## GLOBAL ## LEADERSHIP ## Threads ## and footwear ## components ## Coats Group plc ## Annual Report 2022 Coats Group plc Annual Report and Accounts 2022 ## OUR PURPOSE IS TO CONNECT TALENT, TABLE OF CONTENTS 35 TCFD Strategic report Financial statements 39 Section 172 statement ## TEXTILES AND TECHNOLOGY TO MAKE 03 2022 full year results 105 Independent Auditor’s report 42 Principal risks and uncertainties and highlights 114 Primary financial statements STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO 50 Long term viability statement 04 Coats at a glance 118 Notes to the financial statements ## A BETTER AND MORE SUSTAINABLE WORLD. 51 Operating review 06 Chair’s statement 170 Company financial statements 54 Financial review 08 CEO’s statement 171 Notes to Company financial ## Big, bold, game-changing ideas are crucial to delivering this. 11 Our values statements Corporate governance 12 Strategy ## We are accelerating profitable sales growth through our ground-breaking | | | 14 Business model | 57 Chair’s introduction to governance | Other information | | --- | --- | --- | --- | --- | | s | ustainable products and solutions, transforming Coats for the future | | | | | | | 16 People and culture | 61 Board of Directors | | 173 Group structure 18 Case studies 64 Corporate governance report ## and creating value for our customers, their industries, our shareholders, 180 Five-year summary 24 Sustainability 71 Audit and Risk Committee report 180 Shareholder information | o | ur people and the communities in which we operate. | | | | | --- | --- | --- | --- | --- | | | | | 26 Innovation | 77 Nomination Committee report | | | | | 28 Market trends | 80 Directors’ report | | | | | 30 Key performance indicators | 85 Remuneration Committee report | | | Read about our business model on page 14 | Read about our strategy on page 12 | | | | | Read about our values on page 11 | Read about our culture on page 16 | 32 Stakeholder engagement | 89 Directors’ remuneration report | About this report ## DISCOVER OUR STRATEGY IN ACTION This report has been produced in landscape format to optimise the reading experience online. ### Accelerating profitable sales growth: Transforming the business: Value creation: Look out for these throughout the report: ### Winning with the winners Building for the future Creating a global footwear champion Return to contents page Print this report Go to next page Go to previous page See our online ‘Year in Review’ at coats.com/results A full copy of this Annual Report can also be ## 2218 20 ## downloaded from coats.com/investors 02 Coats Group plc Annual Report and Accounts 2022 ### 2022 full year results and highlights ## 8.2c ## We have had a very successful year with adjusted STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## ADJUSTED EPS UP 14% ## EBIT margins now ahead of pre-covid levels, ## despite a year of record inflation.” Rajiv Sharma, Group CEO ## 2.43c ## TOTAL DIVIDEND UP 15% ## 10% ## ORGANIC REVENUE ## 1.4x ## GROWTH ## PROFORMA BALANCE ## SHEETLEVERAGE ## 37% ## RECYCLED SALES ## $235m ## GROWTH ## ADJUSTED EBIT ## 17 ## 22% ## NEW PRODUCTS ## LAUNCHED ADJUSTED ORGANIC EBIT GROWTH 03 Coats Group plc Annual Report and Accounts 2022 # At a glance and highlights We are the global market leader in apparel threads, structural components and threads for footwear, and innovative pioneers in performance materials. We are manufacturers of sustainability-led innovative products, and trusted partner to leading brands across all three segments and multiple industries. A FTSE250 company and a FTSE4Good Index constituent, Coats takes part in the UN Global Compact and is committed to Science Based sustainability targets for 2030 and beyond. 50+ Countries 17,000 Employees 34,000 Customers globally >250 Years of textiles experience Revenue by division ![img-0.jpeg](img-0.jpeg) ■ Apparel & Footwear 73% ■ Performance materials 27% Revenue by region ![img-1.jpeg](img-1.jpeg) ■ Asia 58% ■ Americas 21% ■ EMEA 21% # Highlights # Accelerating profitable sales growth - Group organic growth of 10%; Apparel & Footwear 9%, Performance Materials 13% - Thread market share gains up over 100bps to 24% - Recycled product revenues up 37% to $127m - 17 new innovative products brought to market - Adjusted operating margin up 120bps to 14.8% - Price/mix and self-help offset inflationary pressures of $118m - Strong free cash flow of $114m, proforma leverage after acquisitions of 1.4x - Adjusted earnings per share increased 14% to 8.2c and dividend per share by 15%, full year dividend 2.43c # Transforming the business - Acquisition of Rhenoflex and Texon creates global market leader in footwear components - Significant momentum in strategic projects to optimise the portfolio and footprint, and improve the overall cost base efficiency. As a result, we now expect to achieve an added $20m in Operating Profit in 2024, up to $70m - Divested our Brazil and Argentina business, exited from Russia and direct operations in South Africa. Rationalised plants in Hungary and the USA and sold our units in Mauritius and Madagascar - Sustainability ambitions upgraded in line with our net zero commitments. Substantially delivered on 2022 goals. New 2030 targets announced - Positive progress in relation to de-risking of UK pension scheme; £350m buy-in completed. On/off contribution trigger agreed with Pension Trustees Coats Group plc Annual Report and Accounts 2022 ## ATTRACTIVE MARKETS ACROSS ## PERFORMANCE MATERIALS ## THREEDISTINCT DIVISIONS We are global experts in the design and supply of STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO highly engineered performance threads, yarns and lightweight composites used in a range of industries including thermal and cut-protective wear, telecom ## APPAREL and oil & gas infrastructure, automotive and feminine Coats is the global market leader in supplying hygiene products. We estimate the total premium sewing thread to the apparel industry, and addressable market that we could realistically is estimated to be over twice the size of the nearest supply in the near term to be c.$3.0bn, giving us an thread competitor. The global thread market is estimated market share of around 15%. We aim to estimated to be c.$3.4bn and whilst thread alone is deliver mid- to high-single digit organic growth in 1-2% of the cost of a typical garment, it is a critical the medium-term in Performance Materials as a component in the manufacturing process and for the whole. Specifically, Composites and Personal quality and performance of the finished product. We Protection affords better growth opportunities are one of the few global players of a key supply where we expect to grow revenues at a higher rate chain component in the $1.4tn global apparel compared to Performance Thread where growth is industry which is projected to grow at low single likely to be in the mid-single digit range. digits in the medium term. We also manufacture selected zip and trim products, and our fashion tech business supplies software solutions for speed, ## FOOTWEAR productivity and transparency in customers’ operations. Whilst economic volatility, inflation and Coats is the global market leader in supplying highly These markets are driven by sustainable innovation, supply chain disruption impacted our industry in engineered structural components and performance reliability and reputation, and we are well positioned 2022, we expect industry growth rates to continue thread to the footwear industry. We estimate the to take advantage of future growth in this industry. to demonstrate resilience in the medium term. In structural components addressable markets to be Apparel we are growing faster than the market $0.6bn in which, through our recent acquisitions of because of our excellent reputation for quality, our Texon and Rhenoflex, we enjoy a market leading value proposition, our global footprint and our share of over 20% in a fragmented market. The strong sustainability agenda. global footwear threads market is c.$0.6bn, where we also have a long-established leading position. Our acquisitions have opened new markets, particularly in footwear insoles, and in lifestyle and luxury structural components. In aggregate, the global footwear markets we serve are expected to grow 7-8% over the medium term. Our new organisational and reporting structure, effective 1 January 2023, is ## comprised of three divisions; Apparel, Footwear and Performance Materials. 05 Coats Group plc Annual Report and Accounts 2022 ### Chair’s statement ## DAVID GOSNELL ## I am proud of what we have achieved – our innovation, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## our investment in our talented people, our bold ## CHAIR ## strategic ambitions… everything that will help us ## to deliver value for all our stakeholders.” In response to the situation between Russia and ### Our purpose is to connect talent, Ukraine, we took the decision to exit the Russian ### textiles and technology to make a better market. I am proud of the support provided to our ### and more sustainable world. colleagues in Ukraine. The safety of our employees and their families remains our top priority. To support this, we have developed a new set ofvalues that embody Coats’ unique culture Our flexibility to change has been evident during ofcollaboration, agility, ‘can do’ approach, passion these challenging years but as we enter 2023, and diversity. These are values that the company we do so in a stronger position than ever. has long demonstrated, so I am delighted that we Footwear acquisitions have formally framed these. Coats achieved a significant milestone in our M&A This provides the basis for our strategy whereby we strategy, with the acquisitions of Rhenoflex and will accelerate profitable sales growth and transform Texon. We created a new global market leader in the business to improve margins and create footwear components, complementing our global sustainable value for our shareholders, customers, leadership in threads. The addition of structural employees and the communities in which we operate. components and accessories into this exciting 2022 saw the world emerge from the challenges market underlined the Board’s drive to grow the ofCOVID-19 only to be confronted with the conflict business and accelerate profitable sales growth. between Russia and Ukraine, followed by an I wish to thank our shareholders for the support and exceptional inflationary period. The resilience of confidence they showed in us during the equity our business model, execution of strategy, pricing raise that funded the acquisition of Rhenoflex. power, with the support of all the dedicated people at Coats, have underlined our leading position. Footwear will now make up around a quarter of the revenues of the Group and, as such, from 1 January 2023 we will be reporting Apparel, Footwear and ## Performance Materials as three separate divisions. 06 Coats Group plc Annual Report and Accounts 2022 ### Chair’s statement cont. plant collected PET caps that were then sold for Heather Lawrence joined on 7th November as an recycling with Coats matching the proceeds. Independent Non-Executive Director. Heather has Thecourage shown by the young people affected more than 25 years of experience in banking and by cancer and the hard work and dedication of capital markets as well as holding a number of non- STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO AOPAC should serve as an example to us all. executive directorships. She will Chair the audit and risk committee following the AGM to be held in May. Sustainability and innovation Capital allocation policy and dividend In 2021, we established a Board-level Sustainability Committee, chaired by me, to enhance the Board Our capital allocation policy remains unchanged and visibility and governance over these very important focusses on 4 key pillars (i) reinvesting in organic milestones. In December of 2022, the Board, in growth (ii) acquisitions in line with disciplined strategy | conjunction with the Committee, approved new | (iii) supporting pensions and (iv) paying a progressive | | --- | --- | | 2026 Science Based Targets, linked to senior | dividend. We implement these pillars whilst | | management Long Term Incentive Plans (LTIP). | maintaining a strong balance sheet with a target | leverage ratio of 1-2x. Pensions Strategic projects The Board is mindful of the importance of returns to I am delighted with the significant progress we have We announced a series of strategic projects in shareholders. To underline the strong progress we made on pensions during the year. We collaborated ## A personal highlight was seeing March 2022. The objective was to optimise our have made in 2022, we are pleased to propose a with the pension trustees, who completed a £350m portfolio and footprint and to improve the overall ## f irst-hand the work of Asociación final dividend of the year of 1.73 cents per share, buy-in of annuity policies to bring us closer to our cost base efficiency of the Group. Significant bringing the total dividend for the year to 2.43 cents medium term aim to remove the scheme from the ## Orizaba Propone AC (AOPAC) who momentum was gained over the year and we per a share, a 15% increase on the 2021 Group’s balance sheet. As a result of the improved now expect to deliver $70m of annual cost ## support children and adolescents totaldividend. funding position, we have agreed a mechanism to savings by2024. switch off / switch on the regular cash contributions Subject to approval at the AGM, the total ## in their cancer treatment from the The opening of a new state-of-the-art manufacturing to the Scheme based on monthly estimates of the dividend will be paid on 25 May 2023 to ordinary ## nearby region of Orizaba.” plant in Huamantla, Mexico, will address the labour latest funding position. This mechanism gives rise to shareholders on the register at 28 April 2023, availability issues we face in the USA and deliver the potential for significant Group free cash flow with an ex-dividend date of 27 April 2023. David Gosnell, Chair higher margins in Performance Materials. I am benefits from lower or eliminated cash contributions. Looking ahead excited to see the second new facility coming online Board changes in 2023 and the further momentum this will bring. Coats has scale, product and quality differentiation I had great pleasure in welcoming two new additions and a growing pipeline of innovative and sustainable The plant opening was attended by the Board and to the Board, adding further depth to the team. products. This will enable revenue growth ahead of executive Team members in October. A personal ## 8.2c market. Looking further ahead, as a result of the highlight, and one which I know touched all of the Steve Murray joined on 1st September as an Adjusted EPS up 14% from 2021 transformational work done to date, we remain well- Coats leadership team, was seeing first-hand the Independent Non-Executive Director. Steve brings positioned to grow earnings and cash. work of Asociación Orizaba Propone AC (AOPAC) to with him more than 30 years of experience in the support children and adolescents receiving cancer apparel and footwear industry having most recently I would like to conclude by thanking, on behalf of the treatment in the nearby region of Orizaba. The been Global Brand President of The North Face Board, our exceptional employees across the world. ## 2.43c pandemic of the last years meant campaigning had and previously CEO of Dr. Martens. ## Total dividend up 15% from 2021 to be suspended so employees at Coats’ Orizaba 07 Coats Group plc Annual Report and Accounts 2022 ### CEO’s statement ## RAJIV SHARMA ## Coats has delivered a very strong financial and STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## GROUP CEO ## operational performance in 2022 and continues ## to transform the business with significant ## momentum on strategic projects and creation ## of a global footwear champion.” ## 2022 HIGHLIGHTS ## 10% $20m 14.8% Organic revenue growth Strategic projects savings in 2022 Adjusted EBIT margin On track to deliver $70m in 2024 ## 37% $235m $114m ## Recycled sales growth Adjusted EBIT Adjusted Free cash flow 08 Coats Group plc Annual Report and Accounts 2022 ### CEO’s statement cont. The quality of our products and services in ### 2022 has been a year of significant macro conjunction with our operational delivery, allowed ### economic and geo political challenges for us to win incremental customer business. Our ### the world. High inflation, high volatility disciplined approach to pricing, productivity STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ### and continuing supply chain disruption and strategic projects allowed Coats to more than offset high inflation and demand/ ### c haracterised the macro environment supply challenges to grow overall margins. ### in which Coats had to operate. Coats has a successfully tested playbook to Despite this, and because of the talented team at “Winwith the winners” and offset inflation through Coats, 2022 has been a hugely successful year. price and productivity. We leverage our extensive We continued to accelerate innovation to deliver global footprint, technology capabilities and teams tailored solutions to meet our customers’ design to deliver world class service to customers. Apparel requirements and to transform Coats for the & Footwear and Performance Materials divisional future. Iwould personally like to thank everyone performance in 2022 is stated below: at Coats, for executing with speed and precision while maintaining our high ethical standards. Apparel & Footwear: Revenue $1,163m ## We continue to accelerate and adjusted margin 17.3% We entered 2022 prepared and ready to accelerate | in | novation to deliver tailored | | | | --- | --- | --- | --- | | | | profitable sales growth and transform the business | Performance Materials: Revenue $420m | | | | to improve margins. Our business model, strategy, | andadjusted margin 8.1% | ## solutions to meet our customers’ tactics, employees and eco system remained vibrant ## design requirements and Transforming the business to improve margins and resilient. Coats was able to create and seize opportunities. By thinking big, being bold and acting Footwear acquisitions ## to transform Coats for the fast we stayed ahead of the challenges. With the acquisition of Texon and Rhenoflex, ## future. I would personally like Coats is now the global market leader in footwear wehave created a global leader in footwear ## to thank everyone at Coats, ## components as well as in apparel threads. To drive components that complements our existing leading WELCOME TEXON AND focus and clarity, we have announced the creation position in footwear threads. This expands the ## for executing with speed and ## RHENOFLEX of a new Footwear division that will sit alongside addressable market by 3 times to $1.8 billion. ## precision while maintaining Apparel and Performance Materials. This means BothTexon and Rhenoflex offer complementary These back-to-back acquisitions have helped that from 2023, Coats will have 3 distinct strategic products that allow Coats