with the
methodology including appropriateness of sensitivity testing.
During the year, the Company received the Financial Reporting
Council’s letter regarding “Viability and Going Concern Thematic
review: Annual report and accounts to 31 December 2020” and was
pleased to note that there were no questions or queries raised. 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
In line with the requirements of the Code, the Committee considered
whether the Annual Report is ‘fair, balanced and understandable’ using
the established processes to ensure its input was appropriately timed.
The Committee members were consulted at various stages during the
drafting process and gave input to the planning process, including the
review processes undertaken internally and by the Company’s advisers.
The Committee received a full draft of the Annual Report and provided
feedback on it, highlighting the areas that would benet from further
clarity or balance. The draft report was then amended to incorporate
this feedback ahead of the February 2022 Committee meeting.
In this respect the Committee focussed on ensuring consistency and
completeness in non-nancial reporting (for example, ESG), new
reporting requirements including TCFD, principal risks and uncertainties
and reviewing the use of alternative performance measures and their
appropriateness in aiding users of our nancial statements to better
understand our performance year-on-year. On the basis of this work,
the Committee recommended and, in turn the Board conrmed, that it
could make the required statement that the Annual Report is ‘fair,
balanced and understandable’.
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Signicant issues relating to the nancial statements
The Committee considered the following issues relating to the nancial 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 2021, exceptional and acquisition-related items of $13.7m have been recorded in operating prot; the disclosures in
note 4 provide further details. The Committee assessed management 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 2021, the Group’s IAS19 Pension surplus was $21.1 million. The Committee reviewed the
methodology for determining key assumptions underpinning the valuation of liabilities of the Group’s most signicant
pension schemes. The Committee also reviewed in detail the various aspects of the continuing obligations to the
Group’s ongoing schemes. The Committee also considered the recognition of surpluses in respect of both the UK and
US funded plans. The Committee is satised that recognition of such surpluses and the disclosures provided in note 10
to the nancial statements are appropriate.
US legacy
environment
provision
The Group has recognised a provision, net of insurance reimbursements, of $11.2 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
ofDecision in March 2016, the Committee has continued to review whether subsequent events, including those
impacting other parties considered to be responsible for the most signicant contamination in the river, have triggered
the requirement to remeasure the level of remediation provisioning previously established. The Committee is satised
that there is no requirement to remeasure the remediation provision at 31 December 2021 and that the disclosures
provided in note 28 to the nancial statements are appropriate.
Taxation The Group operates in numerous jurisdictions around the world, with different regulations applying in different
territories. This complexity, together with intra-Group cross-border transactions, give rise to inherent risks. In addition
toreviewing the Group’s underlying effective tax rate, which decreased from 39% to 31%, the Committee also
considered the Group’s uncertain tax provisions and deferred tax assets, which amount in total to $20.2 million and
$20.7 million respectively. The Committee is satised with the approach and disclosures adopted by management as
reected in the nancial statements in note 9 to the nancial 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.
Audit and Risk Committee report
continued
Annual Report and Accounts 2021
Corporate governance
87
Internal control and risk management
The Board has overall responsibility for determining the nature and
extent of its principal and emerging risks and the extent of the Group’s
risk appetite, and for monitoring and reviewing the effectiveness of the
Group’s systems of risk management and internal control. The principal
risks and uncertainties facing the Company are addressed in the
Strategic Report and in the table on pages 46 to 58 in this Annual
Report. The Board has delegated to the Committee the responsibility
for monitoring the effectiveness of the systems of risk management
and internal control.
The Committee receives regular reports on the effectiveness of internal
control matters from management, Internal Audit and the external
auditors, as part of its duty to review the Company’s internal control
processes. This monitoring ensures timely identication of issues and
formal tracking of remediation plans. During the year, the Committee
continued to receive detailed reports on internal controls over nancial
reporting and these had been extended to a summary of the ndings
of a new stewardship review process that had been undertaken in
respect of the majority of large markets. These included analytical
reviews of balance sheets, deep dives into key nancial risks and
judgements, completion of balance sheet reviews and a review of
previous internal audit follow-up actions. Instances where the
effectiveness of internal controls were considered insufcient, or where
there was opportunity for enhanced controls, were discussed during
the year with updates being provided when required. In particular, the
Committee received several updates from the Chief Human Resources
Ofcer reviewing how the Group was applying Human Resources
policies and controls, with a focus on identifying areas where Group
ways of working were being inconsistently applied internally, and also
reviewing the oversight of third-party contractors. Remediation plans
are monitored closely on an ongoing basis, including a further review
of the application of controls in India to ensure these remained on track
after interventions in 2020. The Committee also reviewed cyber
security and data protection controls noting the importance of
mitigations in this area.
At its December meeting the Committee, on behalf of the Company,
reviewed effectiveness of the Company’s risk management and internal
control systems covering all material controls, including operational
andcompliance controls, and was satised that these systems operate
effectively in all material respects with weaknesses remediated in a
timely fashion.
The Committee reviews the minutes of the Group Risk Management
Committee meetings regularly, and discusses any relevant matters that
have arisen with management.
In relation to ESG reporting and disclosures, the Committee is provided
with an annual update where it has the opportunity to challenge and
give direction. Specically, the Committee reviewed the outcomes of
an internal assurance assessment of the Group’s ESG reporting systems
and controls, in order to understand the robustness of these
procedures as the use of this data by many stakeholder groups becomes
more frequent and important. In addition, the Committee has reviewed
the process behind, and resulting new disclosures around, TCFDs and
provided feedback to management on the proposed disclosures.
Internal audit
The Head of Group Internal Audit agrees the Internal Audit function’s
programme of work annually in advance with the Committee and this
is reviewed regularly by the Committee to ensure this achieves
appropriate coverage of key activities during the continued Global
uncertainty. At each Committee meeting, the Committee reviews
keyndings from internal audit reports, receives detailed reports
frommanagement where appropriate, and monitors the rate at which
actions agreed with management are implemented. This year, the IIA
undertook an evaluation of the effectiveness of the Internal Audit
function, which included an independent assessment of the function
against global standards, and the results were considered by the
Committee. The evaluation concluded that the Internal Audit Function
was highly regarded and operated to a high professional standard
following stakeholder feedback. Opportunities to further enhance
planning and co-ordination activities were identied. The Internal Audit
function will incorporate the relevant recommendations into future
work plans in agreement with the Committee.
Key themes considered in the internal audit reports throughout the year
included compliance with environmental and regulatory requirements
across locations, accuracy of payroll processing for workers including in
remote locations, as well as the state of compliances by some of Coats’
manpower contractors on key regulatory requirements. In addition to
Internal Audit’s review of the IT controls, data analytics were utilised
toidentify exceptions in expense management. A review of the level of
awareness of the Group’s Data Protection policies, as well as that of our
whistleblowing channel, was also conducted. The Internal Audit function
continued to conduct its investigations remotely during 2021 and the
Committee monitored delivery and the ndings to ensure there was
consistency of approach on audit delivery. There was also an increased
focus on identifying further ways to make use of data analytics by Group
Internal Audit to provide greater assurance. For any control ndings
identied as part of any investigation or audit, remediation plans were
put in place and the Committee reviewed these and the adequacy of
theimplementation measures.
Internal audit grade the severity of any ndings in their reporting to the
Committee, with signicant control ndings being dened as a material
deciency in the design or implementation of a control. This might
include a risk of material misstatement of nancial information where
controls in operations are largely decient or where there is a pervasive
violation of policies and procedures. No signicant control ndings
were identied during the period.
The Head of Group Internal Audit also consolidated and presented
tothe Committee a biannual review of in-country operational risks,
which included a summary of any new risks that have arisen in the
period with agreement on appropriate actions and interventions.
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External audit
Independence
The Committee is responsible for reviewing the independence and
objectivity of the Company’s external auditor, Deloitte LLP, agreeing the
terms of engagement with them and the scope of their audit. Deloitte
has a policy of partner rotation, which complies with regulatory
standards, and, in addition, Deloitte has a structure of peer reviews for its
engagements, which are aimed at ensuring that its independence is
maintained. Maintaining an independent relationship with the Company’s
external auditor is a critical part of assessing the effectiveness of the audit
process. The Committee annually reviews the policy on non-audit fees to
ensure it complies with latest FRC Ethical Standards.
The Committee also regularly reviews the level of audit and non-audit
fees paid to Deloitte. The key principles of the policy on non-audit
services are:
• The 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
nancial 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.
• Engagements entered into prior to 15 March 2020 can be
completed in line with the original terms as long as the non-audit
work being provided under the transitional arrangements was
envisaged at the time the engagement letter was signed.
During 2021, the external auditor provided services in relation to the
Group’s interim results and also provided tax advisory services that
were entered into prior to 15 March 2020. The external auditor has
conrmed 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 nancial statements. Non-audit fees
presented as a percentage of total audit fees is 10%. The non-audit
services primarily relate to long-running tax compliance and advisory
services in India, and the Committee considered and approved a proposal
for the external auditor to continue these works in India. In the case of
each engagement, it was considered appropriate to engage Deloitte LLP
for the work because of their existing knowledge and experience from
prior Group engagements. The Committee discussed with, and received
conrmation from, the external auditor that the audit team have not
relied on the work performed by their tax teams as part of the audit and
their objectivity and independence has been safeguarded.
The lead partner is rotated every ve years. Ed Hanson was appointed
as the lead audit engagement partner in 2018.
The group is in compliance with the provisions of the Competition &
Markets Authority’s Statutory Audit Services for Large Companies
Market Investigation (Mandatory Use of Competitive Tender Processes
and Audit Committee Responsibilities) Order 2014. Provisions include
audit tendering at least every 10 years and mandatory audit rm
rotation after a period of maximum tenure, set at 20 years. Deloitte LLP
was appointed the Company’s external auditor in 2003 and therefore a
new audit rm must be appointed for the year ending 31 December
2023 at the latest. The Board previously intended for the audit tender
to take place during 2020. The Board now intends to undertake a
competitive tender process for the external audit during 2022, with the
intention of the Board appointing a new audit rm for the year ended
31 December 2023. The tender process will consider Big Four as well as
non-Big Four audit rms. There are no contractual obligations that
restrict the Company’s choice of external audit rm but the auditor
tendering and rotation requirements set by the UK Corporate
Governance Code, the Competition & Markets Authority and the
European Commission preclude Deloitte from the tender process.
Assessment of audit process
The scope of the external audit is formally documented by the auditor.
They discuss the draft proposal with management before it is referred
to the Committee which reviews its adequacy and holds further
discussions with management and the auditor before nal approval.
In respect of the nancial year ended 31 December 2021, the
Committee assesses the performance and effectiveness of the external
auditor, as well as their independence and objectivity, on the basis of
meetings and a questionnaire-based internal review which was
completed by the Committee members, regular attendees to the
Committee and those Coats colleagues globally who interact most
frequently with the external auditor. The summary of the results of the
questionnaire has been reviewed by the Committee and appropriate
feedback has been shared with the external auditor, noting that prior
year feedback was acted on.
The Committee is satised that it can recommend to the Board that the
Board should propose to shareholders the reappointment of Deloitte
LLP as auditor for the year ending 31 December 2022.
Assessment of the effectiveness of the Committee
The Committee effectiveness in respect of the year ended 31 December
2021 was evaluated using an internal questionnaire inline with the
process set out on page 81. The Committee considered that the key
points that were identied in the previous year’s assessment had been
adequately addressed. The 2021 evaluation indicated that the Committee
was working effectively and identied opportunities for the 2022
Committee work plan including development of an assurance policy.
Looking forward
As well as the regular cycle of matters that the Committee schedules
for consideration each year and conducting the audit tender, we are
planning over the next 12 months to:
• develop an assurance policy;
• conduct a deep dive into cyber security; and
• continue to monitor legislative and regulatory changes that may
impact the work of the Committee and consider the impact of
proposed audit industry changes.
Signed on behalf of the Audit and Risk Committee by:
Anne Fahy
Chair, Audit and Risk Committee
2 March 2022
Audit and Risk Committee report
continued
Annual Report and Accounts 2021
Corporate governance
89
Nomination Committee report
Name Member since
David Gosnell (Chair) 2015
Rajiv Sharma 2015
Nicholas Bull 2015
Anne Fahy 2018
Echo Lu 2017
Fran Philip 2016
Jakob Sigurdsson 2020
Dear Shareholder,
I am pleased to present this report of the Nomination Committee. 2021
has been another year of change for the Company. In May 2021, I
became Chair of the Board following Mike Clasper stepping down from
the Board at the AGM and we took the opportunity to review and
refresh the composition of the Remuneration Committee and the Audit
and Risk Committee, in line with the requirements of the 2018 UK
Corporate Governance Code (Code), as detailed on page 69. In April,
Jackie Callaway succeeded Simon Boddie as Chief Financial Ofcer of
the Company and, with effect from 1 January 2022, Rajiv Sharma
stepped down as a member of the Nomination Committee.
As the recruitment processes for these Board changes were concluded
last year, the Nomination Committee has taken the opportunity to
reect on the impact that these transitions had on the composition and
dynamics of the Board, and has developed an enhanced skills matrix to
ensure that there is a detailed and robust record of the current
strengths on the Board. You can read more about this on page90.
The Committee has also implemented a new Non-Executive Director
review process in respect of Non-Executive Directors who have served
on the Board for more than three years. You can read more about this
on page 90. The process has provided detailed insights into the
strengths and developmental opportunities amongst our highly skilled
and experienced Board and these are areas that we will continue to
consider in 2022.
In addition to these initiatives, the Committee continued to full its
core responsibilities of overseeing executive succession plans, reviewing
the structure of the Board Committees and reviewing its own
effectiveness.
During the year, the Committee met twice and all Committee Members
attended the maximum number of meetings possible. Further details of
individual Directors’ attendance can be found on page 80. You can
read more about the skills, tenure and experience of the members of
the Committee on pages 72 to 74.
Highlights of 2021
Smooth transition of Chair and Chief Financial Ofcer roles.
Implementation of new Non-Executive Director review process.
Development of enhanced skills matrix.
Executive succession planning.
Areas of focus for 2022
Continue to monitor and foster successful performance culture.
Further enhancement of diversity and inclusion in our talent
pipeline.
Principal objectives of the
NominationCommittee
To make sure the Board comprises individuals with the
necessary skills, knowledge and experience to ensure that it
iseffective in discharging its responsibilities and has oversight
of all matters relating to corporate governance.
Key responsibilities
Reinforcing the culture and diversity expertise in the Board’s
and senior management team’s composition, and maintaining
ongoing succession plans.
Considering ways to improve diversity in the pipeline for senior
management roles.
Further strengthening of the senior management team.
Reviewing the Group’s talent management process.
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Skills matrix
Ensuring the right balance and diversity of skills and experience on the
Board creates the conditions for the success of the Group. Reviewing
the strengths of existing Board members as well as identifying any
potential opportunities to enhance the overall portfolio of talent on the
Board and in senior management is a key responsibility of the
Nomination Committee. During 2021, the Committee agreed an
enhanced skills matrix to provide a detailed and transparent assessment
of the current skill set on the Board. A summary of the matrix is set out
below. The completed matrix will help inform succession planning and
future recruitment.
CRITERIA
PLC leadership experience
Relevant functional experience
Specic value-added expertise
Relevant sectoral experience
Geographic experience
Non-Executive Director review process and training
In 2021 the Nomination Committee implemented an additional
rigorous review process in respect of Non-Executive Directors’
performance and contribution to the Board that will be undertaken
every three years, ahead of recommending their re-election at their
fourth and seventh AGMs. These are conducted by way of an online
questionnaire, comprising questions which have been pre-approved by
the Board, to be completed by the rest of the Non-Executive Directors.
The Chief Human Resources Ofcer then shares the condential results
on an anonymous basis with the Chair, who has an opportunity to
review and add their opinion before holding a feedback discussion with
the Non-Executive under review, to also be attended by the Senior
Non-Executive Director. The process was trialled with a review of
Nicholas Bull, who had served on the Board for almost six years.
Further reviews of Anne Fahy, Echo Lu and Fran Philip, each of whom
had recently completed or was approaching three years of service on
the Board, were undertaken. Jakob Sigurdsson’s review will take place
before he has completed his initial three-year term, prior to
recommending his re-election to shareholders.
PROCESS TO BE UNDERTAKEN EVERY THREE YEARS
Peer review by other Non-Executive Directors
Review of outcomes by Chair
Discussion of outcomes and feedback between Chair, Senior
Independent Director and the Non-Executive
Consider recommendation for re-election
I am pleased with the open and honest feedback that has been
received and shared. The Non-Executive Directors that have undertaken
this process to date have responded positively and we will continue to
focus on any areas identied for development in 2022.
Succession planning
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
presented to the Committee to ensure that discussions are held well in
advance of planned departures, to allow appropriate skills gap
identication and timely succession. 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. When making
decisions on new appointments, Board members consider the skills,
experience and knowledge already represented on the Board and the
benets of diversity in all its forms. Following the announcement of my
appointment to Chair of the Board, the Committee reviewed and
refreshed the composition of the Remuneration Committee, including
appointing a new Chair and identifying an appropriate new member. It
was agreed that Echo Lu would succeed me as Chair of the
Remuneration Committee, having served on the Committee from
December 2017 and noting her deep executive experience in people-
related matters. Nicholas Bull was identied as being the best
candidate to join the Remuneration Committee and brought the
benets of his strong interest in ESG matters and a cross-over in
membership of the Nomination and Audit and Risk Committees. Both
Echo and Nicholas commenced their new roles on 1 May 2021. I also
stepped down as a member of the Audit and Risk Committee, in line
with the requirements of the Code, and the Nomination Committee
judged that it was not necessary to appoint a new member to that
Committee at that time.
Nomination Committee report
continued
Annual Report and Accounts 2021
Corporate governance
91
The Committee and Board have continued to monitor the GET and
senior management talent pool to ensure that succession planning for
business-critical roles is proactively reviewed. The Committee has
continued its regular bi-annual review of the progress on CEO
succession plans. There were also two comprehensive talent reviews
and a succession planning update, including a review of the talent
pipelines for GET succession that provided deeper insights into the
talent in the organisation, presented to the Board during the year.
Diversity
Coats has a well-established commitment to ensuring diversity and
balance at Board level and below. The Board supports the
recommendations of the Hampton-Alexander Review on gender
diversity and the Parker Review on ethnic diversity. The Committee
continues to focus on these important areas and I am pleased to
conrm that we have 50% female representation on the Board and
have two Directors from an ethnic minority background. The Board has
had several discussions about how to help develop the talent pipeline
in certain regions to further facilitate diversity in our succession plans
and we will continue to focus on this in 2022. In November, the
Company launched a project to expand our collation and analysis of
our Diversity, Equity and Inclusion (DEI) data to support the
development of our DEI strategy and reporting. The Company has also
collaborated with certain customers to share DEI case studies. The way
in which people want to work has changed, triggered partially by the
changes enforced by the pandemic. We recognise the benets of a
truly engaged workforce and note the role that exible working plays
in keeping and attracting talent. Coats has a exible working policy.
The gender diversity across our Group is shown below.
Male Female
All employees 58% 42%
GET and direct reports 72% 28%
Senior managers 77% 23%
Board 50% 50%
You can see more information on the gender split across the Board, our
senior management team (which is dened as employees that are
grade three or above in the organisation) and the Group as a whole in
our Sustainability Report, which is available on our website (www.
coats.com/sustainability). Our Board Diversity Policy (Policy) can be
viewed on our corporate website (www.coats.com/about/corporate-
governance/board-composition) and it sets outs an indicative range of
diversity criteria, that will be considered alongside merit and other
objective factors, when recruiting to ensure the continued calibre of
the Board while being an effective driver of the spirit of true diversity,
having due regard to gender, ethnicity, social background, skill set and
breadth of experience.
Our workforce diversity policy is included in our Coats Key People
Principles and mirrors the intention of the Policy. You can also access
these on our website (www.coats.com/Sustainability/Policies-and-
downloads).
Independence and overboarding
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. The Company Secretary
maintains a register of Interests and Conicts to track the commitments
of the Directors and ensure these are in line with overboarding
guidance. The Committee is satised that the external commitments of
its Chair and members do not conict with their duties as Directors of
the Company and that any situational conicts have been authorised in
line with the process set out in the Company’s Articles of Association.
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, balanced alongside the need to
ensure continuity on the Board. 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. As such, the
Board considers that all of its Non-Executive Directors continue to
demonstrate independence.
Committee performance and effectiveness
The Committee‘s effectiveness in respect of the year ended
31 December 2021 was evaluated using an internal questionnaire in
line with the process set out on page 81. The Committee also
considered the key points that were identied in the previous year’s
assessment. The 2021 evaluation indicated that the Committee’s ways
of working, composition and dynamics were working effectively and
identied opportunities for the 2022 Committee work plan including
further development of succession plans for GET and below GET roles
and briengs on new and emerging trends.
Signed on behalf of the Nomination Committee by:
David Gosnell
Chair, Nomination Committee
2 March 2022
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Strategic report Corporate governance Financial statements Other information
92
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
18 May 2022 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 nancial risk
management objectives and policies, business review, future prospects,
stakeholder engagement, Section 172 Statement andenvironmental
policy. The 2018 UK Corporate Governance Codeisavailable 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 72 to 74 of this Annual Report. Particulars of their
emoluments and benecial and non-benecial interests in shares are
given in the Directors’ Remuneration Report on pages 104 and 105.
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,
arecord 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 75 to 79. Information on
compensation for loss of ofce is contained in the Directors’
Remuneration Report on page 104.
Directors’ conicts of interests
The Company has procedures in place for managing conicts of
interest, including situational conicts of interest. Potential situational
conicts of interest are identied prior to appointment and the Board
will consider and authorise these if appropriate. 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 conicts.
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.
Thedeeds 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 Ofcers’ 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 5 pence each (Ordinary Shares), which does
not carry the right to receive a xed 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 specic 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 145,255,457
(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 2021) of its own Ordinary Shares
was granted at the 2021 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 £48,370,000 was granted at the
2021 AGM. No shares were allotted pursuant to this authority during
the year. The issued share capital of the Company at 31 December
2021 was approximately £72,628,519 divided into 1,452,570,385
Ordinary Shares.
Since 31 December 2021, 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 1 March 2022 is
1,452,570,385 Ordinary Shares. The Company’s Ordinary Shares are
listed on the London Stock Exchange. The register of shareholders is
Annual Report and Accounts 2021
Corporate governance
93
held in the UK. The number of Ordinary Shares of the Company in
which the Directors were benecially interested as at 31 December
2021 is set out in the Directors’ Remuneration Report on page 105.
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,
inaccordance with DTR 5, from holders of notiable interests in the
Company’s issued share capital.
As at
31 December
2021*
As at
1 March
2022*
Nature
of holding
Liontrust Investment
Partners LLP 10.52% 10.52% Direct
Kempen Capital
Management N.V. 7.49% 7.49% Indirect
Mondrian Investment
Partners Limited 5.88% 5.88% Indirect
M&G Plc 5.30% 5.30% Indirect
* % holding based on total number of shares in issue at the time of respective
notication.
The Company has not been notied of any other substantial interests
inits securities. The Company’s substantial shareholders do not have
different voting rights. The Group, so far as is known by the Company,
is not directly or indirectly owned or controlled by another corporation
or by any government.
Change of control
The Company is not party to any signicant 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 ofce or employment that occurs because
ofa 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
(2020: £nil).
Whistleblowing procedure
A whistleblowing, ethics and fraud report is a standing agenda item
that is presented quarterly at Board meetings. 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 condentially via email
through the Group ethics channel or, from 2022, via an externally
hosted web service whistleblowing hotline. ‘Doing the right thing’ and
ways to raise concerns are regularly communicated and discussed, and
are covered as part of the Global Ethics Day, held each year in October.
During the year ended 31 December 2021, there were 98
whistleblowing concerns raised (2020: 83). Of these concerns raised,
following investigation 30% (2020: 24%) of the closed cases were
upheld and 14 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.
Concern is raised via whistleblowing procedure
Acknowledgement is sent to the whistleblower within sevendays
of receipt of the concern
The investigation team, independent of the relevant operational
business or function, is nominated by the Chief Legal & Risk
Ofcer and Group Company Secretary, Chief Human Resources
Ofcer and the relevant Group Executive Team member.
Allegation is investigated by the nominated team
Findings are presented to the Chief Legal & Risk Ofcer and Group
Company Secretary, Chief Human Resources Ofcer 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
andRisk Committee.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
94
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 32 to the nancial statements includes the Group’s
objectives, policies and processes for managing its capital; its nancial
risk management objectives; details of its nancial 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(f).
The Directors are satised that the Company and Group have sufcient
resources to continue in operation for the foreseeable future, a period
of not less than 12 months from the date of this report. Accordingly,
the Directors consider that the going concern basis of accounting is
appropriate for the Company and the Group and the nancial
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.
Results and dividends
The results of the Group are shown on page 124 and movements in
reserves are set out in note 27 to the nancial statements.
The Board is mindful of the importance of returns to shareholders and,
as a result of the strength of the Group’s balance sheet, the strong
growth and recovery out of the Covid pandemic, and its condence in
the strategy and growth outlook for the Group, it is pleased to propose
a nal dividend of 1.50 cents per share (2020 nal dividend:1.30 cents).
Subject to approval at the forthcoming AGM, the nal dividend will be
paid on 25 May 2022 to ordinary shareholders on the register at
29 April 2022, with an ex-dividend date of 28 April 2022. Alongside
the interim dividend of 0.61 cents per share, this makes a total of 2.11
cents per share for the full year 2021.
Auditor
A resolution to reappoint Deloitte LLP as auditor will be proposed at
the 2022 AGM. More information about the consideration of an audit
tender can be found on page 88 in the Audit and Risk Committee
Report. It has been decided that it is in the best interests of the
Company and the members to delay the tender of the audit such that
the new auditors will be appointed to undertake the audit for the year
ending 31 December 2023.
A statement in respect of the auditor, in accordance with Section 418
of the Companies Act 2006, has been included below.
Disclosure of information to the auditor
The Directors who held ofce at the date of approval of this Directors’
Report conrm that, so far as they are aware, there is no relevant audit
information of which the Company’s auditor is unaware, and each
Director has taken all reasonable steps to ascertain any relevant audit
information and to ensure that the Company’s auditor is aware of that
information.
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 on page 198.
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 nancial year-end 188
Likely future developments in the business 9, 14 to 15
Exposure to price risk, credit risk, liquidity risk and cash ow risk 176
Research and development 14 to 15
Information on nancial instruments 176
Environmental policy 12
Employment of disabled persons 36
Employee involvement 26 to 29
Stakeholder engagement 20 to 25
Diversity policy 91 (and on our website)
SECR energy and carbon reporting 31 to 33
Greenhouse gases and environmental disclosures 32 to 33, 38 to 45
This Directors’ Report was approved by order of the Board.
On behalf of the Board
Stuart Morgan
Company Secretary
2 March 2022
Directors’ report continued
Annual Report and Accounts 2021
Corporate governance
95
Directors’ responsibilities
The Directors are responsible for preparing the Annual Report and the
nancial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare such nancial
statements for each nancial year. Under that law the Directors are
required to prepare the Group nancial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union and Article 4 of the IAS Regulation and have elected
to prepare the parent Company nancial 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
nancial statements unless they are satised that they give a true and
fair view of the state of affairs of the Company and of the prot or loss
of the Company for that period.
In preparing the parent Company nancial statements, the Directors
are required to:
• select suitable accounting policies and then apply them consistently;
• make judgements and accounting estimates that are reasonable and
prudent;
• state whether applicable UK Accounting Standards have been
followed, subject to any material departures disclosed and explained
in the nancial statements; and
• prepare the nancial statements on the going concern basis unless
it is inappropriate to presume that the Company will continue in
business.
In preparing the Group nancial statements, International Accounting
Standard 1 requires that Directors:
• properly select and apply accounting policies;
• present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable
information;
• provide additional disclosures when compliance with the specic
requirements in IFRSs is insufcient to enable users to understand
the impact of particular transactions, other events and conditions
on the entity’s nancial position and nancial 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 sufcient to show and explain the Company’s transactions and
disclose with reasonable accuracy at any time the nancial position of
the Company and enable them to ensure that the nancial statements
comply with the Companies Act 2006. They are also responsible for
safeguarding the assets of the Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
corporate and nancial information included on the Company’s
website. Legislation in the United Kingdom governing the preparation
and dissemination of nancial statements may differ from legislation in
other jurisdictions.
Directors’ responsibility statement
We conrm that to the best of our knowledge:
• the nancial statements, prepared in accordance with the relevant
nancial reporting framework, give a true and fair view of the
assets, liabilities, nancial position and prot or loss of the Company
and the undertakings included in the consolidation taken as a
whole;
• the Strategic Report includes a fair review of the development and
performance of the business and the position of the Company and
the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties
that they face; and
• the Annual Report and nancial statements, taken as a whole, are
fair, balanced and understandable and provide the information
necessary for shareholders to assess the Company’s position,
performance, business model and strategy.
This responsibility statement was approved by the Board of Directors
on 2 March 2022 and is signed on its behalf by:
Rajiv Sharma
Group Chief Executive
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
96
Remuneration Committee report
I am pleased to introduce the Directors Remuneration Committee
Report for 2021. This report includes a summary of the Remuneration
Policy, which was approved at the AGM on 11 June 2020, and the
Annual Report on Remuneration. A full version of the Remuneration
Policy can be found at www.coats.com/about/corporate-governance/
board-committees. The Annual Report on Remuneration will be
subject to an approval Resolution at the AGM on 18 May 2022.
Overview of 2021
The Remuneration Policy was implemented in 2021 as the Committee
originally intended.
Coats delivered a strong performance overall in 2021 with a
recovery in Sales across the majority of business units, increased
levels of protability and high levels of cash collection. The annual
bonus for 2021 has achieved the stretch targets established and
will pay at maximum for the three group nancial metrics.
The Long-Term Incentive award granted in 2019 for the three-
year period to the end of 2021 did not achieve its minimum
threshold targets and the award has not vested. The global Covid
pandemic has clearly had a material negative impact on 2020
business performance and specically on free cash ow and
prot growth and this is reected in the overall level of vesting.
The Committee did not make any adjustments to the awards
to reect the impact of Covid on business performance.
Simon Boddie retired from the Board on 31 March 2021. Following
his retirement he was treated as a good leaver for the purposes
of all Long-Term Incentive Plan (LTIP) and Deferred Annual Bonus
Plan (DABP) awards. Any unvested LTIP awards were reduced
pro-rata to reect the period of employment to 31 March 2021
and remain subject to the original performance conditions. As
we announced in 2020 the Company adopted a policy that
required, following termination of employment, a minimum level
of shareholding should be retained for a 2 year period based on
the lower of the Executive Directors shareholding requirement
(currently 200%) or the actual shareholding at the date of leaving.
Principal objectives of the
RemunerationCommittee
Our main objectives are to have fair, equitable and
competitive reward packages that support our vision
and help ensure that rewards are performance based
and encourage longer term shareholder value creation.
Key responsibilities
Implementing the remuneration policy
Ensuring the competitiveness ofreward
Designing the incentive plans
Setting incentive targets and determining award levels
Review workforce remuneration and related policies and
thealignment of incentives and rewards with culture
Committee members
Name Member since
David Gosnell
(Chair until May 2021)
2015 (until May 2021)
Echo Lu
(Chair from May 2021)
2017
Nicholas Bull 2021 (from May 2021)
Fran Philip 2016
Highlights of 2021
Decision to increase weighting of Sustainability performance
measures in 2022 LTIP award
Harmonisation of UK pension policy to commence in 2022
Review of remuneration policies in Coats’ major markets
Development and adoption of a global Living Wage policy
Areas of focus for 2022
Consultation with stakeholders prior to the next Remuneration
Policy approval resolution in 2023
Continuing review of remuneration policies for all employees
Annual Report and Accounts 2021
Corporate governance
97
Simon Boddie’s shareholding was already in excess of this level and
therefore the 200% level continues to apply and is monitored by
the Company. He received no compensation for loss of ofce.
The Committee also reviewed the weighting and composition of
the performance measures in the LTIP awards to ensure that they
remained aligned to the Company’s strategic goals and objectives.
The Committee concluded that the measures reected in the LTIP
grant in 2021 (EPS growth, cumulative Free Cash Flow generation,
Total Shareholder Return and Sustainability objectives) remained
appropriate. However, given our strategic focus on environmental,
social and governance issues and, increased stakeholder expectations,
we have decided to increase the weighting of sustainability measures
from 10% to 20% in 2022. The increased weighting is also indicative
of the increasing potential commercial opportunities that exist for
Coats as we develop products and services that directly support
our customers in this area. The cumulative Free Cash Flow measure
was reduced from 30% to 20% but is still a key performance
metric and continues to represent a material proportion of the
annual bonus with a weighting of 20% of the total bonus.
As we announced in 2019 and 2020 the pension benet policy for
Executive Directors was aligned to the average for the UK workforce.
Jackie Callaway’s pension benet on recruitment was offered at a level
of 12% of salary and Rajiv Sharma’s pension benet will be reduced to
12% after 31 December 2022. The Company currently offers a number
of different pension benet levels in the UK with some employees
receiving less than 12% and others receiving more than this. In
order to achieve full alignment and, to standardise the approach, the
Committee have approved a process to harmonise the pension benet
level for all UK based employees to a standard employer contribution
level of 12% by July 2023. This will be accomplished in two stages with
an increase to a minimum level of 10% by July 2022 and subsequently
a minimum 12% by July 2023. For the majority of employees this will
result in an increase in pension benets over the two year period.
The Committee takes its responsibility to engage with stakeholders
under Provision 40 of the Corporate Governance Code very seriously
and during 2022 in the course of conducting in-depth reviews in
each of our major markets the Committee reviewed the details of
the application and operation of the Company’s remuneration policy
to ensure that local remuneration terms were fair, equitable, and
aligned to the company’s principles and were market competitive. The
initiative to achieve Great Place to Work accreditation in our markets
is directly linked to achieving high levels of engagement from our
employees and I am delighted with the progress that has been made
to date. In addition, the Committee reviewed the operation of the
Company’s Living Wage policy globally to ensure that all our employees
received at least, and very often materially more, fair compensation
that enabled them to support themselves and their families.
Outlook for 2022
During 2022 we intend to implement the actions referred
to above including the increase to the LTIP weighting
to focus on sustainability and to implement the rst
phase of the UK pensions policy harmonisation.
The AGM in 2023 will require a new Remuneration Policy approval
Resolution and during 2022 the Committee will seek the views of all
stakeholders and shareholders prior to proposing any amendments
to the policy. Consultation and communication with our shareholders
and stakeholders will be an important part of this review process.
There is no doubt that the forthcoming year will, like 2020 and 2021,
come with its own unique pressures. The Company will continue
to face macroeconomic and operational challenges that will mean
it will be even more important to attract, retain and incentivise
the key talent that it needs to generate shareholder value.
Committee Changes
This is my rst year of writing the introduction to this report as
Remuneration Committee Chair following David Gosnell’s appointment
as Chair of Coats Group plc in May 2021. I would like to thank
David for his leadership of the Committee and his support, guidance
and encouragement as I have assumed my new responsibility.
I would also like to welcome Nicholas Bull to the Committee
and to thank him and Fran Philip for their on-going support.
Echo Lu
Chair, Remuneration Committee
2 March 2022
“Coats delivered a strong performance
overall in 2021 with a recovery in Sales
across the majority of business units,
increased levels of protability and
high levels of cash collection”
Echo Lu
Chair, Remuneration Committee
Coats Group plc
Strategic report Corporate governance Financial statements Other information
98
Remuneration at a glance
Our 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 short and
long term
Fair & transparent rewards
linked to clear measures and
aligned to business strategy
and goals
Aligned to the principles
andoperation of the
remuneration policy for
thewider workforce
Remuneration Policy summary (Executive Directors)
The Remuneration Policy is intended to
take into account the need to recruit
and retain Directors who have the
suitable skills and experience to perform
in the interests of the Company, its
stakeholders and its shareholders, while
paying no more than is necessary.
The Remuneration Committee will need to
ensure that any incentive compensation for
Executive Directors is suitably motivational
and will encourage any such Executive
Directors to meet stretching performance
targets with an acceptable degree of risk.
The Committee’s policy is that
remuneration and benet levels should
be sufciently competitive, having regard
to remuneration practice in the industry
and the countries in which the Group
operates, to attract, incentivise, reward
andretain Directors and senior executives.
Element Key features of policy
Fixed base and benets • Base salary is benchmarked against the FTSE250 and a selected
comparator group of similar size and complexity
• Benets benchmarked to local market practice
• Pension benets aligned to the workforce where the role
isbased
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
ofannual incentives is signicantly aligned to the longer
termperformance 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
performanceperiod
• Any LTIP shares awarded are subject to malus and clawback
Shareholding
Requirement
• 200% of salary within ve 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 Committee report
continued
Total gure remuneration for 2021
Total remuneration
(£000)
£967.943%57%
Jackie Callaway
£1,758.552%48%
Rajiv Sharma
Key
Fixed Annual bonus LTI (Nil for 2021)
Annual Report and Accounts 2021
Corporate governance
99
Remuneration release prole
2021 2022 2023 2024 2024
Base salary/Benets/Pension Cash & benets
Short-term incentive Cash Deferred shares
Long-term incentive Performance Period Holding Period
Summary implementation in 2021
Fixed remuneration Implementation in 2021
Base salary
I July 2021 review
• Increase of 3% for Rajiv Sharma and Jackie Callaway
• Aligns to the average for the UK workforce of 3.1%
Pension benet
Aligned to the UK workforce
• For Rajiv Sharma xed at £122,400 per annum until 31 December 2022 then 12% thereafter
• For Jackie Callaway 12% of salary
Annual bonus
Performance measures;
Sales: 30%
EBIT: 30%
Free Cash Flow: 20%
Personal objectives: 20%
• For Rajiv Sharma a maximum bonus of 150% of salary with a deferral of 50% of the
outcomein shares
• For Jackie Callaway a maximum bonus of 115% with a deferral of 40% of the outcome
inshares
• Outcomes for 2021 shown on page 101
Long term incentive
Performance measures:
EPS growth: 40%
Cumulative Free Cash Flow: 30%
Total Shareholder Return: 20%
Sustainability: 10%
• Grant of 175% of salary to Rajiv Sharma
• Grant of 150% to Jackie Callaway
• 3 year performance period with subsequent 2 year holding period
• Targets for 2021-2023 on page 103
Coats Group plc
Strategic report Corporate governance Financial statements Other information
100
Directors’ remuneration report
FOR THE YEAR ENDED 31 DECEMBER 2021
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
data has been audited by Deloitte LLP.
The Annual Report on Remuneration will be subject to an advisory vote at the AGM on 18 May 2022. The current Remuneration Policy applicable
to the year ended 31 December 2021 was approved by shareholders at the AGM on 11 June 2020 and can be found in the Corporate Governance
section at www.coats.com/about/corporate-governance/board-committees.
Executive Directors
Three Executive Directors were employed during 2021. Rajiv Sharma was originally appointed to the Board on 2 March 2015 and was appointed
asGroup Chief Executive with effect from 1 January 2017. Simon Boddie was appointed as Chief Financial Ofcer on 4 July 2016 and retired from
theBoard on 31 March 2021. Jackie Callaway was appointed as a Director on 1 December 2020 and succeeded Simon as Chief Financial Ofcer
following his retirement.
Single total gure for Executive Directors’ remuneration for 2021 (audited information)
Simon Boddie Jackie Callaway Rajiv Sharma Total
£000 2021 2020 2021 2020 2021 2020 2021 2020
Base salary 109.0 414.2 385.8 31.7 621.3 581.4 1,116.1 1,027.3
Benets 8.8 35.8 15.7 1.3 47. 4 37.7 71.9 74.8
Other – – 100.0 – 50.0 – 150.0 –
Pension 21.8 87.2 46.3 3.8 122.4 122.4 190.5 213.4
Total Fixed 139.6 537. 2 547.8 36.8 8 41.1 741.5 1,528.5 1,315.5
Annual bonus 125.4 32.7 420.1 – 917.4 45.9 1,462.9 78.6
LTIP – – – – – – – –
Total Variable 125.4 32.7 420.1 – 917.4 45.9 1,462.9 78.6
Total 265.0 569.9 967.9 36.8 1,758.5 787.4 2,991.4 1,394.1
The gures in the table above have been calculated on the basis of the following:
• Benets: this is the value of all benets including a car allowance, private medical insurance, life insurance and income replacement insurance.
Acar allowance of £20,000 per annum is paid to Rajiv Sharma and an allowance of £15,000 per annum is paid to Simon Boddie and
JackieCallaway.
• Other: as disclosed in last year’s report Jackie Callaway received £100,000 as compensation on recruitment for the loss of an incentive payment
from her former employer; this was paid on the condition that at least the net amount received would be used by her to purchase shares in
Coats; this condition has been met. From 1 January 2022 Rajiv Sharma is based in Singapore; the company paid a relocation allowance of
£50,000 in connection with this change in work location; no other benets are payable in connection with this relocation.
• Annual bonus: is the total value in cash and shares of the annual bonus that is attributable to each year. Fifty percent of any 2021 bonus
outcome for the Chief Executive Ofcer and forty percent for the current Chief Financial Ofcer 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 benet. No Executive
Director participates in any dened benet pension arrangement. Jackie Callaway’s pension benet is based on 12% of salary. Rajiv Sharma’s
pension benet is xed at its current level and will not increase with any subsequent salary review until 31 December 2022. Thereafter
Mr Sharma’s pension benet will reduce to 12% of salary. By July 2023 the minimum UK pension contribution for all UK employees, regardless
of seniority, will be standardized at 12% of salary. Any employee who receives a pension benet above this level will have their benet value
protected. This phased approach will, overall, result in increases in pension benet for a majority of the UK employees and will result in
alignment of the pension benets for all UK based employees.
• Rajiv Sharma is a Non-Executive Director of Senior plc and received fees of £53,000 during the year. Simon Boddie is a Non-Executive Director
of Page Group plc and LTG plc. He received fees of £17,575 and £12,500 respectively during the period that he was a Director. The policy of
theBoard is that Directors are entitled to retain any fees in respect of external appointments.
Annual Report and Accounts 2021
Corporate governance
101
Annual bonus outcome 2021 (audited information)
The annual bonus for 2021 was determined in accordance with the details provided in the 2020 Directors’ Remuneration Report. Details of the
bonus measures and opportunities are provided in the table below.
Annual bonus 2021 Weighting
Bonus opportunity
(% of max bonus)
Performance achieved in 2021
(% of max bonus)
Performance Measure Threshold Target Maximum Jackie Callaway Rajiv Sharma
Group Sales 30.0% 0% 15.0% 30.0% 30% 30%
Earnings Before Interest and Taxation (EBIT) 30.0% 0% 15.0% 30.0% 30% 30%
Free Cash Flow (adjusted) (FCF) 20.0% 0% 10.0% 20.0% 20% 20%
Individual objectives 20.0% 0% 10.0% 20.0% 13.3% 17%
Total 100.0% 0% 50.0% 100.0% 93.3% 97%
Maximum Bonus (% of salary) 115% 150%
Total (% of salary) 107.3% 145.5%
Simon Boddie’s pro-rata annual bonus for the three months to 31 March 2021 was calculated on the basis of the following weightings; Sales
(37.5%), EBIT (37.5%) and FCF (25%); effectively the weighting for individual objectives was removed. Payment at threshold, target and maximum
was on the same basis as shown above. His bonus will be paid fully in cash.
The measures were selected to incentivise a balance of outcomes that reected the strategic priorities for the Group at the beginning of 2021.
Inparticular these were to deliver a strong performance in sales with an acceptable level of margins through efciency in EBIT performance, ensure
consistent and increasing level of cash generation from operations through strong working capital management, and achieve certain key strategic
objectives which are detailed on the next page that were specic for each Executive Director.
Annual bonus 2021 Weighting
Bonus targets
$m
Performance
achieved in 2021
Performance targets Threshold Target Maximum
Group Sales (US$m) 30.0% 1,231.2 1,368.0 1,436.4 1,529.0
EBIT (US$m) 30.0% 128.0 160.0 176.0 196.7
FCF (adjusted) 20.0% 60.0 75.0 85.0 112.4
Individual objectives 20.0%
Strategic
objective See table above
Targets are set in relation to budget for the upcoming nancial year and the gures in the table above reect the 2021 Plan exchange rates.
Theperformance reected in the table above reects the gures disclosed in this Annual Report adjusted to exclude the impact of any exchange
rate uctuations during the year ($25.2 for Sales, $3.7m for EBIT, and $-0.5m for FCF respectively). For the 2021 annual bonus challenging
individual objectives were established by the Committee for each Executive Director that reected activities and initiatives intended to improve
theperformance of the Group. The objectives established and assessed for 2021 are reected in the section below. No discretionary adjustment
has been applied in assessing performance outcomes.
Personal objectives linked to 2021 bonus
At the beginning of the year the Committee determined that the following personal objectives would be linked to 20% of the annual bonus
outcome. All objectives were equally weighted.
Rajiv Sharma: To improve customer experience, measure success and establish a segmental end to end supply chain; to deliver the Group’s
2021 sustainability targets concerning recycled thread value, water usage, compliance with efuent and emissions standards
andachievement of the Group’s social objectives; to deliver organisational changes and build capability.
Jackie Callaway: To successfully renance the Group’s $350m syndicated bank facility; to deliver operational stability in the North and Central
American business unit cluster and to drive sustainable growth; to lead the Finance function processes to analyse the gross
margin performance for each cluster and to support operational delivery of improvements.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
102
As announced in last years report, Simon Boddie retired from the Board on 31 March 2021. His bonus award for 2021 was pro-rata based on three
months service and the Committee agreed that, subject to satisfaction with the orderly transition to his successor, his bonus would be based fully
on company nancial measures on the same basis as the other Executive Directors and not include any element of personal performance.
When the Committee assesses the extent to which each objective is achieved, consideration is given to the manner in which the objective was
achieved, the quality of delivery or execution and the personal leadership and impact demonstrated by the Executive relating to each task.
Ingeneral, to achieve the maximum for each objective an exceptional level of performance is expected with actions taken that are consistent with
the Group’s values and culture of innovation and teamwork.
Long Term Incentive award vesting (audited information)
On 4 March 2019 Rajiv Sharma and Simon Boddie were granted Long Term Incentive Plan awards in the form of nil cost options over shares in
respect of the performance period 1 January 2019 to 31 December 2021 (referred to as LTIP 2019).
The performance measures were based upon the Total Shareholder Return Performance (TSR), compound annual growth (CAGR) in Earnings Per
Share and cumulative Free Cash Flow relating to Coats Group plc. The achievement of the Long Term Incentive Plan performance measures and
theconsequent vesting of the award is shown in the table below. The award has not vested.
LTIP 2019: Performance period 1 January 2019 to 31 December 2021
Measure Weighting Threshold Mid Maximum Actual
Compound Annual Growth in
AttributableProt 40.0% 5.0% 10.0% 15.0% -0.3%
Vesting % of total award 10.0% 25.0% 40.0% 0%
Cumulative Free Cash Flow over 3 years 40.0% $287.1m $317.1m $347.1m $247. 2m
Vesting % of total award 10.0% 25.0% 40.0% 0%
Total Shareholder Return versus the FTSE250
excluding investment trusts 20.0% Median 62.5th Percentile Upper Quartile 26th Percentile
Vesting % of total award 5.0% 12.5% 20.0% 0%
Total 100.0% 25.0% 62.5% 100.0% 0%
Share awards granted in 2021 (audited information)
The following share awards were granted to Executive Directors during the nancial year ended 31 December 2021. The targets for achieving
minimum performance for each measure, where these apply, are shown in the table on page 103.
Coats Group plc Long Term Incentive Plan
Executive Director Date of grant
Number of
optionsawarded
Face value at
awarddate
Award value as
a% of salary
Share price
to calculate
no of shares
% vesting for
minimum
performance
Performance
period Vesting date
Jackie Callaway 5-Mar-21 942,148 £570,000 150% £0.605 25%
1 Jan 2021 to
31 Dec 2023 5-Mar-24
Rajiv Sharma 5-Mar-21 1,770,247 £1,071,000 175% £0.605 25%
1 Jan 2021 to
31 Dec 2023 5-Mar-24
The share price 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, which was £0.605 for 5 March 2021.
Awards were granted on 5 March 2021 as nil cost options under the terms of the Coats Group plc Long Term Incentive Plan that was approved by
shareholders on 22 May 2014. The LTIP awards will vest, subject to the achievement of performance measures, on the third anniversary of the date
of grant. For Executive Directors an additional two-year holding period applies. The notional value of any dividends paid on any vested share during
the period from grant to the end of the holding period is awarded as additional shares.
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
103
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 2021
(LTIP2021) are shown below. The table on the previous page reects the performance measures for the award that relates to the three-year
performance period that ended on 31 December 2021 (LTIP 2019).
LTIP 2021 Measures Weighting Threshold Mid Maximum
Underlying Earnings Per Share in 2023 40% 6.0 cents 7.0 cent s 8.0 cents
Vesting % of total award 10.0% 25.0% 40.0%
Cumulative Free Cash Flow over 3 years 30% $205m $242.5m $280m
Vesting % of total award 7.5% 18.75% 30.0%
Total Shareholder Return versus the FTSE250 excluding investment
trusts 20% Median 62.5th Percentile Upper Quartile
Vesting % of total award 5.0% 12.5% 20.0%
Sustainability Goals (see details below) 10% See below
Vesting % of total award 2.5% 6.25% 10.0%
Total 100.0% 25.0% 62.5% 100.0%
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 IAS19 (pensions nance) charge. Free Cash Flow targets are based on cumulative Free Cash Flow generated for
each year of the performance period after maintaining the Company’s asset base ie operating cash ow minus capital expenditure, adjusted to
reect any exceptional items, disposals, acquisitions or property gains or losses. Targets are established on a basis that is before any UK pension
scheme decit repair contributions.
Total Shareholder Return is the total return to shareholders which includes share price growth and ordinary dividends (reinvested on the ex-
dividend date). The performance measure is assessed against a comparator group consisting of the FTSE250, excluding investment trusts.
As disclosed in last year’s report Sustainability goals are also included. The specic targets are: Water: by 2023 to achieve a 40% reduction,
froma2018 baseline, of water usage per kilogram of thread production.
Energy: by 2023 to achieve a 7% reduction, from a 2018 baseline, of kWH per kilogram of product made.
Efuent and emissions: by 2023 to achieve compliance with Zero Discharge of Hazardous Chemicals efuent standards.
Social: to achieve Great Place to Work accreditation for locations that cover 80% of employees worldwide and to enable all employees to
contribute to community support activities.
Sustainability: reduce waste by 25%, from a 2018 baseline, and progress towards achieving the 2024 goal that all premium polyester thread will
befrom 100% recycled material.
The Committee retains the discretion to consider whatever adjustments it considers are fair and reasonable when considering performance
againstthe targets shown. The Committee may adjust the level of vesting if it considers that the performance measures do not reect 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.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
104
Non-Executive Directors
There was no increase in the base fee of £60,000 per annum which has remained at the same level since 1 October 2013. The fee for the Chair
payable to David Gosnell following his appointment on 19 May 2021 was also not increased from the level paid to his predecessor.
Single total gure for Non-Executive Directors’ remuneration for 2021 (audited information)
Non-Executive Directors, excluding the Chair, who are required to travel long haul (more than ve hours one-way) to meetings are entitled toan
additional travel allowance of £1,500 for each roundtrip subject to a maximum of ve 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
Benets
1
£000
Other fee
2
£000
Total
£000 Comments
2021 2020 2021 2020 2021 2020 2021 2020 2021 2020
Mike Clasper 104.2 237.5 – – 3.2 – – – 107.4 237.5
Retired
19-May-21
Nicholas Bull 60.0 57.0 10.0 9.5 4.2 – 1.5 – 75.7 66.5
Anne Fahy 60.0 57.0 12.5 11.9 – – 1.5 – 74.0 68.9
David Gosnell 177.3 57.0 4.2 11.9 0.6 – – – 182.1 68.9
Echo Lu 60.0 57.0 8.3 – 0.8 – 1.5 – 70.6 57.0
Fran Philip 60.0 57.0 7.5 7.1 0.2 – – 1.5 67.7 65.6
Jakob Sigurdsson 60.0 15.0 – – – – 1.5 – 61.5 15.0
Appointed
1-Oct-20
Total 581.5 537.5 42.5 40.4 9.0 – 6.0 1.5 639.0 579.4
1 The gure under benets for Non-Executive Directors relates to business expense reimbursements which are deemed to be taxable in the UK and include the tax paid by the
Company directly to HMRC.
2 Fees under Other Fee represent the £1,500 per trip travel fee payable for Directors (excluding the Chair) who travel long haul to attend Board meetings. The travel fee is
capped at a maximum of £7,500 per annum.
3 Base fees in 2020 were reduced by 20% for the period April to June inclusive in response to the COVID19 pandemic.
The base fee paid by Coats Group plc is £60,000 per annum for Non-Executive Directors and £250,000 for the Chair.
A supplementary fee is paid to the Senior Independent Director (£10,000 per annum) and Chairs of the Audit and Risk Committee and
Remuneration Committee (£12,500 per annum). Fran Philip receives £7,500 per annum for undertaking additional responsibilities concerning
employee engagement. Mike Clasper resigned from the Board on 19 May 2021 and was succeeded by David Gosnell who was already a Non-
Executive Director and Chair of the Remuneration Committee. Echo Lu was appointed Chair of the Remuneration Committee in May 2021.
Payments for loss of ofce (audited information)
There have been no payments for loss of ofce during the year.
Payments to former Directors (audited information)
No payments were paid to former Directors in the year.
Directors service agreements and appointment letters
All Executive Directors have service agreements which provide for a notice period from either side of twelve 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 ofce during normal hours of business and will also
beavailable for inspection at the Company’s Annual General Meeting.
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
105
Statement of Directors’ shareholding and share interests (audited information)
The interests of the Directors who held ofce 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 2021, are set out below.
Shareholding requirement
in 2021
Shares
benecially owned
Deferred bonus shares
subject to
vesting period
LTIP share options
(subject to
performance conditions)
Share options
(noperformance
conditions)
Number of
shares
Equivalent
% of salary
3
Condition
met? 01-Jan-21
1
31-Dec-21
2
01-Jan-21
1
31-Dec-21
2
01-Jan-21
1
31-Dec-21
2
01-Jan-21
1
31-Dec-21
2
Executive Director
Simon Boddie 1,450,000 200% Yes 300,000 1,828,642 472,925 342,541 2,634,381 889,749 2,573,091 –
Jackie Callaway 1,150,000 200% No 75,078 151,606 – – – 942,14 8 – –
Rajiv Sharma 1,900,000 200% Yes 4,439,012 4,439,012 696,226 511,6 84 3,696,402 4,422,071 – 184,542
Chair and Non-Executive Directors
Mike Clasper N/A 1,690,000 1,690,000 – – – – – –
Nicholas Bull N/A 500,000 500,000 – – – – – –
Anne Fahy N/A 40,000 40,000 – – – – – –
David Gosnell N/A 1,099,990 1,409,990 – – – – – –
Echo Lu N/A 15,000 15,000 – – – – – –
Fran Philip N/A 25,000 50,000 – – – – – –
Jakob Sigurdsson N/A – 30,000 – – – – – –
1. Or date of appointment, if later.
2. Or date of resignation, if earlier.
3. The target number of shares is based on the average share price for 2021 which was 65.8p.
The opening balance of shares benecially owned by Rajiv Sharma reects the correction of a typographical error in last year’s report where his
benecially owned shares at 31 December 2020 were incorrectly shown as 4,039,012 instead of the correct gure of 4,439,012. The Executive
Directors’ shareholding requirement must be met within ve years of their appointment to the Board (2 March 2020 for Rajiv Sharma, 4 July 2021
for Simon Boddie and 1 December 2025 for Jackie Callaway). There is no requirement for Non-Executive Directors. For the purposes ofachieving
this target the total number of shares benecially 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. AllLong-
Term Incentive Plan awards granted to Executive Directors from 29 July 2016 onwards include a requirement to retain any vested shares (save for
any shares that may be sold to satisfy income tax liabilities) until a minimum of the fth anniversary of the date of grant. Simon Boddie isrequired
to maintain his minimum shareholding for a two-year period following his retirement.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
106
Details of scheme interests as at 31 December 2021 (audited information)
Rajiv Sharma
Award Vesting date Retention period Expiry date No. Status
Performance
conditions?
Deferred bonus shares subject to vesting period
DABP19 4-Mar-22 N/A 4-Mar-29 162,044 Unvested No
DABP20 6-Mar-23 N/A 6-Mar-30 349,640 Unvested No
Sub-total 511,68 4
LTIP share options (subject to performance conditions)
LTIP19 4-Mar-22 4-Mar-24 4-Mar-29 1,093,251 Unvested Yes
LTIP20 6-Mar-23 6-Mar-25 6-Mar-30 1,558,573 Unvested Yes
LTIP21 5-Mar-24 5-Mar-26 5-Mar-31 1,770,247 Unvested Yes
Sub-total 4,422,071
Share options (no performance conditions)
DABP18 4-Mar-21 N/A 4-Mar-28 184,542 Vested No
Jackie Callaway
Award Vesting date Retention period Expiry date No. Status
Performance
conditions?
LTIP share options (subject to performance conditions)
LTIP21 5-Mar-24 5-Mar-26 5-Mar-31 942,148 Unvested Yes
Simon Boddie
Award Vesting date Retention period Expiry date No. Status
Performance
conditions?
Deferred bonus shares subject to vesting period
DABP19 4-Mar-22 N/A 4-Sep-22 114 ,231 Unvested No
DABP20 6-Mar-23 N/A 6-Sep-23 228,310 Unvested No
Sub-total 342,541
LTIP share options (subject to performance conditions)
LTIP19 4-Mar-22 4-Mar-24 4-Sep-22 519,631 Unvested Yes
LTIP20 6-Mar-23 6-Mar-25 6-Sep-23 370,118 Unvested Yes
Sub-total 889,749
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
107
Share options (exercised during the year)
Award Vesting date Retention period Expiry date No.
Dividend
equivalents Exercise date
Share price
onexercise
LTIP16 29-Jul-19 29-Jul-21 1-Dec-21 1,451,723 85,128 1-Dec-21 £0.6189
LTIP17 5-Mar-20 27-Feb-22 1-Dec-21 1,049,862 86,492 1-Dec-21 £0.6189
DABP17 5-Mar-20 N/A 1-Dec-21 71,506 4,307 1-Dec-21 £0.6189
DABP18 4-Mar-21 N/A 1-Dec-21 130,384 4,829 1-Dec-21 £0.6189
Sub-total 2,703,475 180,756
All of the above share option exercises awards are nil priced share options. Details of each award were disclosed in each relevant Single Figure
remuneration table in previous reports.
Awards subject to a retention period must be held until for the duration of the retention period although a proportion may be sold to cover
personal tax obligations if an exercise occurs before the end of the retention period. Simon Boddie sold 47% of shares acquired on exercise from
allawards and retained the balance. The maximum number of Long Term Incentive awards still subject to performance conditions were reduced
pro-rata to reect the proportion of the three year period that he was employed from the grant date to his retirement date. In cases of retirement
vested share options normally expire six months after leaving employment or, if later, six months after the vesting date. In accordance with the
planrules, the expiry date can be extended if an individual is restricted in their ability to deal in shares. This extension was applied to the options
exercised by Simon Boddie during this nancial year.
Dividend equivalents are added to vested options at the point of exercise. The number of dividend equivalents is based on the cash value of
dividends paid in the period from grant to vesting or, if applicable, from grant to any later retention period and the share price at the vesting date.
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 2021 was 69.0 pence and the range during
theyear was 55.2 pence to 79.9 pence.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
108
Review of performance
The graph (below left) shows the difference between investing £100 in the Company and the constituents of the FTSE All Share Index and
FTSE250 from 1 January 2012 to 31 December 2021. It is assumed dividends are reinvested over that period. The Board feels the FTSE All
ShareIndex and the FTSE 250 each provide an appropriate comparator given the Company’s market capitalisation and its presence on the
LondonStock Exchange.
To enable comparison with the LTIP performance period an additional graph (below right) is shown on the same basis that reects the three-year
performance period ending 31 December 2021.
31-Dec
2011
31-Dec
2012
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
2018
31-Dec
2019
31-Dec
2020
31-Dec
2021
FTSE250 Index FTSE All-Share Index
Coats
£0
£20
£40
£60
£80
£100
£120
£160
£140
£0
£50
£100
£150
£200
£250
£350
£300
Historical TSR performance
Growth in the value of a hypothetical £100 holding
since 1 January 2012 (with all dividends reinvested)
Historical TSR performance
Growth in the value of a hypothetical £100 holding
since 1 January 2019 (with all dividends reinvested)
Chief Executive total remuneration for the last 10 years
1
Executive Director 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
CEO single gure of
remuneration (£k) – – – 1,017.0 1,760.3 2,566.9 3,356.7 2,228.1 787. 4 1,758.5
Annual bonus as a % of
maximum opportunity – – – 87.1% 77.0% 79.5% 66.7% 67.3% 5.0% 97%
LTIP award as a % of
maximum opportunity – – – – 43.6% 60.0% 84.2% 95.8% 0% 0%
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 inuenced by the 2015 single gure data being part year data. The CEO gures for 2017, 2018 and
2019 reect the appointment of Rajiv Sharma and in particular the increase in benets reect the relocation and expatriate support that was offered to him following his
appointment as CEO on 1 January 2017.
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
109
Director’s remuneration – annual percentage change from 2020 to 2021
The table below shows the percentage change in the annual remuneration of Directors and the average UK colleague from 2019 onwards.
Salary or fees (% change) Benets
3
(% change) Bonus (% change)
2020 to 2021 2019 to 2020 2020 to 2021 2019 to 2020 2020 to 2021 2019 to 2020
Rajiv Sharma 6.9% -3.6% 25.8% -46.8% 1,898.8% -91.1%
Simon Boddie (retired 31 March 2021)
4
5.3% -3.6% -1,7% -2.7% 1,433.9% -90.3%
Jackie Callaway 1.4% N/A -0.6% N/A 100% N/A
Mike Clasper
4
5.3% -5% 0% 0% N/A N/A
Nicholas Bull 4.4% -5% 0% 0% N/A N/A
Anne Fahy 7.4% -5% 0% 0% N/A N/A
David Gosnell 163.4% -5% 0% 0% N/A N/A
Echo Lu 22.5% -5% 0% 0% N/A N/A
Fran Philip 2.9% -5% 0% 0% N/A N/A
Jakob Sigurdsson -6.8% -5% 0% 0% N/A N/A
Average of all employees
1
3.1% 0% 0% 0% 322.8% -51.4%
1. The average of all employees reects the total number of employees based in the UK. The UK has been chosen as the most appropriate comparator group because the CEO
isbased in the UK and the majority of Coats employees who are employed outside the UK are working in locations with very different inationary and market pressures.
TheUK employee population includes employees across all levels of the organisation. .
2. The signicant decrease for benets in 2020 for the CEO arises because of the level of one-time relocation related benets provided in 2019.
3. Non-Executive Directors do not receive benets-in-kind however, gures are disclosed in the benets Single Figure table to reect business expense payments that are
regarded as taxable by the UK tax authority. Year-on-year variations in the reported taxable benets value have been ignored for this purpose unless there is the provision
ofa material specic benet or if the difference in benet is greater than £5,000 from one year to the next.
4. To enable comparisons, leaver and joiners gures have been annualised. The gures for David Gosnell and Echo Lu reect their increased fees following their appointments as
Group and Remuneration Committee Chairs respectively.
Relative importance of spend on pay
The table below shows the total pay for all of the Company’s employees compared to other key nancial indicators.
Year to
31 December
2021
Year to
31 December
2020 % change
Employee costs (US$m) 356.1 272.1 31%
Distributions to shareholders
1
(US$m) 27.6 - 100%
Average number of employees 18,473 17,0 82 8%
Revenues from continuing operations (US$m) – CER basis 1,503.8 1,163.9 29%
Operating prot pre-exceptional (US$m) – CER basis 193.1 110.7 74%
1. By way of dividends.
Additional information on number of employees, total revenues and prot has been provided for context. The gures for employee costs, average
number of employees, revenues and operating prot in 2021 and 2020 have been stated on the basis of continuing operations only. Information
for 2020 includes acquisitions made during the year. The gures for revenues and operating prot are on a constant exchange rate (CER) basis with
amounts for 2020 restated at 2021 exchange rates.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
110
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.