to further expand in the ## our high ethical standards.” Coats become a global leader in premium divisions, each addressing attractive markets. fast-growing athleisure and sports footwear market. structural components and materials for the Rajiv Sharma, Group CEO It also gives us a stronger presence with European footwear and lifestyle industries. Accelerate profitable sales growth luxury footwear and accessories brands. | For the full year 2022, Coats delivered 10% organic | Sustainability and innovation are at the heart of | In FY22 (full year effect), this has meant an | | --- | --- | --- | | sales growth over 2021 and improved adjusted | Texon and Rhenoflex, aligning with Coats’ strategy. | additional $87m revenue, $9.2m EBIT and | | margins by over 100 bps. Adjusted Free Cash Flow | Over the medium term, we forecast 8% sales | post-acquisition proforma leverage of 1.4x. | | was $114m (2021: $124m) and proforma leverage | CAGR and over 20% operating margins for the | | ## $150m ended at 1.4x (2021: 0.7x), well within our stated Footweardivision. Pricing and self-help initiatives Read more about these acquisitions on page 22 1to2x range. ## to more than offset inflation 09 Coats Group plc Annual Report and Accounts 2022 # CEO's statement cont. ## Strategic projects In March 2022 we announced that we expected incremental Operating Profit of $50m by 2024 from strategic projects. These projects include improving margins and service in the US Performance Materials business and optimising G&A cost base across the Group by moving activities closer to the customers in market. These projects were well executed and delivered $20m savings in 2022, ahead of our initial projections of $5–10m. We are now on course to deliver $70m of savings by 2024. During the year, Coats divested its Brazil and Argentina business, exited Russia and direct operations in South Africa. We have announced the closure of operations in Ujpest, Hungary and Hendersonville, USA and sold our units in Mauritius and Madagascar. A new factory with state-of-the-art proprietary equipment in Huamantla, Mexico was inaugurated in October. Our existing factory in Orizaba, Mexico has been upgraded with new manufacturing technology. These investments and expanded capability in Mexico will address the issue of labour shortages in the US that previously restricted operations and growth. We have also increased capacity in our performance material factory in Spain and apparel factory in Romania. Overall, these projects will play a big part in transforming Coats in the Americas and Europe. ## Sustainability Sustainability is at the heart of our company purpose and strategy. For Coats, this means continually looking for ways to reduce consumption of materials, energy and water, to holistically take care of our employees and the communities in which we operate; and to reduce waste and emissions across the Group. We set ourselves ambitious sustainability goals from 2019 to 2022, and I am thrilled to inform you that we have substantially delivered on these goals. You can read more about them in our **sustainability report**. We committed to reduce emissions by 46% in this decade. To deliver on this ambition we have launched a companywide transition from oil-based materials to recycled and renewable materials. We are pushing forward with transitioning energy purchased from fossil fuel based power generation to renewable energy. Sustainability is not only the right thing to do, but also a source of clear competitive advantage. After the successful delivery of sustainability projects and programs from 2019-2022, I am delighted to inform you that we have set out new Sustainability Targets for the period 2023-2026 that include energy, materials, water, waste and people. For more details, please see the sustainability section and cases studies in this report, and our Sustainability Report which is now in its 5th year. ## Innovation Innovation sits alongside sustainability in the centre of our strategy. We have three large Innovation Hubs in three continents that drive our new product pipeline. The Innovation Hubs allow Coats to collaborate with customers, suppliers, start-ups and academic teams to develop next generation products. Our Innovation Hub in Shenzhen, China has been repurposed to focus on its new mission to accelerate the transition from oil-based to recycled and renewable materials. We announced a $10m fund to advance green technologies and materials, including bio-materials relevant to our industry supply chain. Coats Group plc Annual Report and Accounts 2022 ### Our values ## WE HAVE CAPTURED THE VALUES THAT REFLECT OUR UNIQUE CULTURE STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## WE ARE COLLABORATIVE WE ARE AGILE WE HAVE A ‘CAN DO’ WE ARE PASSIONATE WE ARE DIVERSE ## ATTITUDE | Coats connects talent, textiles and | With a proud heritage dating | We operate in a fast paced, ever | We are enthusiastic about our work, | We operate across 50 countries, | | --- | --- | --- | --- | --- | | technology to deliver great service | back more than 250 years and | changing world. We are confident, | our colleagues, our company and | with a workforce of over 17,000. | | and quality to our customers. | a spirit of evolution that drives | motivated and energetic dealing | especially our customers. Passion | Wespeak over 65 languages and | | Wecollaborate across all | us to constantly stay ahead | with new tasks and challenges, | isseen in everything wedo. | come from hundreds of nationalities, | | geographies with partners and | of the game, we have always | committed to serving our | | cultures and ethnicities. We come | | customers to create the materials | adapted to change, thriving and | customers, trusted to deliver. | | together asone. | | and products of tomorrow. | becoming stronger as aresult. | | | | Webelieve the success of our colleagues is the success of Coats. ## 11 Coats Group plc Annual Report and Accounts 2022 ### Strategy ## Accelerate profitable sales growth by leveraging innovation, ## sustainability, digital technologies and our global scale to create world TRANSFORM THE BUSINESS ## class products and services, delivering value to our stakeholders. Strategic projects STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO In March, Coats Group announced a number of strategic projects to improve margins by Footwear progress in 2022 optimising the portfolio and footprint, improving ## ACCELERATE PROFITABLE – Significantly increased our Total Addressable the overall cost base efficiency and mitigating Market as a result of our acquisitions structural labour availability issues in the ## SALESGROWTH US. The resulting benefits are anticipated to – Upside potential from innovations, deliver cost savings of $70mby2024. Apparel such as ProWeave Increase our market share by delivering sustainable, – Launched our recycled nylon thread range innovative and value-added product and service specifically for use in footwear solutions to our global customer base. Continue Performance Materials progress in 2022 to strengthen our global footprint to support – Opened a new state-of-the-art factory in supplychain regionalisation. Mexico with proprietary bonding equipment, ## Footwear CREATE VALUE refurbished machinery and efficient factory Focus on sustainability-led innovations to improve layout helping to maximise productivity Disciplined use of capital to fund inorganic product offerings to key brands and manufacturers, – Relocation of our Spanish facility to a larger, opportunities to build scale and acquire new and leverage our newly created scale to drive purpose-built site has expanded capacity for capabilities, technology and talent. efficiencies, share gains, and commercial synergies. our composites range in telecom and oil & Progress in 2022 gas sectors Performance Materials – Substantial savings of $20m versus original Progress in 2022 – Launching innovative personal protection Lead with innovative and sustainable developments expectations of $5m to $10m yarn ranges addressing specific customer – Two strategic acquisitions: Texon, funded in highly engineered products, creating solutions needs e.g. protection from molten metal – New factory commissioned in Huamantla, out of a new dedicated acquisition debt for attractive and growing markets. | splash for workers in foundries and smelters | | Mexico to enable further growth in | | facility; and Rhenoflex funded via an | | --- | --- | --- | --- | --- | | | | theAmericas | | over-subscribed equity raise | | | – Divested our Brazil and Argentina business, | | – In January 2023, successful $250m | | Apparel progress in 2022 exited from Russia and direct operations in refinancing of Texon Acquisition Facility – Continued to grow Recycled sales, to $127m South Africa. Rationalised plants in Hungary through a USPP issuance at competitive rates, in 2022 ($93m in 2021) and the USA and sold our units in Mauritius de-risking debt maturities – Consecutive year of >100bp market and Madagascar – Positive progress in relation to de-risking sharegrowth | | | – Streamlined our Corporate functions and | | ofUK pension scheme; £350m buy-in | | --- | --- | --- | --- | --- | | – Offset inflationary pressures through | | | moved them closer to the customer to | completed. On/off trigger agreed with | | | productivity and pricing | | reduce cost and improve delivery | Pension Trustees | ## 12 Coats Group plc Annual Report and Accounts 2022 ### Strategy cont. ## INNOVATION ## OUR STRATEGIC ENABLERS ## CASE STUDY Innovation is at the heart of everything we do. ## Werecognise that big, bold, game-changing PROWEAVE: FABRICS REIMAGINED STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## Our purpose provides the basis for our strategy whereby we will ideas are crucial to our success. ProWeave transforms the way performance ## accelerate profitable sales growth and transform the business to We continue to accelerate our innovation fabrics are made and how they look, feel and improve margins and create sustainable value for our shareholders, credentials and solutions to deliver tailored function. Creating different elasticity, tenacity customer design requirements. and abrasion zones within the same weave, ## customers, employees and the communities in which we operate. ProWeave can help the world’s biggest brands ## Our strategic goals are underpinned by the following enablers: bring new creative concepts to life. ProWeave has already been used by global sports brand Umbro to create its new Velocita Alchemist football boots. The use of Texon’s ## SUSTAINABILITY patented ProWeave technology by Umbro is a Sustainability is a core tenet of our wider business first in the sports sector and gives Velocita strategy and an imperative to our mid- and Alchemist boots new levels of elasticity and long-term business success. Playing our part in stability with recycled polyester yarns. In sports mitigating climate change is core to our strategy, footwear, ProWeave delivers the ultimate with commitments made to reduce carbon emissions adaptive fit acting like a second skin for sure- in line with Science Based Targets and underpinned footed stability. by energy transition to renewables and substitution of materials to non virgin-oil based resources. We are very excited about the coming ## CASE STUDY opportunities with ProWeave. It provides a solution that takes us to the partnership level ## 100% RECYCLED ECOVERDE with our brand customers and allows us to play ## DIGITAL Coats EcoVerde is an innovative 100% recycled a greater role in the structure, performance and Our investment in technology infrastructure alternative to virgin polyester that provides a aesthetics of the shoe. As part of the Coats and digital tools has allowed us to flex our responsible solution to help reduce the global Footwear Innovation products, we know we will supply chain, react to situations with speed plastic pollution problem. Since 2018, we have accelerate and transform not only our business, and ensure we are focused on customer, recycled 799m PET bottles to make EcoVerde. but our brands and the industry.” shareholder and employee value creation. Our target is to transition all of our premium In 2022, we enhanced our offering with the Bryan Whitfield polyester products to recycled polyester acquisition of Rhenoflex and the cutting edge Sales Director by2024. ## digital technology of Rhenoprint 2.0. 13 Coats Group plc Annual Report and Accounts 2022 ### Business model ## HOW WE CREATE VALUE FOR OUR CUSTOMERS STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## Our purpose of connecting talent, textiles ## RELIABILITY ## and technology to make a better and Our track record for reliability and excellent technical ## more sustainable world drives how we customer service allows us to partner with leading global retailers, brands and manufacturers. ## operate and create long-term value. ## SPEED Speed to market is critical. Owing to our agile supply chain and customer-centric operational footprint, we provide customers and brands with the flexibility they need to stay relevant in ## INNOVATION afast moving world. We have a longstanding culture of innovation. Our Innovation Hubs are spaces to collaborate with customers, in which we develop new solutions to solve their problems and improve their finished products. Our innovation capabilities have been further enhanced with the acquisitions of the talent in Texon and Rhenoflex. ## SUSTAINABILITY ## PRODUCTIVITY A key element of our purpose is to create a more sustainable world. Itisnot just what we produce, but how we produce it. Coats has been ## We employ the latest in QUALITY aleader in setting sustainability strategy within the industry since we Lean Six Sigma and other We manufacture to high ethical, officially launched ‘Pioneering a Sustainable Future’ in 2019. We have methodologies to ensure a labour and environmental advanced our ambitions, acknowledging the impact that industry has on continuous cycle of improvement standards whilst delivering ## OUR LEADING POSITION the environment, and our part in taking responsibility for this. We have and delivery of operational consistent colour and exceptional set very ambitious sustainability targets across energy, materials, water, ## AND EXCELLENCE IN ‘SPIQRS’ excellence. This enables us product quality. Our products are waste and people to complement our market differentiating EcoVerde to reduce costs which help to ## CREATES VALUE FOR OUR tested and measured against range. See our TCFD Report for details. We gain competitive advantage offset inflation and maintain globally consistent, stringent by helping customers to improve their own supply chain sustainability ## CUSTOMERS AND excellent customer service. safety standards. credentials and our two acquisitions this year, Texon and Rhenoflex, ## ACOMPETITIVE ADVANTAGE further enhance our sustainability capabilities and ambitions. ## FORCOATS 14 Coats Group plc Annual Report and Accounts 2022 ### Business model cont. ## HOW WE CREATE VALUE FOR OUR STAKEHOLDERS STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | EMPLOYEES | SUPPLIERS | COMMUNITIES | | --- | --- | --- | | We are a proud employer | We look for the right balance of global, national and | We actively engage with our | | of a 17,000 strong highly | local capabilities to maintain supply chain agility. | local communities, providing | | engaged, committed and | | educational support to children, | | diverse workforce. Whilst | | food donations, and DE&I events, | | driving a high-performance, | | along with thread donations | ## $1BN DOLLARS PAID TO SUPPLIERS solution-focused culture, we and tree planting initiatives. are committed to the health, This was highlighted in our safety, rights and well-being of Save the Children donation our employees. We champion presented by the Board in diversity and inclusion across Mexico during October. the Group. This is reflected © in our GPTW certification. ## WE ARE IMMENSELY PROUD OF ## THE 11 COATS EMPLOYEE ## 17,000 EMPLOYEES VOLUNTEERS WHO WENT TO ## ACROSS THE GLOBE THE EARTHQUAKE EPICENTRE ## IN SOUTH-EASTERN TURKEY ## CUSTOMERS AS PART OF OUR EMERGENCY ## RESPONSE RESCUE TEAM We put our customers at the centre of everything we do and, as their expectations evolve, we continually drive ## ENVIRONMENT towards responsibly sourced, ## INVESTORS Sustainability is critical in everything sustainable products. ## 7 BOLD NEW we do, and for our customers. We have We are committed to delivering superior returns ## substantially delivered against our ambitious SUSTAINABILITY and long term, sustainable value for our investors. sustainability targets in 2022 and have ## TARGETS set new 2026 targets as we progress towards our 2050 net zero ambitions. ## 34,000 GLOBAL CUSTOMERS 2.43c TOTAL DIVIDEND FOR 2022 15 Coats Group plc Annual Report and Accounts 2022 ### People and culture ## We believe in putting people first ## – e quipping them with the skills to STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## POWERED BY OUR PEOPLE: ## 50+ ## adapt, grow and ultimately thrive People are at the heart of our business. In 2022, 14,000 | in the workplace of the future.” | (86%) of our employees told us about the company | | | | --- | --- | --- | --- | | | | © | COUNTRIES | | | culture at Coats through a Great Place to Work (GPTW | ) | | Farnaz Ranjbar, Chief Human Resources Officer certification. We were pleased to see that our coverage exceeded the target of 80% by an outstanding +6%. © GPTW is the most reputable global authority on workplace culture who enable us to benchmark our © employee engagement. The GPTW assessment ## 17,000 framework helps our employees give feedback on the levels of respect, fairness, and pride they associate with ## working for Coats. And the results were clear. Our EMPLOYEES employees told us that they feel empowered and safe ## GLOBALLY and value the honest, inclusive, innovative and collaborative environments we create across the globe. In 2022 we developed a new set of values that embody Coats’ unique culture of collaboration, agility, ‘can do’ approach, passion and diversity. You can read more about these values on page 11. We have been recognising good work for some time © but the GPTW feedback showed us we can do even better. We adopted a modern new global approach to recognition called “Applause” to ensure that whenever any of our colleagues does a good job, we can appreciate and celebrate them. All the countries we operate in, have the same standards, the same ways of giving and receiving Applause, and the same awards. Everyone has an equal chance to be celebrated for their work. Our focus is on employee experience and the moments that matter. We are passionate about creating a dynamic, inspiring and purposeful place to work. With over 17,000 employees across the world, we offer rewarding careers within a global business, ## boasting a history of more than 250 years. 