Salary Salary plus bonus Total pay
Financial Year
Calculation
methodology P25 P50 P75 P25 P50 P75 P25 P50 P75
2019 A 21 12 8 37 20 11 58 36 19
2020 A 20 12 7 20 12 7 20 14 7
2021 A 16 12 8 37 27 13 41 27 12
10
15
20
25
30
35
40
45
202120202019
Salary
Salary plus bonus
Total pay
Year on year change in CEO pay ratio
Ratio of CEO pay to median
employee pay
202120202019
The ratio of salary has remained the same post salary review during 2021. The CEO ratios for Salary plus bonus and Total Pay have widened from
2020 and this reects that the higher at risk bonus opportunity for the CEO which has paid out in 2021 while there was no award in 2020. The
lower quartile, median and upper quartile employees in the table below were identied on the basis of full-time equivalent total remuneration and
benets in the twelve month period ending 31 December 2021 (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 2021. The UK workforce is the most appropriate comparator group because the CEO is UK based and the pay of the
global workforce is subject to very signicant uctuations due to local inationary pressures and foreign exchange rate movements. The
Committee hasconsidered the pay data for the three individuals identied and concludes that the median ratio is a fair reection of the movement
of pay andreward 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 ve individuals above and below their remuneration in terms of total
compensation and mix of pay for the year to 31 December 2021 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 average attainment for the element
linked to personal performance has been assumed. The Committee is satised 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.
CEO Lower quartile Median Upper quartile
Base Pay 621,300 38,109 53,372 82,008
Base and Bonus 1,5 67,10 0 42,079 58,709 120,962
Total Remuneration 1,786,900 42,784 64,392 151,070
A signicant proportion of the CEO’s remuneration is appropriately linked to the Company’s performance and share price movements over time
which may uctuate materially over time. To enable a comparison to be made which reects this element of variable pay a ratio has been
calculated which reects base pay and base pay and bonus.
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
111
Corporate Governance Code requirements
The Directors continue to believe that the Remuneration Policy, approved by shareholders in June 2020, continues to reect the factors set out in
Provision 40 of the Corporate Governance Code. Prior to the development of the policy all of Coats’ shareholders with shareholdings at or above
1% of Coats’ market capitalisation were consulted and the nal policy did reect amendments (around UK pension policy and post-employment
shareholding requirements) directly as a consequence of the consultation process. These amendments have had an impact on the policy
implemented in 2021 as described below. It is the Company’s policy to consult with shareholders on any change in the Remuneration Policy
implementation even if such a change is within the framework of the existing policy. No consultation was required on any Director Remuneration
Policy related issues in 2021 because the policy was implemented as intended. However, the Company did engage with a major shareholder on the
development and implementation of a global Living Wage policy and the underpinning methodology that applies to the rest of the workforce.
During 2021, as noted earlier in this report, Simon Boddie retired from the Board and a post termination minimum shareholding requirement (MSR)
was applied to him that had been developed during the consultation process and that was not originally part of his terms and conditions of
employment. This policy was based on a requirement to retain at least the level of his MSR for a period of two years following cessation of
employment.
The Company also implemented the requirement contained in Provision 38 to align the pension benet provision of the Executive Directors with
those of the UK workforce within a denitive timeframe. The pension benet for Jackie Callaway was implemented at 12% of salary upon her
appointment in 2020 and for Rajiv Sharma his pension benet will reduce to 12% by 31 December 2022. The 12% benet level was the average
for the UK workforce when the policy was approved in June 2020. In relation to this requirement the Committee went further in 2021 and
approved a simplication of the current UK pension benet policy, which consists of a number of different benet levels, to ensure that all
employees were treated consistently. The simplication process is to align, in two stages, all of the UK workforce (less than 200 employees) to a
common minimum core pension benet value of 12% by July 2023 (with an interim minimum step of 10% in July 2022) and will result in an
increase for a majority of UK employees. Employees based in the UK, other than Executive Directors, who have contractual entitlements in excess
of this level will values protected at their current levels.
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 in 2021. Remuneration arrangements are clearly communicated and straightforward. Incentives are linked to the key
performance metrics of sales, prot 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. 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 exibility in delivering performance and to ensure that incentive structures to 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 Director with responsibility for employee engagement and is also a member
oftheRemuneration Committee. During 2021 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 concerning remuneration,
directly or through line managers. Further details of the Board’s engagement with the workforce is set out on page 29. In addition, during 2021
the Board conducted a series of in depth review meetings ineach major market and as part of this review considered 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 prole and pay differentials of the workforce and the level ofpension or other benet programmes. During the review meetings business
leadership teams were encouraged to provide as much feedback from their teams as possible.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
112
Statement of implementation of Remuneration Policy for 2022
Base salaries for Executive Directors and fees for the Non-Executive Directors will be reviewed on 1 July 2022.
Rajiv Sharma will continue to receive a base salary of £630,500 per annum; a xed pension benet of £122,400 until 31 December 2022 and then
reduced to12% thereafter; a car allowance of £20,000 per annum; medical, life and income replacement insurance.
Jackie Callaway will continue to receive a base salary of £391,500 per annum; a pension benet of 12% per annum which will increase following
any salary review; a car allowance of £15,000 per annum; medical, life and income replacement insurance.
In accordance with the Remuneration Policy approved by shareholders on 11 June 2020 the LTIP award for the Chief Executive Ofcer will be 175%
and the maximum annual bonus opportunity will remain 150%. The maximum bonus opportunity for the Chief Financial Ofcer will be 115% and
the LTIP award will be 150%. The compulsory three-year deferral into shares of the 2022 bonus outcome will be 50% for the Chief Executive
Ofcer and 40% for the Chief Financial Ofcer. 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 MSR or the actual shareholding at termination.
The performance measures and weightings for annual and long term incentives are shown below. The Committee have decided to increase the
weighting of LTIP awards linked to Sustainability objectives from 10% to 20% to reect the increased importance and commercial opportunities
that arise from this key measure.
Annual bonus Long Term Incentive
Measure Weighting Measure Weighting
Sales 30% Earnings Per Share 40%
Earnings Before Interest and Taxation 30% Free Cash Flow 20%
Free Cash Flow 20% Total Shareholder Return 20%
Individual objectives 20% Sustainability 20%
Annual bonus targets are based on adjusted operating prot and adjusted free cash ow excluding the impact of any exchange rate uctuations.
The Company does not publish annual bonus targets in advance as these gures are considered commercially sensitive but will do so at the time
the bonus award is disclosed.
The Long-Term Incentive Plan awards granted in 2022 will be subject to the following targets:
Measure Threshold Mid Maximum
EPS CAGR (adjusted as described below) 5% 12.5% 20%
Vesting % for EPS measure 25% 62.5% 100%
Cumulative Free Cash Flow (US$m) over three years $321m $359m $396m
Vesting % for FCF measure 25% 62.5% 100%
Total Shareholder Return vs FTSE250 excluding investment trusts Median 62.5th Percentile Upper Quartile
Vesting % of each measure for TSR measure 25% 62.5% 100%
Straight line vesting occurs between Threshold, Mid and Maximum.
The cumulative Free Cash Flow target is subject to adjustment and is calculated before dividends and before any decit repair contributions to
UKpension schemes. EPS growth is based on EPS growth adjusted to exclude the impact of any variation in the pension nance charge.
Directors’ remuneration report
continued
Annual Report and Accounts 2021
Corporate governance
113
The Committee recognises the important concerns of shareholders regarding Environmental, Social and Governance issues. Sustainability targets
have been reected in the Long-Term Incentive measures since 2020 to emphasise the importance of delivering the Company’s objectives and
priorities in this area. Specically these targets for the LTIP award in 2022 will be based on three measurable goals that are aligned to our already
published 2030 Company’s Science Based Targets. These measures are; a reduction in emissions, an increase in Eco Verde sales (to support our
conversion to no new oil based products) and a reduction in our water usage. Further details of the specic targets for the period 2022 to 2024,
including updates of our progress towards our overall sustainability objectives, will be published and updated on our website during 2022 at
www.coats.com/sustainability. The LTIP targets will also be provided in next year’s annual report on remuneration.
Consideration by the Directors of matters relating to Directors’ remuneration
The members of the Committee were: David Gosnell (Chair) until 1 May 2021, Echo Lu (succeeded David Gosnell as Chair), Fran Philip and
NicholasBull (from 1 May 2021).
In reviewing remuneration arrangements the Committee considers the terms and conditions of employees across the Group. In this regard,
FranPhilip, as a member of the Committee, is able to provide insight and support from her role as the designated director responsible for wider
employee engagement.
The responsibilities of the Committee are set out in the Corporate Governance section of the Annual Report. The Committee also received
assistance from Stuart Morgan (who also acted as Secretary to the Committee), Monica McKee (Group HR Director) and Brendan Fahey
(RewardDirector). No Directors are involved in deciding their own remuneration.
The Company received advice from Herbert Smith Freehills LLP in relation to legal matters relating to the Group’s incentive plans. Mercer-Kepler
provided independent advice to the Company principally in relation to the design and performance targets set for the Group’s incentive plans,
benchmarking of Executive Directors’ pay, review of the Directors’ Remuneration Report and regulatory developments in remuneration governance
and practice. Mercer-Kepler received fees of £47,375 for time spent and materials used in providing advice to the Company during the period to
31 December 2021. Mercer-Kepler provide no other advice to the Company or any of the Directors and the Committee is satised that the advice
provided was fair and objective. The Committee appointed Mercer-Kepler because of their extensive knowledge of Coats’ strategy and operations
and development and supported the Committee in the transition from being a subsidiary of the Guinness Peat Group plc to Coats Group plc.
Statement of voting at the General Meeting
At the AGM of the Company on 19 May 2021 the results of the vote regarding Resolution 2 (to approve the Annual Report on Remuneration) were:
Votes for Votes against Votes total Votes withheld
Number % Number % Number Number
1,207,472,012 99.98 281,590 0.02 1,207,753,602 3,535,697
At the AGM on 11 June 2020 the results of the vote regarding Resolution 3 (to approve the Directors Remuneration Policy) were:
Votes for Votes against Votes total Votes withheld
Number % Number % Number Number
933,453,843 98.8 11,759,000 1.2 945,212,843 78,764
Committee performance and effectiveness
The Committee effectiveness in respect of the year ended 31 December 2021 was evaluated using an internal questionnaire in line with the
process set out on page 81. The Committee considered the key points that were identied in the previous year’s assessment. The 2021 evaluation
indicated that the Committee’s ways of working and dynamics were working effectively and noted the successful transition in Chair. Opportunities
identied for the 2022 Committee work plan included further focus on monitoring and evaluating new and emerging trends.
Signed on behalf of the Remuneration Committee by:
Echo Lu
Chair, Remuneration Committee
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
114
Independent auditor’s report
to the members of Coats Group plc
Report on the audit of the nancial statements
1 Opinion
In our opinion:
• the nancial statements of Coats Group plc (the parent company) and its subsidiaries (the group) give a true and fair view of the state of the
group’s and of the parent company’s affairs as at 31 December 2021 and of the group’s prot for the year then ended;
• the group nancial statements have been properly prepared in accordance with United Kingdom adopted international accounting standards;
• the parent company nancial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland”; and
• the nancial statements have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the nancial statements which comprise:
• the consolidated income statement;
• the consolidated statement of comprehensive income;
• the consolidated statement of nancial position;
• the consolidated statement of changes in equity;
• the consolidated statement of cash ows;
• the statement of accounting policies;
• the related Notes 1 to 35;
• the Company Balance Sheet;
• the Company Statement of Changes in Equity;
• the Company Cash Flow Statement; and
• the Notes to the Company Financial Statements 1 to 6.
The nancial reporting framework that has been applied in the preparation of the group nancial statements is applicable law and United Kingdom
adopted international accounting standards. The nancial reporting framework that has been applied in the preparation of the parent company
nancial 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).
2 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 nancial statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our audit of the
nancial statements in the UK, including the Financial Reporting Council’s (the FRC’s) Ethical Standard as applied to listed public interest entities,
and we have fullled our other ethical responsibilities in accordance with these requirements. We conrm that we have not provided any non-audit
services prohibited by the FRC’s Ethical Standard to the group or the parent company.
We believe that the audit evidence we have obtained is sufcient and appropriate to provide a basis for our opinion.
Annual Report and Accounts 2021
Financial statements
115
3 Summary of our audit approach
Key audit matters The key audit matters that we identied in the current year were:
• Lower Passaic River Study Area litigation provision;
• material assumptions underlying retirement benet obligations; and
• uncertain tax positions.
Materiality The materiality that we used for the group nancial statements was $9.2 million, which was determined based
on 0.6% of revenue. For further details refer to section 6 of this report.
Scoping Coats Group plc was subject to a full statutory audit by the group auditor. Due to the widespread nature of the
group, the audit is subject to scoping decisions on overseas components. Our full-scope audit and specied audit
procedures performed covered over 85% of the group’s net assets, 81% of the group’s underlying prot before
tax within the group’s trading components and 78% of the group’s revenue.
Signicant changes in our
approach
We have not identied any new key audit matters in the current year. Due to the impact of the Covid pandemic,
we identied impairment of xed assets as a key audit matter in the prior year. As a result of the reduction in
uncertainty from the prior year, the level of audit effort required in our response to this risk has reduced and
therefore we no longer identify the impairment of xed assets as a key audit matter.
4 Conclusions relating to going concern
In auditing the nancial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the
nancial statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt
the going concern basis of accounting included:
• Considering as part of our risk assessment the nature of the group, its business model and related risks including where relevant the impact of
Covid, the requirements of the applicable nancial reporting framework and the system of internal control;
• Assessing the sales and gross margin forecast in management’s base case against the historical trading results of the group, the latest economic
forecasts, the latest customer order book, and our understanding of management’s discussions with key customers;
• Testing the mechanical and logical accuracy of management’s calculations in their forecasts;
• Assessing the consistency of management’s forecast covenant compliance calculation in relation to the facility agreements; and
• Assessing the likelihood of management’s reverse stress test.
Based on the work we have performed, we have not identied any material uncertainties relating to events or conditions that, individually or
collectively, may cast signicant doubt on the group’s and parent company’s ability to continue as a going concern for a period of at least twelve
months from when the nancial statements are authorised for issue.
In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors’ statement in the nancial 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.
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Strategic report Corporate governance Financial statements Other information
116
5 Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most signicance in our audit of the nancial statements of the
current period and include the most signicant assessed risks of material misstatement (whether or not due to fraud) that we identied. 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 nancial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters.
5.1 Lower Passaic River Study Area litigation provision
Key audit matter
description
Along with other manufacturers and chemical producers, the group is subject to ongoing proceedings by the US
Environmental Protection Agency (EPA) regarding environmental damage caused by historical operations in the
Lower Passaic River Study Area.
In March 2016, the EPA issued a Record of Decision providing a basis for management to estimate a provision in
respect of remediation and legal costs which amounts to $11.2 million (2020: $12.6 million), net of insurance
proceeds, at 31 December 2021. This is currently considered by management to be the best estimate of the
anticipated share of the future liability and legal fees, given the information available.
Judgement is required to estimate what, if any, the group’s share of the total remediation costs is likely to be.
Refer to note 1 for the relevant accounting policy. The carrying value of the provision and background
information to the matter is included in note 28 of the nancial statements and management discuss the matter
as a signicant nancial and reporting issue in the Audit and Risk Committee report on page 86.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls regarding the recognition of the provision and evaluated
whether these had been implemented as designed.
We evaluated management’s assumptions, including assessing the evidence used in estimating the group’s share
of total remediation costs for the Lower Passaic River Study Area, both in terms of appropriateness of recognition
and the valuation thereof. We assessed the material cash outows relating to the utilisation of the element of the
total provision that relates to legal costs and made enquiries of management to conrm whether any further
correspondence had been received in connection with this matter.
We evaluated the competence, capabilities and objectivity of management’s external legal advisers. We
considered the legal advice management had obtained in relation to litigation and challenged management’s
judgements through inspecting the relevant third-party legal conrmation and through discussion with the key
external legal adviser and our environmental specialist.
Key observations There were no material developments during 2021 that would result in a re-measurement of the underlying
remediation provision. Management has properly considered the latest information available from its third-party
legal advisers.
Independent auditor’s report
to the members of Coats Group plc continued
Annual Report and Accounts 2021
Financial statements
117
5.2 Material assumptions underlying retirement benet obligations
Key audit matter
description
The retirement benet obligations recognised in the statement of nancial position in respect of dened
employee benets are the present values of the dened benet obligations at the year-end less the fair value of
any associated assets. The gross actuarial value of scheme liabilities of Coats Group plc at 31 December 2021 was
$3,197 million (2020: $3,589 million).
The assumptions used in the valuation are relatively sensitive to small changes and can result in a material
difference in the net surplus recognised of $21.1 million (2020: $225.8 million net decit). The Coats UK Pension
Scheme is the most signicant scheme, the gross liabilities of which amount to $3,034.9 million (2020: $3,338.7
million). The key assumptions involved in the determination of the present values of the UK dened benet
obligation include discount rates, mortality and ination rates.
Management has taken the judgement that an unconditional right to recover the UK scheme surplus exists and
have therefore recognised a surplus in respect of the UK scheme.
The carrying values of the group’s pension obligations as well as a sensitivity analysis relating to the group’s major
dened benet pension arrangements are included in note 10 of the nancial statements and the accounting
policy is detailed in note 1. Management identify UK retirement benet obligations as a key source of estimation
uncertainty in note 1 of the nancial statements and discuss the matter as a signicant nancial and reporting
issue in the Audit and Risk Committee report on page 86.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over the UK pension assumptions and evaluated whether
this had been implemented as designed.
We worked with our pension specialists to challenge the assumptions underlying management’s calculation of
the UK dened benet scheme. We have compared the key assumptions to industry benchmarks and prior year
methodologies.
We evaluated the competence, capability and objectivity of the experts that management engaged to determine
the underlying assumptions of the dened benet pension obligations, by checking they are qualied and
afliated with the appropriate industry body. We evaluated the underlying assumptions of the pension scheme
liabilities both individually and in aggregate against our independently determined range of key assumptions and
the key assumptions determined by management.
We assessed management’s judgement that an unconditional right to recover the UK scheme surplus exists by
comparison to the underlying scheme rules and the view of management’s external specialist.
Key observations The key assumptions used in the calculation of the retirement benet obligations were within our reasonable
ranges. We concur with management’s judgement that it is appropriate to recognise a surplus in respect of the
UK scheme.
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Strategic report Corporate governance Financial statements Other information
118
5.3 Uncertain tax positions
Key audit matter
description
Given the global operations of Coats, the group is exposed to a large number of tax jurisdictions and this
exposure gives rise to a number of judgemental taxation positions, such as cross-border transactions. The group’s
uncertain tax provisions at 31 December 2021 amount to $20.2 million (2020: $15.0 million).
The group evaluates uncertain tax items, which are subject to interpretation and agreement of the position with
the local tax authorities, and consequently agreement may not be reached for a number of years.
There is a risk that there are matters excluded from the gross exposure calculation and there is judgement
required to determine the amount to be provided against the known exposure. The valuation of central provisions
relating to ongoing Advanced Pricing Agreement negotiations between the UK and Indian and Indonesian
jurisdiction tax authorities is the most signicant uncertain tax exposure in the group.
Refer to note 1 for the relevant accounting policy. The group’s effective tax rate reconciliation is provided in
note9 and the matter is discussed as a signicant nancial and reporting issue in the Audit and Risk Committee
report on page 86.
How the scope of our audit
responded to the key audit
matter
We obtained an understanding of the relevant controls over the central tax provision and evaluated whether
these had been implemented as designed.
We worked with our tax specialists to evaluate and challenge the appropriateness of judgements and
assumptions made by management with respect to their assessment and valuation of the central tax provision.
This included a review of applicable third-party evidence and inspection of correspondence with tax authorities to
assess the adequacy of the associated provision and disclosures.
We worked with our transfer pricing specialist to challenge management and their external advisers on the basis
for the provision recognised in respect of the ongoing India and Indonesian Advanced Pricing Agreement.
Key observations We are satised that the provisions raised in respect of the potential taxation exposures are appropriate.
Independent auditor’s report
to the members of Coats Group plc continued
Annual Report and Accounts 2021
Financial statements
119
6 Our application of materiality
6.1 Materiality
We dene materiality as the magnitude of misstatement in the nancial statements that makes it probable that the economic decisions of a
reasonably knowledgeable person would be changed or inuenced. We use materiality both in planning the scope of our audit work and in
evaluating the results of our work.
Based on our professional judgement, we determined materiality for the nancial statements as a whole as follows:
Group nancial statements Parent company nancial statements
Materiality $9.2 million (2020: $6.5 million) £8.2million (2020: $5.8 million)
Basis for determining
materiality
Consistent with prior year, we have determined
materiality on the basis of 0.6% of group revenue.
Consistent with prior year, Parent company materiality is
determined on the basis of net assets and capped at
90% of group materiality.
Rationale for the
benchmark applied
We consider revenue to be the most appropriate
measure to reect the focus of users of the nancial
statements and the volume of transactions in the year.
The parent company is primarily an investment holding
company and net assets is considered the most
appropriate benchmark.
Revenue
Group materiality
Group materiality
$9.2m
Component
materiality range
$3.7m to $8.2m
Audit Committee
reporting
threshold $0.5m
Group revenue
$1,503
6.2 Performance materiality
We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected and undetected
misstatements exceed the materiality for the nancial statements as a whole.
Group nancial statements Parent company nancial statements
Performance materiality 70% (2020: 65%) of group materiality 70% (2020: 65%) of parent company materiality
Basis and rationale for
determining performance
materiality
In determining performance materiality, we considered our history of auditing the entity, including the lack of
signicant deciencies and errors identied in previous years. In response to the impact of the COVID-19
pandemic in the prior period, we lowered the percentage of materiality used to determine performance
materiality in the prior period from 70% to 65%. As a result of the reduction in uncertainty and no material
deterioration of the control environment noted, we have raised performance materiality back to 70%.
6.3 Error reporting threshold
We agreed with the Audit and Risk Committee that we would report to the Committee all audit differences in excess of $0.5 million (2020: $0.3
million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and
Risk Committee on disclosure matters that we identied when assessing the overall presentation of the nancial statements.
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120
7 An overview of the scope of our audit
7.1 Identication and scoping of components
Coats Group plc was subject to a full statutory audit by the group auditor. Due to the geographically widespread nature of the group, the audit is
subject to scoping decisions on overseas components. We focused our group audit scope on 11 (2020: 11) overseas components spread across four
continents, which were subject to full audits.
Additionally, seven components were subject to specied audit procedures. These components were selected in order to provide an appropriate
basis for undertaking the audit work to address the risks of material misstatement.
The 11 overseas components and UK components subject to full audit scope account for 69% of the group’s net assets (2020: 67%), 80% of the
group’s underlying prot before tax within the group’s trading components (2020: 79%) and 71% of the group’s revenue (2020: 71%). If including
the specied audit procedures performed, we have obtained coverage over 85% of the group’s net assets of (2020: 82%), 81% of the group’s
underlying prot before tax within the group’s trading components (2020: 80%), and 78% of the group’s revenue (2020: 82%).
At the group level we also tested the consolidation process and carried out analytical procedures to conrm our conclusion that there were no
signicant risks of material misstatement of the aggregated nancial information of the remaining components not subject to audit or audit of
specied account balances.
71% Full audit scope
7% Specied audit procedures
22% Review at group level
80% Full audit scope
1% Specied audit procedures
19% Review at group level
69% Full audit scope
16% Specied audit procedures
15% Review at group level
Revenue Prot before tax Net assets
Independent auditor’s report
to the members of Coats Group plc continued
Annual Report and Accounts 2021
Financial statements
121
7.2 Our consideration of the control environment
Coats Group plc is reliant on the effectiveness of a number of IT
applications and controls to ensure that nancial transactions are
processed and recorded completely and accurately.
The India component audit team relies upon controls across various
operating cycles, the general IT controls and relevant entity level
controls, which we found to be operating effectively. As a result, we
relied on the operating effectiveness of controls over the operating
cycles of this component.
The rest of the in-scope components are independently reliant upon
their respective operating instances within the group. Aligned with our
planned audit approach we did not seek to place reliance upon the
operating effectiveness of the general IT and entity level controls within
these components.
7.3 Our consideration of climate-related risks
In planning our audit, we have considered the potential impact of
climate change on the Group’s business and its nancial statements.
The Group continues to develop its assessment of the potential impacts
of climate change which is currently premised upon three scenarios; a
low carbon scenario, a medium carbon scenario and a high carbon
scenario, as explained in the Strategic Report on page 38. Management
has identied specic transitional and physical climate related risks.
As a part of our audit, we have obtained management’s climate-related
risk assessment and held discussions with the head of sustainability and
nance management to understand the process of identifying
climate-related risks, the determination of mitigating actions and the
impact on the Group’s nancial statements. As explained in note 1 on
page 140, the key areas in the consolidated nancial statements
considered were the impact on estimated useful lives of tangible assets
and forecasts used in the impairment reviews of CGUs. Management
concluded there was no material impact arising from climate change on
the judgements and estimates made in the nancial statements as
explained in note 1 on page 141.
We performed our own qualitative risk assessment of the potential
impact of climate change on the Group’s account balances and classes
of transaction and did not identify any reasonably possible risks of
material misstatement. Our procedures were performed with the
involvement of climate change and sustainability specialists and
included reading Task Force on Climate-Related Financial Disclosures
reporting and considering whether it is materially consistent with the
nancial statements and our knowledge obtained in the audit.
7.4 Working with other auditors
The same audit team is responsible for the audit work of the group and
the component audits within the United Kingdom and the United
States of America.
Our involvement in the audit of the other full scope components is
asfollows:
• Given the global travel restrictions, we have not physically visited
Coats’ components in the year. We have however visited 10 of
the11 full scope components periodically over the previous four
years and we have continued our remote interactions with our full
scope component audit teams.
• For all components, we held planning calls, maintained regular
contact throughout the audit process, directed the audit procedures
performed and reviewed the risk assessment and work of overseas
component auditors.
8 Other information
Our opinion on the nancial statements does not cover the other
information and, except to the extent otherwise explicitly stated in our
report, we do not express any form of assurance conclusion thereon.
Our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with
the nancial 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 nancial statements themselves. If,
based on the work we have performed, we conclude that there is a
material misstatement of this other information, we are required to
report that fact.
We have nothing to report in this regard.
9 Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the
directors are responsible for the preparation of the nancial statements
and for being satised that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the
preparation of nancial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the nancial statements, the directors are responsible for
assessing the group’s and the parent company’s ability to continue as a
going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or
to cease operations, or have no realistic alternative but to do so.
10 Auditor’s responsibilities for the audit of the nancial
statements
Our objectives are to obtain reasonable assurance about whether the
nancial statements 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.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
122
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to inuence the economic decisions of users taken based on
these nancial statements.
A further description of our responsibilities for the audit of
the nancial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms
part of our auditor’s report.
11 Extent to which 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 material misstatements
in respect of irregularities, including fraud. The extent to which our
procedures are capable of detecting irregularities, including fraud
is detailed below.
11.1 Identifying and assessing potential risks related
toirregularities
In identifying and assessing risks of material misstatement in respect of
irregularities, including fraud and non-compliance with laws and
regulations, we considered the following:
• the nature of the industry and sector, control environment and
business performance including the design of the group’s
remuneration policies, key drivers for directors’ remuneration, bonus
levels and performance targets;
• results of our enquiries of management, group internal audit and
the Audit and Risk Committee about their own identication and
assessment of the risks of irregularities;
• any matters we identied having obtained and reviewed the group’s
documentation of their policies and procedures relating to:
– identifying, evaluating, and complying with laws and regulations
and whether they were aware of any instances of non-
compliance.
– detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected, or alleged fraud.
– the internal controls established to mitigate risks of fraud or
non-compliance with laws and regulations;
• the matters discussed among the audit engagement team including
signicant component audit teams, and relevant internal specialists,
including tax, valuations, pensions, IT, climate change and industry
specialists regarding how and where fraud might occur in the
nancial statements and any potential indicators of fraud.
As a result of these procedures, we considered the opportunities and
incentives that may exist within the organisation for fraud and
identied the greatest potential for fraud in the following area: the
valuation of global accrued customer rebates in relation to revenue
recognition. In common with all audits under ISAs (UK), we are also
required to perform specic procedures to respond to the risk of
management override.
We also obtained an understanding of the legal and regulatory
framework that the group operates in, focusing on provisions of those
laws and regulations that had a direct effect on the determination of
material amounts and disclosures in the nancial statements. The key
laws and regulations we considered in this context included the UK
Companies Act, Listing Rules, pensions legislation and tax legislation.
In addition, we considered provisions of other laws and regulations that
do not have a direct effect on the nancial statements but compliance
with which may be fundamental to the group’s ability to operate or to
avoid a material penalty. These included the group’s environmental
regulations that affect the Group’s operations.
11.2 Audit response to risks identied
As a result of performing the above, we did not identify any key audit
matters related to the potential risk of fraud or non-compliance with
laws and regulations.
Our procedures to respond to risks identied included the following:
• reviewing the nancial statement disclosures and testing to
supporting documentation to assess compliance with provisions of
relevant laws and regulations described as having a direct effect on
the nancial statements;
• enquiring of management, the Audit and Risk Committee and
external legal counsel concerning actual and potential litigation and
claims;
• performing analytical procedures to identify any unusual or
unexpected relationships that may indicate risks of material
misstatement due to fraud;
• reading minutes of meetings of those charged with governance,
reviewing internal audit reports, and reviewing correspondence with
tax and licensing authority;
• in addressing the risk of fraud in revenue recognition, we tested the
accuracy and completeness of the year end rebate accrual by
comparison to contractual requirements of principal end customers
and by performing a retrospective assessment of the accuracy of the
2020 rebate accrual;
• in addressing the risk of fraud through management override of
controls, testing the appropriateness of journal entries and other
adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and
evaluating the business rationale of any signicant transactions that
are unusual or outside the normal course of business.
We also communicated relevant identied laws and regulations and
potential fraud risks to all engagement team members including
internal specialists and signicant component audit teams and
remained alert to any indications of fraud or non-compliance with laws
and regulations throughout the audit.
Independent auditor’s report
to the members of Coats Group plc continued
Annual Report and Accounts 2021
Financial statements
123
Report on other legal and regulatory requirements
12 Opinions on other matters prescribed by the Companies
Act2006
In our opinion the part of the directors’ remuneration report to be
audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of
theaudit:
• the information given in the strategic report and the directors’
report for the nancial year for which the nancial statements
are prepared is consistent with the nancial statements; and
• the strategic report and the directors’ report have been prepared
in accordance with applicable legal requirements.
In the light of the knowledge and understanding of the group and
the parent company and their environment obtained in the course
of the audit, we have not identied any material misstatements in
the strategic report or the directors’ report.
13 Corporate Governance Statement
The Listing Rules require us to review the directors’ statement in
relation to going concern, longer-term viability and that part of the
Corporate Governance Statement relating to the group’s compliance
with the provisions of the UK Corporate Governance Code specied for
our review.
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 nancial
statements and our knowledge obtained during the audit:
• the directors’ statement with regards to the appropriateness of
adopting the going concern basis of accounting and any material
uncertainties identied set out on page 94;
• the directors’ explanation as to its assessment of the group’s
prospects, the period this assessment covers and why the period
is appropriate is set out on page 59;
• the directors’ statement on fair, balanced and understandable
set out on page 85;
• the board’s conrmation that it has carried out a robust
assessment of the emerging and principal risks set out on
page46;
• the section of the annual report that describes the review of
effectiveness of risk management and internal control systems
set out on page 87; and
• the section describing the work of the audit committee set out
on page 83.
14 Matters on which we are required to report by exception
14.1 Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in
our opinion:
• we have not received all the information and explanations we
require for our audit; or
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been received
from branches not visited by us; or
• the parent company nancial statements are not in agreement with
the accounting records and returns.
We have nothing to report in respect of these matters.
14.2 Directors’ remuneration
Under the Companies Act 2006 we are also required to report if in our
opinion certain disclosures of directors’ remuneration have not been
made or the part of the directors’ remuneration report to be audited is
not in agreement with the accounting records and returns.
We have nothing to report in respect of these matters.
15 Other matters which we are required to address
15.1 Auditor tenure
Following the recommendation of the Audit and Risk Committee, we
were appointed by the board of directors on 17 June 2003 to audit the
nancial statements for the year ending 31 December 2003 and
subsequent nancial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the
rm is 19 years, covering the years ending 31 December 2003 to
31 December 2021.
15.2 Consistency of the audit report with the additional report
to the audit committee
Our audit opinion is consistent with the additional report to the audit
committee we are required to provide in accordance with ISAs (UK).
16 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.