16 Coats Group plc Annual Report and Accounts 2022 ### People and culture cont. at all stages of the recruitment process, while increasing the visibility and profile of Women across the business through spotlight stories on our Coats ## I am delighted that we have Link employee communication platform. Our Women ## l aunched these new initiatives STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO in Leadership Fast-Track Programme focuses on developing female employees to ensure equal ## to further engage and motivate opportunity on shortlists for new job vacancies ## ou r workforce, enabling across our business. Biannual Diversity, Equity and Inclusion calls will continue in 2023. Our ## a great place to work.” Return-to-Work Programme is specifically targeted Farnaz Rajibar at supporting the return-to-work process for both Chairman Awards: Celebrating our leaders Chief Human Resources Officer maternity and paternity leavers, with return-to-work in three categories: Profitable sales growth; guidelines established and shared with expectant Increased productivity; Value delivery. mothers, HR teams and managers. CEO Awards: To celebrate the work done by the whole workforce in seven categories. of roles and industries. We saw the potential to do things differently, reshaping how we work to build a Innovation Awards: Global awards for great ideas ## THE FUTURE OF WORK – LOOKING better business and a better world for our people. for new product development. ## AFTER OUR PEOPLE Coats’ “Future of Work” policies provide two Global Safety Heroes: Awarded during Journey to Zero Frameworks for the Future of Work: Remote Working week, to recognize employees who make There is no question that COVID-19 has led to different & Hybrid working. A Future Of Work Leadership proactive efforts in health and safety. ways of working, with employees more remote from Pack provides tips, tricks and best practice organisations than ever before. Hybrid work In the next phase of our journey, we will continue to examples to help Coats leaders at any level to environments continued to replace the more traditional utilise Great Place to Work as the main barometer to continue being effective, keeping engagement workplaces, requiring a reshape of the workplace measure levels of employee engagement and trust. high and driving high performance across teams in landscape and acceleration of technology into all types We are committed to further increasing our current this new era of work. What deserves some Applause? In short, percentage of employees covered with certification doing things the right way at work. What’s the At Coats we embrace Diversity, Equity and Inclusion. to 88% in 2026 and aspire to achieve 90% by 2030. right way? Away that shows one or more of Our “Coats for All” program puts our people the five Coats Principles – Passion, Agility, principles policy released in 2021 into action (see Inclusion, Can-do and Collaboration. more online) and ensures equality of treatment during recruitment, while at work and for Applause consists of 8 categories ensuring that we development for all employees around the world can engage and recognise all levels of employees. regardless of gender, age, disability, race, religion or The categories are as follows; belief. Our “Coats for Her” program is a visible drive Long Service Awards: Celebrating employees for equal gender opportunities. The “Coats for Her” working with us for 5, 10, 25, 30, 35 and 40 years. program consists of a Recruitment Campaign and updated recruitment policy and hiring guides which Employee of the Year, Quarter and Functional: seek to ensure full female candidate representation Recognizes great contributions through the year. ## 17 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Accelerating profitable sales growth STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## WINNING WITH ## THE WINNERS ## We are immensely proud of what we have ## achieved with this brand. It has been a truly ## collaborative relationship and one which will ## continue to grow from strength to strength.” Adrian Elliott ## President, Apparel and Footwear 18 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Accelerating profitable sales growth STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## SUCCESS THROUGH ## COLLABORATION For each fabric we trialled and developed ## A trusted partnership driven by individual thread combinations. ## Technical Excellence. As our partner brand continued to innovate, new challenges arose as they introduced new We have been working closely with a global leader lighter weight and high stretch fabrics. Our in the premium activewear apparel and footwear for goal was always to offer thread combinations the last decade, when we helped to engineer seams that provided the optimal strength, stretch, using the right performance threads and sizes to softness and abrasion resistance. accommodate their base technical fabrics. Garment wear trials were undertaken, with support As the athleisure trend started to gain momentum, from Coats Technical Services teams at factories in new technical challenges arose as consumers began Asia and Americas. After several weeks of to wear their garments for more than just athletic successful testing the optimum thread combinations activities. Now, they were wearing them for working, were finalised and written into our partner brand’s going out on the town and relaxing at home. quality manuals. Not only was strength, elongation and softness Through this journey of best practice sharing important, it was crucial that these garments were and collaboration, Coats has supported through designed to withstand non-traditional uses such as technical excellence. Today, we are proud to be sitting in an office chair, leaning against a concrete their Trusted Advisor for all threads. We continue wall and rubbing from bags and backpacks. to strengthen our partnership through further Working in partnership with innovation, design, seaming innovation and we are now building development and quality teams, we helped out a sustainability roadmap to help the engineer the right sewing thread combinations. transition to more sustainable threads. ## 19 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Transforming the business ## With our new state-of-the-art STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## facilities in Huamantla and ## Orizaba, we now have a more ## p roductive, profitable and ## sustainable home in Mexico. BUILDING ## FOR THE ## FUTURE ## 20 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Transforming the business STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## MEXICO’S ALL-NEW FACILITIES The new facility provided us with the opportunity to ## In 2022, Coats launched a successfully migrate from legacy technologies in ## transformational, strategic project. some of our processes to more streamlined, simplified manufacturing routes that deliver equal or ## We added to our manufacturing improved quality to our customers. ## operations in Mexico, migrating The collective cross-functional talent in Coats ## production from the US. made it possible to deliver new and improved technologies that in turn enable us to provide our Our aim is to deliver profitable growth and better customers with superior service with ever increasing customer experience through streamlined, levels of flexibility and agility. The development of state-of-the-art, sustainable facilities in the new employee-friendly and digitally controlled Huamantla and Orizaba. bonding process, underpinned by the proprietary The Huamantla site has the latest compressed air infra-red bonding equipment, is a standout. By system that will, over time, result in measurable innovatively up-cycling some of the equipment from energy savings. By up-cycling equipment relocated the US plants, we reduced the capital intensity of from US plants, we have reduced waste for a more the project while minimising scrap waste. sustainable approach. New proprietary technology delivers a reduction in the number of manufacturing process steps and increases the level of flexibility to meet the changing needs of the customer. To date the project has seen success in the delivery of increased output for previously constrained supply chains in key growth segments. ## 21 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Creating value STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## CREATING A GLOBAL ## FOOTWEAR CHAMPION ## Acquiring Texon and Rhenoflex has given ## Coats an additional 23% market share in ## premium athleisure footwear structural ## components and thread components, ## growing revenue by $230m. ## 22 Coats Group plc Annual Report and Accounts 2022 ### Case Study ### Creating value STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## WELCOME TEXON & RHENOFLEX Their combined efforts in innovation and ## This year, Coats announced sustainability (including ‘Rhenoprint’, a ## back-to-back acquisitions of Texon digital zero-waste process for structural components) are market leading. ## a nd Rhenoflex, creating a global Top talent, exciting profitability ## leader in premium structural Both acquisitions came with talented ## components and materials for the management teams, who now make up the majority of the combined Footwear leadership ## footwear and lifestyle industries. team. Texon and Rhenoflex achieved their The acquisition of Texon, a leader in structural combined business case EBIT for FY22. components and a critical supplier to key The result of these acquisitions (in FY22, full athleisure footwear brands represented year effect) is an additional $87m revenue, an on-strategy move, helping Coats to $9m EBIT, and post-acquisition proforma Accelerating profitable sales growth. leverage of 1.4x (Texon being fully debt- Rhenoflex is a leading player in innovative, funded, Rhenoflex funded through equity). sustainable footwear components. Its key strengths are its deep customer relationships, enhanced sustainability solutions and growing share in the luxury and lifestyle reinforcements segment. In welcoming both businesses into the Coats family, we have a market-leading offering in: structural footwear components; footwear uppers and insoles; ## I truly believe that Coats shares our values reinforcement products serving the lifestyle accessories and luxury handbags markets; ## and vision to bring the best in sustainable, | andsustainable recycled leather alternatives. | | 23% | 8% | | --- | --- | --- | --- | | | i nnovative solutions to our customers.” | | | | | | Combined global share of | Medium term | Frank Böttcher premium athleisure footwear sales growth ambition ## MD Structural Components structural components 23 Coats Group plc Annual Report and Accounts 2022 ### Sustainability ## OUR NEXT CHAPTER SHORT-TERM TARGET ## 2026 Five pillars ## DELIVERING TODAY TO PIONEER Our Sustainability strategy is supported by the pillars of energy, materials, water, waste and people. These ## A SUSTAINABLE FUTURE 22% 60% 33% 0% are linked to eight UN Sustainable Development STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Goals and include approved Science-based targets reduction in transition to increase in water waste to ### We are delivering forward-thinking solutions. | | to reduce scope 1 and 2 emissions by over 46% | scope 1&2 | recycled or | recycling rate | landfill | | --- | --- | --- | --- | --- | --- | | | | emissions | biomaterials | by2026 from | | | Our commitments are to: | andscope 3 emissions by 33% by 2030. | | | | | 2022 baseline – achieve net zero emissions by 2050 ## ENERGY – make sustained progress on social impact – 22% reduction in | – continue developing and adopting market-leading | | | 100% | 88% | | 30% | | --- | --- | --- | --- | --- | --- | --- | | | | Scope 1 & 2 Emissions | | | © | | | | eco materials | | ZDHC | GPTW | coverage | Women in | | | | | compliance | | | leadership roles | – and we aspire to lead the industry transition to a circular economy These targets complement our sustainability-led ## MATERIALS innovation strategy. – 60% transition to recycled ## OUR GOALS FOR 2030 ARE CLEAR AND AMBITIOUS Our Sustainability strategy evolves to remain or bio materials ## 2030 relevant and challenging. In 2022, having largely delivered on our first set of milestone KPIs as detailed in page 31 of this annual report, we ## APPROVED SCIENCE BASED TARGETS WITH 2019 BASELINE THAT COMMIT US TO upgraded our KPIs and refreshed targets to extend ## WATER out to 2026. In committing to Science-Based Targets – 33% water recycling ## 46.2% 100% 33% by end 2030, we recognise the primary levers reduction in Scopes 1 & 2 renewable electricity reduction in underpinning delivery are a transition to renewable emissions Scope 3 emissions energy and non-virgin oil-based materials and these sit respectively under our materials and energy pillars. Our water pillar recognises that as a scarce ## FURTHER TRANSFORMATIONAL TARGETS ## WASTE natural resource, we need to limit the impact of our | | | Zero products | 70% of total energy | Circular product and | Increased positive | | --- | --- | --- | --- | --- | --- | | fresh water extraction and our waste pillar considers | – 0% waste materials to landfill | | | | | | | | from virgin oil-based | from renewable | packaging solutions | socialimpact | both the material and effluent waste associated with – 100% ZDHC Compliance (Zero materials sources our supply chain processes. Delivery of our Discharge of Hazardous Chemicals) sustainability strategy is driven by the talent that we engage across the business. To reflect this, we have added further depth to our sustainability pillars to ## PEOPLE emphasise the importance of people; Coats people, © | | – 88% GPTW | | coverage | | | | --- | --- | --- | --- | --- | --- | | their families, and the communities that they work in. | | | | LONG-TERM TARGET | | | | | (Great Place to Work) | | | Net-Zero | ## 2050 ## emissions in our value chain by 2050 24 – 30% women in leadership roles Coats Group plc Annual Report and Accounts 2022 ## Sustainability spotlight ### SPOTLIGHT ON SUSTAINABILITY Climate change continues to be seen with increasing frequency round the world, with science confirming this is directly attributable to year-on-year increases in global GreenHouse Gas emissions. Increased frequency extreme weather events are wreaking havoc round the world. In 2022, to name a few, we witnessed catastrophic flooding in Pakistan, further wildfires across California and drought being declared across many parts of Europe. The only hope for preventing further future devastation is through action being taken to significantly reduce emissions, and transition to a net-zero future. Coats has committed to achieving interim Science Based Targets, with delivery of absolute scope 1 and 2 GreenHouse Gas (GHG) emissions reduction of 46.2% by 2030 against a 2019 baseline, and we further commit to absolute scope 3 emissions reduction of 33% within the same timeframe. ![img-2.jpeg](img-2.jpeg) ![img-3.jpeg](img-3.jpeg) By 2050, we aspire to become a net-zero emitter of carbon and have submitted our application to the Science Based Targets Initiative and are awaiting their approval of this commitment. We have a clear roadmap for delivery of these targets, with achievement of scope 1 and 2 emissions being delivered through further energy intensity improvements in our operations, coupled with a transition of our energy consumption from a carbon intense fossil fuel base to a carbon free renewable base. Our priority objective is to use our electricity demand to promote the creation of new renewable energy assets. We have already made good progress through collaboration with renewables suppliers in many geographic locations resulting in installation of new roof-top solar arrays as well as contracting to off-site wind-farm energy supply through Power Purchase Agreements. Coats Group plc Annual Report and Accounts 2022 ### Innovation ## WE ARE BOLD INNOVATORS, CREATING HIGH QUALITY, DISRUPTIVE ## ECO-RANGE ## PRODUCTS FOR A BETTER AND MORE SUSTAINABLE WORLD We are committed to developing new STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO products from bio-based and man-made cellulosic materials, whilst ensuring the Key trends right level of tenacity required to deliver ## PROGRESS IN 2022 These include recycled and natural materials, high quality, sustainable products suitable ## SPORTS GOODS COMPOSITES circularity, 5G proliferation, lightweighting, for a range of applications. In line with multi-hazard protection and more. We are our most recent commitments, by 2030 Footwear brands and athletes desire addressing these key trends to create products all products will be made independently lightweight materials that provide better that deliver exceptional performance and of new oil-extraction material. support, stability and performance to increase add value to our customers across Apparel, their competitive edge. Our Lattice Lite Eco Footwear and Performance Materials. range of products uses the combinations of Innovation Hubs reinforcement fibres and matrix fibres in an optimised laying process to create sustainable Our unique position in the supply chain means we composite plates with intelligent component can work in collaborative partnerships to address performance whilst reducing material and ## RHENOPRINT 2.0 some of the biggest challenges the world faces. process waste. Our Lattice Lite range of Wehave three key Innovation Hubs in the USA, Our Rhenoprint™ products are changing the products have been adopted by Salomon for China and Turkey, supported by Innovation Spokes way product designers look at reinforcement their road running and trail shoes. in Spain, Germany, and India. materials for footwear. ## We are proud to provide the breeding ground for FIBRE OPTIC CABLES The unique Rhenoprint™ process enables us to current and future generations of innovative ideas respond to customer-specific requirements and ## COMPOSITES that will create sustainable and highly engineered manufacture tailor-made products. Regardless ## PIPELINE COMPOSITES solutions to help protect the planet, people, of shape, thickness or degree of hardness, To meet the ever-increasing demand for energyand data. virtually any parameter can be varied data bandwidth that requires fibre optic Our new Gotex Xtru composite tape using individually. Unlike the conventional process, cables with high fibre density, we launched carbon fibre reinforcement provides a 50% Value delivery customers are not provided with sheet stock Gotex StremX, a patent protected composite weight reduction versus legacy steel tapes We are working in partnerships with customers and which then has to be punched out and strength member that enables the production allowing Oil & Gas operators to accelerate suppliers to create products that are designed to trimmed. With the Rhenoprint™ process, the of lighter-thinner cables that are more cost- the conversion of legacy steel pipes to address the key challenges and trends of today, reinforcing materials are custom-made in our effective. Substitution of fibreglass strength composite pipes, mitigating corrosion related giving Coats a distinct competitive advantage. | production facility and delivered ready for use. | members with StremX UHM resulted in a | issues. Pipe designs using our carbon Xtru | | --- | --- | --- | | In practice, this works quite simply: The | 25% diameter reduction while substituting | composite tapes are in advanced stages | | customer provides their individual cap shape | aramid strength members with StremX | of validation testing at a major pipeline | | and specification values, and Rhenoflex | HY resulted in a 35% cost reduction for | manufacturer and will help drive the transition | | produces, able to realise almost any shape. | the fibre optic cable manufacturers. | to non-metallics in Oil & Gas pipelines. | ## 26 Coats Group plc Annual Report and Accounts 2022 ### Innovation spotlight How we are responding and our ambition ## FOOTWEAR PERFORMANCE MATERIALS We have made a number of advances in our product We are committed to efficient production and the Coats Performance Materials division provides offering to address the increasing demand for most effective use of resources, raw materials and personal protection yarns and fabrics for Thermal, sustainable garments. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO energy. We are always looking to improve – and Heat & Flame and Cut Protection applications. Eco-Cycle thread is made out of a proprietary blend with technological competence and numerous Theproduct trends across these end uses demand of water based polymer and natural substrate to innovations, we develop the footwear solutions ever increasing comfort, dexterity and an ability to enable the disassembly of garments post end of life oftomorrow. protect against multi hazards such as cut and even after repeated washings. The thread remains intact during the consumer usage phase but enables chemical or flame and electric arc. Key trends easy disassembly for recycling by dissolving at 95°c. Key trends Eco-cycle has obtained a Platinum rating for Material Lightweighting, comfort, stability and durability Health from the Cradle to Cradle (C2C) Institute. combined with advanced technology, There is demand for ever lighter garments and Eco B is made from recycled polyester with a special sustainability and innovation. gloves with increased protection and comfort. additive which accelerates biodegradation and helps There is an increasing urgency to incorporate in microfibre pollution reduction. Product offering How we are responding and our ambition sustainable materials in new solutions. includes premium polyester core spun, textured and We have short, medium and long-term programs for embroidery threads. product and process developments. How we are responding and our ambition Eloflex EcoVerde is the world’s first high extension, Eco-strobe is not only made from 100% R-PET We continue to develop highly-engineered yarns and 100% recycled, stretch thread for performance (Recycled Polyethylene Terephthalate), but is also threads for us where performance is critical across a sportwear and next-to-skin garments. 100% recyclable without any loss in quality. range of industries and applications. Rhenoprint multi-zone – Added multi-zone to our FLX range brings comfort and stretch to our existing Rhenoprint process which manufactures FlamePro for heat/flame protection applications and structural components with zero waste. Multi-zone to our Armoren for cut protection end uses. ## APPAREL allows us to adjust the amount of material used in the Armoren Gold incorporates high performance fibres Coats thread innovation has been focused on component in different areas to produce a more in a patent-protected yarn process creating one of sustainability and circularity. The key drivers include refined product for comfort and stability. the finest, most dexterous gloves in the market with Material Innovation – selection of substrates based the cut protection levels normally associated with on carbon footprint reduction like 100% products twice as heavy. The latest iteration uses post-consumer recycled polyester thread, to bio-based raw materials rendering the product genuinely sustainable. accelerate biodegradation, micro fibre pollution reduction and design for circularity. FlamePro Splash fabric (patent-protected) provides best-in-class comfort with primary protection against Key trends molten splash and secondary electric arc resistance. The garments produced from FlamePro Splash are Thread is integral to apparel, footwear and technical proving to be extremely popular with aluminium and textiles. As the world opts for a more sustainable other metal workers in sites large and small across future, it is imperative that Coats’ thread leads the the globe. way, ensuring that all components of what we wear, use and interact with deliver on this goal. ## 27 Coats Group plc Annual Report and Accounts 2022 ### Market trends ## TREND 1 TREND 2 TREND 3 ## Coats continues to challenge itself, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## VOLATILE ECONOMIC CLIMATE SUPPLY CHAIN DISRUPTION SUSTAINABILITY ## c hanging course to keep meeting The industries we serve, like most consumer Across the industries we serve, speed to market is Sustainability continues to increase in importance ## the needs of our customers by focused industries, react to macro economic factors increasingly a critical differentiator. Our customers across the industries we serve, driven by ## supplying high-quality, agile such as rising cost of living and higher than normal are looking at their own supply chain resilience, consumer pressures, customer strategies and inflation in raw materials, freight, energy and labour. including reviews of their supply base and sourcing legislative changes. COP27 delivered further ## solutions in a transient market.” 2022 saw headline consumer inflation exceed c.10% geographies. During 2022, we saw industry supply global progress across the environmental globally, which impacted demand across our chain disruption with reduced availability of raw agenda. This continued shift in sentiment Rajiv Sharma, Group CEO Apparel business, and to a lesser extent our materials, labour constraints and disruption of sea and behaviours is manifested in areas such Footwear business, during the latter half of the year, freight operations, all contributing to higher than as materials innovation, energy renewables, in addition to the increase in input costs. Although normal levels of inflation globally. We expect these water management, waste reduction and social we saw a softening of some inflationary pressures challenges to largely continue into 2023, increasing justice and compliance. Many of our customers towards the end of 2022, we are still cognitive of a the importance of speed, agility and supply are developing partner programmes that put high inflationary and volatile economic environment resilience across the industries we serve. sustainability at the heart of ongoing collaboration. as we move through 2023. Our expectation is that this trend is irreversible and will only increase in importance over time. Our response this year Our response this year Our response this year Coats moved early to address the inflationary risk, We have a resilient and global operational footprint, We have continued to advance our sustainability managing to fully offset inflation during the year. We which offers peace of mind and superior reliability to journey in 2022 with positive progress made on have offset inflation in the areas of raw materials, our customers. We pivot quickly, responding to and our ambitious targets to deliver reductions in freight, energy and labour with pricing and self-help supporting our customers’ needs in a highly volatile energy and water intensity. Collaborating with programmes. environment. Our unrivalled global, agile footprint, our supply chain partners we have delivered and our scale proved invaluable as we delivered high higher levels of circularity as a means of By continuing to deliver on Speed, Productivity, levels of supply and customer service, despite driving waste prevention and reduction. Innovation, Quality, Reliability and Sustainability multiple external challenges. (SPIQRS) and focussing on the premium end of the Our recent Texon and Rhenoflex acquisitions both market, Coats is strategically positioned to have sustainability strategies aligned to those of successfully navigate economic headwinds. Coats, with footwear component solutions such as Rhenoprint delivering waste free production. ## 28 Coats Group plc Annual Report and Accounts 2022 ### Market trends cont. ## TREND 4 TREND 5 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## GROWTH OF ASIAN DOMESTIC MARKETS DIGITAL Industry adoption of digital technology has continued to accelerate ## AND ASIABRANDS during 2022 as companies look to drive faster speeds, increased Domestic consumer demand in Asia is significant and expected to grow productivity, lower waste and end-to-end supply and materials faster than JUSE (Japan, USA, Europe) markets. Globally, as a derived transparency. We continue to embed our investments in technology demand component, sewing thread markets are expected to grow by of recent years to improve our supply chain and support functions, low single digits percentage over the medium term, but with higher andremain as vigilant as ever of cyber security threats. growth in Asia as demographics and consumer wealth expands. This is Digital technology across the industry is not limited to pure software reflected in the growth of domestic fashion retail, most notably, but not solutions, as the industry becomes more and more responsive to only, in China and India. Demand for Composites is increasing due to the sustainability-led innovations, we are seeing increased demand for pace of urbanisation (e.g. the rollout of fibre optic cable networks) and solutions that use technology to simultaneously reduce waste and economic growth, which means consumers buy more products needing increase productivity. high performance materials (e.g. 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. Our response this 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 floor execution. In 2022 bookings Our response this year saw high double-digit growth ahead of reported sales growth, indicating We continued to develop and execute our domestic market growth confidence for continued future growth. strategies in China and India, building on our competitive advantages of In our Footwear division we acquired, as part of the Rhenoflex acquisition, product range, quality, technical application and brand strengths. In the proprietary ‘Rhenoprint’ 3D printing IP, which offers leading brands Apparel and in Footwear, we delivered market share gains and significant azero waste, print-to-order solution with enhanced performance growth in China and made strong progress coming out of continued withintheshoe. COVID-19 disruption. In Performance Materials, we delivered significant In Apparel, we have begun selling Twine, our waterless digital colour share gains in China in Performance Threads with multiple new ## As the leader of Apparel, I am excited at what printing technology solution that is integrated into Coats’ own colour programme wins for automotive safety critical and trim applications. We catalogue. This allows colour development in garments to be done also had a very successful start producing and selling FlamePro branded ## o pportunities the domestic Asia market holds inminutes, not weeks. flame-retardant fabrics in India mainly for use in garments destined for the middle eastern oil and gas market. Our two acquisitions in the footwear for us, particularly within China and India.” Rhenoprint and Twine in particular exemplifies how Coats is space are well positioned in China and Vietnam, and poised to take connecting talent, textiles and technology to make a better and Adrian Elliott advantage of further Asia-driven growth. more sustainableworld. ## CEO Apparel 29 Coats Group plc Annual Report and Accounts 2022 Link to strategy ### Key performance indicators Profitable Transform the Value ### Performance measures of the Group’s progress sales growth business creation ## FINANCIAL KPIs STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO During 2022 we continued to monitor our performance and progress using a range of key performance indicators (KPIs), each of which is a non-GAAP measure. In the year, adjusted EBITDA growth and leverage were added to the range as the Boardconsider them, along with the existing KPIs, to be important measures to track business performance. Forfurther details of how these financial Alternative Performance Measures are reconciled to the nearest corresponding statutory measure, seenote 37 on page 166. 2020 and 2021 KPI comparators are as reported in prior years and do not include any restatement for discontinued operations. Revenue growth Adjusted operating Adjusted EBITDA growth Adjusted earnings Adjusted free cash flow Leverage Adjusted return on capital profitgrowth pershare growth employed (ROCE) | Definition | Definition | Definition | Definition | Definition | Definition | Definition | | --- | --- | --- | --- | --- | --- | --- | | Annual organic growth in sales | Annual organic growth in | Net income from continuing | Annual growth in reported EPS | Cash generated from | Multiple of Net Debt (excluding | Pre-exceptional operating profit | | at like-for-like exchange rates. | operating profit, adjusted for | operations before interest, tax, | from continuing activities, | continuing activities less capital | leases) to EBITDA calculated on | from continuing operations for | | | exceptional and acquisition | depreciation, amortisation and | excluding exceptional and | expenditure, interest, tax, | a pro-forma basis (includes the | the year divided by capital | | | related items, at like-for-like | impairments, excluding | acquisition related items. | dividends to minority interests | full year impact of acquisitions). | employed (property, plant and | | | exchange rates. | exceptional and acquisition | | and other items, and excluding | | equipment, acquired | | | | related items. | | exceptional and discontinued | | intangibles, right of use assets | | | | | | items, acquisitions, and UK | | and lease liabilities plus net | | | | | | pension recovery payments. | | working capital) at year end. | | 2022 Commentary | 2022 Commentary | 2022 Commentary | 2022 Commentary | 2022 Commentary | 2022 Commentary | 2022 Commentary | | Group organic growth ahead of | Adjusted operating profit | Adjusted EBITDA increased | Adjusted EPS increased 14% to | Strong cash flow underlines | Proforma leverage remains | Strong operating profit | | expected medium term targets, | increased to $235m reflecting | to $283m reflecting strong | 8.2c, reflecting strong trading | operating profit growth, | comfortably within the 1-2x | performance alongside a | | driven by exceptional H1 | strong pricing and mix fully | pricing and mix fully offsetting | performance and delivery of | alongside disciplined | target range following the | continued well controlled asset | | performance in A&F, and | offsetting inflation, as well as | inflation, as well as strategic | strategic project savings. | approach to working capital | Texon acquisition, underpinned | base. Capital employed has | | growth across all three sub- | strategic projects being | projects being delivered | Afurther reduction in effective | and capital expenditure. | by strong free cash flow. | increased in the year largely as | | segments in PM. Some industry | delivered ahead of schedule. | ahead of schedule. | tax rate, with some offset from | | | a result of the newly acquired | | destocking in A&F in Q4. | | | higher interest charges. | | | acquisition intangible assets. | Performance Performance Performance Performance Performance Performance Performance | | 10% | | | | 22% 16% 14% $114m 1.4x 30% | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 10% | | | | 22% | | | 16% | | 14% | | | $114m | | | 1.4x | | 30% | | | | | | | 29% | | | | 75% | | | 49% | | 181% | | $113m | 0.7x | | | | | 40% | | 2022 2022 2022 2022 2022 2022 2022 | | | | | | | | | | | | | | | | | | | | | | | | | (19%) | | | | (43%) | | | (34%) | | | (65%) | | $28m | | | 1.2x | | 22% | | | ## 30 2021 2021 2021 2021 2021 2021 2021 2020 2020 2020 2020 2020 2020 2020 Coats Group plc Annual Report and Accounts 2022 * disposed businesses (Brazil/Argentina) ### Key performance indicators cont. have been excluded to create a like for like comparison between 2018 baseline and 2022 performance ## 2022 SUSTAINABILITY KPIs 2024 BUSINESS CRITICAL 2022 saw the maturation of our highly ambitious 2019-2022 sustainability targets which span across the five pillars of our sustainability strategy. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## SUSTAINABILITYKPI NON-FINANCIAL KPI We take great pride in the results delivered in 2022, and have now set our focus on the next chapter of our journey which will span 2023-2026. © Water Intensity* Energy Intensity* Effluent quality GPTW certification Waste %* Sales of recycled material Recordable accident rate (RAR) Target of 40% reduction by Target of 7% reduction by 2022 Target of 100% ZDHC (Zero Target of 80% by 2022 Target to reduce waste by 25% Target is for 100% by 2024 2022 against our 2018 baseline against our 2018 baseline Discharge of Hazardous by 2022 from a 2018 baseline. Chemicals) compliance by 2022 Definition Definition Definition Definition Definition Definition Definition kWh of energy used per kilo Percentage of effluent Percentage of employees Waste generated across our Percentage of premium No. of recordable work related Litres of water used per kilo offinished production. thatiscompliant to ZDHC inCoats units that have a end to end supply chain as a % productsales that are injuries and illnesses per 100 offinished production. © | | | Foundational standards | GreatPlace To Work (GPTW | ) | of finished goods produced | madewith recycled material. | full-time employees per year. | | --- | --- | --- | --- | --- | --- | --- | --- | | | | foreffluent and sludge. | or equivalent certification. | | | | | | 2022 commentary | 2022 commentary | 2022 commentary | 2022 commentary | | 2022 commentary | 2022 commentary | 2022 Commentary | | We reduced our water intensity | Our energy intensity reduced to | Further improvements in | Post pandemic we have seen a | | 2022 saw significant | We continue to make strong | | Persistent focus on preventative to 52.8 Ltrs/Kg versus our 2018 8.2kWHr/Kg from our 2018 effluent quality, achieving 92% mass acceleration of Great acceleration of our waste progress in this area, steadily measures such as training and baselines of 85.2 Ltrs/Kg. baseline of 9.09kWHr/Kg. ZDHC compliance versus an Place to Work certification management programmes increasing supply by hazard identification and 82% compliance in 2021. covering 86% of employees in globally with us achieving a broadening oursupplier base. remediation helped deliver This significant progress was Smart Energy metering rollout 2022, up from 83% in 2021, and massive improvement in delivery 11%reduction in recordable delivered through multi-site was advanced which delivered from 6% in 2020. and full achievement of our incidents in the year. optimisation of dye process new actionable insights yielding target. Circularity of packaging parameters and comprehensive energy intensity reductions. waste and reduction in effluent leak remediation programmes. Focus was given to our Energy sludge generation played a Basics programme, sharing significant part in this delivery. best practice energy management across sites. Performance Performance Performance Performance Performance Performance Performance | | 38% 10% 92% 86% 25% | | | | | | | | | | | | | | | 23% | | | | 0.40 | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 38% | | | 10% | | | 92% | | 86% | | | 25% | | | | 23% | | 0.40 | | | | | | | 24% | | | 7% | | | 82% | | | 83% | 1% | | | | | 19% | | | | 0.45 | | | 2022 2022 2022 2022 2022 2022 2022 | | | | | | | | | | | | | | | | | | | | | | | | | | | 14% | | | 3% | | | 74% | | | 6% | | | 3% | | | 13% | | | | | | 0.59 | ## 31 2021 2021 2021 2021 2021 2021 2021 2020 2020 2020 2020 2020 2020 2020 Coats Group plc Annual Report and Accounts 2022 ### Stakeholder engagement Steve Murray and Heather Lawrence met with ### Developing strong and constructive relationships with our stakeholders is part of our employees from various parts of the business as ### culture and is vital to achieve our purpose and our strategic ambitions. ## EMPLOYEES part of their induction programmes and shared Below we summarise who our key stakeholders are, how we engaged with them during 2022, what we their impressions with the Board. ### Our 17,000+ workforce is at the STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO learned and what we will do going forward. You can read our section 172 statement on pages 39:41, which What we learned sets out how the Board and management considered certain insights gained from our stakeholders heart of making our business in our decision making. Read more about why we consider these stakeholder groups to be important Employees continue to value the Company’s culture, ### a success and we recognise that listening to the delivery of our strategy in our Business model section on page 14. the opportunities to learn and develop, and the ### to and engaging with our employees is Group’s approach to health and safety. Common ### es sential to our continued success. feedback for areas for continued focus included opportunities for women and more opportunities How the Board engaged in 2022 across teams globally. The Board met with members of the workforce ## OUR STAKEHOLDERS at all levels during its site visit to the Rhenoflex What we are going to do in 2023 facilities in Germany in September. This The Board will continue to seek opportunities to included meeting employees from both of our conduct site visits during its annual away week and recent acquisitions as well as members of the to directly engage such as at the global leadership Performance Materials and Apparel and Footwear conference, as well as monitoring key metrics such divisions. During the away week in October, the as health and safety and engagement to continue Board met various groups of employees at the to gain workforce insights. Fran’s very important Huamantla and Orizaba plants, as well as having role will continue, with a focus on ensuring that ## EMPLOYEES CUSTOMERS SHAREHOLDERS sessions with members of the workforce during the embedding of the new divisional structure lunches and dinners throughout the week. and the ongoing implementation of our Strategic See page 32 See page 33 See page 33 Projects are resulting in the desired cultural Fran Philip, Designated Non-Executive Director for outcomes, noting the importance of the culture Workforce Engagement, continued to engage to employees. The ‘Coats for All’ programme will through a combination of in-person and virtual continue with appropriate updates on DE&I and sessions held with employees based in Europe, Asia opportunities from the Chief HR Officer, to allow and Mexico. Fran had discussions with the Chief monitoring of the items identified as important Operating Officers, and she also continued to attend by employees. The insights from employee our DE&I Network calls to listen and speak to a wide surveys will also be appropriately considered, as range of people from across the Company. will other relevant metrics including in relation to The Board received regular people updates as part employee engagement and health and safety. of discussions on the acquisitions, divestment and ## ENVIRONMENT COMMUNITIES SUPPLIERS Strategic Projects agenda at Board meetings, as See page 33 See page 34 See page 34 well as from the Group’s Chief HR Officer. These sections also covered a review of the insights from employee surveys that were undertaken, including Great Place to Work and the Future of Work. ## 32 Coats Group plc Annual Report and Accounts 2022 ### Stakeholder engagement cont. An increasing number of consumers continue to How the Board engaged during 2022 focus on sustainability when making their purchase The Capital Markets Day held in October allowed a ## CUSTOMERS decisions and Coats’ continued innovation and wide range of existing and prospective investors the development in this area is a key differentiator. opportunity to engage directly with the Group CEO, ### Our global footprint provides STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Chief Financial Officer, Chair and Senior Independent What we are going to do in 2023 ### unrivalled access to markets and Director together with other key executives and In 2023, the Board will continue to use existing two- ### customers. We want to proactively work managers, and share their views on integration and way feedback structures to regularly review trends ### together with our customers to deliver opportunities. The event showcased our expanded and insights identified by management across all and enhanced Footwear business and included ### additional value together. parts of our business. Opportunities for direct detailed presentations on Rhenoflex and Texon. Investors continue to seek long-term financial engagement with the Board, either as a part of How the Board engaged in 2022 performance and shareholder returns as well as The Board was delighted to return to a physical AGM Board visits or in the boardroom, will be scheduled good ESG credentials. The Board closely monitored customer insights in 2022 whilst retaining the option for shareholders when appropriate. We will continue to focus on provided by the Executive Directors and senior to listen to the business of the meeting remotely. sustainability and innovation, in line with our What we are going to do in 2023 management as part of the discussions regarding The Group CEO and Chief Financial Officer, together business model, to appropriately respond to the As well as continuing our programme of the acquisitions of Texon and Rhenoflex. As part of with the Investor Relations function, are regularly in appetite for further solutions expressed by engagement on progress in our three divisions, the the agenda at the Company’s Strategy Day, contact with investors through calls and roadshows customers during engagement sessions. Chair of the Remuneration Committee has engaged emerging trends and behaviours were discussed in throughout the year. In 2022, there was a focus on on the new Remuneration Policy in 2023 (see the depth by the Board and management, relying on investors from the US. The Chair and Chair of the Remuneration Committee report for further details). inputs sought directly from key customer meetings. Remuneration Committee also joined investor calls We will continue to consider total returns to During the Board visit to Mexico, a key customer in where appropriate. The Board receives an update ## SHAREHOLDERS shareholders in our Board discussions. The Chair, the region was invited to discuss trends in the at every Board meeting from the Investor Relations Group CEO and Chief Financial Officer will continue region at the Board meeting. ### Coats maintains and values function on feedback from investors and key trends, to attend relevant investor meetings as will the and these included feedback from the visits to Our global customer surveys programme continued ### regular dialogue with shareholders Chairs of the Committees if required. certain US sites by some of our major shareholders. using our dedicated commercial, sales and ### t hroughout the year, so that they can Additionally, the Board carefully considered the marketing teams to connect and partner with ### more accurately assess our value and progressive dividend policy when deliberating in customers and brands, by listening and innovating ### the opportunities and risks of relation to the interim and final dividend levels, to achieve jointly desired outcomes. The Audit and ## ENVIRONMENT noting the importance of returns to shareholders. ### Risk Committee considered relevant feedback investing in our business. received through the customer audit review process. ### What we learned Coats is working proactively with ### customers and suppliers to help What we learned Regular conversations with both existing and ### prospective investors allow the Company to share them improve the sustainability of their As global uncertainty continues, speed, agility timely information on key strategic and operational ### and reliability continue to be critical to our products, and to minimise the environmental matters. The return to face-to-face engagement was customers. The acquisitions of Texon and ### i mpact of our industry. positively received and investors were excited to see Rhenoflex were well received with customers the opportunities arising from the new acquisitions. How the Board engaged in 2022 noting that they were excited to see the developments in the Footwear business. After consultation with a wide variety of ## stakeholders, the Board approved a new suite of 33 Coats Group plc Annual Report and Accounts 2022 ### Stakeholder engagement cont. sustainability policies, including a Climate Change What we are going to do in 2023 during engagement with management. In line with policy, during 2022 and also agreed a range of new our Delegated Authorities Policy, the Board The Board is strongly committed to proactive ## 2026 sustainability targets as recommended by the COMMUNITIES reviewed appropriate contracts with several engagement with our communities and will continue Board’s Sustainability Committee. The Sustainability suppliers and focused on the provision of to be mindful of the insights shared by stakeholders ### We operate in fifty countries across STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Committee met twice and considered the views of renewables where possible. during engagement when considering ESG-related ### six continents. By empowering people customers, suppliers and investors in determining matters in 2023. We will continue to focus on our What we learnt how to continue to deliver ongoing sustainability ### and championing inclusion and diversity, Coats for All initiative, including the focus on the progress in our business operations. Our well-established Code of Conduct and Supplier ### we can help build thriving communities Coats for Her element, to support our DE&I audits bring clear expectations of what we expect aspirations and respond to the insights received. Environmental metrics are presented at every Board ### and strengthen our business. from our suppliers and what they can expect from The Board will monitor key metrics including those meeting and progress is tracked across key us. This is appreciated throughout the supply chain. How the Board engaged in 2022 relating to DE&I. More details of our activities can performance measures, including our sustainability Our continued focus on sustainability creates be found in our Sustainability Report online (www. targets programme. There are discussions as to what The Board visit to Mexico included attendance opportunities for new relationships as do our coats.com/sustainability). improvements are required to ensure we continue to at the Asociación Orizaba Propone AC newacquisitions. | deliver against our ambitions. The Board also | (AOPAC) Foundation event with Coats, where | | | --- | --- | --- | | considered several key supply contracts with | the Foundation received donations from the | What we are going to do in 2023 | | providers of renewable energy. Our recent | Company. The Directors were able to directly | | The Board will continue to use existing feedback acquisitions offer new and exciting ways to progress interact with people living in the areas in which ## SUPPLIERS structures to regularly review supply-related trends the Group’s zero waste to landfill ambitions. we operate, as well as with local officials, to gain and insights identified by management across all ### Our suppliers do not just supply goods further insights. As part of the decisions taken in parts of our business. Direct engagement as a part What we learned ### relation to acquisitions and divestments during and services to us, but are true of Board visits or in the boardroom will be kept Our stakeholders have ever increasing expectations the year, the Board considered the impact on ### partners throughout our processes and under review and scheduled when appropriate. for how a responsible business should operate and the local communities, especially in relation to TheSupplier Code will be refreshed and this will be ### aligned to our requirements on compliance, reduce its impact to mitigate the climate emergency. the changes made in our production footprint. used as an engagement tool. Insights will be ### quality, sustainability and innovation ethos. Shareholders shared their views on living wage considered at the Audit and Risk Committee. Communities were also considered as important policies, as well as other ESG-related matters. How the Board engaged in 2022 stakeholders regarding our new suite of ESG We need to continue to challenge ourselves to policies, particularly in relation to the Living Wage In 2022, members of the Group Executive Team provide opportunities for growth while also and Climate Change policies. provided Group-wide oversight of suppliers in the protecting the environment and delivering for aftermath of the Covid-19 pandemic, allowing What we learned all of our stakeholders. increased visibility and ability to mitigate the impact The impact of operations on local markets is of challenges. Management shared appropriate What we are going to do in 2023 especially important in the context of the current insights in Board updates. The Audit and Risk In line with the insights received, the Board will review economic volatility and increased inflation. The skills Committee continued to consider relevant findings the detailed plans for and progress in achieving the and development opportunities, especially those from Supplier audits. The Board has reviewed our 2030 Science Based Targets, including the transition with a DE&I focus, provided by the Group continues supply footprint as part of the considerations to renewables. In 2023, the Board and its Committees to be important and valued by the communities in regarding acquisitions, divestments and the will continue to monitor key environmental metrics which we operate. Building strong relationships with Strategic Projects and considered factors impacting and climate-related metrics, as well as the progress of those close to our business helps us grow. our supply chain that were identified by suppliers our Audit and Assurance policy and activities. ## 34 Coats Group plc Annual Report and Accounts 2022 ### Taskforce on climate-related financial disclosures In complying with the requirements of Listing Rule We recognise that climate change presents our Recommendation Recommended disclosures Disclosure level Disclosure references 9.8.6R(8) on climate-related disclosures, we consider business with significant risks and opportunities and Governance a) Describe the Board’s oversight of climate- Complete ARA 42, 57-59 our disclosure to be consistent with all of the Task have integrated assessment of climate change risks related risks and opportunities Disclose the organisation’s TCFD 03 Force on Climate-related Financial Disclosures into our regular risk management process as well as governance around climate- b) Describe management’s role in assessing and Complete ARA 42-43, 46 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO (TCFD) Recommendations and Recommended identifying climate as a principal risk. This process is related risks and opportunities managing climate-related risks and opportunities TCFD 03 Disclosures as detailed in “Recommendations of the described in detail on pages 42 to 49 with a section Task Force on Climate-related Financial Disclosures”, on climate risk. During 2022 we expanded our Strategy a) Describe the climate-related risks and Complete ARA 46 opportunities the organisation has identified over 2017, with use of additional guidance from analysis of risks and opportunities related to climate Disclose the actual and potential TCFD 05-08 the short, medium and long term | “Implementing the recommendations of the Task | and extended our TCFD disclosures in line with | impacts of climate-related risks | | | | --- | --- | --- | --- | --- | | | | and opportunities on the | b) Describe the impact of climate-related risks | Complete TCFD 09-14 | | Force on Climate-related Financial Disclosures”, | latest all sector guidance and requirements. Asa | | | | | | | organisation’s businesses, | and opportunities on the organisation’s | | | 2021. Our disclosures cover all divisions over which | result, we have created a stand-alone TCFD report | | | | | | | strategy and financial planning | businesses, strategy, and financial planning | | | Coats has operational control but does not include | which can be found here. We have created | | | | where such information is c) Describe the resilience of the organisation’s Complete TCFD 09-14 acquisitions made during the course of FY2022. aseparate TCFD report because of the significant material strategy, taking into consideration different expansion of content in the report this year. This climate-related scenarios, including a 2°C or report covers the calendar year 2022 aligning lower scenario to our Annual Report period. Risk management a) Describe the organisation’s processes for Complete ARA 42 identifying and assessing climate-related risks Disclose how the organisation TCFD 04 identifies, assesses, and b) Describe the organisation’s processes for Complete ARA 42 manages climate-related risks managing climate-related risks TCFD 04 c) Describe how processes for identifying, Complete ARA 42-43, 46 assessing, and managing climate-related risks TCFD 04 are integrated into the organisation’s overall risk management Metrics and targets a) Disclose the metrics used by the organisation Complete TCFD 15 to assess climate-related risks and opportunities Disclose the metrics and targets in line with its strategy and risk management used to assess and manage process relevant climate-related risks and opportunities where such b) Disclose Scope 1, Scope 2, and, if appropriate, Complete ARA 82 information is material Scope 3 greenhouse gas (GHG) emissions, and the related risks c) Describe the targets used by the organisation Complete TCFD 15 to manage climate-related risks and opportunities and performance against targets ## 35 Coats Group plc Annual Report and Accounts 2022 ### Taskforce on climate-related financial disclosures cont. Non-financial information statement The following key risks and opportunities are discussed in our TCFD report The non-financial reporting regulations in section Our key policies in this area are our Environmental 414CA and 414CB of the Companies Act 2006 and Climate Policies and these can be found on our TCFD category Key Risk or Opportunity require the disclosure of specific information relating website and our environmental performance is Transition: Current and Risk 1: Introduction of carbon taxes leading to increased energy prices to environmental matters, the Company’s described in detail in our Sustainability Report. Emerging Regulation STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO employees, social matters, respect for human rights Ourenergy use and emissions performance can be Transition: Market and Opportunity 1: Growth in light-weighting products in transport markets, enabling and anti-corruption and anti-bribery matters, a found in the Directors’ Report page 82 and in more Technology significant increase in market share gives us competitive advantage both from a summary of which is set out below. Full details of all detail in our Sustainability Report. The importance product perspective and an operational sustainability perspective. | | | our policies on these matters can be found in our | of environmental policies and performance is | | --- | --- | --- | --- | | Transition: Market, Technology | Risk 2: Declining sales due to shifting customer sentiment in terms of transitioning to | downloads section. We are Participants of the | described on page 41. | | and Reputation | a low carbon model. | | | United Nations Global Compact (UNGC) and are Environmental non-compliance and climate change committed to the 10 principles of the Compact, Transition: Market Opportunity 2: Increased market share with apparel and footwear brands. are both considered to be principal risks and details covering Human Rights, Labour, the Environment of the risk evaluations and mitigating actions are Transition: Regulation and Risk 3: Inability to source sufficient renewable energy to meet emissions reduction and Anti-corruption. Our Sustainability Report is our Technology targets. shown on pages 46:47. Our approach to responding formal annual UNGC Communication on Progress to the risks and opportunities arising from climate Transition: Policy and Risk 4: Inability to source sufficient recycled raw material to fully transition to a low (COP) and contains fuller information across all of change are summarised in our TCFD statement Technology carbon product range and hence achieve the SBTi targets. these areas. pages 35:36 and in more detail in our TCFD Report. Physical: Acute Risk 5: Increase in flood damage risk, in a few Asian units. We measure our emissions impact for Scopes 1 and The Environment Physical: Chronic Risk 6: Disruption of water supply in some units. 2 monthly and for Scope 3 annually. Our results can Operating sustainably with care for the environment be seen in our emissions disclosures on page 82. Physical: Chronic Risk 7: Extreme heat leading to possible need for plant relocation to ones with better is embedded into our purpose and is a major area of Our key risk in environmental terms relates to temperature regulation focus for our sustainability strategy. We have effluent quality and we have on-line monitoring of committed to near-term emissions reduction targets Our balanced evaluation is that in the short term our risks and opportunities are equivalent in magnitude. In key effluent measures in our large units and have for 2030 and have submitted Net-Zero targets for the longer term the physical risks increase, and we will be better able to disclose the overall impact once we extensive tests done by external laboratories of 2050 which are currently being validated by Science have completed the assessment of additional opportunities during 2023 as described in our TCFD report. effluent quality every six months. Ourperformance Based Targets initiative. Delivery of these targets is shown in our KPIs on page 31. requires us to reduce and decarbonise our energy requirements and to transition our raw materials Employees away from virgin oil-based products. Having nearly We are committed to providing a safe and respectful delivered on our water intensity reduction goal we working environment for our employees and other are now focussing on increasing water recycling so stakeholders. We aim to have an organisational that we reduce the environmental water stress from culture which promotes inclusion, diversity, equal our operations. We operate to global industry opportunities, personal development and mutual standards in terms of effluent quality and have respect. We aspire that our colleagues will enjoy multiple programmes in place to reduce our waste being at work and will all contribute to creating an and redirect it to circular economy solutions. environment that is free from any discrimination, Wenow have a zero waste to landfill target. bullying or harassment. We seek to promote physical and mental wellbeing in our workplaces. ## 36 Coats Group plc Annual Report and Accounts 2022 ## Non-financial information statement cont. Our key people-related policies are our Key People Principles, our Health and Safety Policy, our Worldwide Employment Standards, our Living Wage Policy (see page 41), our Ethics Code (see page 48), our Equal Opportunities Statement and our Speak Up (Whistleblowing) Policy (see page 81). All of these can be found on our **website**. Targets and performance on our people policies is described on pages 16:17 of this report and in our **Sustainability Report**. Principal risks related to this area are the failure to attract, retain and develop diverse and inclusive talent and capability given business changes, growth in new areas and labour availability, and the risk of serious Health & Safety incidents. These risk evaluations and mitigations are described on pages 44:49. ### Human Rights Coats is committed to protecting the Human Rights of our employees and those working in our supply chain. We fully support the United Nations (UN) Guiding Principles on Business and Human Rights in our operations and we uphold the UN Declaration of Human Rights and the Convention on the Rights of the Child, the core International Labour Organisation (ILO) Conventions and the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises and the related Due Diligence Guidelines for the Garment and Footwear Sector. Every two years we do a Human Rights Risk Assessment. This was last done in 2021 and will be repeated in 2023. Our Global Internal Audit (GIA) team include aspects of Human Rights assessment in their regular audit programmes. Details on the outcomes of our GIA audits in this area are included in our Sustainability Report on page 58. The GIA team completed 8 audits during 2022. No human rights violations were found and 10 human resource management process concerns were raised and these have all been resolved or are being addressed. We collaborate with our suppliers to extend our principles up our supply chain and perform regular Supplier Code audits on suppliers that are identified as being at higher risk. The outcomes of our Supplier Code audits are detailed in our Sustainability report on page 58. 322 audits have been completed between 2021 and 2022. 19 of these required improvement and need to show that they are making progress. 7 audits raised serious issues, 4 have been resolved after re-auditing and 3 (all from 2022 audits) are pending reaudit. If the suppliers do not resolve the issues then they will be delisted. Our key policies on Human Rights are our Worldwide Employment Standards and our Supplier Code and these can be found on our **website**. Further details on performance in this area can be found in our **Sustainability Report** and in our **Modern Slavery Statement**. ### Social We link to wider society through our suppliers and their employees, through our relationships with our local communities and neighbours and with our customers and consumers through our products. Our Supplier Code, described above, describes our expectations of employment standards for our suppliers. There is a risk of non-compliance here and reputational damage and the Supplier Code audit programme helps us to manage this risk. The results have been described above. Coats Group plc Annual Report and Accounts 2022 ### Non-financial information statement cont. Non-financial information statement ## POLICY DESCRIPTION POLICY DESCRIPTION STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO People Suppliers Key People Principles This statement identifies the range of policies and procedures we have in place Supplier Code The Supplier Code outlines our expectations required of suppliers and covers to manage our key people-related issues labour practices, environmental management, responsible sourcing of materials and products, and business conduct. Health and Safety Policy This policy outlines our commitment and actions for the prevention of injury and ill health, and ensuring health and safety excellence across our business. 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 Ethics Code The purpose of the Ethics Code is to ensure that employees across Coats have standards appropriate for their end use. A comprehensive list of restricted a clear understanding of the principles and ethical values that the Company chemicals is revised and reissued to all of our material suppliers every year. wants to uphold. It applies to all employees in all Coats Group companies globally. Conflict 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 Speak Up – Whistleblowing Policy The policy outlines the reasons for maintaining high standards of ethical and sustainable supply chain management. This policy refers specifically to our legal business conduct and describes the procedures for reporting acts which approach to avoiding ‘Conflict Minerals’ entering our supply chain and are thought to contravene these standards. Also outlined are the actions to be supplements our wider supply chain management standards. taken by the Company. Environment Global 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 Environmental Policy We take our responsibility to the environment very seriously and this policy lays requirement. Coats subscribes to the United Nations Universal Declaration of out our approach. Coats senior management has defined objectives and targets Human Rights and the Convention of the Rights of the Child. to ensure that we deliver on this policy and additional details on progress can be found in our Sustainability Report. Equal Opportunities Statement The Company supports equal opportunities in employment and considers it to be an integral part of our employee relations policy. Climate Change Policy We are committed to doing what we can to limit the impact of climate change and will always follow the scientific consensus on future impacts in assessing Modern Slavery statement This statement has been prepared for the year ending 31 December 2022 and is how to address this challenge. (including a statement on in accordance with the requirements of the UK Modern Slavery Act 2015 and transparency in supply chains) 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. Governance Anti-bribery and Anti-corruption This policy outlines the control of actual and suspected corruption and bribery Policy within Coats, and the processes to be followed in the event of actual or suspected instances of corruption or bribery being discovered. Gifts and Entertainment Policy This policy sets forth the rules related to employees accepting and offering gifts, entertainment, hospitality and meals from and to current customers, suppliers, joint venture partners, brand representatives and others conducting (or proposing to conduct) business, directly or indirectly, with Coats. Competition Law Policy This policy supports Coats’ commitment to observing and complying with all applicable competition laws, rules and regulations wherever it operates around the world while acting with the highest ethical standards, in an open and honestway. ## 38 Coats Group plc Annual Report and Accounts 2022 ### Section 172 statement Markets Day, and from conversations with customers Specific examples of Board decision making, including how stakeholders were considered and further ### Section 172 of the Companies Act 2006 following the announcement of the acquisition of examples of how their input contributed to the outcomes, are shown on pages 40 to 41. Other information ### requires the Directors to promote the Texon and Rhenoflex regarding the opportunities for considered by the Board during 2022 relating to the S172 Factors is set out below: ### success of the Company for the benefit of the Group, proved informative when the Board STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ### the members as a whole, having regard to discussed the creation of the Footwear division in S172 Factor Relevant disclosures the context of the new operating model. ### the interests of stakeholders in their decision (a) The likely – Chair’s statement (pages 6 to 7) consequences of – Strategy (page 12) ### making (S172 Factors). The Board believes High standards of business conduct any decision in the – Business Model (pages 14 to 15) ### that considering our stakeholders in key long-term. Balancing the needs of our different stakeholders, – Sustainability (pages 24 to 25) ### business decisions is not only the right thing and noting that their needs might not always align, – Principal risks and uncertainties (pages 42 to 49) required the Board to consider the likely ### to do but is core to our ability to drive value – Long term viability statement (page 49) consequences of Board decisions and their impact (b) The interests of the – Business model (page 15) ### creation over the longer term. on the success of the Company. Considering our Company’s – Culture, DE&I, and employee health and wellbeing (People and Culture, pages 16 to 17) On pages 32 to 34 we outline the ways that the long-term impact through all relevant lenses, employees. © – Key performance indicators (GPTW certification, page 31) Board has engaged with our six groups of including our potential environmental and social – Stakeholder engagement (page 32) stakeholders including what was learned and what impact, is critical to ensure we maintain our – Culture and ensuring alignment (The role of the Board, pages 65 to 66) we will do in 2023 as a result of this engagement. reputation for ‘doing the right thing’. Accordingly, the (c) The need to foster the – Business Model (pages 14 to 15) The Board has had regard to S172 Factors in all of its Board valued the insights received from Company’s business – Stakeholder engagement (pages 33 to 34) key decisions and discussions, and examples of shareholders and other environmental-related relationships with – Principal risks and uncertainties (pages 44 to 49) these are set out below. stakeholders that were reflected in the ESG-related suppliers, customers – Operating review (pages 51 to 52) policies and the 2026 sustainability targets (see and others. Strategic discussions and long-term consequences page 41). We continue to challenge ourselves, and (d) The impact of the – Stakeholder engagement (pages 33 to 34) Company’s operations Agile but responsible decision making is key to long- – Sustainability (pages 24 to 25) those in our supply chain, to demonstrate the on the community and term success in the current period of global volatility. – TCFD disclosures (pages 35 to 37) highest standards of conduct in our dealings and the environment. As the shape of the Group transforms as a result of the Board together with the Audit and Risk – Principal risks and uncertainties (pages 46 to 47) the implementation of the Strategic Projects and the Committee monitor these areas, including the – Directors’ report (SECR disclosures, page 82) change in our operating structure (see page 40), we insights from supplier audits, and discuss (e) The desirability of the – Culture and values (People and Culture, pages 16 to 17) (Values, page 11) rely on the Group’s well established systems and Company maintaining interventions with management where required. – TCFD disclosures – Non-financial information statement (pages 36 to 38) a reputation for high ways of working to ensure that there is proper – Principal risks and uncertainties (pages 42 to 49) Board information – the correct inputs standards of business consideration of the potential short and long term – Audit and Risk Committee Report (pages 74 to 75) conduct. consequences of decisions. The Board considered Equipping our leadership to make decisions in the – Whistleblowing (page 81) | the insights received from stakeholders as set out on | right way on the basis of the correct information | | | | | --- | --- | --- | --- | --- | | | | (f) The need to act fairly | | – Stakeholder engagement (page 33) | | pages 32 to 34, including how to appropriately | relies on good Group-wide governance and | | as between members | | – Leadership and engagement (page 64) manage the impact on employees and communities of the Company. reporting structures. Board papers continue to make when changing the location of some of our it easy to identify the key stakeholders for the operations, noting the challenge of maintaining matters under consideration and provide relevant employee engagement through the period of information relating to them. The Board reviews and change. The feedback gathered from the direct probes the information presented and receives engagement with our investors at the Capital assurance where appropriate. ## 39 Coats Group plc Annual Report and Accounts 2022 ### Section 172 statement cont. ## BOARD DECISION MAKING DURING THE YEAR Examples of Board decision making during the year and S172 Factors considered Stakeholder considerations and outcomes STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Acquisition of Texon and Rhenoflex The importance of fostering and maintaining business relationships was carefully considered. The Board discussed the CUSTOMERS synergistic opportunities to customers and the potential to offer enhanced partnership when considering the acquisitions. The Board announced the acquisition of Texon in July 2022 quickly followed by the The impact on the supply chain, including the advantages of working at scale to further mitigate risk, was noted. Texon and SUPPLIERS announcement of the acquisition of Rhenoflex in August 2022. In discussing these Rhenoflex both had facilities in new geographies and the responsibilities of the Group’s impact on new communities were acquisitions the Board considered all aspects of future operations including