As required by the Financial Conduct Authority (FCA) Disclosure
Guidance and Transparency Rule (DTR) 4.1.14R, these nancial
statements form part of the European Single Electronic Format (ESEF)
prepared Annual Financial Report led on the National Storage
Mechanism of the UK FCA in accordance with the ESEF Regulatory
Technical Standard (ESEF RTS). This auditor’s report provides no
assurance over whether the annual nancial report has been prepared
using the single electronic format specied in the ESEF RTS.
Edward Hanson (senior statutory auditor)
For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
2 March 2022
Coats Group plc
Strategic report Corporate governance Financial statements Other information
124
Consolidated income statement
2021 2020
Year ended 31 December Notes
Before
exceptional
and
acquisition
related
items
US$m
Exceptional
and
acquisition
related
items
(see note 4)
US$m
Total
US$m
Before
exceptional
and
acquisition
related
items
US$m
Exceptional
and
acquisition
related
items
(see note 4)
US$m
Total
US$m
Continuing operations:
Revenue 2,3 1, 5 03 . 8 1, 5 03 . 8 1,16 3 . 3 1,16 3 . 3
Cost of sales (1, 0 2 5 . 3 ) 5.8 (1, 01 9 . 5 ) (8 0 6.6 ) (4 .9 ) (81 1.5 )
Gross prot 478 . 5 5.8 484.3 35 6 .7 (4.9 ) 3 51 . 8
Distribution costs (13 5 . 3 ) 13 5 . 3 ) (11 6 .1 ) 11 6 .1 )
Administrative expenses (15 0 .1 ) (19 . 5 ) (16 9 . 6 ) (13 0 . 0 ) (4. 0 ) (13 4 . 0 )
Other operating income 1. 4 1. 4
Operating prot 2,4,5 19 3 .1 (1 3. 7 ) 17 9 . 4 1 10.6 (7 .5 ) 1 0 3 .1
Share of prots of joint ventures 16 1. 2 1. 2 0.6 0.6
Finance income 6 0.4 4.2 4 .6 0 .7 0 .7 1. 4
Finance costs 7 (2 2 . 2 ) 2 2 . 2 ) (25.5 ) 25.5 )
Prot before taxation 5 172 . 5 (9. 5 ) 163.0 86.4 (6. 8 ) 79.6
Taxation 9 (53. 5 ) (0. 9 ) (5 4 . 4 ) (35. 2 ) (2. 2 ) (3 7. 4 )
Prot for the year 11 9 . 0 (10 . 4 ) 10 8 . 6 51 . 2 (9.0 ) 42. 2
Attributable to:
Equity shareholders of the company 99. 3 (10 . 4 ) 88.9 35.4 (9.0 ) 2 6.4
Non-controlling interests 19.7 19.7 15 . 8 15 . 8
Earnings per share (cents): 11
Basic 6 .1 0 1. 81
Diluted 6. 07 1. 81
Adjusted earnings per share 35(d) 6 . 81 2.42
Notes on pages 130 to 192 form part of these nancial statements.
Annual Report and Accounts 2021
Financial statements
125
Year ended 31 December
2021
US$m
2020
US$m
Prot for the year 10 8 .6 42. 2
Items that will not be reclassied subsequently to prot or loss:
Actuarial gains/(losses) on retirement benet schemes 212 . 8 (3 9 .7 )
Tax relating to items that will not be reclassied (1. 0 ) 0 .1
Items that may be reclassied subsequently to prot or loss:
Net changes in fair value of cash ow hedges 2. 4 )
Exchange differences on translation of foreign operations (1 7. 0 ) (13 . 3 )
(1 7. 0 ) (15 . 7 )
Other comprehensive income and expense for the year 19 4 . 8 (55 . 3 )
Net comprehensive income and expense for the year 303.4 (13 .1 )
Attributable to:
Equity shareholders of the company 284 .2 (28 .9 )
Non-controlling interests 19. 2 15 . 8
Notes on pages 130 to 192 form part of these nancial statements.
Consolidated statement of comprehensive income
Coats Group plc
Strategic report Corporate governance Financial statements Other information
126
Consolidated statement of nancial position
31 December Notes
2021
US$m
2020
US$m
Non-current assets:
Intangible assets 13 282.9 288 .6
Property, plant and equipment 14 244 .5 254 . 4
Right-of-use assets 15 9 1.6 6 0 .7
Investments in joint ventures 16 12 . 0 11 .1
Other equity investments 16 6.0 6.0
Deferred tax assets 17 2 0.7 22 .7
Pension surpluses 10 15 9 .7 11. 4
Trade and other receivables 19 2 8 .7 19. 0
Current assets:
Inventories 18 2 5 0 .1 18 7. 0
Trade and other receivables 19 30 2 .7 2 74 . 5
Other equity investments 16 0 .1
Pension surpluses 10 5.2 4.8
Cash and cash equivalents 30(f) 10 7. 2 71. 9
Total assets 1 , 5 11 . 3 1 ,2 1 2.2
Current liabilities:
Trade and other payables 21 (34 6 .8 ) (2 55 .7 )
Current income tax liabilities (16 . 5 ) (13 . 9 )
Bank overdrafts and other borrowings 23 (19 . 2 ) (22. 8 )
Lease liabilities 15 (17. 8 ) (1 6.4 )
Retirement benet obligations:
– Funded schemes 10 (41. 9 ) (35 .3 )
– Unfunded schemes 10 (6 .1 ) (7. 1 )
Provisions 25 (8 .1 ) (8 . 2 )
(45 6 . 4 ) (359.4 )
Net current assets 208. 8 17 8 . 9
Annual Report and Accounts 2021
Financial statements
127
31 December Notes
2021
US$m
2020
US$m
Non-current liabilities:
Trade and other payables 21 (2 4 . 2 ) (18 .1 )
Deferred tax liabilities 24 (6. 8 ) (9.0 )
Borrowings 23 (2 3 5 .1 ) (2 2 9 .7 )
Lease liabilities 15 (81. 2 ) (49. 6 )
Retirement benet obligations:
– Funded schemes 10 (5. 6 ) (1 0 0 .1 )
– Unfunded schemes 10 (9 0 . 2 ) (9 9.5 )
Provisions 25 (2 7. 7 ) (2 7. 9 )
(470 . 8 ) (533 .9 )
Total liabilities (9 2 7. 2 ) (8 93 .3 )
Net assets 5 8 4 .1 318 . 9
Equity:
Share capital 26 9 0 .1 9 0 .1
Share premium account 27 10. 5 10 . 5
Own shares 26, 27 (0. 5 ) (3. 2 )
Translation reserve 27 (105 .7 ) (89 . 2 )
Capital reduction reserve 27 59. 8 59. 8
Other reserves 27 246.3 24 6 . 3
Retained prot/(loss) 27 252 . 5 (23.8 )
Equity shareholders’ funds 553.0 29 0 .5
Non-controlling interests 27 3 1 .1 28. 4
Total equity 5 8 4 .1 318 . 9
Rajiv Sharma Jackie Callaway
Group Chief Executive Chief Financial Ofcer
Approved by the Board 2 March 2022
Company Registration No.103548
Notes on pages 130 to 192 form part of these nancial statements.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
128
Share
capital
US$m
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
prot/(loss)
US$m
Total
US$m
Non-
controlling
interests
US$m
Total
equity
US$m
Balance as at 1 January 2020 89.6 10 . 5 (5 .7 ) (75.9 ) 59. 8 24 8 .7 (5 .9 ) 3 2 1 .1 30.4 3 51 . 5
Prot for the year 26.4 2 6.4 15. 8 42. 2
Other comprehensive income and
expense for theyear 13 . 3 ) 2. 4 ) (39.6 ) (55. 3 ) 55 . 3 )
Dividends (see notes 12 and 27) 17. 8 ) (17. 8 )
Issue of ordinary shares
(see note 26) 0.5 0.5 )
Movement in own shares 2.5 5.8 ) (3. 3 ) 3.3 )
Share based payments 1. 6 1. 6 1. 6
Balance as at 31 December 2020 9 0 .1 10 . 5 (3. 2 ) (8 9. 2 ) 59. 8 24 6 . 3 (23.8 ) 29 0.5 28 . 4 318 . 9
Prot for the year 8 8.9 8 8.9 19 .7 108 . 6
Other comprehensive income and
expense for theyear 16 . 5 ) 211.8 195 . 3 (0.5 ) 19 4 . 8
Dividends (see notes 12 and 27) 2 7. 6 ) (2 7. 6 ) (16 . 5 ) (4 4 .1 )
Movement in own shares 2 .7 0. 8 ) 1. 9 1.9
Share based payments 3.9 3.9 3.9
Deferred tax on share schemes 0 .1 0 .1 0 .1
Balance as at 31 December 2021 9 0 .1 10. 5 (0. 5 ) (105.7 ) 59.8 246.3 252. 5 553.0 3 1 .1 5 8 4 .1
Notes on pages 130 to 192 form part of these nancial statements.
Consolidated statement of changes in equity
Annual Report and Accounts 2021
Financial statements
129
Year ended 31 December Notes
2021
US$m
2020
US$m
Cash inow from operating activities:
Cash generated from operations 30(a) 189 .0 128 . 0
Interest paid (12 . 5 ) (1 6 .1 )
Taxation paid 30(b) (47. 9 ) (4 6. 3 )
Net cash generated by operating activities 12 8 . 6 65.6
Cash outow from investing activities:
Investment income 30(c) 0. 3 0.9
Net capital expenditure and nancial investment 30(d) (30 . 3 ) (12 . 3 )
Acquisitions and disposals of businesses 30(e) 3 6 .9 )
Net cash absorbed in investing activities (30 .0 ) (4 8. 3 )
Cash outow from nancing activities:
Purchase of own shares 3 .1 )
Dividends paid to equity shareholders (2 7. 4 ) (0. 2 )
Dividends paid to non-controlling interests (16 . 5 ) (17. 8 )
Payment of lease liabilities (2 2 .1 ) (19. 4 )
Net increase/(decrease) in borrowings 8.4 (5 8 .7 )
Net cash absorbed in nancing activities (57 .6 ) (99. 2 )
Net increase/(decrease) in cash and cash equivalents 41. 0 (81 .9 )
Net cash and cash equivalents at beginning of the year 5 2 .1 13 5 . 9
Foreign exchange losses on cash and cash equivalents (2.3 ) (1. 9 )
Net cash and cash equivalents at end of the year 30(f) 9 0.8 5 2 .1
Reconciliation of net cash ows to movements in net debt
Net increase/(decrease) in cash and cash equivalents 41. 0 (81 .9 )
Net (increase)/decrease in other borrowings (8 .4 ) 5 8 .7
Change in net debt resulting from cash ows (free cash ow) 32. 6 (23 . 2 )
Net movement in lease liabilities during the period (33.0 ) (0.3 )
Movement in fair value hedges 3.0 (5. 4 )
Other non-cash movements (1. 3 ) (0 .7 )
Foreign exchange losses (0. 8 ) (2 .1 )
Decrease/(increase) in net debt 0.5 (31. 7 )
Net debt at the start of the year (24 6.6 ) (2 14 . 9 )
Net debt at the end of the year 30(f) (2 4 6 .1 ) (24 6 . 6 )
Notes on pages 130 to 192 form part of these nancial statements.
Consolidated statement of cash ows
Coats Group plc
Strategic report Corporate governance Financial statements Other information
130
1 Principal accounting policies
The following are the principal accounting policies adopted in preparing the nancial 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 nancial 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 signicant impact on the result for the year and/or the carrying values of assets and
liabilities in the consolidated nancial statements:
Critical judgements in applying the Group’s accounting policies
In the course of preparing the nancial statements, the below critical judgements have had a signicant effect on the amounts recognised in the
nancial statements for the year ended 31 December 2021. For the year ended 31 December 2020 there were no judgements that were made in
the process of applying the Group’s accounting policies, other than those involving estimations that had a signicant effect on the amounts
recognised in the nancial statements.
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 allow an understanding of the underlying trading performance of the Group. This judgement includes assessment
of whether an item is of sufcient 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 dened benet pension surplus for the Coats UK Pension Scheme under IAS 19 of $108.0 million at 31 December
2021 (2020: decit of $128.5 million). Judgement has been applied when determining whether the Group can recognise this surplus asset amount
on the statement of nancial position or whether any economic benets 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 reect 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 dened benet
pension surplus. Please see note 10 for further details.
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 signicant risk
of causing material adjustment to the carrying amounts of assets and liabilities within the next nancial year, are discussed below.
UK retirement benet obligations
The UK retirement benet surplus recognised in the consolidated statement of nancial position is the net of the fair value of scheme assets less
the present values of the dened benet obligations at the year end. Key assumptions involved in the determination of the present values of the
dened benet obligations include discount rates, beneciary mortality and ination rates. Changes in any or all of these assumptions could
materially change the employee benet surplus recognised in the consolidated statement of nancial position. The carrying values of the Group’s
pension obligations as well as a sensitivity analysis relating to changes in discount rates, beneciary mortality and ination rates are included in
note 10.
In preparing the consolidated nancial statements for the year ended 31 December 2021, the key sources of estimation uncertainty were the same
as those applied to the consolidated nancial statements for the year ended 31 December 2020.
a) Accounting convention and format
The Group’s nancial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the
United Kingdom Endorsement Board (UKEB). The nancial statements are prepared under the historical cost convention except for investments and
derivatives which are stated at fair value and retirement benet obligations which are valued in accordance with IAS 19 Employee Benets.
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 nancial statements as applied in the
Group’s annual nancial statements for the year ended 31 December 2020.
Notes to the nancial statements
Annual Report and Accounts 2021
Financial statements
131
1 Principal accounting policies continued
b) Basis of preparation
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 nancial statements of subsidiaries to align their accounting policies with those used by the Group.
Where subsidiaries are not 100% owned by the Group, the share attributable to outside shareholders is reected in non-controlling interests.
Non-controlling interests are identied 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 identiable 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 reclassied and recognised through the income
statement as part of the gain or loss on disposal.
Joint ventures
Joint ventures are entities in which the Group has joint control, shared with a party outside the Group. The Group reports its interests in joint
ventures using the equity method.
Going concern
The Directors are satised that the Group has sufcient resources to continue in operation for the foreseeable future, a period of not less than 12
months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the consolidated nancial
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 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:
• A base case scenario, aligned to the latest Group budget for 2022 as well as the Group’s Medium Term Plan for 2023;
• A severe but plausible downside scenario, which assumes that the global economic environment is severely depressed over the assessment
period; and
• A reverse stress test exing sales to determine what circumstance would be required to either reduce headroom to nil on committed borrowing
facilities or breach borrowing covenants, whichever occurred rst.
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 also includes further controllable management actions that could be deployed if required. The outcome of the reverse stress
test was that the interest cover covenant would be breached, however, at the breaking point in the test the Group still maintained a comfortable
level of liquidity on committed borrowing facilities. The Directors consider the likelihood of the condition in the reverse stress test occurring to be
remote.
Liquidity headroom
As at 31 December 2021 the Group’s net debt (excluding IFRS 16 leases) was $147.1 million (2020: $180.6 million). The Group’s committed debt
facilities total $585 million across both its Banking and US Private Placement group, with a range of maturities from late 2024 through to 2027, as
of 31 December 2021 the Group has around $330 million of headroom against these committed banking facilities.
In both the base case and the severe but plausible downside scenario liquidity is comfortable throughout the assessment period.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
132
1 Principal accounting policies continued
Covenant testing
The Group’s committed borrowing facilities are subject to ongoing covenant testing. Covenants are measured twice a year, at full year and half
year and are measured under frozen accounting standards and therefore exclude the effects of IFRS 16. The nancial 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 comfortably at 31 December 2021, with leverage of 0.7x and interest cover of 28.4x. The base case forecast
indicates that banking covenants will be comfortably met throughout the assessment period. Under the severe but plausible downside scenario
covenant compliance is still projected to be achieved throughout the assessment period, although with reduced but adequate headroom.
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 nancial statements,
there are no material uncertainties that cast doubt on the Group’s going concern status and that it is appropriate to prepare the consolidated
nancial statements on the going concern basis.
c) Functional currency
The functional currency of Coats Group plc continued to be United States dollars (USD) during the year ended 31 December 2021.
d) Foreign currencies
Foreign currency translation
The Group’s presentation currency is USD. Transactions of companies within the Group are recorded in the functional currency of that company.
Currencies other than the functional currency are foreign currencies.
Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated in
foreign currencies are translated at the rates of exchange ruling at the period end. All currency differences on monetary items are taken to the
consolidated income statement with the exception of currency differences that represent a net investment in a foreign operation, which are taken
directly to equity until disposal of the net investment, at which time they are recycled through the consolidated income statement. Non-monetary
items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of initial transaction.
Group companies
Assets and liabilities of subsidiaries whose presentation currency is not USD are translated into the Group’s presentation currency at the rates of
exchange ruling at the period end and their income statements are translated at the average exchange rates for the year.
The exchange differences arising on the retranslation since 1 January 2004 are taken to a separate component of equity. On disposal of such an
entity, the deferred cumulative amount recognised in equity since 1 January 2004 relating to that particular operation is recycled through the
consolidated income statement. Translation differences that arose before the date of transition to IFRS in respect of all such entities are not
presented as a separate component of equity.
Goodwill and fair value adjustments arising on acquisition of such operations are regarded as assets and liabilities of the particular operation,
expressed in the currency of the operation and recorded at the exchange rate at the date of the transaction and subsequently retranslated at the
applicable closing rates.
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The principal exchange rates (to the US dollar) used in preparing these nancial statements are as follows:
2021 2020
Average Sterling 0.73 0.78
Euro 0.85 0.88
Brazilian Real 5.40 5.16
Chinese Renminbi 6.45 6.90
Indian Rupee 73.92 74.11
Turkish Lira 8.89 7.02
Period end Sterling 0.74 0.73
Euro 0.88 0.82
Brazilian Real 5.57 5.19
Chinese Renminbi 6.35 6.53
Indian Rupee 74.47 73.04
Turkish Lira 13.32 7.43
e) Operating segments
Operating segments are components of the Group about which separate nancial 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 prot
Operating prot is stated before the share of results of joint ventures, investment and interest income, nance costs and foreign exchange gains
and losses from nancing activities.
g) Exceptional and acquisition related items
The Group has adopted an income statement format which seeks to highlight signicant items within the Group results for the year. Exceptional
items may include signicant restructuring associated with a business or property disposal, litigation costs and settlements, prot or loss on
disposal of property, plant and equipment, non-actuarial gains or losses arising from signicant one off changes to dened benet 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 nancial
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
benets embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense
asincurred.
Notes to the nancial statements continued
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Depreciation
Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of property, plant and equipment, and
major components that are accounted for separately. Land is not depreciated. The estimated useful lives are as follows:
Freehold buildings 50 years to 100 years
Leasehold improvements 10 years to 50 years or over the term of the lease if shorter
Plant and equipment 3 years to 20 years
Vehicles and ofce equipment 2 years to 10 years
Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each period end.
i) Intangible assets
Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identiable
assetsand liabilities of a subsidiary at the date of acquisition. Goodwill is recognised as an asset and tested for impairment at least annually.
Anyimpairment is recognised immediately in the income statement. On disposal of a subsidiary, the attributable amount of goodwill is included
inthe determination of the prot 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 inows that are largely independent of the cash inows 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 Brands) are as follows:
Brands and trade names 5 years to 20 years
Technology 4 years to 10 years
Customer relationships 9 years to 14 years
The useful life of the Coats Brand is considered to be indenite.
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 specic 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 nite 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.
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Impairment of property, plant and equipment, right-of-use assets and intangible assets excluding goodwill
Assets that have an indenite 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
notbe recoverable.
An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount
is the higher of an asset’s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash ows are discounted to
their present value using a pre-tax discount rate that reects current market assessments of the time value of money and the risks specic to the
asset for which the estimates of future cash ows 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 identied;
• it is probable that the asset created will generate future economic benets; 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
isincurred.
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 (dened as leases with
alease term of 12 months or less) and leases of low value assets (dened 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 benets 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 reect interest on the lease liability (using the effective interest
method) and by reducing the carrying amount to reect 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 oating interest rate, in which case a revised discount rate is used); and
• a lease contract is modied and the lease modication 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
theunderlying 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
toproduce inventories.
Notes to the nancial statements continued
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1 Principal accounting policies continued
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 reects 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 nancial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant nancial
instrument.
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 nancial 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 ows, cash and cash equivalents consist of cash and cash equivalents as dened above,
net of outstanding bank overdrafts.
(iii) Trade and other receivables
Trade receivables are recognised at fair value (which ordinarily reects the invoice amount) and carried at amortised cost, less an allowance for
expected lifetime losses as permitted under the simplied approach in IFRS 9. Fully provided balances are not written off from the balance sheet
until the Group has decided to cease enforcement activity.
Financial liabilities
(i) Trade payables
Trade payables are not interest-bearing and are recognised at fair value, and measured subsequently at amortised cost.
(ii) Borrowings
Interest-bearing loans and overdrafts are initially measured at fair value, net of direct issue costs. These nancial liabilities are subsequently
measured at amortised cost using the effective interest method, with interest expense recognised over the period of the relevant liabilities.
Financialliabilities designated as hedged items in a fair value hedge are subsequently measured at fair value.
(iii) Compound instruments
The component parts of compound instruments are classied separately as nancial liabilities and equity in accordance with the substance of the
contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a
similar non-convertible instrument, and this amount is recorded as a liability at amortised cost. The equity component is the fair value of the
compound instrument as a whole less the amount of the liability component, and is recognised in equity, net of income tax effect, without
subsequent remeasurement.
Derivatives embedded in other nancial instruments or other host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of the host contracts, and the host contracts are not measured at fair value with changes in fair value being
recognised in the income statement.
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(iv) Derivative nancial instruments and hedge accounting
The Group’s activities expose it to the nancial risks of changes in foreign exchange rates and interest rates.
The use of nancial 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 nancing nature are included within investment income and nance costs in the
income statement.
Derivative nancial 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 ow hedges or hedges of net investments in foreign operations.
Hedges of interest rate risk are accounted for as fair value or cash ow hedges.
At the inception of each hedge transaction the issuing entity documents the relationship between the hedging instrument and the hedged
itemand the anticipated effectiveness of the hedge transaction, and monitors the ongoing effectiveness over the period of the hedge. Hedge
accounting is discontinued when the issuing entity revokes the hedging relationship, the hedge instrument expires, is sold, exercised or otherwise
terminated, and the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the income
statement from that date.
(v) Fair value hedges
Changes in the fair values of derivatives that are designated and qualify as fair value hedges are recognised immediately through the income
statement, together with any changes in the fair value of the related hedged items due to changes in the hedged risks. On discontinuation of
thehedge the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the consolidated income
statement from that date.
(vi) Cash ow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash ow hedges is deferred in equity.
Oncetherelated hedged item is recognised in the income statement, the amounts deferred in equity are recycled through the consolidated
incomestatement. The gain or loss arising from any ineffective portion of the hedge is recognised immediately through the consolidated
incomestatement.
(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
theGroup. 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 satised 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 satised evenly over a xed 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.
Notes to the nancial statements continued
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1 Principal accounting policies continued
(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 rst-in, rst-out basis.
The costs of nished 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,
lessestimated costs of completion and the estimated costs necessary to make the sale. Provision is made for obsolete, slow-moving and defective
inventories.
n) Employee benets
(i) Retirement and other post-employment obligations
For retirement and other post-employment benet obligations, the cost of providing benets 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 nancial 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
notrecycled.
Current and past service costs, along with the impact of any settlements or curtailments, are charged to the consolidated income statement.
Thenet interest expense on pension plans’ liabilities and the expected return on the plans’ assets is recognised within nance 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 benet and other post employment benet obligation recognised in the consolidated statement of nancial position represents the
decit or surplus in the Group’s dened benet schemes. Any surplus resulting from this calculation is limited to the present value of any economic
benets available in the form of refunds from the schemes or reductions in future contributions to the schemes and refunds expected from the
schemes to fund other Group dened benet schemes, in accordance with relevant legislation.
For dened 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 benet expenses when they are due. Prepaid contributions are recognised as an
asset to the extent that a cash refund or a reduction in the future payments is available.
(ii) Share-based compensation
Cash-settled
Cash-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at each reporting
date. The fair value is expensed on a straight-line basis over the vesting period, with a corresponding increase in liabilities.
Equity-settled
The Group operates an equity-settled Long Term Incentive Plan for executives and senior management. Awards under this Plan are subject to both
market-based and non-market-based vesting criteria.
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1 Principal accounting policies continued
The fair value at the date of grant is established by using an appropriate simulation method to reect 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 reect 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 Benet 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 benet is earned, based on remuneration rates that are expected to be payable.
(iv) Termination benets
Termination benets are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary
redundancy in exchange for these benets. The Group recognises termination benets 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 benets as
aresult of an offer made to encourage voluntary redundancy. Benets 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 prot for the year. Taxable prot differs from net prot 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
arenever 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
nancial 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 prot, 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 prots 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 benet 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
anditis 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 sufcient taxable
prots against which to utilise the benets 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 prot 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 nancial
support to the Group with no future related costs are recognised in prot or loss in the period in which they become receivable.
Notes to the nancial statements continued
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q) Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take
asubstantial 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 specic borrowings pending
theirexpenditure 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 nancial position when the Group has a legal or constructive obligation as a result of
apast event, and it is probable that an outow of economic benets will be required to settle the obligation. If the effect is material, a provision
isdetermined by discounting the expected future cash ows at a pre-tax rate that reects current market assessments of the time value of money
and, where appropriate, the risks specic to the liability. Where discounting is used, the increase in the provision due to the passage of time is
recognised as a borrowing cost.
s) Onerous contracts
A provision for onerous contracts is recognised when the expected benets 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) classied 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 classied 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 classication.
Non-current assets are classied as held for sale from the date these conditions are met, and such assets are no longer depreciated.
Discontinued operations are classied as held for sale and are either a separate business segment or a geographical area of operations that is part
of a single coordinated plan to sell. Once an operation has been identied as discontinued, or is reclassied as discontinued, the comparative
information in the Income Statement is restated.
v) Climate change
In preparation of the consolidated nancial 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) section of the Strategic
Report on pages 38-45 we are exposed to specic transitional and physical climate related risks. The key areas in the consolidated nancial
statements that were identied 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 xed 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 (oods
andextreme heat). These risks as well as any potential mitigations were considered when assessing the appropriateness of the assumptions used
toproject future cash ows to support the value in use of a CGU. No specic signicant nancial impacts were identied in relation to the CGUs
that were subject to an impairment review during the year ended 31 December 2021 (see note 13). In addition, no signicant short to medium
term (pre 2045) climate related impacts have been identied for individual assets or other CGUs in the Group.
(ii) Fixed asset useful lives
Consideration was given as to whether the impact of physical risks relating to extreme weather events (eg ood risk damage) may require a
reassessment of the estimated useful lives of xed assets. As noted in the physical risks section in our TCFD disclosures, no signicant impacts are
currently expected in the short to medium term (pre 2045), after which point the majority of the Group’s current xed asset portfolio will be fully
depreciated. As such, the reassessment of xed asset useful lives to reect potential impacts of climate change was not deemed necessary.
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1 Principal accounting policies continued
In light of the above, the Group’s current assessment is that the climate related risks detailed in the TCFD disclosures section of the Strategic
Reportdo not have a material impact on the key accounting policies, estimates and judgements that form the basis of these consolidated
nancialstatements.
New IFRS accounting standards, interpretations and amendments adopted in the year
During the year, the Group has adopted the following standards, interpretations and amendments:
• Interest Rate Benchmark Reform Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16); and
• COVID-19-Related Rent Concessions (Amendment to IFRS 16).
The adoption of these standards has not had a material impact on the nancial statements of the Group.
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
tobeeffective as follows:
From the year beginning 1 January 2022:
• Onerous Contracts – Cost of Fullling a Contract (Amendments to IAS 37);
• Annual Improvements to IFRS Standards 2018–2020;
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); and
• Reference to the Conceptual Framework (Amendments to IFRS 3).
From the year beginning 1 January 2023:
• Classication 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);
• Denition of Accounting Estimates (Amendments to IAS 8); and
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12).
The directors do not expect that the adoption of the Standards and Interpretations listed above will have a material impact on the nancial
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 nancial information is available that is evaluated
regularly by the chief operating decision maker (the Group Executive Team). The Group’s customers are grouped into two segments Apparel &
Footwear and Performance Materials which have distinct different strategies and differing customer/end-use market proles.
a) Segment revenue and results
Year ended 31 December 2021
Apparel &
Footwear
US$m
Performance
Materials
US$m
Total
US$m
Revenue 1,094.4 409.4 1,503.8
Segment prot 163.9 29.2 193.1
Exceptional and acquisition related items (note 4) (13.7)
Operating prot 179.4
Share of prots of joint ventures 1.2
Finance income 4.6
Finance costs (22.2)
Prot before taxation from continuing operations 163.0
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
142
2 Segmental analysis continued
Year ended 31 December 2020
Apparel &
Footwear
US$m
Performance
Materials
US$m
Total
US$m
Revenue 822.7 340.6 1,163.3
Segment prot 95.5 15.1 110.6
Exceptional and acquisition related items (note 4) (7.5)
Operating prot 103.1
Share of prots of joint ventures 0.6
Finance income 1.4
Finance costs (25.5)
Prot before taxation from continuing operations 79.6
Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Exceptional and
acquisition related items are not allocated to segments to align to the reporting provided to the chief operating decision maker. In addition, no
measures of total assets and total liabilities are reported for each reportable segment as such amounts are not regularly provided to the chief
operating decision maker.
The accounting policies of the reportable operating segments are the same as the Group’s accounting policies described in note 1.
b) Geographic information
Revenue by origin Revenue by destination Non-current assets
Year ended 31 December
2021
US$m
2020
US$m
2021
US$m
2020
US$m
2021
US$m
2020
US$m
Europe, Middle East & Africa (EMEA)
UK 14.4 8.0 14.8 12.3 258.9 260.3
Rest of EMEA 267.8 211.4 250.9 198.1 70.3 68.6
Americas
USA 205.4 187.9 218.4 195.8 63.3 61.1
Rest of Americas 170.0 126.6 173.3 126.5 46.6 35.4
Asia & Rest of World
India 166.3 110.1 161.8 107.1 46.1 50.3
China and Hong Kong 214.4 147.2 194.1 135.3 77.1 55.7
Vietnam 192.0 176.4 178.7 159.2 34.9 34.5
Other 273.5 195.7 311.8 229.0 67. 2 68.4
1,503.8 1,163.3 1,503.8 1,163.3 664.4 634.3
Non-current assets excludes derivative nancial instruments, pension surpluses and deferred tax assets.
Annual Report and Accounts 2021
Financial statements
143
3 Revenue
An analysis of the Group’s revenue is as follows:
Year ended 31 December
2021
US$m
2020
US$m
Goods transferred at a point in time 1,492.7 1,154.8
Software solutions services transferred over time 11.1 8.5
1,503.8 1,163.3
Other operating income – 1.4
Finance income 4.6 1.4
1,508.4 1,166.1
The software solutions business is included in the Apparel & Footwear segment.
Disaggregation of revenue
The following table shows revenue disaggregated by primary geographic markets which reconciles with the Group’s reportable segments:
Year ended 31 December
2021
US$m
2020
US$m
Continuing operations:
Asia 846.2 629.4
Americas 375.4 314.5
EMEA 282.2 219.4
1,503.8 1,163.3
Continuing operations:
Apparel & Footwear 1,094.4 822.7
Performance Materials 409.4 340.6
1,503.8 1,163.3
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 includes results before and after exceptional and acquisition related items.
Adjusted results (also referred to as underlying performance) exclude exceptional and acquisition related items on a consistent basis with the
previous reporting period to provide a more meaningful comparison of how the performance of the business is managed and measured on
aday-to-day basis. Further details on alternative performance measures are set out in note 35.
Exceptional items may include signicant restructuring associated with a business or property disposal, litigation costs and settlements, prot or loss
ondisposal of property, plant and equipment, non-actuarial gains or losses arising from signicant one off changes to dened benet 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.
Judgement is used by the Group in assessing the particular items, which by virtue of their scale and nature, are presented in the income
statementand disclosed in the related notes as exceptional items. In determining whether an event or transaction is exceptional, materiality is
akeyconsideration and qualitative factors, such as frequency or predictability of occurrence, are also considered. This is consistent with the way
nancial performance is measured by management and reported to the Board.