fostering understood. COMMUNITIES relationships with, and the expectations of, new and existing employees, suppliers and customers. The attractiveness of Texon’s and Rhenoflex’s products to customers was The need to retain key talent balanced with the need to ensure the appropriate business structure going forward was EMPLOYEES carefully considered by the Board in relation to the acquisitions. considered, noting that innovation and sustainability had been identified as priorities for The innovative products offered by Texon and Rhenoflex (including ProWeave and Rhenoprint 2.0) offered new customers in the insights received during engagement. Fundamental to the decision was ENVIRONMENT opportunities for the Group in relation to sustainability and potential reduced environmental impact. the selection of the appropriate funding structure for both acquisitions, particularly to Consideration of long-term returns to shareholders was a key factor of both business cases as well as consideration of the ensure the need to act fairly as between the members of the Company, and SHAREHOLDERS correct funding mechanism for both acquisitions. The equity placement for Rhenoflex included an offer to retail shareholders consideration of the long-term impact of this on the financial position of the Group. to ensure fair treatment as between shareholders. Outcome – both acquisitions were approved by the Board. The equity placement for the funding of Rhenoflex was oversubscribed and there was a positive reception from the market and customers to the announcement of the acquisitions. Strategic Projects Proposals to optimise the locations and efficiencies of business operations were reviewed considering the feedback of CUSTOMERS current customers and communities. Noting the changes proposed to the geographic footprint, the Board considered the The Board announced a programme of Strategic Projects in early 2022 to appropriately opportunities presented by new facilities in Mexico and the potential changes to suppliers and customers following the COMMUNITIES refresh our footprint by positioning key roles and operations closer to our customers. divestment of the Brazilian and Argentinian businesses. This included considering the interests of employees, which markets the Group should SUPPLIERS continue to operate in, and how the various impacts should be managed. After carefully considering the trends in customer demands, including the need for speed and the Changing the operational footprint led to impacts on our workforce, which were considered by the Board through regular EMPLOYEES People updates. The advantages of closer geographic links to and the opportunity to foster closer business relationships impact of global volatility on our supply chain, the Board concluded that it was with customers were balanced with re-aligning roles within the Group and the need to mitigate labour availability risk. appropriate to undertake the Strategic Projects to ensure the Group remained agile and The long-term financial benefits of the Strategic Projects were balanced against the short-term costs. was continuing to appropriately manage costs to ensure long-term success for all its SHAREHOLDERS stakeholders. The importance of maintaining the Company’s high standards of business Outcome – the Board approved the optimisation of the portfolio and footprint including moving certain roles in the corporate functions closer conduct was considered at all stages of the decision making process. tocustomers. Change to divisional operating structure Following the business transformation outlined above, the Board considered how the revised shape of the Group could best CUSTOMERS serve customers’ needs and industry trends. In light of the desire to drive clarity and focus in the delivery of superior At the end of 2022, following the key decisions outlined above and the continued business outcomes, the impact on the global supply chain of three divisions rather than a geographic based business model SUPPLIERS monitoring of the progress in the Strategic Projects, the Board considered how the Group was considered. should be structured to ensure long-term sustainable success in light of the internal and Retention of key business talent and the identification of the correct leadership teams for each division was considered by EMPLOYEES external changes. Feedback gathered from investors and customers following the the Board. acquisitions in relation to the potential for Footwear was noted. Careful consideration of The Board considered the long-term impact on the operating model and concluded that the structure would lead to a more SHAREHOLDERS profitable business. the current matrix structure versus the implementation of a new divisional structure rightly Outcome – The divisional structure was approved, and the Board will continue to monitor the impacts of implementation on stakeholders. included discussion regarding the interests of employees and other stakeholders. ## 40 Coats Group plc Annual Report and Accounts 2022 ## Section 172 statement cont. | Examples of Board decision making during the year and S172 Factors considered | Stakeholder considera | | --- | --- | | **Ukraine and Russia** Following the Russian invasion of Ukraine, there were various Board discussions as to how to appropriately support our impacted employees in Ukraine as well as considering the appropriate course of action for our operations in Russia to ensure fair treatment of our people. Updates were provided by management on the safety of our employees in the region as well as the interactions with local customers and suppliers. | **EMPLOYEES** **CUSTOMERS** **COMMUNITIES** **SUPPLIERS****Outcome** – In response to support the safety of | | **New sustainability targets, policies and DE&I initiatives including ‘Coats for All’** As set out elsewhere in this Annual Report, the Board considered and approved several ESG-related policies at the start of 2022, including living wage and climate change. Insights from direct engagement with investors relating to living wage and other ESG-related matters had been considered when forming the proposals made to the Board. In line with the Company’s purpose, the interests of employees and the Company’s long-term sustainability impact were considered. The Sustainability Committee and then the Board appropriately debated the new 2026 sustainability targets and their linkage to senior management Long Term Incentive Plans (LTIP), noting that the LTIP has had a sustainability linked element since 2020. Mindful of ensuring the Company maintained its reputation for high standards of business conduct and noting the expectations of investors, the Board considered the long-term financial and environmental impacts of the new targets. Additionally, when considering the ‘Coats for All’ programme, the Board was cognisant of the critical role that our diverse and engaged workforce plays in our long-term success and achievement of our strategic ambitions. | **CUSTOMERS** **SUPPLIERS** **COMMUNITIES** **EMPLOYEES** **ENVIRONMENT** **SHAREHOLDERS****Outcome** – Noting a success of the Company | | **Pensions** The Chair and Chief Financial Officer represented the Company on the joint working group (JWG) formed with the UK Pension Trustee (Trustee), which aims to de-risk the UK pension scheme (Scheme) by securing members’ benefits in full through one or more insurance policies in the medium term. The Board received a number of updates, including the decision of the Trustee to purchase a c.£350m bulk annuity policy in December 2022. The Board has subsequently agreed on a mechanism to switch off/on the regular cash contributions to the Scheme, based on monthly estimates of the latest funding position and this gives rise to potential significant free cash flow benefits from lower or eliminated cash contributions if the Scheme remains fully funded on its technical provision basis. | **EMPLOYEES** **SHAREHOLDERS****Outcome** – The purpose of this report is to make risks for approximately 1.5% of the Group’s balance sheet. | Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties During 2022, the membership of the GRMC was ### Better business outcomes are the result of effective risk management. Very risk averse Where we are very cautious and updated and now comprises all members of the seek to minimise the financial and Our approach and governance GET. This allows risk assessments and discussions reputational risk as far as possible. Mitigation costs are accepted albeit to be undertaken at regular GET meetings as Having an effective, pragmatic and robust approach to risk management is more important than ever during that they might exceed the STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO required. This provides a more agile and responsive a period of unprecedented external volatility, coupled with a period of transformational change internally. potentialloss approach. Changes to the risk profile, such as the Wefocus on effectively identifying, assessing, monitoring and, where appropriate, eliminating or managing Risk averse Where we are cautious and seek to required swift evaluation of the consequences to the as well as leveraging risks and related opportunities that might impact our current or future performance and/ reduce the financial and reputational business of Russia’s invasion of Ukraine, are or our reputation. In 2022, our established risk management framework continued to facilitate the evolution risk. Mitigation actions are considered in real time with appropriate actions proportional and based on of policies, controls and informed business and strategic decisions to change with the evolving internal and undertaken within the agreed timescale. costeffectiveness external landscape and needs of the business. The Group’s ongoing insurance programme is also kept Somewhat risk Where we are willing to take some under review to ensure this continues to be refined each year. We aim to integrate risk management and controls tolerant financial and reputational risk to holistically across the whole business, including in The Board has overall responsibility for determining the nature and scope of the Company’s principal and achieve our objectives. Mitigation our new Footwear division, to appropriately focus actions are again proportional and emerging risks, theextent of the Group’s risk appetite, and for monitoring and reviewing the effectiveness of the our activities. The effectiveness of our risk based on cost effectiveness Group’s systems of risk management and internal controls. It has delegated responsibility for the latter to the management relies on embedding the correct High degree of Where we are willing to take Audit and Risk Committee (ARC). The Group Executive Team (GET) is responsible for day-to-day monitoring and risk tolerance significant financial risk to achieve behaviours as well as systems in the organisation. management of risks that impact the business. A summary of risk management responsibilities is set out below. our objectives. Mitigation involves Our Coats Ethical Culture programme – ‘Doing the anactive management of Right Thing’ – has continued in 2022, with sessions risk-return trade-offs held in new as well as existing parts of the business. This is supported by our ongoing training and We focus on understanding the risks, and their Top-down Define The Board* risk tolerance, compliance initiatives, as well as an extensive range potential impacts, to appropriately mitigate and/or – Identifies which risks are most important for the Group, effectiveness of risk management and reviews the Group’s risk profile monitor exposure, – Sets risk tolerance in the aggregate and, in particular, for each of the principalrisks of communications. leverage risks and related opportunities and ensure oversight of risk – Monitors risk experience management any residual risks are acceptably within our risk Management and assurance of risks parameters and do not impact business operations Group Executive Team (GET) Audit and Risk Committee (ARC) The Board has recently comprehensively reviewed adversely. Our risk framework is based around four – Responsible for operational delivery of the Group’s – Supports Board in monitoring the effectiveness of the and refreshed the Group Risk Register. This sets out categories of principal risks (strategic, external, strategy, including day-to-day management of systems of risk management and internal control operations and responsibility for monitoring detailed – Reviews reports from Group Executive Team (GET), our risks (including our principal and emerging risks), operational, and legacy), as well as key and performance of all aspects of the Group’s business. Group Risk Management Committee (GRMC), Group our risk tolerance, the current risk trends and a emerging risks which are used to build the Group Necessarily, this includes many elements of practical Internal Audit (GIA) and the external auditor relating to risk management effectiveness summary of our approach to risk management. Risk Register. The Board oversees the management and mitigation of the principal and emerging risks, Our well established and embedded risk tolerance Business Units/Enabling Functions/Senior Management/ Group Risk Management Committee (GRMC) while senior executive management oversee the Risk Champions structure is determined using four categories which – Responsible for formulating risk management strategies management and mitigation of the key risks. Climate – Responsible for identifying, managing and mitigating and policies and monitoring risk management are listed on the right. In setting risk tolerances, the appropriate sets of risks throughout the Group related risks are evaluated and managed through Board has considered the expectations of its – Regularly review a broad range of individual current the same overall process as other principal risks. Key Report for Direct and strategic and operational risks shareholders and other stakeholders. evaluation monitor – Monitors key risk indicators Identify, monitor, * The Board has appropriate regard for all the factors set – Reports and provide feedback to GRMC, GET, Audit and report out in S172 of the Companies Act 2006 in its Risk Committee and the Board consideration of risk and other matters. You can read Bottom-up about this on pages 39 to 41 in the S172Statement. ## 42 Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties cont. | During 2022, the Board, ARC, GET and GRMC | controls. GIAreviews the Group Risk Register and | The Board, with input from a range of key internal | Change in risk trend | | | --- | --- | --- | --- | --- | | considered presentations from senior management | local risk registers from the relevant management | stakeholders, undertook a comprehensive | | | | | | | From | The risk trend for talent and capability | | that included a holistic view of risks, including | committees on a quarterly basis. This review | assessment of the emerging and principal risks | | | | | | | increasing | risk has decreased from increasing to | | principal risks, and gave input on the steps planned | includes an assessment of the risk management | facing the Group, along with the risk trends and | to stable | stable, due to the risk not being higher | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO to mitigate these risks. For example, there were practices such as the frequency and adequacy of levels of risk tolerance for each of those risks. We than 12 months ago and the various internal actions undertaken in 2022 as country specific deep-dives as well as deep-dives the regional risk management committee meetings, also considered the new acquisitions and the new part of the Strategic Projects. into Apparel, Footwear and Performance Materials. the risks identified and discussed, and the divisional structure when refreshing the Group There were also regular updates on the progress in completion of the actions contained in the local risk RiskRegister. From The risk trend for climate change has the Strategic Projects and acquisitions/divestments register. GIA also undertakes a periodic horizon increasing decreased from increasing to stable, due Change of risk description presented at Board meetings, which all included an scanning of risks and this is discussed regularly at to stable to the risk not being higher than 12 Due to the ever-changing global risk environment, months ago and in light of the robust analysis of associated risks and opportunities, the GRMC/GET. The ARC considers the results of process and activities being pursued including principal risk considerations. Assessing these assessments along with GIA’s bi-annual risk the following risks have been updated since the under the regular oversight of the GET risk dynamically as part of discussions on questionnaire, which sets out business units’ reports lastreport: and the Board. operational or strategic matters allowed likely on exceptions or risks arising from operations. | | | 1. Talent and capability risk has been amended to | | From | The risk trend for risk of supplier non- | | --- | --- | --- | --- | --- | --- | | impacts and possible mitigations to be appropriately | Topics covered in the risk questionnaire are | | | | | | | | | refer more explicitly to diversity, equity and | increasing | performance and/or unavailability and/ | | deliberated. The risks were considered not only in | appropriately aligned to principal and key risks, | | | | | | | | | | to stable | or price increases of raw materials, | inclusion given the importance of this area. isolation but also the correlation between risks and including feedback on health and safety, people labour and freight has decreased from 2. Risk of increasing customer expectations has increasing to stable, due to the risk not the likelihood of one risk occurring at the same time matters, the environment and anti-bribery and been amended to be more explicit in relation to being higher than 12 months ago and as another or even triggering it, and the potential corruption. These activities provide an assurance product sustainability, given the importance of anticipated supply chain trends which combined impact of that and any further mitigating that risk management activities are carried out are already starting to materialise. this area. actions that could be taken. The ARC, and then appropriately and consistently throughout the 3. Economic and geopolitical risk has been Board, also reviewed the effectiveness of the Group, and that the risks are reviewed and kept up amended to call out even more explicitly Company’s risk management and internal controls. to date by the respective stakeholders. macroeconomic and global political You can read more about this in the ARC report on Following regular review of the insights from these uncertaintyrisk. page 74. Additionally, the Board receives regular GIA and business unit/cluster risk management reporting from the Group CEO/GET on health and 4. M&A programme ambition risk has been activities, and focussing on the risks that may impact safety, sustainability, people, performance, M&A and amended to make more explicit reference to the the strategic objectives of Coats, the Board has legal and environmental matters. There are also integration of the two recent acquisitions. defined 11 principal risks, as well as a number of standalone risk presentations when appropriate and additional key and emerging risks within that Group one such example is the deep dive into cyber Risk Register. These risks, and the steps we have security presented to the ARC during the course taken to mitigate these risks, are covered further on ofthe year. the following pages. Throughout the year, the Board Based on the principal and key risks of the has kept each of the principal risks under review organisation, our GIA team updates and embeds the with support from the GET and the GRMC. 