Total exceptional and acquisition related items charged to operating prot for the year ended 31 December 2021 were $13.7 million (2020: $7.5
million) comprising exceptional items for the year ended 31 December 2021 of $2.1 million credit (2020: charge of $3.5 million) and acquisition
related items for the year ended 31 December 2021 of $15.8 million (2020: $4.0 million). Tax in respect of exceptional and acquisition related
itemsis set out in note 9.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
144
4 Exceptional and acquisition related items continued
Exceptional items
Exceptional items (credited)/charged to operating prot during the year ended 31 December 2021 are set out below:
Year ended 31 December
2021
US$m
2020
US$m
Exceptional items:
Cost of sales:
Brazil indirect taxes (5.8) –
Impairment charges – 4.9
Administrative expenses:
Strategic project costs 3.7 –
Other operating income:
Prot from sale of property – (1.4)
Total exceptional items (credited)/charged to operating prot from continuing operations (2.1) 3.5
Brazil indirect taxes – During the year ended 31 December 2021 the Brazilian Supreme Federal Court concluded its judgement that Brazilian
ICMS (indirect tax on goods and services) should not be included in the calculation basis of PIS (Program of Social Integration) and COFINS
(Contribution for the Financing of Social Security) indirect taxes.
As a result, estimated refunds have been recognised in the results for the year ended 31 December 2021 of $5.8 million (year ended 31 December
2020: $nil) which has been included in cost of sales and in addition exceptional interest income has been recognised of $4.2 million (year ended
31 December 2020: $0.7 million).
These refunds date back to 2003 and the estimated tax credit amounts are expected to be utilised over a period of approximately six years, based
upon current assumptions, once the Group has received a favourable Court ruling, which is considered virtually certain.
Strategic project costs – The Group has commenced a number of strategic projects to improve margins by optimising the portfolio and footprint,
improving the overall cost base efciency, and mitigating structural labour availability issues in the US. Exceptional costs of $3.7 million were
incurred during the year ended 31 December 2021 which includes advisers’ costs of $0.9 million, impairment charges relating to plant and
equipment in North America of $2.0 million and closure and other related costs of $1.7 million. This was offset by an exceptional credit of $0.9
million relating to the closure of a small business in Australia in a prior year. It is anticipated that cash exceptional costs in the order of $35 million
will be incurred in relation to these and further strategic initiatives across 2022 and 2023 in total.
Exceptional items during the year ended 31 December 2020 are set out below:
Impairment charges – At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is any
indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets are estimated in
order to determine the extent of the impairment loss, if any. During the year ended 31 December 2020, following this review impairment charges
totalling $4.9 million were made in smaller markets in EMEA ($4.1 million relating to property, plant and equipment and $0.8 million relating to
right-of-use assets). The impairment charges in these markets represented a full write down of property, plant and equipment and right-of-use
assets, except for owned land and buildings of $1.7 million which is not considered to be impaired. None of the cash generating units for which
animpairment charge was recognised during the year ended 31 December 2020 included goodwill or intangible assets with indenite useful lives.
Prot from sale of property – During the year ended 31 December 2020 a prot of $1.4 million was made from the sale of a property in
anon-core market.
Annual Report and Accounts 2021
Financial statements
145
4 Exceptional and acquisition related items continued
Acquisition related items
Acquisition related items are set out below:
Year ended 31 December
2021
US$m
2020
US$m
Acquisition related items:
Administrative expenses:
Acquisition earnouts and contingent consideration 0.1 0.8
Acquisition transaction costs 12.4 –
Amortisation of acquired intangible assets 3.3 3.2
Total acquisition related items charged to operating prot 15.8 4.0
The Group pursed several acquisition opportunities during the year ended 31 December 2021 and as a result incurred transaction costs of $12.4
million (2020: $nil). Growth through acquisitions is a key element of the Group’s strategy and the Group will continue to be disciplined in the
assessment of acquisition opportunities as they arise. The Group looks to identify companies with complementary capabilities that can further
strengthen the core, technology, innovations, or Intellectual Property and which can be scaled to deliver growth and value for customers and
shareholders.
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 prot
and adjusted earnings per share, as in management’s view, these items are part of the capital transaction.
Acquisition transaction costs and amortisation of intangible assets acquired through business combinations are not included within adjusted
earnings. These costs are acquisition related and management consider them to be capital in nature and they do not reect the underlying
tradingperformance 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
itsorganically 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 underlying trading performance
of the business.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
146
5 Prot for the year (including discontinued operations)
Year ended 31 December
2021
US$m
2020
US$m
Prot for the year is stated after charging/(crediting):
Amortisation of intangible assets 6.0 7.2
Depreciation of owned property, plant and equipment 28.2 30.5
Depreciation of right-of-use assets 19.4 18.3
Loss/(prot) on disposal of property, plant and equipment 0.1 (1.0)
Fees charged by Deloitte LLP
Group audit fees:
– Fees payable for the audit of the Company’s annual accounts 0.7 0.6
– Fees payable for the audit of the Company’s subsidiaries 1.5 1.5
Other Deloitte services:
– Taxation services 0.2 0.1
– Other services 0.2 0.2
Total fees charged by Deloitte LLP 2.6 2.4
Research and development expenditure 6.1 6.4
Bad and doubtful debts (0.2) 3.1
Net foreign exchange losses 0.5 3.2
Rental income from land and buildings (0.2) (0.2)
Inventory as a material component of cost of sales 631.4 4 87.1
Inventory write-downs to net realisable value 5.3 4.5
Annual Report and Accounts 2021
Financial statements
147
6 Finance income
Year ended 31 December
2021
US$m
2020
US$m
Income from investments 0.1 0.1
Other interest receivable and similar income 4.5 1.3
4.6 1.4
Other interest receivable and similar income for the year ended 31 December 2021 includes exceptional income of $4.2 million (2020: $0.7 million)
relating to refunds for indirect taxes in Brazil (see note 4 for further details).
7 Finance costs
Year ended 31 December
2021
US$m
2020
US$m
Interest on bank and other borrowings 10.7 11. 2
Interest expense on lease liabilities 5.2 3.9
Net interest on pension scheme assets and liabilities 4.3 4.7
Other nance costs including unrealised gains and losses on foreign exchange contracts 2.0 5.7
22.2 25.5
8 Staff costs
The average monthly number of employees was:
Year ended 31 December 2021 2020
Manufacturing 14,961 13,723
Other staff 3,512 3,359
Total number of employees 18,473 17,082
Comprising:
UK 182 182
Overseas 18,291 16,900
18,473 17,08 2
The total numbers employed at the end of the year were:
UK 179 183
Overseas 18,638 17,125
Total number of employees 18,817 17,30 8
Year ended 31 December
2021
US$m
2020
US$m
Employee aggregate remuneration comprised (including directors)
1
:
Wages and salaries 314.5 237.8
Social security costs 32.1 24.6
Other pension costs (note 10) 10.0 9.7
356.6 272.1
1. This does not include any contingent consideration on acquisitions that is treated as an expense, due to it being linked to continued employment (see note 4).
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
148
9 Tax on prot from continuing operations
Year ended 31 December
2021
US$m
2020
US$m
UK Corporation tax at 19% (2020: 19%) – –
Overseas tax charge (56.3) (43.0)
Deferred tax credit 1.9 5.6
Total tax charge (54.4) (37.4)
The overseas tax charge includes withholding tax charges and other taxes not based on prots for the year ended 31 December 2021 of $13.1
million (2020: $12.5 million). Exceptional tax charges for the year ended 31 December 2021 were $0.9 million (2020: $2.2 million) relating to
Brazilrefunds of indirect taxes (see note 4).
The deferred tax credit of $1.9 million for the year ended 31 December 2021 includes deferred tax provision releases following remittance
ofdividends from subsidiaries, deferred tax credits arising from the expected recovery of current year losses in certain jurisdictions and
othertimingdifferences.
The tax charge for the year can be reconciled as follows:
2021 2020
Year ended 31 December
Underlying
US$m
Exceptional and
acquisition
related items
US$m
Other
adjustments
1
US$m
Total
US$m
Underlying
US$m
Exceptional and
acquisition
related items
US$m
Other
adjustments
1
US$m
Total
US$m
Prot before tax 176.8 (9.5) (4.3) 163.0 91.1 (6.8) (4.7) 79.6
Expected tax charge/
(credit) at the UK
statutory rate of 19%
(2020: 19%) 33.6 (1.8) (0.8) 31.0 17.3 (1.3) (0.9) 15.1
Differences between
overseas and
UKtaxationrate 0.6 1.1 (0.1) 1.6 (0.7) 0.3 (0.1) (0.5)
Non-deductible expenses 0.9 1.6 – 2.5 0.6 1.3 – 1.9
Non-taxable income (0.6) – – (0.6) (0.4) – – (0.4)
Local tax incentives (0.7) – – (0.7) – – – –
Utilisation of
unrecognised deferred
tax assets (3.5) – – (3.5) (1.5) – – (1.5)
Potential deferred tax
assets not recognised 7.0 – 0.4 7. 4 5.9 1.9 0.5 8.3
Impact of changes in
taxrates 1.7 – – 1.7 (0.6) – – (0.6)
Prior year adjustments 1.9 – – 1.9 2.6 – – 2.6
Withholding tax on
remittances (net of
double tax credits) and
other taxes not based
onprots 13.1 – – 13.1 12.5 – – 12.5
Income tax expense/
(credit) 54.0 0.9 (0.5) 54.4 35.7 2.2 (0.5) 37.4
Effective tax rate 31% (9)% 12% 33% 39% (32)% 11% 47%
1. Other adjustments consist of net interest on pension scheme assets and liabilities of $4.3 million (2020: $4.7 million).
Annual Report and Accounts 2021
Financial statements
149
9 Tax on prot from continuing operations continued
The Group’s underlying effective tax rate is higher than the blended rate of the countries we operate in primarily due to the impact of unrelieved
tax losses in countries where we are not currently able to recognise deferred tax assets in respect of those losses and the impact of withholding
taxes on the repatriation of earnings and royalties to the UK.
Excluding exceptional and acquisition related items and the impact of IAS 19 nance charges, the underlying effective rate on pre-tax prots
was31% (2020: 39%). The lower rate was driven by higher year on year prots, improved prot mix and a reduction in withholding taxes.
Uncertain tax positions
The Group’s current tax liability includes a number of tax provisions, which although individually are relatively small, together they total $20.2
million (2020: $15.0 million). These provisions relate to management’s estimate of the amount of tax payable on open tax returns yet to be agreed
with the local tax authorities. The Group evaluates uncertain tax items, which are subject to interpretation and agreement of the position with the
local Tax Authorities and consequently agreement may not be reached for a number of years. Primarily the tax items for which a provision has
beenmade relate to the interpretation of transfer pricing legislation and practices across the jurisdictions in which the Group operates.
The nal outcome on resolution of open issues with the relevant local Tax Authorities may vary signicantly due to the uncertainty associated
withsuch 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 nal outcome to the provided amount will affect the tax nancial results in the year of agreement. However, it is not expected
thata material adjustment would be required to these provisions within the next year.
The amount provided for uncertain tax positions has been made using the best estimate of the tax expected to be ultimately paid, taking into
account any progress on the discussions with local Tax Authorities, together with expert in-house and third-party advice on the potential
outcomeand recent developments in case law, Tax Authority practices and previous experience.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
150
9 Tax on prot from continuing operations continued
Taxation paid
During the year the Group made Corporate Income Tax payments in respect of continuing operations (including withholding and dividend
distribution taxes) of $47.9 million (2020: $46.3 million). The amount of tax paid in each jurisdiction is as follows:
Year ended 31 December
2021
US$m
2020
US$m
UK 9.3 12.3
Vietnam 13.9 14.0
Indonesia 4.4 2.7
China 3.8 3.0
India 3.0 2.5
Singapore 2.3 1.7
Bangladesh 1.8 2.2
Colombia 1.3 0.9
Hong Kong 1.2 0.8
Spain 1.0 0.9
Thailand 1.0 0.6
Pakistan 0.8 0.2
Sri Lanka 0.8 0.9
Hungary 0.7 0.3
Poland 0.5 0.6
Turkey 0.4 (0.5)
Brazil 0.2 1.0
Morocco – 0.7
Others (19 countries each less than $0.5 million) 1.5 1.5
Total Corporate Income Tax paid 47.9 46.3
The taxes paid in the UK and Singapore are primarily withholding taxes on royalties, group charges and dividends, deducted and paid at source.
Inthe current year the Group paid withholding taxes in the following jurisdictions:
2021
US$m
2020
US$m
Indonesia 2.9 2.7
India 2.0 0.8
China 1.9 0.9
Bangladesh 1.8 1.5
Vietnam 1.7 1.2
Estonia 0.6 2.8
Thailand 0.5 0.5
Others (each less than $0.5 million) 0.4 3.6
Total withholding taxes paid 11.8 14.0
Annual Report and Accounts 2021
Financial statements
151
10 Retirement and other post-employment benet arrangements
a) Pension and other post-employment costs
Pension and other post-employment costs charged to operating prot for the year were (continuing and discontinued operations):
US$m
Year ended
31 December
2021
US$m US$m
Year ended
31 December
2020
US$m
Dened contribution schemes 4.0 3.7
Dened benet schemes –
Coats US funded 2.0 1.8
Other funded and unfunded 4.0 4.2
6.0 6.0
Past service credit (0.2) (0.6)
Settlements (3.5) –
Administrative expenses for dened benet schemes 5.0 4.9
11.3 14.0
b) Dened contribution schemes
The Group operates a number of dened contribution plans around the world to provide pension benets.
c) Dened benet schemes
The Coats UK Pension Scheme is administered by a trustee and holds assets held in funds that are legally separated from the Group and are subject
to UK legislation with oversight from the Pensions Regulator. The trustee board is composed of representatives of both the Group and scheme
members together with two independent trustees. The trustee board is required by law and the scheme’s rules to act in the interest of the
scheme’s members and other stakeholders in the scheme (for example the Group). The trustee board is responsible for setting the scheme’s
investment policy following consultation with the Group.
The sponsor of the Coats UK Pension Scheme is Coats Limited and the Company provides a guarantee to the Coats UK Pension Scheme.
In addition, the Group has the Coats North America Pension Plan (Coats US) which is a dened benet scheme the assets of which are held
infunds 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,
andtocease future accrual for current employees from 1 January 2022. During the current year the Group carried out a “spin and termination”
transaction whereby a proportion of the current retiree benets were secured with an insurance company, whilst releasing a proportion of the
surplus to the company to fund future 401k employer contributions. Due to favourable pricing the transaction resulted in a non cash settlement
gain of $3.6 million which has been included in operating prot.
Finally, the Group also operates various other pension and other post-retirement arrangements in most of the countries in which it operates
(mostsignicantly in Germany). Detailed disclosures in respect of the UK plans and the Coats US plan are given in this note as the dened
benetobligations under these schemes represent around 96% of all dened benet obligations.
The Coats UK Pension Scheme operates an investment policy whereby a portion of the fund is invested in assets (bonds and derivatives) that
broadly match movements in the value of the scheme’s liabilities and a portion in assets that are anticipated to deliver a return in excess of
thechange in value of the liabilities.
The following disclosures do not include information in respect of schemes operated by joint ventures.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
152
10 Retirement and other post-employment benet arrangements continued
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 dened benet plan liabilities is
calculated using a discount rate determined by reference to
bondyields. A decrease in bond yield rates will increase dened
benetobligations.
The impact of the movement in discount rates are shown
onpage 158. The Trustees of the UK and US schemes hedge
these sensitivities through physical bonds and derivatives. The
Coats UK Pension Scheme is currently over 85% (2020: over
80%) hedged against interest rate movements by reference
tothe Technical Provisions liability.
Ination The present value of the dened benet liabilities are calculated
by reference to assumed future ination rates. Anincrease in
ination rates will increase dened benet obligations.
The impact of the movement in ination rates are shown on
page 158. 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 85%
(2020: over 80%) hedged against ination rate movements
byreference to the Technical Provisions liability.
Longevity
risk
The present value of the dened benet 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 an increase in life expectancy is shown on page
159. Currently this is not a risk that is hedged by the Group’s
pension schemes.
Investment
risk
The scheme assets are shown on a mark-to-market basis.
Adecrease in asset values at a relevant measurement date,
totheextent assets do not hedge liabilities, would lead to an
increased disclosed decit or reduced surplus.
The UK funded scheme is diversied 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
currencyexposure back to Sterling.
The US scheme is fully funded and has a signicant proportion
of xed income. The xed income is invested directly to protect
the funded status of the scheme. Trustees work with xed
income managers to consider the liabilities (including key
period durations, credit spread duration and convexity) and
have created a custom xed income benchmark to match
theliabilities and protect the funded status.
In addition the schemes’ investment policies recognise the
need to generate cash ows to meet members’ benets
asthey falldue.
ii) UK funding commitments
The information provided below for dened benet plans has been prepared by independent qualied actuaries based on the most recent actuarial
valuations of the schemes, updated to take account of the valuations of assets and liabilities as at 31 December 2021.
On 16 November 2021 Coats Limited and the Trustee of the Coats UK Pension Scheme agreed the valuation of the Coats UK Pension Scheme with
a 31 March 2021 effective date. This agreement resulted in ongoing annual decit recovery payments of £22 million ($29 million at 31 December
2021 exchange rate) per annum increasing annually by the increase in the Retail Prices Index (rst increase in January 2022) based on a Technical
Provisions decit of £193 million ($261 million). At 31 March 2021 the market value of assets were £2,221 million ($3,005 million) and liabilities
were £2,414 million ($3,266 million) resulting in the Technical Provisions decit of £193 million ($261 million). As before the Group will also meet
Scheme administrative expenses and levies estimated in future at £4 million ($5 million) per annum (ie total ongoing payments of $34 million per
annum, excluding the below deferred decit recovery payments). The new decit recovery payments were effective from 1 April 2021 and are
payable until 31 December 2028. The Scheme’s next triennial valuation will have an effective date of 31 March 2024.
In line with the terms of agreement with the trustees of the Coats UK Pension Scheme, the Group started to repay the deferred decit recovery
payments for April-December 2020 inclusive (circa $21 million deferred due to Covid underpinning actions). The rst payment was made on 25th
May 2021 and during the year atotal of $9 million has been repaid, with the remaining $12 million due to be repaid by the end of November 2022.
Annual Report and Accounts 2021
Financial statements
153
10 Retirement and other post-employment benet arrangements continued
The actuarial valuation decit above is used to determine the level of decit repair contributions that the Group is required to pay into the
CoatsUKPension Scheme. The actuarial valuation is different to the IAS 19 accounting valuation (set out below), which is based on accounting
rules concerning employee benets and shown on the consolidated statement of nancial position. The actuarial valuations are generally based on
the more prudent ‘Technical Provisions’ basis than that used for accounting purposes and as a result the actuarial decits are generally higher than
the accounting decits. It should also be noted that the accounting decit gures are calculated as at the balance sheet date of 31 December 2021.
The most recent actuarial valuation for the Coats UK pension scheme had a 31 March 2021 effective date and the most recent actuarial valuation
for the Coats US scheme was 1 January 2021.
iii) Principal assumptions
The principal assumptions for the UK and US schemes are as follows:
Principal assumptions at 31 December 2021
Coats UK
Pension Scheme
%
Coats US
%
Other
%
Rate of increase in salaries – 3.0 4.9
Rate of increase for pensions in payment Various – 2.9
Discount rate 1.9 2.8 4.0
Ination assumption 3.5 2.2 3.0
Principal assumptions at 31 December 2020
Coats UK
Pension Scheme
%
Coats US
%
Other
%
Rate of increase in salaries – 3.0 4.7
Rate of increase for pensions in payment Various – 3.0
Discount rate 1.3 2.3 3.1
Ination assumption 3.0 2.2 3.7
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
beat a rate of 3.4% (2020: 3.0%). For former Staveley scheme members, the majority of the increases for pensions in payment fall within the
range 2.6%–3.4% (2020: 2.4%–3.0%). For former Brunel scheme members, the majority of the increases for pensions in payment fall within
therange 3.2%–4.0% (2020: 3.0%–4.0%).
The assumed life expectancy on retirement is:
Year ended 31 December 2021 Year ended 31 December 2020
Coats UK
Pension Scheme
Years Coats US Years
Coats UK
Pension Scheme
Years Coats US Years
Retiring today at age 60:
Males 25.8 24.8 25.7 24.7
Females 28.6 27.0 27.9 26.8
Retiring in 20 years at age 60:
Males 27.3 26.5 27. 2 26.3
Females 30.0 28.6 29.5 28.4
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
154
10 Retirement and other post-employment benet arrangements continued
iv) Amounts recognised in the consolidated income statement
Amounts recognised in income in respect of these dened benet schemes are as follows:
Year ended 31 December 2021
Coats UK
Pension Scheme
US$m
Coats US
US$m
Other
US$m
Group
US$m
Current service cost – (2.0) (4.0) (6.0)
Past service (cost)/credit – (0.1) 0.3 0.2
Settlements – 3.6 (0.1) 3.5
Administrative expenses (4.2) (0.7) (0.1) (5.0)
(4.2) 0.8 (3.9) (7.3)
Interest on dened benet obligations – unwinding of discount (41.0) (1.9) (3.6) (46.5)
Interest income on pension scheme assets 39.6 4.0 0.8 44.4
Effect of asset cap – (1.8) (0.4) (2.2)
(1.4) 0.3 (3.2) (4.3)
Year ended 31 December 2020
Coats UK
Pension Scheme
US$m
Coats US
US$m
Other
US$m
Group
US$m
Current service cost – (1.8) (4.2) (6.0)
Past service credit – – 0.6 0.6
Administrative expenses (4.5) (0.4) – (4.9)
Interest on dened benet obligations – unwinding of discount (4.5) (2.2) (3.6) (10.3)
(55.6) (3.6) (4.2) (63.4)
Interest income on pension scheme assets 54.0 6.3 1.0 61.3
Effect of asset cap – (2.2) (0.4) (2.6)
(1.6) 0.5 (3.6) (4.7)
v) Amounts recognised in the consolidated statement of comprehensive income
Actuarial gains and losses were as follows:
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
Effect of changes in demographic assumptions (30.7) (10.4)
Effect of changes in nancial assumptions 125.7 (321.6)
Effect of experience adjustments 64.3 13.7
Remeasurement on assets (excluding interest income) 50.6 286.3
Adjustment due to surplus cap 2.9 (7.7)
Included in the statement of comprehensive income 212.8 (39.7)
Annual Report and Accounts 2021
Financial statements
155
10 Retirement and other post-employment benet arrangements continued
vi) Amounts recognised in the consolidated statement of nancial position
The amounts included in the consolidated statement of nancial position arising from the Group’s dened benet arrangements are as follows:
Year ended 31 December 2021
Coats UK
Pension Scheme
US$m
Coats US
US$m
Other
US$m
Total
US$m
Cash and cash equivalents 73.3 4.0 2.7 80.0
Equity instruments:
US 124.0 17.8 1.2 143.0
UK 7.9 – – 7.9
Eurozone 17.2 – – 17.2
Other regions 43.9 17.1 3.5 64.5
Debt instruments:
Corporate bonds (Investment grade) 767.5 68.7 3.6 839.8
Corporate bonds (Non-investment grade) 244.3 2.6 – 246.9
Government/sovereign instruments 1,440.9 31.2 – 1,472.1
Global real estate 300.0 – 0.1 300.1
Derivatives:
Total return, interest and ination swaps 0.6 – – 0.6
Assets held by insurance company:
Insurance contracts 2.7 0.5 0.8 4.0
Diversied investment fund – – 4.3 4.3
Other 120.6 0.1 0.4 121.1
Total market value of assets 3,142.9 142.0 16.6 3,301.5
Actuarial value of scheme liabilities (3,034.9) (46.9) (114.9) (3,196.7)
Net asset/(liability) in the scheme 108.0 95.1 (98.3) 104.8
Adjustment due to surplus cap – (83.5) (0.2) (83.7)
Recoverable net asset/(liability) in the scheme 108.0 11.6 (98.5) 21.1
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
156
10 Retirement and other post-employment benet arrangements continued
Year ended 31 December 2020
Coats UK
Pension Scheme
US$m
Coats US
US$m
Other
US$m
Total
US$m
Cash and cash equivalents 251.2 7.6 2.8 261.6
Equity instruments:
US 108.0 28.2 1.2 137.4
UK 7.8 3.5 – 11.3
Eurozone 16.5 10.0 – 26.5
Other regions 44.9 16.0 5.0 65.9
Debt instruments:
Corporate bonds (Investment grade) 956.5 113.1 4.3 1,073.9
Corporate bonds (Non-investment grade) 303.5 4.0 – 307.5
Government/sovereign instruments 1,122.5 78.4 – 1,200.9
Global real estate 286.6 – 0.1 286.7
Derivatives:
Total return, interest and ination swaps (11.1) 0.1 – (11.0)
Assets held by insurance company:
Insurance contracts 2.9 0.5 1.2 4.6
Diversied investment fund – – 5.0 5.0
Other 120.9 (44.3) 0.2 76.8
Total market value of assets 3,210.2 217.1 19.8 3,4 47.1
Actuarial value of scheme liabilities (3,338.7) (121.0) (128.8) (3,588.5)
Net (liability)/asset in the scheme (128.5) 96.1 (109.0) (141.4)
Adjustment due to surplus cap – (80.5) (3.9) (84.4)
Recoverable net (liability)/asset in the scheme (128.5) 15.6 (112.9) (225.8)
The amounts are presented in the consolidated statement of nancial position as follows:
Year ended 31 December
2021
US$m
2020
US$m
Non-current assets:
Funded 159.7 11. 4
Current assets:
Funded 5.2 4.8
Current liabilities:
Funded (41.9) (35.3)
Unfunded (6.1) (7.1)
Non-current liabilities:
Funded (5.6) (100.1)
Unfunded (90.2) (99.5)
21.1 (225.8)
The schemes disclosed as part of the ‘other’ column in the tables above include surplus positions of $3.8 million (2020: $0.6 million).
Annual Report and Accounts 2021
Financial statements
157
10 Retirement and other post-employment benet arrangements continued
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
Movements in the present value of dened benet obligations were as follows:
At 1 January (3,588.5) (3,275.6)
Current service cost (6.0) (6.0)
Decrease in liabilities on settlements 69.6 –
Past service credit 0.2 0.6
Interest on dened benet obligations – unwinding of discount (46.5) (63.4)
Actuarial gains/(losses) on obligations 159.3 (318.3)
Contributions from members (0.1) (0.1)
Benets paid 177.1 178.5
Exchange difference 38.2 (104.2)
At 31 December (3,196.7) (3,588.5)
Movements in the fair value of scheme assets were as follows:
At 1 January 3,4 47.1 3,168.7
Interest income on scheme assets 44.4 61.3
Remeasurement on assets (excluding interest income) 50.6 286.3
Decrease in assets on settlements (66.1) –
Assets transferred out of schemes (see note 19) (7.0) –
Contributions from members 0.1 0.1
Contribution from sponsoring companies 44.2 13.0
Benets paid (177.1) (178.5)
Administrative expenses paid from plan assets (1.0) (0.5)
Exchange difference (33.7) 96.7
At 31 December 3,301.5 3, 4 47.1
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 84.4 74.4
Interest cost on unrecognised surplus 2.2 2.6
Changes in the effect of limiting a net dened benet asset to the asset ceiling (excluding interest) (2.9) 7.7
Exchange difference – (0.3)
Unrecognised surplus at 31 December 83.7 84.4
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
158
10 Retirement and other post-employment benet arrangements continued
vii) Assets without a quoted price in an active market
For the Coats UK Pension Scheme, all assets in the table above, except for cash and cash equivalents, do not have a quoted price in an
activemarket. For the Coats US scheme, included in the tables above are $0.4 million (2020: $0.4 million) of US equity instruments, $68.7 million
(2020: $113.1 million) of corporate bonds (Investment grade), $2.6 million (2020: $4.0 million) of corporate bonds (Non-investment grade),
government/sovereign instruments of $nil (2020: $15.2 million), $0.5 million (2020: $0.5 million) of insurance contracts and $0.5 million (2020:
$44.1 million) of other liabilities without a quoted price in an active market. All other assets have a quoted price in an active market.
viii) Basis of asset valuation
Under IAS 19, plan assets must be valued at the bid market value at the balance sheet date. For the main asset categories:
• 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 ow; and
• Diversied investment funds are valued at fair value which is typically the Net Asset Value provided by the investment manager.
ix) Recoverability of plan surplus
The recoverable surplus on the Coats US scheme has been recognised in line with the benet from contribution holidays, plus annual refunds
expected from the scheme to fund the US post-retirement medical scheme in accordance with relevant US legislation. Following the disposal of
North America Crafts, Coats retains the previously incurred pension obligations from the business. The pension scheme was in a surplus position
of$95.1 million at 31 December 2021 of which a recoverable surplus of $11.6 million is recognised on the Balance Sheet.
The Coats UK Pension Scheme has moved into an IAS 19 surplus position during 2021. The Group has an unconditional right to a refund of the
surplus assuming the gradual settlement of the liabilities over time and therefore no additional minimum funding requirement has been recognised.
x) Duration of plan liabilities
The weighted average duration of benet obligations is 15 years (2020: 15 years) for the Coats UK scheme and 11 years (2020: 8 years) for the
Coats US scheme.
xi) Sensitivities
Sensitivities regarding the discount rate, ination (which also impacts the rate of increases in salaries and rate of increase for pension in payments
assumptions for the UK scheme) and mortality assumptions used to measure the liabilities of the principal schemes, along with the impact they
would have on the scheme liabilities, are set out below. Interrelationships between assumptions might exist and the analysis below does not
takethe effect of these interrelationships into account:
+0.25%
US$m
Year ended
31 December
2021
-0.25%
US$m
+0.25%
US$m
Year ended
31 December
2020
-0.25%
US$m
Coats UK Pension Scheme discount rate (108.8) 115.0 (127.3) 135.2
Coats US discount rate (1.2) 1.3 (3.4) 3.5
Coats UK Pension Scheme ination rate 74.6 (72.0) 89.6 (99.3)
Coats US ination rate – – – –
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 $401.4
million and $4.9 million (2020: $467.2 million and $13.5 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 $502.7 million and $6.0 million (2020: $594.6 million and $15.0 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 ination rates. As noted on page 152, the Coats UK Pension Scheme is currently over 85% hedged against interest rate
and ination 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 ination rates there would be offsetting impacts from the scheme assets due to the hedging in place.
Annual Report and Accounts 2021
Financial statements
159
10 Retirement and other post-employment benet arrangements continued
If members of the Coats UK Pension Scheme live one year longer the scheme liabilities will increase by $105.8 million (2020: $157.8 million).
Ifmembers of the Coats US scheme live one year longer scheme liabilities will increase by $0.7 million (2020: $4.3 million), however, there
wouldbe no overall impact on the recoverable surplus.
In presenting the above sensitivity analysis, the present value of the dened benet obligation has been calculated using the projected unit credit
method at the end of the reporting period, which is the same as that applied in calculating the dened benet obligation liability recognised in the
consolidated statement of nancial position. There was no change in the methods and assumptions used in preparing the sensitivity analysis from
prior years.
+1%
US$m
Year ended
31 December
2021
-1%
US$m
+1%
US$m
Year ended
31 December
2020
-1%
US$m
Sensitivity of medical schemes to medical cost trend rate assumptions:
Effect on total service cost and interest cost components of other schemes 0.1 (0.1) 0.1 (0.1)
Effect on dened benet obligation of other schemes 1.5 (1.4) 1.6 (1.4)
xii) Expected contributions for 2022
The total estimated amount to be paid in respect of all of the Group’s retirement and other post-employment benet arrangements during the
2022 nancial year (excluding administrative expenses paid by the Company) is $45.4 million. This includes $12 million of decit repair contributions
that were deferred in 2020 for the Coats UK Pension Scheme.
11 Earnings per ordinary share
The calculation of basic earnings per ordinary share from continuing operations is based on the prot from continuing operations attributable to
equity shareholders and the weighted average number of Ordinary Shares in issue during the year, excluding shares held by the Employee Benet
Trust but including shares under share incentive schemes which are not contingently issuable.
The calculation of basic earnings per ordinary share from continuing and discontinued operations is based on the prot attributable to equity
shareholders. The weighted average number of ordinary shares used for the calculation of basic earnings per ordinary share from continuing
anddiscontinued operations is the same as that used for basic earnings per ordinary share from continuing operations.
For diluted earnings per ordinary share, the weighted average number of ordinary shares in issue is adjusted to include all potential dilutive ordinary
shares. The Group has two classes of dilutive potential Ordinary Shares: those shares relating to awards under the Group Deferred Bonus Plan
which have been awarded but not yet reached the end of the three year retention period and those long-term incentive plan awards for
whichtheperformance criteria would have been satised if the end of the reporting period were the end of the contingency period.
Year ended 31 December
2021
US$m
2020
US$m
Prot attributable to equity shareholders 88.9 26.4
Year ended 31 December
2021
Number of
shares
m
2020
Number of
shares
m
Weighted average number of ordinary shares in issue for basic earnings per share 1, 457.1 1,455.6
Adjustment for share options and LTIP awards 5.9 1.4
Weighted average number of ordinary shares in issue for diluted earnings per share 1,463.0 1,457.0
Year ended 31 December
2021
cents
2020
cents
Basic earnings per ordinary share 6.10 1.81
Diluted earnings per ordinary share 6.07 1.81
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
160
12 Dividends
Year ended 31 December
2021
US$m
2020
US$m
2021 interim dividend paid – 0.61 cents per share 8.8 –
2020 nal dividend paid – 1.30 cents per share 18.8 –
27.6 –
The proposed nal dividend of 1.50 cents per ordinary share for the year ended 31 December 2021 is not recognised as a liability in the
consolidated statement of nancial position in line with the requirements of IAS 10 Events after the Reporting Period and, subject to shareholder
approval, will be paid on 25 May 2022 to ordinary shareholders on the register on 29 April 2022, with an ex-dividend date of 28 April 2022.
13 Intangible assets
Acquired intangibles
Cost
Goodwill
US$m
Brands &trade
names
US$m
Technology
US$m
Customer
relationships
US$m
Total
acquired
US$m
Computer
software
US$m
Total
US$m
At 1 January 2020 25.9 242.7 17.0 6.7 266.4 94.6 386.9
Currency translation differences 1.0 – 1.1 0.4 1.5 0.1 2.6
Additions 0.3 0.6 – – 0.6 2.0 2.9
Disposals – – – – – (9.9) (9.9)
At 31 December 2020 27.2 243.3 18.1 7.1 268.5 86.8 382.5
Currency translation differences (1.0) – (0.9) (0.3) (1.2) (1.5) (3.7)
Additions – – – – – 2.2 2.2
Disposals – – – – – (9.9) (9.9)
At 31 December 2021 26.2 243.3 17. 2 6.8 267.3 77.6 371.1
Cumulative amounts charged
At 1 January 2020 – 0.9 5.9 1.9 8.7 87. 2 95.9
Currency translation differences – – 0.4 0.2 0.6 – 0.6
Amortisation charge for the year – 0.4 2.4 0.4 3.2 4.0 7. 2
Disposals – – – – – (9.8) (9.8)
At 31 December 2020 – 1.3 8.7 2.5 12.5 81.4 93.9
Currency translation differences – – (0.4) (0.1) (0.5) (1.5) (2.0)
Amortisation charge for the year – 0.4 2.4 0.5 3.3 2.7 6.0
Disposals – – – – – (9.7) (9.7)
At 31 December 2021 – 1.7 10.7 2.9 15.3 72.9 88.2
Net book value at 31 December 2021 26.2 241.6 6.5 3.9 252.0 4.7 282.9
Net book value at 31 December 2020 27. 2 242.0 9.4 4.6 256.0 5.4 288.6
Annual Report and Accounts 2021
Financial statements
161
13 Intangible assets continued
The carrying value of Coats brands at 31 December 2021 and 31 December 2020 is $239.6 million. There is no foreseeable limit to the net cash
inows from royalties, which are generated from continued sales of thread resulting from the Coats brands, and those brands are therefore
assessed as having indenite useful lives. The recoverable amount of these brands has been estimated using the relief from royalty method to
calculate the fair value and is re-assessed annually by reference to the discounted cash ow arising from the royalties generated by those brands.
The valuation has been based on the latest budget and medium-term plan approved by the Board, covering the period to 31 December 2024,
applying a pre-tax discount rate of 10.5% (2020: 10.6%) and long-term growth of 2.7% (2020: 2.8%). Management believes that no
reasonablepotential change in any of the above key assumptions would cause the carrying value to exceed its recoverable amount.
Goodwill acquired in a business combination is allocated, at acquisition, to the cash generating units (CGUs) that are expected to benet from that
business combination. The carrying amount of goodwill has been allocated as follows:
Year ended 31 December
2021
US$m
2020
US$m
Gotex 13.0 13.9
North America 2.6 2.6
Coats Digital 8.8 8.9
Other 1.8 1.8
26.2 27.2
The carrying value of the goodwill allocated to the CGUs has been tested for impairment during the year by comparing the carrying value of the
CGU to their value in use. The value in use calculations were based on projected cash ows, derived from the latest budgets approved by the Board
and factoring in the most recent trading activity. Projected cash ows are, discounted at CGU specic, risk adjusted, discount rates to calculate the
net present value.
The calculation of ‘value in use’ is most sensitive to the following assumptions:
• CGU specic operating assumptions that are reected in the budget and medium-term plan periods for the nancial year to December 2024;
• discount rates; and
• growth rates used to extrapolate risk adjusted cash ows beyond the medium-term period.
CGU specic operating assumptions are applicable to the cash ows for the years 2022 to 2024 and relate to revenue forecasts and forecast operating
margins. A short-term growth rate is applied to the December 2024 plan to derive the cash ows arising in 2025–2026 and a long-term rate is applied
to 2026 to determine a terminal value. Revenue growth and operating margin improvement assumptions in 2025–2026 are as follows:
Revenue
growth
%
Operating margin
improvement
%
Gotex 3.0-10.0 0.3-0.9
North America 5.6-5.6 0.3-0.4
Coats Digital 5.0-33.3 1.0-4.0
The discount rate is based on estimations of the assumptions that market participants operating in similar sectors to Coats would make, using the
Group’s economic prole as a starting point and adjusting appropriately. The pre-tax base discount rate of 10.5% (2020: 10.6%) has been adjusted
for economic risks that are not already captured in the specic operating assumptions. This results in the impairment testing using a pre tax
discount rate of 12.7% for Gotex, 10.5% for North America, and 13.0% for Coats Digital.
The following scenarios would result in headroom being completely eliminated in the value in use impairment assessments:
• the discount rate increasing by 630 bps in Gotex, 200 bps in North America and 1,100 bps in Coats Digital; or
• cumulative 2022–2026 revenue is 34% lower in Gotex, 22% lower in North America and 27% lower in Coats Digital; or
• cumulative 2022–2026 operating prot is 31% lower in Gotex, 17% lower in North America and 78% 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.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
162
14 Property, plant and equipment
Cost
Land and
buildings
US$m
Plant and
equipment
US$m
Vehicles and
ofce
equipment
US$m
Total
US$m
At 1 January 2020 160.3 562.6 86.2 809.1
Currency translation differences 0.1 (5.5) (0.6) (6.0)
Subsidiaries bought externally – 3.9 – 3.9
Additions 3.1 7.9 1.7 12.7
Disposals (0.4) (6.1) (10.8) (17.3)
At 31 December 2020 163.1 562.8 76.5 802.4
Currency translation differences (4.6) (17.2) (2.1) (23.9)
Additions 3.0 22.1 2.6 27.7
Disposals (0.6) (16.5) (11.6) (28.7)
At 31 December 2021 160.9 551.2 65.4 777.5
Cumulative amounts charged
At 1 January 2020 72.4 387.1 73.3 532.8
Currency translation differences 0.2 (2.5) (0.2) (2.5)
Depreciation charge for the year 5.0 21.8 3.7 30.5
Impairment charge (see note 4) 0.1 3.7 0.3 4.1
Disposals (0.3) (5.8) (10.8) (16.9)
At 31 December 2020 77.4 404.3 66.3 548.0
Currency translation differences (2.3) (13.2) (1.7) (17.2)
Depreciation charge for the year 4.6 20.5 3.1 28.2
Impairment charge (see note 4) – 2.0 – 2.0
Disposals (0.6) (15.8) (11.6) (28.0)
At 31 December 2021 79.1 397.8 56.2 533.0
Net book value at 31 December 2021 81.8 153.4 9.3 244.5
Net book value at 31 December 2020 85.7 158.5 10.2 254.4
Analysis of net book value of land and buildings 31 December
2021
US$m
2020
US$m
Freehold 67.8 71.0
Leasehold improvements:
Over 50 years unexpired 1.8 2.0
Under 50 years unexpired 12.2 12.7
81.8 85.7
Annual Report and Accounts 2021
Financial statements
163
15 Leases
The Group leases several assets including buildings, plants, vehicles and ofce equipment. The average lease term is 4 years (2020: 4 years).
TheGroup’s consolidated balance sheet includes the following amounts relating to leases:
Right-of-use assets
Net carrying amount
Land and
buildings
US$m
Plant and
equipment
US$m
Vehicles and
ofce
equipment
US$m
Total
US$m
At 1 January 2021 49.7 6.4 4.6 60.7
At 31 December 2021 80.4 4.5 6.7 91.6
Depreciation expense for the year ended
31 December 2020 12.9 2.2 3.2 18.3
31 December 2021 14.3 2.1 3.0 19.4
Additions to the right-of-use assets during the year ended 31 December 2021 were $51.1 million (2020: $16.2 million).
Lease liabilities
Year ended 31 December
2021
US$m
2020
US$m
Current 17.8 16.4
Non-current 81.2 49.6
99.0 66.0
Maturity analysis
Payable within one year 17.8 16.4
Payable between one and ve years 46.9 34.6
Payable after more than ve years 34.3 15.0
99.0 66.0
The net increase in lease liabilities during the year ended 31 December 2021 was $33.0 million (2020: $1.0 million) which includes foreign exchange
gains on lease liabilities of $0.2 million (2020: losses of $0.7 million). The total cash outow for leases in the year ended 31 December 2021 was
$22.1million (2020: $19.4 million).
The Group’s consolidated income statement includes the following amounts relating to leases:
Year ended 31 December
2021
US$m
2020
US$m
Depreciation expense 19.4 18.3
Interest expense on lease liabilities 5.2 3.9
Expenses relating to short term leases 1.1 1.5
Expenses relating to leases of low value assets 0.1 0.1
Expense relating to variable lease payments not included in the measurement of the lease liability 0.6 0.6
Impairment of right-of-use assets – 0.8
Income from subleasing right-of-use assets (0.2) (0.2)
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
164
15 Leases continued
The Group subleases some of its right-of-use assets. At the balance sheet date, the Group had contracted with tenants for receipt of the following
minimum lease payments:
Year ended 31 December
2021
US$m
2020
US$m
Receivable within one year – 0.2
– 0.2
16 Non-current investments
Year ended 31 December
2021
US$m
2020
US$m
Interests in joint ventures (see below) 12.0 11.1
Investments in equity securities:
Unlisted investments 6.0 6.0
18.0 17.1
Other investments included within current assets were $nil at 31 December 2021 (2020: $0.1 million).
Interests in joint ventures US$m
At 1 January 2021 11.1
Dividends receivable (0.3)
Share of prot after tax 1.2
At 31 December 2021 12.0
Year ended 31 December
2021
US$m
2020
US$m
Share of net assets on acquisition 10.6 10.6
Share of post-acquisition retained prots 1.4 0.5
Share of net assets 12.0 11.1
The following table provides summarised nancial 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
2021
US$m
2020
US$m
Summarised income statement information:
Revenue 27.9 20.8
Prot before tax 1.7 0.8
Taxation (0.5) (0.2)
Prot after tax 1.2 0.6
Annual Report and Accounts 2021
Financial statements
165
16 Non-current investments continued
Year ended 31 December
2021
US$m
2020
US$m
Summarised balance sheet information:
Non-current assets 5.6 5.7
Current assets 15.0 12.9
20.6 18.6
Liabilities due within one year (8.6) (7.5)
Net assets 12.0 11.1
17 Deferred tax assets
Year ended 31 December
2021
US$m
2020
US$m
Deferred tax assets 20.7 22.7
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:
2021
US$m
2020
US$m
At 1 January 22.7 16.2
Currency translation differences (0.6) 0.6
Reclassied from deferred tax liability (0.1) 5.2
Transfer to current tax – (0.2)
(Charged)/credited to the income statement (0.3) 0.8
(Charged)/credited to other comprehensive income and expense (1.0) 0.1
At 31 December 20.7 22.7
18 Inventories
Year ended 31 December
2021
US$m
2020
US$m
Raw materials and consumables 127.7 96.6
Work in progress 38.0 28.0
Finished goods and goods for resale 84.4 62.4
250.1 187.0
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
166
19 Trade and other receivables
Year ended 31 December
2021
US$m
2020
US$m
Non-current assets:
Income tax assets – 0.5
Trade receivables 1.1 0.6
Other receivables 20.5 12.4
Prepaid pension contributions 5.8 –
Derivative nancial instruments 1.3 5.5
28.7 19.0
Current assets:
Trade receivables 240.4 223.5
Current income tax assets 6.4 6.8
Prepayments and accrued income 7.0 5.6
Derivative nancial instruments 4.2 3.5
Prepaid pension contributions 1.2 –
Amounts due from joint ventures 0.1 –
Other receivables 43.4 35.1
302.7 274.5
The fair value of trade and other receivables is not materially different to the carrying value.
Interest charged in respect of overdue trade receivables is immaterial.
Included within trade receivables is $7.7 million (2020: $6.2 million) relating to software solutions revenue contracts, for which performance
obligations are fullled over a period of time (see note 21).
The Group applies the simplied 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
aswell as the fact that the exposure is spread over a large number of customers. An allowance has been made for expected losses on trade
receivables of $8.9 million (2020: $10.2 million).
The Group monitors receivables for any signicant increases in credit risk, and fully provides for trade receivables which are more than 6 months
overdue, unless there are specic circumstances which would indicate otherwise. For all other trade receivables, when determining expected losses,
the Group takes into account the historical default experience and the nancial position of the counterparties, as well as the future prospects
considering various sources of information. The loss allowance has been determined as follows:
Current
1–3 months past
due
3–6 months past
due
6+ months past
due
Total
2021
Expected loss rate 0.3% 2% 35% 80%
Gross carrying amount (US$m) 214.9 24.9 2.0 8.6 250.4
Loss allowance provision (US$m) 0.7 0.6 0.7 6.9 8.9
Current
1–3 months past
due
3–6 months past
due
6+ months past
due
Total
2020
Expected loss rate 0.6% 2% 25% 87%
Gross carrying amount (US$m) 199.8 23.5 1.6 9.4 234.3
Loss allowance provision (US$m) 1.1 0.5 0.4 8.2 10.2
Annual Report and Accounts 2021
Financial statements
167
19 Trade and other receivables continued
The movements in the expected loss allowance are analysed as follows:
2021
US$m
2020
US$m
At 1 January 10.2 8.1
Currency translation differences (0.6) (0.4)
(Credited)/charged to the income statement (0.2) 3.1
Amounts written off during the year (0.5) (0.6)
At 31 December 8.9 10.2
20 Derivative nancial instruments – assets
Derivative nancial instruments within non-current and current assets comprise:
Year ended 31 December
2021
US$m
2020
US$m
Fair value through the income statement:
Forward foreign currency contracts 3.6 4.4
Interest rate swap contracts 1.9 4.6
5.5 9.0
Amounts shown within non-current assets 1.3 5.5
Amounts shown within current assets 4.2 3.5
The fair values of these nancial instruments are calculated by discounting the future cash ows to net present values using appropriate market
interest and foreign currency rates prevailing at the year end.
21 Trade and other payables
Year ended 31 December
2021
US$m
2020
US$m
Amounts falling due within one year:
Trade payables 208.5 158.5
Amounts owed to joint ventures 16.3 12.4
Other tax and social security payable 7.7 8.0
Other payables 36.7 29.7
Accruals 50.8 32.1
Contract liabilities 6.8 6.5
Derivative nancial instruments 0.8 –
Employee entitlements (excluding pensions) 19.2 8.5
346.8 255.7
Amounts falling due after more than one year:
Other payables 21.3 16.1
Contract liabilities 1.7 0.6
Employee entitlements (excluding pensions) 1.1 1.1
Derivative nancial instruments 0.1 0.3
24.2 18.1
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
168
21 Trade and other payables continued
The fair value of trade and other payables is not materially different to the carrying value.
Interest paid to suppliers in respect of overdue trade payables is immaterial.
Contract liabilities amounting to $6.7 million (2020: $5.8 million) which were outstanding at 31 December 2020 were released to revenue during
the year ended 31 December 2021, with the remainder expected to be released in 2022.
22 Derivative nancial instruments – liabilities
Derivative nancial instruments within non-current and current liabilities comprise:
Year ended 31 December
2021
US$m
2020
US$m
Fair value through the income statement:
Forward foreign currency contracts 0.9 0.3
0.9 0.3
Amounts shown within non-current liabilities 0.1 0.3
Amounts shown within current liabilities 0.8 –
The fair values of these nancial instruments are calculated by discounting the future cash ows to net present values using appropriate market
interest and foreign currency rates prevailing at the year end.
23 Borrowings
Year ended 31 December
2021
US$m
2020
US$m
Bank overdrafts 16.4 19.8
Borrowings repayable within one year 2.8 3.0
Due within one year 19.2 22.8
Borrowings repayable between one and two years – 0.4
Borrowings repayable between two and ve years 135.1 129.3
Due after more than ve years 100.0 100.0
Due after more than one year 235.1 229.7
Bank overdrafts 16.4 19.8
Series A and Series B Senior Notes 227.5 230.4
Bank and other borrowings 10.4 2.3
254.3 252.5
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
interestat the risk free plus a credit adjustment spread and a margin. The facility also includes an ESG component which impacts the margin
basedon performance against three of the Group’s published sustainability targets.
Series A and Series B Senior Notes at 31 December 2021 of $227.5 million includes a fair value adjustment to the nominal amount
outstandingof$2.5 million, for which the Group has interest rate swaps which are accounted for as fair value hedges.
The currency and interest rate prole of the Group’s borrowings is included in note 32 on page 183.
Annual Report and Accounts 2021
Financial statements
169
24 Deferred tax liabilities
2021
US$m
2020
US$m
At 1 January 9.0 8.2
Currency translation differences 0.2 0.4
Reclassied from deferred tax assets (0.1) 5.2
Credited to the income statement (2.2) (4.8)
Credited to equity (0.1) –
At 31 December 6.8 9.0
2021 2020
Provided/
(recognised)
US$m
Unprovided/
(unrecognised)
US$m
Provided/
(recognised)
US$m
Unprovided/
(unrecognised)
US$m
The Group’s net deferred tax liabilities/(assets) are analysed
as follows:
Accelerated tax depreciation on tangible xed assets 13.9 (17.5) 16.0 (12.6)
Other temporary differences (15.4) (10.8) (12.0) (9.2)
Revenue losses carried forward (11.4) (298.4) (13.6) (330.8)
Capital losses carried forward – (355.7) – (290.3)
Investment in subsidiaries 5.8 5.3 3.3 4.3
Brands 59.9 – 45.5 –
Retirement benet obligations offset against brands (59.9) – (45.5) –
Retirement benet obligations (6.8) (2.8) ( 7. 4) 15.3
(13.9) (679.9) (13.7) (623.3)
Certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances (after offset) for nancial
reporting purposes:
Deferred tax assets (note 17) (20.7) (22.7)
Deferred tax liabilities 6.8 9.0
(13.9) (13.7)
At the year end, the Group had approximately $1.6 billion (2020: $1.6 billion) of unused gross income tax losses and approximately $1.4 billion
(2020: $1.5 billion) of unused gross capital losses available for offset against future prots. A deferred tax asset of $11.4 million (2020: $13.6
million) has been recognised in respect of $36.9 million (2020: $56.7 million) of such income tax losses. No deferred tax asset has been recognised
in respect of the remaining losses due to lack of certainty regarding the availability of future taxable income. Such losses are only recognised in
thenancial statements to the extent that it is considered more likely than not that sufcient future taxable prots will be available for offset.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
170
24 Deferred tax liabilities continued
The Group’s income tax losses can be analysed as follows:
2021
US$m
2020
US$m
Expiring within 5 years 33.2 41.8
Expiring in more than 5 years 15.5 13.9
Available indenitely 1,510.5 1,530.9
1,559.2 1,586.6
At 31 December 2021, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred
tax liabilities have not been recognised is $5.3 million (2020: $4.3 million). Deferred tax on distribution of these prots has not been provided on
the grounds that the Group is able to control the timing of the reversal of the remaining temporary differences and it is probable that they will
notreverse in the foreseeable future.
25 Provisions
Year ended 31 December
2021
US$m
2020
US$m
Provisions are included as follows:
Current liabilities 8.1 8.2
Non-current liabilities 27.7 27.9
35.8 36.1
Provisions are analysed as follows:
Year ended 31 December
2021
US$m
2020
US$m
Property related provisions 2.1 2.2
Other provisions 33.7 33.9
35.8 36.1
Property related
provisions
US$m
Other
provisions
US$m
Total
US$m
At 1 January 2021 2.2 33.9 36.1
Currency translation differences – (0.2) (0.2)
Utilised in year – (16.1) (16.1)
(Credited)/charged to the income statement (0.1) 16.1 16.0
At 31 December 2021 2.1 33.7 35.8
Other provisions include the amounts set aside to cover certain legal and other regulatory claims, including in respect of the Lower Passaic River
(see note 28 for further details), which are expected to be substantially utilised within the next ten years.
Annual Report and Accounts 2021
Financial statements
171
26 Share capital
2021 2020
Year ended 31 December Number US$m Number US$m
Ordinary Shares of 5p each 1,452,570,385 90.1 1,452,077,272 90.1
During the year ended 31 December 2021 the Company issued 493,113 ordinary shares of 5p each (2020: 7,261,231) following the exercise of
share options as set out below:
Number of shares US$m
At 1 January 2021 1,452,077,272 9 0.1
Issue of ordinary shares 493,113 –
At 31 December 2021 1,452,570,385 90.1
The own shares reserve of $0.5 million at 31 December 2021 (2020: $3.2 million) represents the cost of shares in Coats Group plc purchased in the
market and held by an Employee Benet Trust to satisfy awards under the Group’s share based incentive plans.
The number of shares held by the Employee Benet Trust at 31 December 2021 was 2,020,306 (2020: 7,010,248).
Details of share awards outstanding under the Group’s LTIP and Deferred Bonus Plans are set out in note 33.
27 Reserves and non-controlling interests
Share
premium
account
US$m
Own
shares
US$m
Translation
reserve
US$m
Capital
reduction
reserve
US$m
Other
reserves
US$m
Retained
loss
US$m
Non-
controlling
interests
US$m
At 1 January 2021 10.5 (3.2) (89.2) 59.8 246.3 (23.8) 28.4
Dividends – – – – – (27.6) (16.5)
Currency translation differences – – (16.5) – – – (0.5)
Actuarial gains on employee benets – – – – – 212.8 –
Tax on actuarial gains – – – – – (1.0) –
Movement in own shares – 2.7 – – – (0.8) –
Share based payments – – – – – 3.9 –
Deferred tax on share schemes – – – – – 0.1 –
Prot for the year – – – – – 88.9 19.7
At 31 December 2021 10.5 (0.5) (105.7) 59.8 246.3 252.5 31.1
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
172
27 Reserves and non-controlling interests continued
The table below shows nancial information of non-wholly owned subsidiaries of the Group that have non-controlling interests:
Prot allocated to
non-controlling interests
Accumulated
non-controlling interests
Year ended
31 December
2021
US$m
Year ended
31 December
2020
US$m
31 December
2021
US$m
31 December
2020
US$m
EMEA 0.1 – 0.9 1.5
Asia & Rest of World 19.6 15.8 30.2 26.9
19.7 15.8 31.1 28.4
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 206.
28 Contingent liabilities and environmental matters
Environmental matters
As noted in previous reports, the US Environmental Protection Agency (EPA) has notied 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 identied by
EPA. Approximately 50 PRPs are currently members of a cooperating parties group (CPG) of companies, formed to fund and conduct a remedial
investigation and feasibility study of the area. CC joined the CPG in 2011.
CC has analysed its predecessor’s operating history prior to 1950, when it left the LPR, and has concluded that it was not responsible for the
contaminants and environmental damage that are the primary focus of the EPA process. CC also believes that there are many parties that will
participate in the LPR’s remediation, 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
anetpresent value basis. The EPA’s Record of Decision did not include a remedial decision for the upper 9 miles of the LPR. The EPA may consider
aremedial alternative proposed by the CPG for the upper 9 miles, or it may select a different remedy. Discussions with EPA regarding the nature
and timing of such a decision are ongoing.
EPA has entered into an administrative order on consent (AOC) with Occidental Chemical Corporation (OCC), which has been identied as
beingresponsible for the most signicant contamination in the river, concerning the design of the selected remedy for the lower 8 miles of the
LPR.Maxus Energy Corporation (Maxus), which provided an indemnity to OCC that covered the LPR, has been granted Chapter 11 bankruptcy
protection, but OCC remains responsible for its remedial obligations even in the absence of Maxus’ indemnity. The approved bankruptcy plan also
created a liquidating trust to pursue potential claims against Maxus’ parent entity, YPF SA, and potentially others, which could result in additional
funding for the LPR remedy. While the ultimate costs of the remedial design and the nal remedy are expected to be shared among hundreds of
parties, including many who are not currently in the CPG, the nal allocation of remedial costs among those parties in a settlement or court
rulinghas not yet been determined.
In March 2017, EPA notied 20 parties not associated with the disposal or release of any contaminants of concern as being eligible for early cash
out settlements. As expected, EPA did not identify CC as one of the 20 parties. EPA 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 scientic 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 condential allocation process
concluded in December 2020. CC continues to believe that it should be a de minimis or even smaller de micromis party in an eventual settlement
orcourt ruling allocating remedial costs.
Annual Report and Accounts 2021
Financial statements
173
28 Contingent liabilities and environmental matters continued
On 30 June 2018, OCC led a lawsuit against approximately 120 defendants, including CC, seeking recovery of past environmental costs and
contribution toward future environmental costs. OCC released claims for certain past costs from 41 of the defendants, including CC, and is not
seeking recovery of those past costs from CC. OCC’s lawsuit seeks resolution of many of the same issues being addressed in the EPA sponsored
allocation process, and does not alter CC’s defences or CC’s continued belief that it is a de minimis or even smaller de micromis party.
In 2015, a provision of $9.0 million was recorded for remediation costs for the entire 17 miles of the LPR. This provision was based on CC’s
estimated share of de minimis costs for EPA’s selected remedy for the lower 8 miles of the LPR and the remedy proposed by the CPG for the
upper9 miles. A separate provision of $6.8 million was recorded for associated legal and professional costs in defence of CC’s position. Both of
these charges to the income statement were net of insurance reimbursements and were stated on a net present value basis. During the year ended
31 December 2018, an additional provision of $8.0 million was recorded as an exceptional item to cover legal and professional fees. The Group will
continue to mitigate additional costs as far as possible through insurance and other avenues.
As at 31 December 2021, $13.8 million of this provision had been utilised. The remaining provision at 31 December 2021, taking into account
insurance reimbursement, was $11.2 million (2020: $12.6 million). The process concerning the LPR continues to evolve and these estimates are
subject to change based upon legal defence costs associated with the EPA sponsored allocation and OCC’s lawsuit, the scope of the remedy
selected by EPA for the upper nine miles, the share of remedial costs to be paid by the major polluters on the river, and the share of remaining
remedial costs apportioned among CC and other companies.
Coats believes that CC’s predecessor did not generate any of the contaminants which are driving the current and anticipated remedial actions in
the LPR, that it has valid legal defences which are based on its own analysis of the relevant facts, that it is a de minimis or even smaller de micromis
party, and that additional parties not currently in the CPG will be responsible for a signicant share of the ultimate costs of remediation. However,
as this matter evolves, it is nonetheless still possible that additional provisions could be recorded and such provisions could increase materially based
on further decisions by EPA, negotiations among the parties, and other future events.
Following the sale of the North America Crafts business, including CC, announced on 22 January 2019, Coats North America Consolidated Inc.
(theseller) retains the control and responsibility for the eventual outcome of the ongoing LPR environmental matters, including the rights to
therelated insurance reimbursements.
29 Capital commitments
As at 31 December 2021, the Group had commitments of $5.1 million in respect of contracts placed for future capital expenditure
(2020:$3.7million).
30 Notes to the consolidated cash ow statement
a) Reconciliation of operating prot to cash generated from operations
Year ended 31 December
2021
US$m
2020
US$m
Operating prot 179.4 103.1
Depreciation of owned property, plant and equipment 28.2 30.5
Depreciation of right-of-use assets 19.4 18.3
Amortisation of intangible assets 6.0 7.2
(Increase)/decrease in inventories (76.0) 4.9
(Increase)/decrease in debtors (49.8) 1.1
Increase/(decrease) in creditors 101.4 (28.7)
Provision and pension movements (34.5) (14.0)
Foreign exchange and other non-cash movements 14.9 5.7
Discontinued operations – (0.1)
Cash generated from operations 189.0 128.0
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
174
30 Notes to the consolidated cash ow statement continued
b) Taxation paid
Year ended 31 December
2021
US$m
2020
US$m
Overseas tax paid (47.9) (46.3)
c) Investment income
Year ended 31 December
2021
US$m
2020
US$m
Dividends received from joint ventures 0.3 0.9
d) Capital expenditure and nancial investment
Year ended 31 December
2021
US$m
2020
US$m
Acquisition of property, plant and equipment and intangible assets (31.2) (15.4)
Acquisition of other equity investments 0.1 0.1
Disposal of property, plant and equipment 0.8 3.0
(30.3) (12.3)
e) Acquisitions and disposals of businesses
Year ended 31 December
2021
US$m
2020
US$m
Acquisition of businesses – (36.9)
f) Net debt
Year ended 31 December
2021
US$m
2020
US$m
Cash and cash equivalents 107.2 71.9
Bank overdrafts (16.4) (19.8)
Net cash and cash equivalents 90.8 52.1
Borrowings (see note 23) (237.9) (232.7)
Net debt excluding lease liabilities (147.1) (180.6)
Lease liabilities (see note 15) (99.0) (66.0)
Total net debt (246.1) (246.6)
For nancial 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 2021
for covenant purposes was $148.0 million (31 December 2020: $177.0 million).
Annual Report and Accounts 2021
Financial statements
175
30 Notes to the consolidated cash ow statement continued
The components of net debt and movements during the periods are set out below:
Series A
and Series B
Senior Notes
US$m
Bank
loans
US$m
Lease
liabilities
US$m
Bank
overdrafts
US$m
Total
nancing
activity
liabilities
US$m
Cash
at bank
and in hand
US$m
Net debt
US$m
At 1 January 2020 (225.0) (60.8) (65.0) (41.5) (392.3) 177.4 (214.9)
Cash ows – 58.7 19.4 21.7 99.8 (103.6) (3.8)
Non-cash movements (5.4) (0.7) (19.7) – (25.8) – (25.8)
Foreign exchange – 0.5 (0.7) – (0.2) (1.9) (2.1)
At 31 December 2020 (230.4) (2.3) (66.0) (19.8) (318.5) 71.9 (246.6)
Cash ows – (8.4) 22.1 3.1 16.8 37.9 54.7
Non-cash movements 2.9 (1.4) (55.3) – (53.8) – (53.8)
Foreign exchange – 1.7 0.2 0.3 2.2 (2.6) (0.4)
At 31 December 2021 (227.5) (10.4) (99.0) (16.4) (353.3) 107.2 (246.1)
The non-cash movement during the year ended 31 December 2021 of $2.9 million (2020: $5.4 million) within Series A and Series B Senior Notes
represents the movement in the fair value adjustment to the nominal amount outstanding of $225.0 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 2021 of $55.3 million (2020: $19.7 million) within lease liabilities relates to
thefollowing: the unwind of lease liabilities of $5.2 million (2020: $3.9 million) and the impact of entering into new leases, disposals
andmodicationof existing leases of $50.1 million (2020: $15.8 million).
Total net debt is presented in the consolidated statement of nancial position as follows:
Year ended 31 December
2021
US$m
2020
US$m
Current assets:
Cash and cash equivalents 107.2 71.9
Current liabilities:
Bank overdrafts and other borrowings (19.2) (22.8)
Lease liabilities (17.8) (16.4)
Non-current liabilities:
Borrowings (235.1) (229.7)
Lease liabilities (81.2) (49.6)
Total net debt (246.1) (246.6)
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
176
31 Related party transactions
Remuneration of key management personnel
The Group Executive Team are deemed to be the key management personnel of the Group. The remuneration of the Group Executive Team, is set
out below in aggregate for each of the categories specied in IAS 24 Related Party Disclosures. Further information regarding the remuneration of
individual directors is provided on pages 96 to 113 in the audited part of the Directors’ Remuneration Report.
Year ended 31 December
2021
US$m
2020
US$m
Short-term employee benets 10.4 6.0
Share based payments 1.6 0.7
12.0 6.7
Trading transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not disclosed in
this note. Transactions between the Group and its joint ventures are disclosed below.
During the year, Group companies entered into the following transactions with related parties who are not members of the Group:
Sale of goods Purchase of goods
2021
US$m
2020
US$m
2021
US$m
2020
US$m
Joint ventures 2.7 5.9 61.1 45.7
Amounts owing by/(to) joint ventures at the year end are disclosed in notes 19 and 21. All transactions with joint ventures are at an arm’s length
and payment terms are consistent with normal trading terms with third parties.
32 Derivatives and other nancial instruments
The Group’s main nancial instruments comprise:
Financial assets:
• cash and cash equivalents;
• trade and other receivables that arise directly from the Group’s operations; and
• derivatives, including forward foreign currency contracts and interest rate swaps.
Financial liabilities:
• trade, other payables and certain provisions that arise directly from the Group’s operations;
• bank borrowings and overdrafts; and
• derivatives, including forward foreign currency contracts and interest rate swaps.
Annual Report and Accounts 2021
Financial statements
177
32 Derivatives and other nancial instruments continued
Financial assets
The Group’s nancial assets are summarised below:
Year ended 31 December
2021
US$m
2020
US$m
Financial assets carried at amortised cost (loans and receivables):
Cash and cash equivalents 107.2 71.9
Trade receivables (note 19) 241.5 224.1
Amounts due from joint ventures (note 19) 0.1 –
Other receivables (note 19), net of non-nancial assets $29.9 million (2020: $23.0 million) 34.0 24.5
382.8 320.5
Financial assets carried at fair value through the income statement:
Derivative nancial instruments (note 20) 5.5 9.0
5.5 9.0
Other nancial assets carried at fair value through the statement of comprehensive income:
Other investments (note 16) 6.0 6.1
6.0 6.1
Total nancial assets 394.3 335.6
Financial liabilities
The Group’s nancial liabilities are summarised below:
Year ended 31 December
2021
US$m
2020
US$m
Financial liabilities carried at amortised cost:
Trade payables (note 21) 208.5 158.5
Amounts owed to joint ventures (note 21) 16.3 12.4
Other nancial liabilities 116.3 78.3
Provisions (note 25) 2.1 2.2
Lease liabilities (note 15) 99.0 66.0
Borrowings (note 23) 186.8 182.1
629.0 499.5
Financial liabilities carried at fair value through the income statement:
Borrowings (note 23) 67.5 70.4
Derivative nancial instruments (note 22) 0.9 0.3
68.4 70.7
Total nancial liabilities 697.4 570.2
Other nancial liabilities include other payables, other than taxation and other statutory liabilities.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
178
32 Derivatives and other nancial instruments continued
Fair value of nancial assets and liabilities
The fair value of the Group’s nancial assets and liabilities is summarised below:
2021 2020
Year ended 31 December
Book value
US$m
Fair value
US$m
Book value
US$m
Fair value
US$m
Primary nancial instruments:
Cash and cash equivalents 107.2 107.2 71.9 71.9
Trade receivables 241.5 241.5 224.1 224.1
Amounts due from joint ventures 0.1 0.1 – –
Other receivables 34.0 34.0 24.5 24.5
Other investments 6.0 6.0 6.1 6.1
Trade payables (208.5) (208.5) (158.5) (158.5)
Amounts owed to joint ventures (16.3) (16.3) (12.4) (12.4)
Other nancial liabilities and provisions (118.4) (118.4) (80.5) (80.5)
Borrowings (254.3) (254.3) (252.5) (252.5)
Derivative nancial instruments:
Forward foreign currency contracts 2.7 2.7 4.1 4.1
Interest rate swaps 1.9 1.9 4.6 4.6
Net nancial liabilities (204.1) (204.1) (168.6) (168.6)
Market values have been used as proxies for the fair value of all listed investments. Unlisted investments are stated at fair value. For oating rate
nancial assets and liabilities, and for xed rate nancial assets and liabilities with a maturity of less than 12 months, it has been assumed that
fairvalues are approximately the same as book values. Fair values for forward foreign currency contracts have been estimated using applicable
forwardexchange rates at the year end. All other fair values have been calculated by discounting expected cash ows at prevailing interest rates.
Fair value measurements recognised in the statement of nancial position
The following tables provide an analysis of nancial instruments that are measured subsequent to initial recognition at fair value, grouped into
Levels 1 to 3 based on the degree to which the fair value is observable:
• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
• Level 2 fair value measurements are those derived from inputs other than quoted prices that are observable for the asset or liability,
eitherdirectly (ie as prices) or indirectly (ie derived from prices); and
• Level 3 fair value measurements are those derived from valuation techniques which include inputs for the asset or liability that are not
observable market data (unobservable inputs).
Annual Report and Accounts 2021
Financial statements
179
32 Derivatives and other nancial instruments continued
Financial assets measured at fair value
Year ended 31 December
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
2021
Financial assets measured at fair value through the income statement:
Trading derivatives 3.6 – 3.6 –
Derivatives designated as effective hedging instruments 1.9 – 1.9 –
Financial assets measured at fair value through the statement of
comprehensive income:
Other investments 6.0 1.0 – 5.0
11.5 1.0 5.5 5.0
2020
Financial assets measured at fair value through the income statement:
Trading derivatives 4.4 – 4.4 –
Derivatives designated as effective hedging instruments 4.6 – 4.6 –
Financial assets measured at fair value through the statement of
comprehensive income:
Other investments 6.1 1.1 – 5.0
15.1 1.1 9.0 5.0
Financial liabilities measured at fair value
Year ended 31 December
Total
US$m
Level 1
US$m
Level 2
US$m
Level 3
US$m
2021
Financial liabilities measured at fair value through the income statement:
Trading derivatives (0.9) – (0.9) –
Borrowings (67.5) – (67.5) –
(68.4) – (68.4) –
2020
Financial liabilities measured at fair value through the income statement:
Trading derivatives (0.3) – (0.3) –
Borrowings (70.4) – (70.4) –
(70.7) – (70.7) –
Level 1 nancial instruments are valued based on quoted bid prices in an active market. Level 2 nancial instruments are measured by discounted
cash ow. For interest rates swaps future cash ows 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 reects the credit risk of the various counterparties. For foreign exchange
contracts future cash ows 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 reects the credit risk of the various counterparties. Equity instruments that are
classied as level 3 nancial instruments relate to the Group’s investment in Twine Solutions Limited. Given the business is at an early stage of its
lifecycle andthere have been no indications of impairment, the carrying value is deemed to approximate to fair value.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
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32 Derivatives and other nancial instruments continued
The main risks arising from the Group’s nancial 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 180 to 187 and, except as noted, have remained unchanged since the
beginning of the year to which these nancial statements relate.
Currency risk
The income and capital value of the Group’s nancial instruments can be affected by exchange rate movements as a signicant portion of
bothitsnancial assets and nancial 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 nancial assets and liabilities
reports in the currency in which they are denominated.
The Board recognises that the Group’s US Dollar statement of nancial position will be affected by short-term movements in exchange rates,
particularly the value of Sterling, Euro, Indian Rupee and Brazilian Real. The Group’s investments reect 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
incurrencies 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 2021, the Group nanced its operations through shareholders’ funds, bank borrowings, Senior Notes and overdrafts. The Group’s trading
subsidiaries use a mixture of xed and oating rate debt. The Group also has access to committed bank facilities amounting to some $360.0
million, of which $10.0 million had been drawn down at year end and $225.0 million of Senior Notes (see note 23).
Interest rate risk is managed by maintaining an appropriate mix between xed and oating rate borrowings using interest rate swap contracts.
Interest rate swaps are accounted for as fair value or cash ow 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
ows, 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 xed to oating rate hedging is established according to Group policy which prescribes a banded range for the xed to oating ratio.
The ratio of xed to oating will decrease over a rolling 5-year period.
As at 31 December 2021 the Group has xed to oating interest rate swap contracts designated as fair value hedges against $65.0 million of
xedinterest Senior Notes. The fair value of these hedges as at 31 December 2021 was $1.9 million (see note 20) and borrowings includes
acorresponding fair value adjustment to the nominal amount outstanding in the Consolidated Statement of Financial Position.
The Group’s interest income does not vary signicantly from the returns it would generate through investing surplus cash at oating rates
ofinterest since the interest rates are re-set on a regular basis.
A reasonably possible change of one per cent in market interest rates would reduce prot before tax by approximately $2.5 million (2020:
$2.2million), and would reduce shareholders’ funds by approximately $2.5 million (2020: $2.2 million).
Trade and other receivables and trade and other payables are excluded from the following disclosure (other than the currency disclosures)
asthereis limited interest rate risk.
Annual Report and Accounts 2021
Financial statements
181
32 Derivatives and other nancial instruments continued
Capital risk management
The Group manages its capital so as to ensure that the Company and the Group will be able to continue as a going concern.
The Group’s capital structure comprises cash and cash equivalents and borrowings (see Summary of net debt on page 174), and share capital
andreserves attributable to the equity shareholders of the Company.
Currency exposure
The table below shows the extent to which Group companies have nancial assets and liabilities, excluding forward foreign currency contracts,
incurrencies other than their functional currency. Foreign exchange differences arising on retranslation of these assets and liabilities are taken to
the Group income statement. The table excludes loans between Group companies that form part of the net investment in overseas subsidiaries
onwhich the exchange differences are dealt with through reserves, but includes other Group balances that eliminate on consolidation.
Net foreign currency nancial assets/(liabilities)
Functional currency 2021
Sterling
US$m
US dollars
US$m
Euro
US$m
Indian Rupees
US$m
Brazilian Reals
US$m
Other
US$m
Total
US$m
Sterling – (2.2) (1.5) – – 0.5 (3.2)
United States dollars (7.5) – (9.1) – – 1.7 (14.9)
Euros – 1.4 – – – (0.1) 1.3
Indian Rupees – (1.0) (0.3) – – – (1.3)
Brazilian Reals – (1.6) 0.2 – – 0.1 (1.3)
Other currencies (0.3) (17.9) 5.8 0.3 – – (12.1)
(7.8) (21.3) (4.9) 0.3 – 2.2 (31.5)
Net foreign currency nancial assets/(liabilities)
Functional currency 2020
Sterling
US$m
US dollars
US$m
Euro
US$m
Indian Rupees
US$m
Brazilian Reals
US$m
Other
US$m
Total
US$m
Sterling – 4.1 (2.4) – – 0.6 2.3
United States dollars (0.1) – (8.9) – – (4.5) (13.5)
Euros 0.6 0.9 – – – (0.5) 1.0
Indian Rupees – (2.7) (0.8) – – – (3.5)
Brazilian Reals – 0.6 – – – – 0.6
Other currencies (0.1) (10.1) 9.7 0.3 – – (0.2)
0.4 ( 7. 2) (2.4) 0.3 – (4.4) (13.3)
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
182
32 Derivatives and other nancial instruments continued
The following table shows the impact on pre-tax prot and shareholders’ funds of reasonably possible changes in exchange rates against each of
the major foreign currencies in which the Group transacts:
2021
Sterling
US$m
Euro
US$m
Indian Rupees
US$m
Brazilian Reals
US$m
Increase in US dollar exchange rate 10% 10% 10% 10%
(Decrease)/increase in prot before tax (2.4) (1.0) 0.1 0.2
Increase/(decrease) in shareholders’ funds 21.6 (1.4) 4.9 0.1
2020
Sterling
US$m
Euro
US$m
Indian Rupees
US$m
Brazilian Reals
US$m
Increase in US dollar exchange rate 10% 10% 10% 10%
(Decrease)/increase in prot before tax (2.0) (1.0) 0.3 (0.1)
(Decrease)/increase in shareholders’ funds (6.3) (2.1) 4.2 1.5
Currency prole of nancial assets
The currency prole of the Group’s nancial assets was as follows:
2021 2020
31 December
Investments
US$m
Cash and
cash
equivalents
US$m
Trade and
other
receivables
US$m
Derivative
nancial
instruments
US$m
Total
US$m
Investments
US$m
Cash and
cash
equivalents
US$m
Trade and
other
receivables
US$m
Derivative
nancial
instruments
US$m
Total
US$m
Currency:
Sterling – 0.4 4.7 66.0 71.1 – 0.1 5.3 104.5 109.9
United States
dollars 5.0 55.1 127.2 (99.7) 87.6 5.0 40.0 111.1 (106.8) 49.3
Euros 0.1 2.5 22.7 (14.9) 10.4 0.1 1.7 21.7 – 23.5
Indian Rupees 0.9 9.2 22.3 12.5 44.9 1.0 8.0 22.2 1.6 32.8
Brazilian Reals – 2.2 22.9 – 25.1 – 2.6 13.2 (3.9) 11.9
Other currencies – 37.8 75.8 41.6 155.2 – 19.5 75.1 13.6 108.2
Total nancial
assets 6.0 107.2 275.6 5.5 394.3 6.1 71.9 248.6 9.0 335.6
The investments included above comprise listed and unlisted investments in shares and bonds.
Annual Report and Accounts 2021
Financial statements
183
32 Derivatives and other nancial instruments continued
Currency and interest rate prole of nancial liabilities
The currency and interest rate prole of the Group’s nancial liabilities was as follows:
2021 2020
31 December
Floating
rate
US$m
Fixed rate
US$m
Interest
free
US$m
Lease
liabilities
US$m
Derivative
nancial
instruments
US$m
Total
US$m
Floating
rate
US$m
Fixed rate
US$m
Interest free
US$m
Lease
liabilities
US$m
Derivative
nancial
instruments
US$m
Total
US$m
Currency:
Sterling 0.5 – 13.8 4.5 (42.9) (24 .1) 0.2 – 11. 4 5.1 (9.6) 7.1
United States
dollars 79.6 160.0 143.6 17.1 42.8 443.1 82.3 160.0 100.4 13.1 (9.8) 346.0
Euros 9.4 – 17.5 9.5 10.3 46.7 6.6 – 12.9 2.5 20.0 42.0
Indian Rupees – – 52.0 10.3 – 62.3 – – 37.8 13.3 – 51.1
Brazilian Reals – – 10.4 – 1.2 11.6 – – 11.7 0.1 4.1 15.9
Other currencies 2.0 2.8 105.9 57.6 (10.5) 157.8 – 3.5 77.1 31.9 (4.4) 108.1
Total nancial
liabilities 91.5 162.8 343.2 99.0 0.9 697.4 89.1 163.5 251.3 66.0 0.3 570.2
The benchmark for determining oating rate liabilities in the UK is the risk-free rate for both sterling and US$ amounts.
Details of xed and non interest-bearing liabilities (excluding derivatives and trade and other payables) are provided below:
2021 2020
Fixed rate
nancial
liabilities
Financial
liabilities on
which no
interest is paid
Fixed rate
nancial
liabilities
Financial
liabilities on
which no
interest is paid
Year ended 31 December
Weighted
average
interest
rate
%
Weighted
average
period for
which rate
is xed
(months)
Weighted
average
period until
maturity
(months)
Weighted
average
interest
rate
%
Weighted
average
period for
which rate
is xed
(months)
Weighted
average
period until
maturity
(months)
Currency:
Sterling – – 18 – – 18
United States dollars 4.00 58 – 4.00 70 –
Other currencies 23.95 9 – 16.74 10 –
Weighted average 4.34 57 18 4.27 69 18
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
184
32 Derivatives and other nancial instruments continued
Currency prole of foreign exchange derivatives
Assets Liabilities
Year ended 31 December
2021
US$m
2020
US$m
2021
US$m
2020
US$m
Currency:
Sterling 109.6 114.1 (0.7) –
United States dollars 35.2 32.1 (179.6) (133.8)
Euros – – (25.2) (20.0)
Indian Rupee 12.5 1.6 – –
Brazilian Real – – (1.2) (7.9)
Other currencies 64.2 25.5 (12.1) (7.5)
221.5 173.3 (218.8) (169.2)
Market price risk
The Group has equity and bond investments at 31 December 2021 of $6.0 million (2020: $6.1 million) held for strategic rather than trading
purposes. The Group does not actively trade these investments and is not materially exposed to price risk.
The sensitivity analyses below have been determined based on the exposure to reasonably possible price changes for the investments held at the
year end.
Year ended 31 December
2021
US$m
2020
US$m
Impact of a 10% increase in prices:
Increase in pre-tax prot for the year – –
Increase in equity shareholders’ funds 0.6 0.6
Liquidity risk
The Group typically holds cash balances in deposits with a short maturity. Additional resources can be drawn through committed borrowing
facilities at operating subsidiary level. During the year the Group has complied with all externally imposed capital requirements.
The Group had the following undrawn committed borrowing facilities in respect of which all conditions precedent had been met at the year-end:
Year ended 31 December
2021
US$m
2020
US$m
Expiring between one and two years – 350.0
Expiring between two and ve years 350.0 –
Maturity of undiscounted nancial assets (excluding derivatives)
The expected maturity of the Group’s nancial assets, using undiscounted cash ows, was as follows:
Year ended 31 December
2021
US$m
2020
US$m
In one year or less, or on demand 366.2 312.0
In more than one year but not more than two years 12.6 5.2
In more than two years but not more than ve years 4.0 3.5
In more than ve years 6.0 6.1
388.8 326.8
Annual Report and Accounts 2021
Financial statements
185
Maturity of undiscounted nancial liabilities (excluding derivatives)
The expected maturity of the Group’s nancial liabilities, using undiscounted cash ows, was as follows:
Year ended 31 December
2021
US$m
2020
US$m
In one year or less, or on demand 380.1 290.3
In more than one year but not more than two years 22.3 18.8
In more than two years but not more than ve years 176.3 155.0
In more than ve years 142.6 122.5
721.3 586.6
The above table comprises the gross amounts payable in respect of borrowings (including interest thereon), trade and other non-statutory payables
and certain provisions, over the period to the maturity of those liabilities.
Maturity of undiscounted nancial derivatives
The maturity of the Group’s nancial derivatives (on a gross basis), which include interest rate and foreign exchange swaps, using undiscounted
cash ows, was as follows:
Assets Liabilities
Year ended 31 December
2021
US$m
2020
US$m
2021
US$m
2020
US$m
In one year or less, or on demand 182.2 124.2 (178.5) (120.8)
In more than one year but not more than two years 24.8 37.3 (24.3) (34.2)
In more than two years but not more than ve years 16.6 16.9 (16.0) (14.3)
223.6 178.4 (218.8) (169.3)
32 Derivatives and other nancial instruments continued
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
186
Credit risk
Year ended 31 December
2021
US$m
2020
US$m
The Group considers its maximum exposure to credit risk to be as follows:
Cash and cash equivalents 107.2 71.9
Derivative nancial instruments 5.5 9.0
Trade receivables (net of impairment provision) 241.5 224.1
Amounts due from joint ventures 0.1 –
Other receivables 34.0 24.5
388.3 329.5
Financial assets considered not to have exposure to credit risk:
Other investments 6.0 6.1
Total nancial assets 394.3 335.6
Analysis of trade receivables over permitted credit period:
Trade receivables up to 1 month over permitted credit period 17.5 17.7
Trade receivables between 1 and 2 months over permitted credit period 5.1 4.3
Trade receivables between 2 and 3 months over permitted credit period 1.7 1.0
Trade receivables between 3 and 6 months over permitted credit period 1.3 1.2
Trade receivables in excess of 6 months over permitted credit period 1.7 1.2
Total trade receivables (net of impairment provision) in excess of permitted credit period 27.3 25.4
Trade receivables within permitted credit period 214.2 198.7
Total net trade receivables 241.5 224.1
Analysis of trade receivables impairment provision:
Trade receivables up to 1 month over permitted credit period 0.8 1.2
Trade receivables between 1 and 2 months over permitted credit period 0.2 0.2
Trade receivables between 2 and 3 months over permitted credit period 0.3 0.2
Trade receivables between 3 and 6 months over permitted credit period 0.7 0.4
Trade receivables in excess of 6 months over permitted credit period 6.9 8.2
Total impairment provision 8.9 10.2
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 nancial strength, previous
credit history with the Group, payment record with other suppliers, bank references and credit rating agency reports. All active customers are
subject to an annual, or more frequent if appropriate, review of their credit limits and credit periods.
The Group applies the simplied 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).
When determining expected losses for trade receivables, the Group takes into account the historical default experience and the nancial position
ofthe counterparties, as well as the future prospects considering various sources of information.
The Group does not have a signicant credit risk exposure to any single customer.
Annual Report and Accounts 2021
Financial statements
187
32 Derivatives and other nancial instruments continued
Hedges
During 2021, the Group has hedged the following exposures:
• interest rate risk – using interest rate swaps which are designated as fair value or cash ow hedges; and
• currency risk – using forward foreign currency contracts.
At 31 December 2021, the fair value of such instruments was a net asset of $4.6 million (2020: $8.7 million).
Interest rate swap fair value hedges outstanding at 31 December are expected to increase the income statement in the following periods:
Year ended 31 December
2021
US$m
2020
US$m
Within one year 0.9 1.2
Within one to two years 0.5 1.2
Within two to ve years 0.5 2.2
1.9 4.6
The interest rate swaps settle on a quarterly basis. The oating rate on the interest rate swaps is three months’ LIBOR.
33 Share-based payments
The total cost recognised in the consolidated Income Statement in respect of equity settled share-based payment plans was as follows:
Year ended 31 December
2021
US$m
2020
US$m
Long Term Incentive Plan (LTIP) 3.9 1.4
Deferred bonuses 0.5 -
4.4 1.4
The average share price for the year ended 31 December 2021 was 65.8p (2020: 58.7p).
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:
2021
Options
2020
Options
Outstanding at 1 January 40,532,920 44,404,325
Granted during the year 15,492,212 17,113,147
Vested during the year (7,136, 430) (545,804)
Lapsed during the year (2,689,364) (3,9 4 4,198)
Exercised during the year (4,196,197) (16,494,550)
Outstanding at 31 December 42,003,141 40,532,920
Exercisable at 31 December 4,917,104 7,776,53 0
The options outstanding at 31 December 2021 had a weighted average remaining contractual life of 7.7 years (2020: 7.7 years).
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
188
33 Share-based payments continued
The fair value of the market-based component of these awards was calculated using the Monte Carlo simulation method to reect the likelihood
ofthe market-based Total Shareholder Return (TSR) performance condition, which attach to 20% (2020: 20%) of the award, being met, using
thefollowing assumptions:
2021 2020
Vesting period 3 years 3 years
Share price at valuation date 59.2p 58.9p
Exercise price Nil Nil
Risk free rate 0.13% 0.09%
Expected dividend yield 0% 0%
Expected volatility 38.26% 27.8 4%
Fair value per share 16.8p 24.9p
Deferred bonuses
Under the terms of the Coats Group Deferred Bonus Plan, any bonuses awarded to executive directors and key senior management will be the
subject of a mandatory 25% to 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 nancial year. Awards are normally exercisable after three years.
The options outstanding at 31 December 2021 had a weighted average remaining contractual life of 7.6 years (2020: 8.3 years).
34 Post balance sheet events
There are no material post balance sheet events requiring adjustment or disclosure.
35 Alternative performance measures
This Annual Report contains both statutory measures and alternative performance measures which, in management’s view, reect the underlying
performance of the business and provide a more meaningful comparison of how the Group’s business is managed and measured on a day-to-day
basis. The Group’s denition of underlying performance is set out in note 4.
The Group’s alternative performance measures and key performance indicators are aligned to the Group’s strategy and together are used to
measure the performance of the business. A number of these measures form the basis of performance measures for remuneration incentive
schemes.
Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and provide supplementary information
toassist with the understanding of the Group’s nancial results and with the evaluation of operating performance for all the periods presented.
Alternative performance measures, however, are not a measure of nancial performance under International Financial Reporting Standards (IFRS)
as adopted by the UKEB and should not be considered as a substitute for measures determined in accordance with IFRS. As the Group’s alternative
performance measures are not dened terms under IFRS they may therefore not be comparable with similarly titled measures reported by other
companies.
A reconciliation of alternative performance measures to the most directly comparable measures reported in accordance with IFRS is provided on
pages 188 to 192.
Annual Report and Accounts 2021
Financial statements
189
35 Alternative performance measures continued
a) Organic growth on a constant exchange rate (CER) basis
Organic growth measures the change in revenue and operating prot 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 prot; and
• in the following year, removing the revenue and operating prot for the number of months equivalent to the pre-acquisition period in the
prioryear.
The effects of currency changes are removed through restating prior year revenue and operating prot at current year exchange rates.
Theprincipalexchange 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
andoffering differentiated cost competitive products and services.
Adjusted organic operating prot growth on a CER basis measures the underlying protability progression of the Group.
Adjusted operating prot is calculated by adding back exceptional and acquisition related items (see note 4 for further details).
Year ended 31 December
2021
US$m
2020
US$m
%
Growth
Revenue from continuing operations 1,503.8 1,163.3 29%
Constant currency adjustment – 0.6
Revenue on a CER basis 1,503.8 1,163.9 29%
Revenue from acquisitions
1
(4.3) –
Organic revenue on a CER basis 1,499.5 1,163.9 29%
Year ended 31 December
2021
US$m
2020
US$m
%
Decline
Operating prot from continuing operations
2
179.4 103.1 74%
Exceptional and acquisition related items (note 4) 13.7 7.5
Adjusted operating prot from continuing operations 193.1 110.6 75%
Constant currency adjustment – 0.1
Adjusted operating prot on a CER basis 193.1 110.7 74%
Operating loss from acquisitions
1
0.2 –
Organic adjusted operating prot on a CER basis 193.3 110.7 75%
1. Revenue and operating loss from acquisitions of $4.3 million and $0.2 million respectively relates to Pharr High Performance Yarns (“Pharr HP”) for the month of
January2021. Pharr HP was acquired in February 2020.
2. Refer to the consolidated income statement for a reconciliation of prot before taxation to operating prot from continuing operations.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
190
35 Alternative performance measures continued
b) Adjusted EBITDA
Adjusted EBITDA is presented as an alternative performance measure to show the underlying operating performance of the Group excluding
theeffects of depreciation, amortisation and impairments and excluding exceptional and acquisition related items.
Operating prot from continuing operations before exceptional and acquisition related items and before depreciation of owned xed assets
andright-of-use assets and amortisation (Adjusted EBITDA) is as set out below:
Year ended 31 December
2021
US$m
2020
US$m
Prot before taxation from continuing operations 163.0 79.6
Share of prot of joint ventures (1.2) (0.6)
Finance income (note 6) (4.6) (1.4)
Finance costs (note 7) 22.2 25.5
Operating prot from continuing operations
1
179.4 103.1
Exceptional and acquisition related items (note 4) 13.7 7.5
Adjusted operating prot from continuing operations 193.1 110.6
Depreciation of owned property, plant and equipment 28.2 30.5
Amortisation of intangible assets 2.7 4.0
Adjusted EBITDA including IFRS 16 depreciation of right-of-use assets (Pre-IFRS 16 basis) 224.0 145.1
Depreciation of right-of-use assets 19.4 18.3
Adjusted EBITDA 243.4 163.4
1. Refer to the consolidated income statement for a reconciliation of prot before taxation to operating prot from continuing operations.
Net debt including lease liabilities under IFRS 16 at 31 December 2021 was $246.1 million (2020: $246.6 million).
This gives a leverage ratio of net debt including lease liabilities to Adjusted EBITDA at 31 December 2021 of 1.0 (2020: 1.5).
Net debt excluding lease liabilities under IFRS 16 at 31 December 2021 was $147.1 million (2020: $180.6 million). This gives a leverage ratio
onapre-IFRS 16 basis at 31 December 2021 of 0.7 (2020: 1.2).
For the denition and calculation of net debt excluding lease liabilities see note 30 (f).
Annual Report and Accounts 2021
Financial statements
191
35 Alternative performance measures continued
c) Underlying effective tax rate
The underlying effective tax rate removes the tax impact of exceptional and acquisition related items and net interest on pension scheme assets
and liabilities to arrive at a tax rate based on the underlying prot before taxation.
A signicant proportion of the Group’s net interest on pension scheme assets and liabilities relates to UK pension plans for which there is no
related current or deferred tax credit or charge recorded in the income statement. The Group’s net interest on pension scheme assets and liabilities
is adjusted in arriving at the underlying effective tax shown below and, in management’s view, were this not adjusted it would distort the
alternative performance measure. This is consistent with how the Group monitors and manages the underlying effective tax rate.
Year ended 31 December
2021
US$m
2020
US$m
Prot before taxation 163.0 79.6
Exceptional and acquisition related items (note 4) 9.5 6.8
Net interest on pension scheme assets and liabilities 4.3 4.7
Underlying prot before taxation from continuing operations 176.8 91.1
Taxation charge from continuing operations 54.4 37.4
Tax charge in respect of exceptional and acquisition related items and net interest on pension scheme assets and
liabilities (0.4) (1.7)
Underlying taxation charge from continuing operations 54.0 35.7
Underlying effective tax rate 31% 39%
d) Adjusted earnings per share
The calculation of adjusted earnings per share is based on the prot from continuing operations attributable to equity shareholders before
exceptional and acquisition related items as set out below. Adjusted earnings per share growth measures the underlying progression of the
benets generated for shareholders.
Year ended 31 December
2021
US$m
2020
US$m
Prot from continuing operations 108.6 42.2
Non-controlling interests (19.7) (15.8)
Prot from continuing operations attributable to equity shareholders 88.9 26.4
Exceptional and acquisition related items net of non-controlling interests (note 4) 9.5 6.8
Tax credit in respect of exceptional and acquisition related items 0.9 2.2
Adjusted prot from continuing operations 99.3 35.4
Weighted average number of Ordinary Shares 1,457,076,765 1,455,587,353
Adjusted earnings per share (cents) 6.81 2.42
Adjusted earnings per share (growth %) 181%
The weighted average number of Ordinary Shares used for the calculation of adjusted earnings per share for the year ended 31 December 2021
is1,457,076,765 (2020: 1,455,587,353), the same as that used for basic earnings per ordinary share from continuing operations (see note 11).
e) Adjusted free cash ow
Net cash generated by/(absorbed in) operating activities, a GAAP measure, reconciles to changes in net debt resulting from cash ows (free cash
ow) as set out in the consolidated cash ow statement. A reconciliation of free cash ow to adjusted free cash ow is set out below.
Consistent with previous periods, adjusted free cash ow is dened as cash generated from continuing activities less capital expenditure, interest,
tax, dividends to minority interests and other items, and excluding exceptional and discontinued items, acquisitions, purchase of own shares by
theEmployee Benet Trust and payments to the UK pension scheme.
Notes to the nancial statements continued
Coats Group plc
Strategic report Corporate governance Financial statements Other information
192
35 Alternative performance measures continued
Adjusted free cash ow measures the Group’s underlying cash generation that is available to service shareholder dividends, pension obligations
and acquisitions.
Year ended 31 December
2021
US$m
2020
US$m
Change in net debt resulting from cash ows (free cash ow) 32.6 (23.2)
Acquisition of businesses – 37.3
Net cash outow from discontinued operations – 0.1
Payments to UK pension scheme 42.4 10.9
Net cash ows in respect of other exceptional and acquisition related items 10.5 (1.1)
Purchase of own shares by Employee Benet Trust – 3.1
Dividends paid to equity shareholders 27.4 0.2
Tax outow in respect of adjusted cash ow items – 0.7
Adjusted free cash ow 112.9 28.0
f) Return on capital employed
Return on capital employed (ROCE) is dened as operating prot before exceptional and acquisition related items divided by period end capital
employed as set out below. ROCE measures the ability of the Group’s assets to deliver returns.
Year ended 31 December
2021
US$m
2020
US$m
Operating prot from continuing operations before exceptional and acquisition related items
1
193.1 110.6
Non-current assets:
Acquired intangible assets 36.8 41.8
Property, plant and equipment 244.5 254.4
Right-of-use assets 91.6 60.7
Trade and other receivables 28.7 19.0
Current assets:
Inventories 250.1 187.0
Trade and other receivables 302.7 274.5
Current liabilities:
Trade and other payables (346.8) (255.7)
Lease liabilities (17.8) (16.4)
Non-current liabilities
Trade and other payables (24.2) (18.1)
Lease liabilities (81.2) (49.6)
Capital employed 484.4 497.6
ROCE 40% 22%
1. Refer to note 4 for details of exceptional and acquisition related items.
Annual Report and Accounts 2021
Financial statements
193
31 December Notes
2021
US$m
2020
US$m
Fixed assets:
Investments 4 1,244.2 1,244.2
Current assets:
Cash at bank and in hand 0.8 0.6
Creditors: amounts falling due within one year:
Loans from subsidiary undertakings (68.7) (70.7)
Trade and other payables (0.6) (0.3)
Net current liabilities (68.5) (70.4)
Net assets 1,175.7 1,173.8
Capital and reserves:
Share capital 5 90.1 9 0.1
Share premium account 10.5 10.5
Capital redemption reserve 14.1 14.1
Share options reserve 18.5 18.5
Capital reduction reserve 59.8 59.8
Own shares 5 (0.5) (3.2)
Prot and loss account 983.2 984.0
Shareholders’ funds 1,175.7 1,173.8
The Company reported a prot for the nancial year ended 31 December 2021 of $28.2 million (2020: $2.2 million loss).
Rajiv Sharma Jackie Callaway
Group Chief Executive Chief Financial Ofcer
Approved by the Board 2 March 2022
Company Registration No.103548
Company balance sheet
Coats Group plc
Strategic report Corporate governance Financial statements Other information
194
Share
capital
US$m
Share
premium
account
US$m
Capital
redemption
reserve
US$m
Share
options
reserve
US$m
Capital
reduction
reserve
US$m
Own
shares
US$m
Prot and
loss account
US$m
Total
equity
US$m
1 January 2020 89.6 10.5 14.1 18.5 59.8 (5.7) 988.6 1,175.4
Loss and total
comprehensive expense
for the year – – – – – – (2.2) (2.2)
Issue of ordinary shares 0.5 – – – – – (0.5) –
Movement in own shares – – – – – 2.5 (1.9) 0.6
31 December 2020 90.1 10.5 14.1 18.5 59.8 (3.2) 984.0 1,173.8
Prot and total
comprehensive expense
for the year – – – – – – 28.2 28.2
Dividends to equity
shareholders – – – – – – (27.6) (27.6)
Movement in own shares – – – – – 2.7 (1.4) 1.3
31 December 2021 90.1 10.5 14 .1 18.5 59.8 (0.5) 983.2 1,175.7
Company statement of changes in equity
Annual Report and Accounts 2021
Financial statements
195
Year ended 31 December
2021
US$m
2020
US$m
Net cash ows from operating activities:
Operating prot 27.7 0.1
Decrease in creditors (1.4) (0.7)
Net cash ows from operating activities 26.3 (0.6)
Net cash ows from nancing activities:
Purchase of own shares – (3.1)
Proceeds from sale of own shares 1.3 3.7
Dividends paid to equity shareholders (27.4) (0.2)
Net cash ows from nancing activities (26.1) 0.4
Net increase/(decrease) in cash and cash equivalents 0.2 (0.2)
Cash at bank and in hand at the beginning of the year 0.6 0.8
Cash at bank and in hand at the end of the year 0.8 0.6
Company cash ow statement
Coats Group plc
Strategic report Corporate governance Financial statements Other information
196
1 Accounting policies
The principal accounting policies are summarised below. They have all been applied consistently throughout the year and to the preceding year.
a) General information and basis of accounting
The nancial statements have been prepared under the historical cost convention, modied to include certain items at fair value, and in accordance
with Financial Reporting Standard 102 (FRS 102) as issued by the Financial Reporting Council.
Functional currency
The functional currency of Coats Group plc continued to be United States dollars (USD) during the year ended 31 December 2021.
b) Fixed assets – investments
Investments in subsidiary undertakings are reected at cost less provisions for any impairment.
c) Financial assets and liabilities
Financial assets and nancial liabilities are recognised when the Company becomes a party to the contractual provisions of the instrument. All
nancial assets and nancial liabilities are initially measured at transaction price. If an arrangement constitutes a nancing transaction, the nancial
asset or nancial 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 prot and loss and the assets is reduced to its recoverable amount. The recoverable amount
is the higher of its fair value less costs to sell and its value in use.
e) Share-based payments
Cash-settled
Cash-settled share-based payments are measured at fair value (excluding the effect of non market-based vesting conditions) at each reporting
date. The fair value is expensed on a straight-line basis over the vesting period, with a corresponding increase in liabilities.
Equity-settled
The Group operates an equity-settled Long Term Incentive Plan for executives and senior management, settlement is in the form of Coats Group
plc shares. Awards under this plan are subject to both market-based and non-market-based vesting criteria.
The fair value at the date of grant is established by using an appropriate simulation method to reect 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 reect
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 Benet 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 prot or loss for the year as adjusted for disallowable and non-taxable items. Deferred taxation
isprovided 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.
Notes to the company nancial statements
Annual Report and Accounts 2021
Financial statements
197
1 Accounting policies continued
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
incalculating the recoverable amount. No indicators of impairment were identied during the year ended 31 December 2021.
There are no sources of estimation uncertainty at the balance sheet date, that may have a signicant risk of causing material adjustment to the
carrying amounts of assets and liabilities within the next nancial year.
2 Result for the year
The Company has not presented its own prot and loss account as permitted by section 408 of the Companies Act 2006. The prot for the
yearattributable to shareholders was $28.2 million (2020: $2.2 million loss).
Details of directors’ remuneration are set out on pages 96 to 113 within the Remuneration Report and form part of these nancial statements.
3 Dividends
Dividends amounting to $27.6 million in respect of the year ended 31 December 2021 were payable to Coats Group plc shareholders during the
year(2020: $nil). Details of the proposed nal dividend for the year ended 31 December 2021 are set out in note 12 of the consolidated
nancialstatements.
4 Investments
Investments in subsidiary
undertakings
US$m
At 1 January 2021 and 31 December 2021 1,244.2
5 Share capital and reserves
There are 1,452,570,385 Ordinary Shares of 5p issued and fully paid at 31 December 2021 (2020: 1,452,077,272).
The movement in share capital during the year is set out in note 26 of the consolidated nancial statements.
The own shares reserve at 31 December 2021 of $0.5 million (2020: $3.2 million) represents the cost of shares in Coats Group plc purchased
inthemarket and held by an Employee Benet Trust to satisfy awards under the Group’s share based incentive plans. The number of shares
heldbythe Employee Benet Trust at 31 December 2021 was 2,020,306 (2020: 7,010,248).
As at 31 December 2021 the Company had distributable prots of $220.1 million (2020: $218.2 million).
6 Related party transactions
Amounts due from and to other Group companies are disclosed on the face of the Balance Sheet on page 193.
Coats Group plc
Strategic report Corporate governance Financial statements Other information
198
Group structure
The Company, through various subsidiaries, has branches in several different jurisdictions in which the business operates outside the UK. Unless
otherwise indicated, all shareholdings owned directly or indirectly by the Company represents 100% of issued share capital of the subsidiary.
Subsidiaries:
Direct holdings of the Company
Country of Incorporation Company name Registered ofce address Share class
United Kingdom Arrow HJC 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom B. M. Estates Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Contractors’ Aggregates Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom GPG (UK) Holdings Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom GPG March 2004 Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom MFC (Predecessors) Limited Mazars Llp, 45 Church Street, Birmingham,
B3 2RT, United Kingdom
£1.00 Ordinary
United Kingdom S G Warburg Group Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
Subsidiaries:
Indirect holdings of the Company
Country of Incorporation Company name Registered ofce address Share class
Argentina Coats Cadena S.A. – Argentina Tucuman 1, 4th Floor, (1049) Capital Federal,
Argentina
ARS1.00 Ordinary Nominal
Australia Coats Australian Pty Ltd Unit 2, 56 Keys Road, Moorabbin VIC 3189,
Australia
AUD0.54 Ordinary
Australia GPG Services Pty Limited Level 44, 600 Bourke Street, Melbourne,
Victoria, 3000, Australia
AUD1.00 Ordinary
Australia Guinness Peat Group (Australia)
Pty Limited
Level 44, 600 Bourke Street, Melbourne,
Victoria, 3000, Australia
AUD1.00 Ordinary, AUD14,977.77
Redeemable Preference
Australia Sabatica Pty Limited Level 44, 600 Bourke Street, Melbourne,
Victoria, 3000, Australia
AUD1.00 Ordinary
Bangladesh Coats Bangladesh Limited Tower 117, 117/A Tejgaon Industrial Area,
Dhaka 1208, Bangladesh
BDT100.00 Ordinary (80%)
Bangladesh Coats Crafts Bangladesh Limited Novo Tower, 270 Tejgaon Industrial Area,
Dhaka 1208, Bangladesh
BDT100.00 Ordinary (80%)
Brazil Coats Corrente Ltda Rua do Manifesto, N 705, Bloco A, Ipiranga,
Sao Paulo, SP BR, Brazil
BRL1.00 Ordinary
Brazil Corrente Sociedade de
Previdência Privada
Rua do Manifesto, N 705, Bloco A, Ipiranga,
Sao Paulo, SP BR, Brazil
Civil association
Bulgaria Coats Bulgaria Eood Tharigradsko shouse bld 7th Km, Soa 1748,
Bulgaria
BGL50.00 Ordinary
Annual Report and Accounts 2021
Other information
199
Country of Incorporation Company name Registered ofce address Share class
Canada Coats Canada Inc 10 Roybridge Gate Blvd, Vaughan ON L4H
3M8, Canada
Common (no par value)
Canada Staveley Services Canada Inc 44 Chipman Hill, Suite 1000, Saint John NB
E2L 2A0, Canada
CAD Common, CAD Class A Pref 1,
CAD Class A Pref 2
Chile Coats Cadena Ltda Enrique Gomez Correa 5750, 3er piso,
Ocina No.4, Macul, Santiago, Chile
US$1.00 Ordinary
Chile The Central Agency Limited –
Chile
Enrique Gomez Correa 5750, 3er piso,
Ocina No.4, Macul, Santiago, Chile
US$1.00 Ordinary
China Coats Opti Shenzhen Limited Coats Industrial Park, Fengtang Dadao,
Tangwei Village,Bao’an District, Shenzen,
Fuyong Town, China
US$1.00 Ordinary (90%)
China Coats Shenzhen Limited Shenzhen Coats Industrial Park, Fuyong
Town, Baoan District, Shenzhen, China
US$1.00 Ordinary (90%)
China Guangzhou Coats Limited Unit B12, 2nd Floor, 2nd Building, No 11 Hao
Ke Zhou East Street, Haizhu District,
Guangzhou, China
HKD1.00 Ordinary (90%)
China Qingdao Coats Limited No. 6, Sanhuan Road, Jimo Environmental
Protection Industrial Park, Jimo District,
Shandong, China
US$1.00 Ordinary (90%)
China Shanghai Coats Limited No.8 Building, Export Processing Garden,
Songjiang Industrial Zone 201613, Shanghai,
China
US$1.00 Ordinary (90%)
Colombia Coats Cadena Andina SA –
Colombia
Avenida Santander, N.5E-87, Pereira,
Colombia
COP20.63 Ordinary
Ecuador Coats Cadena SA Ecuador De las Avellanas E, 2-74 y El Juncal, Quito,
Ecuador
US$1.00 Ordinary
Egypt Coats Craft Egypt New Cairo, 5th settlement, Villa 28, Egypt EGP1.00 Ordinary
Egypt Coats Egypt for manufacturing
and dyeing sewing thread SAE
Industrial Area Zone B3, Plot 78, 10th of
Ramadan City, Cairo, Egypt
US$14.0625 Ordinary
Egypt Coats Industrial Trading Egypt Industrial Area Zone B3, Plot 62, 10th of
Ramadan City, Cairo, Egypt
EGP4000.00 Ordinary
El Salvador Coats El Salvador, S.A. de C.V. Zona Franca Export Salva, Edicio No 18C,
San Salvador, El Salvador
US$12.00 Ordinary
Estonia Coats Eesti AS – Estonia Ampri tee 9/4, Lubja küla 74010 Viimsi Vald,
Harjumaa, Estonia
€63.90 Ordinary
France Coats France S.A.S. 8 avenue Hoche, 75008, Paris, France €0.60 Ordinary
Germany Coats GmbH Huengerstrasse 28, D-78199, Braunlingen,
Germany
€12,000,000.00 Ordinary
Germany Coats Opti Germany GmbH 1 Suedwieke 180, 26817 Rhauderfehn,
Germany
€1.00 Ordinary
Germany Coats Thread Germany GmbH Huengerstrasse 28, D-78199, Braunlingen,
Germany
€1.00 Ordinary
Germany Schwanenwolle Tittel & Krueger
AG i. L
RHS, Stadtstrasse 29, 79104 Freiburg,
Germany
DEM1.00 Ordinary
Guatemala Centraltex de Guatemala, S.A. 26 Avenida No. 7-27, Zona 4, Mixco ocina
11, Guatemala
GTQ100.00 Ordinary
Coats Group plc
Strategic report Corporate governance Financial statements Other information
200
Country of Incorporation Company name Registered ofce address Share class
Guatemala Coats de Guatemala, S.A. 13-78 Zona 10, Edif. Intercontinental Plaza
Torre Citigroup Nivel 17, Ocina 1702,
Ciudad, Guatemala
GTQ1.00 Ordinary
Guatemala Crafts Central America, S.A. 26 Avenida No. 7-27, Zona 4, Mixco ocina
11, Guatemala
GTQ100.00 Ordinary
Guatemala Distribuidora Coats de
Guatemala, Sociedad Anomina
39 Avenida, 3-47 Zona 7, Colonia El Rodeo,
Guatemala, Guatemala
GTQ1.00 Ordinary
Guatemala Guatemala Thread Company
Sociedad Anonima
39 Avenida, 3-47 Zona 7, Colonia El Rodeo,
Guatemala, Guatemala
GTQ10.00 Ordinary
Honduras Coats Honduras, S.A. Edicio #13 Zona Libre Inhdelva, 800 mts.
Carretera a la Jutosa, Choloma, Cortes,
Honduras
HNL100.00 Ordinary
Hong Kong China Thread Development
Company Limited
Suite 23-25, Langham Place Ofce Tower, 8
Argyle Street, Mongkok, Kowloon, Hong
Kong
HKD10.00 Ordinary
Hong Kong Coats (China) Limited Suite 23-25, Langham Place Ofce Tower, 8
Argyle Street, Mongkok, Kowloon, Hong
Kong
HKD10.00 Ordinary
Hong Kong Coats China Holdings Limited Unit 507, 5/F, Chinachem Golden Plaza, 77
Mody Road, Tsim Sha Tsui, Kowloon, Hong
Kong
HKD10.00 Ordinary
Hong Kong Coats Hong Kong Limited Unit 507, 5/F, Chinachem Golden Plaza, 77
Mody Road, Tsim Sha Tsui, Kowloon, Hong
Kong
HKD10.00 Ordinary (90%)
Hong Kong Coats Opti Hong Kong Limited Suite 23-25, Langham Place Ofce Tower, 8
Argyle Street, Mongkok, Kowloon, Hong
Kong
HKD1.00 Ordinary
Hong Kong Coats Thread HK Limited Suite 23-25, Langham Place Ofce Tower, 8
Argyle Street, Mongkok, Kowloon, Hong
Kong
HKD10.00 Ordinary
Hong Kong Fast React Asia (HK) Limited Room 2203 22/F, Tower 1, Lippo Centre, 89
Queensway, Hong Kong
HKD1.00 Ordinary
Hong Kong Fastreact Systems (Far East) Co
Limited
Room 2203 22/F, Tower 1, Lippo Centre, 89
Queensway, Hong Kong
HKD1.00 Ordinary
Hungary Coats Magyarorszag Cernagyarto
es Ertekesito Korlatolt Felelossegu
Tarsasag
1044 Budapest, Vaci ut 91, Hungary HUF100,000.00 Ordinary
India Intellosol Softwares India Private
Limited
1/22, Second Floor, Asaf Ali Road, New Delhi,
Central Delhi, Delhi, 110002, India
INR10.00 Ordinary
India Madura Coats Private Limited 7th Floor, Jupiter 2A, Prestige Tech Park,
Sarjapur Marathalli Ring Road, Bangalore,
560103, India
INR10.00 Ordinary
Indonesia PT. Coats Rejo Indonesia Ventura Building, Lantai 5, Suite 501-B, Jl. RA
Kartini No. 26, Cilandak, Jakarta Indonesia
IDR415.00 Ordinary-A, IDR627.00
Ordinary-B, US$1.00 Preference
Indonesia PT Coats Trading Indonesia Ventura Building, Lantai 5, Suite 501-B, Jl. RA
Kartini No. 26, Cilandak, Jakarta Indonesia
USD1.00 Ordinary
Group structure continued
Annual Report and Accounts 2021
Other information
201
Country of Incorporation Company name Registered ofce address Share class
Italy Coats Italy S.r.l. Sesto San Giovanni (MI), Via Milanese, 20
CAP, 20099, Milan, Italy
€5,000,000.00 Quota
Madagascar Coats (Madagascar) International First Immo, Galaxy Industrial Estate, Rue du
Dr. Raseta, Andraharo, Antananarivo,
Madagascar
MGF100,000.00 Ordinary
Madagascar Coats (Madagascar) S.AR.L (EPZ) First Immo, Galaxy Industrial Estate, Rue du
Dr. Raseta, Andraharo, Antananarivo,
Madagascar
MGF100,000.00 Ordinary
Malaysia Coats Thread (Malaysia) Sdn.
Bhd.
49-B Jalan Melaka Raya 8, Taman Melaka
Raya, 75000 Melaka, Malaysia
RM10.00 A, RM10.00 B, RM10.00 C
(99%)
Mauritius J & P Coats (Mauritius) Ltd Allee des Mangues, Pailles, Mauritius Rs100.00 Ordinary
Mauritius Coats Indian Ocean Holding Co
Limited
2nd Floor, IBL House, Caudan, Port-Louis,
Mauritius
US$100.00 Ordinary
Mexico Coats Mexico S.A. de C.V. Periferico Sur #3325 Piso 8, Col. San
Jerónimo Lídice, Magdalena Contreras,
Mexico City, CP10200, Mexico
MXP1.00 Ordinary-A, MXP1.00
Ordinary-B
Morocco Coats Maroc 220 Bld Chefchaouni, Ain Sebaa, Casablanca,
Morocco
MAD100.00 Ordinary
Morocco Mercerie Industrielle de
Casablanca
220 Bld Chefchaouni, Ain Sebaa, Casablanca,
Morocco
MAD100.00 Ordinary
Netherlands Coats Industrial Europe Holdings
B.V.
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Coats Industrial Thread Holdings
B.V
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Coats Northern Holdings B.V. 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Coats South America Holdings
B.V.
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Coats South Asia Holdings B.V. 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Coats Southern Holdings B.V. 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
€1.00 Ordinary
Netherlands Guinness Peat Group
International Holdings BV
Naritaweg 165, 1043 BW, Amsterdam,
Netherlands
€14,957.00 Ordinary
New Zealand Coats Patons (New Zealand) Ltd 3 Mana Place, Wira, Auckland, New Zealand NZD1.00 Ordinary
Nicaragua Coats de Nicaragua SA Altamira d’este, Rotonda Madrid #235,
Managua, Nicaragua
NIO100.00 Ordinary
Pakistan J & P Coats Pakistan (Pvt) Limited Suites 112-113, Prime Ofce Lobby, Park
Towers, Shahrah-e-Firdousi, Clifton, Karachi,
75600, Pakistan
PKR100.00 Ordinary
Peru Coats Cadena SA – Peru Av. Republica de Panama 3461, Piso 9, San
Isidro, Lima, Peru
PEN 0.01 Ordinary (99%)
Poland Coats Polska Spolka z
oganiczona odpowiedzialnoscia
91-214 Lodz, ul, Kaczencowa 16, Poland PLN1,000.00 Ordinary
Coats Group plc
Strategic report Corporate governance Financial statements Other information
202
Country of Incorporation Company name Registered ofce address Share class
Portugal Coats – Comercio de Linhas,
Fechos e Acessorios, Para a
Industria SA
Praca do Almada, No 10, 4490, Povoa do
Varzim, Portugal
€1.00 Ordinary Bearer Shares
Portugal Companhia de Linha Coats &
Clark S.A.
Praca do Almada, No 10, 4490, Povoa do
Varzim, Portugal
€1.00 Bare Shares
Romania Coats Romania SRL Municipiul Odorheiu Secuiesc, Str. Nicolae
Balcescu, Nr. 71, Judetul Harghita, Romania
RON169.38 Ordinary
Russian Federation Coats LLC 53 Lenin Street, Oktyabrsky, Lubertsy,
140060, Moscow Region, Russia
RUB173.55 Ordinary
Singapore Coats International Pte. Limited 10 Changi Business Park Central 2, #01-02
HansaPoint, 486030, Singapore
SGD1.00 Ordinary
Singapore Coats Overseas Pte Ltd 10 Changi Business Park Central 2, #01-02
HansaPoint, 486030, Singapore
SGD1.00 Ordinary
South Africa Coats South Africa (Proprietary)
Limited
107 Escom Road, New Germany, 3620, KZN,
Natal, South Africa
ZAR0.01 Ordinary, ZAR0.01
Cumulative Redeemable Preference,
ZAR0.01 Non-redeemable Preference
Shares, ZAR0.01
Non-redeemable
Non-cumulative Variable Rate
Convertible Preference
Spain Gotex S.A. Poligono Industrial Can Roqueta, Calle
N’Alzina, 79 Sabadell, Barcelona, Spain
€6.02 Ordinary
Sri Lanka Coats Thread Exports (Private)
Limited
479, 8th Floor, HNB Towers, T.B. Jayah
Mawatha, Colombo 410, Sri Lanka
LKR100.00 Ordinary (99%)
Sri Lanka Coats Thread Lanka (Private)
Limited
479, 8th Floor, HNB Towers, T.B. Jayah
Mawatha, Colombo 410, Sri Lanka
LKR10.00 Ordinary (99%)
Sweden Coats Industrial Scandinavia AB Stationsvagen 2, SE-516 31 Dalsjofors,
Sweden
SEK1,000.00 Bearer
Switzerland Coats Stroppel AG c/o Haussmann Treuhand AG, Seefeldstrasse
45, 8008 Zurich, Switzerland
CHF2,500.00
Thailand Coats Threads (Thailand) Ltd 39/60 Moo 2 Tambol Bangkrachaw, Amphur
Muang, Samutsakorn Province 74000,
Thailand
THB1,000.00 Ordinary
Tunisia Coats Industrial Tunisie 52, rue du Tissage, Douar Hicher, Manouba,
2086, Tunisia
TND10.00 Ordinary
Tunisia Coats Trading Tunisie 52, rue du Tissage, Douar Hicher, Manouba,
2086, Tunisia
TND10.00 Ordinary
Turkey Coats (Turkiye) Iplik Sanayii AS Organize Sanayi Bolgesi Mavi Cad. No 2,
16220 Bursa, Turkey
TRY1.00 New Ordinary (92%)
Ukraine Coats Ukraine Ltd Moskovskiy ave. 28A, litera B, Kiev, 04655,
Ukraine
UAH1.00 Ordinary
United Kingdom Allied Mutual Insurance Services
Ltd
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Aneld 1 Limited Mazars Llp, 45 Church Street, Birmingham,
B3 2RT United Kingdom
£1.00 Ordinary
United Kingdom Aneld 2 Limited Mazars Llp, 45 Church Street, Birmingham,
B3 2RT United Kingdom
£1.00 Ordinary, £1.00 Deferred
Group structure continued
Annual Report and Accounts 2021
Other information
203
Country of Incorporation Company name Registered ofce address Share class
United Kingdom Barbour Threads Limited Cornerstone, 107 West Regent Street,
Glasgow, G2 2BA, United Kingdom
£10.00 Ordinary
United Kingdom Brown Shipley Holdings Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Brunel Pension Trustees Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Cardpad Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats (UK) Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Digital Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Finance Co. Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Group Finance Company
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.33 Ordinary
United Kingdom Coats Holding Company
(No. 1) Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.125 Ordinary
United Kingdom Coats Holding Company
(No. 2) Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.25 Ordinary
United Kingdom Coats Holdings Ltd 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Industrial Thread Brands
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Industrial Thread Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Patons Limited Cornerstone, 107 West Regent Street,
Glasgow, G2 2BA, United Kingdom
£0.25 Ordinary
United Kingdom Coats Pensions Trustee Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Property Management
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Shelfco (BDA) Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Shelfco (CV Nominees)
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats Shelfco (VV) Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.01 Ordinary, £0.075 Deferred
United Kingdom Coats Trading (UK) Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Coats UK Pension Scheme
Trustees Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Corah Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.25 Ordinary, £1.00 4.2%
Cumulative Preference
United Kingdom D. Byford & Co Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.20 Ordinary, £1.00 Preference
Coats Group plc
Strategic report Corporate governance Financial statements Other information
204
Country of Incorporation Company name Registered ofce address Share class
United Kingdom Embergrange 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Fast React Systems (Bangladesh)
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Fast React Systems Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom GPG Securities Trading Ltd 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Grifn SA Ltd 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom GSD (Corporate) Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom GSD Holdings Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary-A, £1.00 Ordinary-B
United Kingdom Hicking Pentecost Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.50 Ordinary
United Kingdom I.P. Clarke & Co. Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom J.& P. Coats, Limited 1 George Square, Glasgow G2 1AL, United
Kingdom
£1.00 Ordinary
United Kingdom Marshaide Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Needle Industries Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Patons & Baldwins Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Patons Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary, £1.00 7% Preference
United Kingdom Simpson, Wright & Lowe, Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Sir Richard Arkwright & Co.
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom SIRBS Pension Trustee Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Staveley 2005 No 3 Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Staveley Industries Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Staveley Services Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom The Central Agency Limited Cornerstone, 107 West Regent Street,
Glasgow, G2 2BA, United Kingdom
£10.00 Ordinary
United Kingdom The Coats Trustee Company
Limited
4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United Kingdom Thomas Burnley & Sons, Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£10.00 Ordinary
Group structure continued
Annual Report and Accounts 2021
Other information
205
Country of Incorporation Company name Registered ofce address Share class
United Kingdom Tootal Group Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£0.25 Ordinary, £1.00 3.5 %
Cumulative Preference
United Kingdom Tootal Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
£1.00 Ordinary
United States Coats American Inc CT Corporation System, 820 Bear Tavern
Road, West Trenton, NJ 08628, USA
US$10.00 COMMON, US$5.00 5%
Cumulative Preference
United States Coats Garments (USA) Inc CT Corporation System, Corporation Trust
Centre, 1209 Orange Street, Wilmington, DE
19801, USA
US$1.00 Ordinary
United States Coats Holdings Inc CT Corporation System, Corporation Trust
Centre, 1209 Orange Street, Wilmington, DE
19801, USA
US$1.00 Ordinary
United States Coats HP Holding Inc CT Corporation System, 160 Mine Lake Ct.,
Suite 200, Wake NC 27615-6417, USA
US$1.00 Ordinary
United States Coats HP Inc CT Corporation System, 160 Mine Lake Ct.,
Suite 200, Wake NC 27615-6417, USA
US$1.00 Ordinary
United States Coats North America
Consolidated Inc
CT Corporation System, Corporation Trust
Centre, 1209 Orange Street, Wilmington, DE
19801, USA
US$0.10 Ordinary, US$1.00 Class B
Voting Shares
United States Coats North America de
Republica Dominica Inc
CT Corporation System, 160 Mine Lake Ct.,
Suite 200, Raleigh, North Carolina, 27615-
6417, USA
US$1.00 Ordinary
United States Coats Sales Corporation CT Corporation System, 820 Bear Tavern
Road, West Trenton, NJ 08628, USA
US$100.00 Ordinary
United States Jaeger Sportswear Ltd CT Corporation System, 28 Liberty Street,
New York, NY 10005, USA
US$ Common
United States Patrick Yarn Mill, Inc., CT Corporation System, 160 Mine Lake Ct.,
Suite 200, Raleigh, North Carolina, 27615-
6417, USA
US$1.00 Class A voting, Class B
non-voting
United States Staveley Inc The Corporation Trust Co., 1209 Orange
Street, Wilmington, DE 19801, USA.
US$0.01 Ordinary
United States Westminster Fibers, Inc. c/o The Corporation Trust, 1209 Orange
Street, Wilmington, Delaware, USA
US$1.00 Common shares
Uruguay Coats Cadena S.A. – Uruguay Runo Dominguez 1864, Montevideo,
Uruguay
UYU0.05 Ordinary
Vietnam Coats Phong Phu Limited Liability
Company
No. 48 Tang Nhon Phu Street, Tang Nhon
Phu B Ward, District 9, Ho Chi Minh City,
Vietnam
US$1.00 Ordinary (64%)
Coats Group plc
Strategic report Corporate governance Financial statements Other information
206
Joint Ventures
Country of Incorporation Company Name Registered Ofce address Share class
Australia ACS Nominees Pty Limited c/o Jagen Pty. Ltd, Level 1, 26-29 Beatty
Avenue, Armadale VIC 3143, Australia
AUD1.00 Ordinary (50%)
China Guangying Spinning Company
Limited
2 Yuan Cun Xi Jie Guangzhou, 510655,
China
US$1.00 Ordinary (50%)
China Tianjin Jinying Spinning Co Ltd 10m E of intersec. of Jinlai Rd and Mingqing
Rd, Liqi Zhuang, Xiqing Qu, Tianjin, 300381,
China
US$1.00 Ordinary (50%)
India S&P Threads Private Limited Delite Theatre Building, III Floor, Asaf Ali
Road, New Delhi, 110 002, India
INR10.00 Ordinary (50%)
United Kingdom Coats VTT Limited 4 Longwalk Road, Stockley Park, Uxbridge,
UB11 1FE, United Kingdom
US$0.01 Ordinary (50%)
Group structure continued
Annual Report and Accounts 2021
Other information
207
For the year ended 31 December
2017
US$m
2018
US$m
2019
3
US$m
2020
US$m
2021
US$m
Continuing operations (before exceptional and acquisition
related items)
1
:
Revenue
2
1,356.1 1,414.7 1,388.7 1,163.3 1,503.8
Cost of sales (849.7) (901.9) (898.1) (806.6) (1,025.3)
Gross prot 506.4 512.8 490.6 356.7 478.5
Operating costs
2
(345.8) (317.9) (292.6) (24 6.1) (285.4)
Operating prot 160.6 194.9 198.0 110.6 193.1
Share of prots from joint ventures 1.3 0.1 1.1 0.6 1.2
Finance income 2.1 1.7 1.7 0.7 0.4
Finance costs (25.4) (26.1) (29.6) (25.5) (22.2)
Prot before taxation 138.6 170.6 171.2 86.4 172.5
Taxation (44.6) (53.8) (50.5) (35.2) (53.5)
Prot from continuing operations 94.0 116.8 120.7 51.2 119.0
Adjusted earnings per share (cents) 5.70 6.87 6.97 2.42 6.81
Dividend per share (cents) 1.44 1.66 0.55
4
1.30 2.11
Adjusted free cash ow ($m) 76.4 96.2 106.8 28.0 112.9
Return on capital employed (%) 35.4% 42.6% 42.3% 22.2% 39.9%
Notes:
1. The results for 2017 have been restated following the disposal of the North America Crafts business.
2. Revenue and operating costs have been restated for 2017 following the Group’s adoption of IFRS 15 ‘Revenue from contracts with customers’ on 1 January 2018.
3. The Group adopted IFRS 16 ‘Leases’ from 1 January 2019 using the modied retrospective approach and therefore results for 2017-2018 are not restated.
4. In March 2020 the Company announced it had taken the decision, given the uncertainties caused by the Covid pandemic, to cancel the proposed 2019 nal dividend payment of
1.30 cents per ordinary share which was due to be paid in May 2020.
Five-year summaryFive-year summary
Coats Group plc
Strategic report Corporate governance Financial statements Other information
208
United Kingdom
Tel: 020 8210 5000
coats.com
Incorporated and registered
in England No. 103548
Registered ofce:
UK registered members
To manage your shareholding online,
please visit: investorcentre.co.uk
Location of share registers
The Company’s register of members is maintained in the United Kingdom
Register enquiries may be addressed direct to the Company’s share registrars named below:
Registrar Telephone and postal enquiries Inspection of Register
UK Main Register:
Computershare Investor
Services PLC
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
Tel: 0370 707 1022
Facsimile: 0370 703 6143
The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
Shareholder information
This report has been printed on material which is certied by the
Forest Stewardship Council®. The paper is made at a mill with ISO
14001 Environmental Management System accreditation. Printed
using vegetable oil based inks, printer is also certied to ISO 14001
Environmental management system and FSC® certied.
A full copy of our Annual Report can be downloaded,
along with other relevant documents from
coats.com/ar2021
Tel: 020 8210 5000
coats.com
Incorporated and registered in England No. 103548
Registered ofce: 4 Longwalk Road, Stockley Park, Uxbridge, UB11 1FE