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 ## 43 Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties cont. Our principal risks, along with a summary of the measures we have put in place to manage and Principal risk Action/mitigation mitigate them or leverage these risks and any related opportunities, are set out in the table below. Risk of ever-increasing For customers across all industries, 2022 was an unprecedented year of market volatility, customer product and uncertainty, and complexity. Expectations of speed to market, productivity, innovation, As stated above, the Board will continue to keep the management and mitigation of these principal risks, sustainability expectations quality, reliability, and sustainability developed and changed rapidly through the year. as well as the appropriateness of this list and the constantly changing broader risk environment, and Group’s continuing Coats continued to leverage its market leadership, customer relationships and global STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO under ongoing review. ability to meet and exceed footprint to meet and exceed those expectations. those expectations as part Principal risk Action/mitigation We continue to leverage our well-established lines of communication with customers to of its strategic growth and gain deep and valuable insights, and to anticipate trends that have the potential to sustainability ambitions change our industry in the long term. We utilise various methods to engage with ## 1. STRATEGIC Risk trend manufacturers, brands and OEMs as well as customer and industry stakeholders, M&A programme ambition Originating and executing M&A opportunities is a key focus for the Group. A key influencers and decision-makers, including surveys, calls and workshops. Considering risk in light of Group’s component of our strategy is value creation and very carefully considered and disciplined and responding to the outcomes of these daily interactions result in our delivery of increasing ambition in use of capital to fund inorganic opportunities to build scale and acquire new capabilities, superior customer value. In 2022 we have met customers’ innovation and sustainability scale of its acquisition technology and talent. The Board has approved a set of criteria to source and evaluate needs by launching 17 new products across Apparel, Footwear, and Performance programme and its ability acquisition opportunities, aligned to Group divisional strategy. These criteria include both Materials divisions, as well as continuing our focus on recycled solutions. Our acquisitions Link to strategy to source, satisfactorily financial parameters, such as revenue growth and EBITDA margins, and non-financial of Texon and Rhenoflex provided the opportunity for us to offer enhanced and synergistic acquire and integrate parameters, such as innovation and sustainability credentials. All M&A projects are solutions, including new levels of innovation and sustainability. For example, Texon’s • Accelerate profitable suitable targets, including overseen and closely monitored by the Board and by senior executive management. Proweave allows us to enhance our partnerships with brand customers. The demand for sales growth two footwear acquisitions Clear M&A processes have been developed and include identification and evaluation of increased personalisation and customisation continues and is a focus in our innovation. • Create value completed in H2 2022 opportunities, specified roles and responsibilities for all aspects of M&A projects, along The addition of Rhenoflex’s Rhenoprint 2.0 technology to our portfolio enhances our offer with focused project management resources during both execution and integration to customers in this area, including reducing waste and increasing productivity. Coats Risk trend phases. Digital’s FastReactPlan was selected by a large Chinese apparel manufacturer to transform its production processes, enabling them to respond with agility to complex Specific M&A risks and mitigations include the risk of failing to achieve required financial order requests and improve on-time deliveries. In Personal Protection, increased worker returns by either overpaying for a target or under-delivering on the business case. This protection remains a key theme with more industry regulation and the need for comfort risk is managed by deep sector knowledge brought by executive management, an with multi-hazard protection. Our customers and their customers continue to demand experienced M&A team which leverages specialist external advice on valuations, and increased performance from the materials they use, and our new personal protection yarn Link to strategy focused diligence to satisfy the Board that the commercial fundamentals are robust. ranges address these customer needs. • Create value The risk of failing to fully integrate the target company into the Group is managed by a Our new sustainability targets for the period 2023-2026 include energy, materials, water, dedicated integration management office (IMO), involved from the diligence phase waste and people goals, in line with customer expectations. Our Sustainability team onwards and leveraging internal and external diligence resources, to facilitate successful continue to collaborate and engage with customers across the globe to deepen their integration of the target company. A key focus of the IMO is enabling delivery of the understanding of demand trends and successfully meet and exceed expectations as business case, whilst managing people and culture change to ensure sustained success. evidenced by the significant increase in sustainable product sales and the development The risk of failing to capture synergies is managed by ensuring that synergy cases are of new products to progress the industry circularity agenda. Sales of EcoVerde continued robust and achievable and are reviewed by internal and external experts. The IMO plays to grow during the year and we supported a major European retailer in the launch of a a key role in ensuring the integration allows for effective synergy delivery in line with the new sportswear brand by supplying high quality recycled threads. business case. In addition to a well-resourced acquisitions team, we leverage wider We were able to flex our broad geographic manufacturing footprint to allow us to meet internal resources and external advisers in specialist areas such as valuation, financing, customer requirements for speed of production and delivery in the event of local due diligence and integration. Post-completion/integration reviews are also conducted to disruption, a key differentiator of the business. During the year we utilised our total Asian ensure that learnings are identified and built into subsequent projects as part of a manufacturing footprint to maximise service across markets in China that were continuous improvement process. Significant work has been completed in 2022 and, experiencing ongoing impacts from Covid-19 to meet increased demand during the peak having acquired two strategic businesses (Texon and Rhenoflex), our primary focus season. We also expanded our manufacturing capacity of a specialised thread product for remains the successful integration of these acquisitions into Coats, whilst continuing to a world-leading retailer to allow them to fast-track productions of a new innerwear range. build a robust pipeline of opportunities for future acquisitions. ## 44 Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties cont. Principal risk Action/mitigation Principal risk Action/mitigation Risk of failure to attract, As a result of significant macroeconomic volatility, 2022 has seen critical labour shortages retain and develop diverse and specific skill gaps in some labour markets where Coats operates – particularly the ## 2. EXTERNAL and inclusive set of talent US, India and China – which have become increasingly competitive. To ensure that Coats and capability given retains, attracts and develops the right talent with the right skill sets, the Board’s and Economic and geopolitical 2022 was a year of significant macroeconomic uncertainty with continued higher than STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO business changes, growth senior management team’s close focus on engaging and developing talent continued risk arising from significant normal inflation evident across all areas of the business. We have taken swift actions to in new areas and labour in2022. macroeconomic and counter the continued high inflation through early and decisive strategic pricing actions availability challenges. demand uncertainty – and a combination of activities (including the execution of the Strategic Projects, Following our successful switch to 100% online learning in 2020, we delivered more than across both key Asian and acquisitions and divestments that supplemented self-help initiatives including productivity Risk trend 95,000 hours of training to our employees in 2022 through a variety of training platforms. developed markets – improvement and cost control measures). We have also focused on volume and share We added new elements to our suite of learning programmes including Manager including risk to free trade gain in addition to taking strategic pricing actions where appropriate. Supply chain Excellence, which focuses on critical manager skills through short, relevant sessions of an conventions – as well as disruptions have been managed through leveraging our global footprint, long term hour every month for 12 months. global inflationary pressures relationships with global suppliers and adjusting our inventory holding as needed (see In order to further engage our employees we launched a Global Recognition Program and ongoing geopolitical further actions referred to in Supply risk on page 47). called ‘Applause’ with 8 programs to recognise employees at all levels of the organisation developments Link to strategy The Group continued to conduct appropriate financial forecasting and modelling to track both globally and locally. Recognising that a sense of belonging contributes to a great Risk trend liquidity and assess foreign exchange exposure. We utilised our prior experiences of • Accelerate profitable place to work, we launched our ‘Coats for All’ initiative, bringing all our diversity initiatives managing in a downturn, including creating appropriate contingency plans for a number sales growth across the world under one umbrella and brand. The gender diversity initiative under the of scenarios across our geographies. The ongoing impacts from the Covid-19 pandemic name of ‘Coats for Her’, with five programs to develop and nurture our female talent, • Transform the business that continue to manifest and impact both the supply chain and labour, particularly in further engaged our colleagues. A Global Job Vacancy Bulletin ensured transparency of • Create value China, are monitored with the previous learnings being utilised. vacancies to allow development of talent and capability. Whilst ensuring engagement and career development of Coats employees, we actively monitored the Coats markets to We monitor geopolitical risks and take action where appropriate. The Russian invasion of Link to strategy ensure payment of living wage for all our employees to receive a wage that is sufficient to Ukraine resulted in swift decision making by the Board and GET to ensure our people • Accelerate profitable afford a decent standard of living in their country or location. We also closely monitored were safe and that our operations were closed where necessary. The wider implications sales growth the inflation situation and made interventions where required. of the war, including on oil/energy price and supply availability are considered and managed via our Supply chain relationships and our global operational footprint. • Transform the business As part of our employee listening strategy, which provides an integrated approach to understanding the overall employee experience, we continued surveys during 2022 as Overall, our strategic focus has been on innovation, sustainability and automation to • Create value well as considering the insights from the Designated Non-Executive for Workforce manage the Group through a volatile, uncertain, complex and ambiguous environment Engagement. Through our Future of Work survey we listened to what our employees and achieve our strategic goals in 2022. want from a workplace post-pandemic. As a result of the outcomes, we implemented flexible work policies to continue engaging our employees. A Future of Work leadership guide provided our managers with tips and tricks on how to engage employees in this new hybrid world of work. Through the Great Place to Work survey we heard the voice of over 14,000 of our employees and were proud that 86% of our employees worked in a certified ‘Great Place To Work’. The Great Place To Work Trust Index score increased from 79% to 85%, showing the increased engagement of the workforce. The survey also allowed us to understand how we can further improve the work environment for our employees. Whilst we continued to deliver key employee health and wellbeing programs at a local level across Coats, we will be focusing on a global wellbeing program called “Energy4Performance” addressing all four health zones: mental, physical, emotional and social to further retain our employees. ## 45 Coats Group plc Annual Report and Accounts 2022 ## Principal risks and uncertainties cont. | Principal risk | Action/mitigation | | --- | --- | | **Cyber risk** Risk of cyber incidents leading to corruption of applications, critical IT infrastructure, compromised networks, operational technology and/or loss of data. | 2022 was a year of transition with changes in our internal talent adding to our in-house capabilities and the consolidation of certain systems to allow us to introduce more protective systems. We changed to a new provider for phishing simulations and user awareness and training materials. These improved training materials and better insights of user habits from phishing tests enable us to target users' specific education needs and in turn give Coats greater protection from online threats. Our Managed Detection and Response (MDR) service was replaced with a more robust device protection system and service, which includes a tier-1 Security Operations Centre (SOC) and network discovery capability. Outbound internet traffic filtering through the 2021 SASE solution enables us to monitor traffic from our devices to identify and block malicious activity. We proactively strengthened and matured existing controls, including bringing support for some systems in-house rather than by third parties. This enables our team to provide a better level of support with greater agility. | | **Risk trend** [BBOX]0.0000,0.3000,0.1100,0.3300[/BBOX] | For our key systems we make daily backups to an alternative cloud provider to ensure we do not have a single point of failure, and for these key systems we utilise the layers of protection provided by Microsoft. For 2023 we have key strategic projects planned including firewall enhancement across all global locations and secure reconfiguration of our networks to reduce risk and mitigate potential attack. As Coats continues to grow as a digital organisation, and supporting our strategy to Accelerate and Transform, there will be huge benefits to be gained along with significant digital security and strategy risks. Moving forward we will focus on continuing to ensure the right level of governance, cyber personnel, technology, processes and training across our business to minimise these risks, working on a principle of security by design at all times. | | **Link to strategy** • Transform the business | | Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties cont. Principal risk Action/mitigation Principal risk Action/mitigation Risk of supplier non- The Group continues to conduct regular scenario analysis and continuity planning in Environmental During 2022 we retained very tight focus on risk mitigation areas that align to our 2022 performance, unavailability relation to each of our key raw materials and dyes, as well as labour and freight, to assess non-performance risk given sustainability targets. This meant that we made continued progress on reducing energy and/or price increases of what counter measures can be put in place if certain events were to occur. changing standards, intensity through our energy monitoring system pilot, and accelerated our transition to raw materials, labour and increasing scrutiny, renewable electricity and performed strongly in relation to Zero Discharge of Hazardous STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO During 2022, there was a continued impact of the Covid-19 virus on global supply chains freight and/or logistical customer and investor Chemicals (ZDHC) standards. particularly in China, limiting availability of certain feedstocks and raw materials. This, challenges causing major demands and expectations coupled with the volatile global economic environment, has resulted in demand Progress on waste prevention and reduction was accelerated in 2022 with many disruption to Coats’ supply and scale of Group’s own fluctuations and the withdrawal from the market of some suppliers. There was also higher circularity initiatives introduced, particularly in paper, cardboard and plastic packaging. chain. self-imposed standards than normal inflation across raw materials, freight, labour and energy. To mitigate these, Environmental targets continue to be core to our sustainability strategy and we have now and ambitions, creating Risk trend we continue to assess our global stocking policy for strategic raw materials, enter into developed 2026 targets which will ensure that this remains central to the business. commercial, financial and discussions with key suppliers ahead of any anticipated shortages to secure the required reputational risks as well Our 2026 targets include further reduction in energy intensity, with significant focus on volumes and destocking where downturns are expected. We also have expanded our as opportunities. our energy transition, effluent standards, increased water recycling and zero waste to supplier base where necessary. We monitored regulatory developments and utilised our Risk trend landfill. Further details on our sustainability strategy can be found in our annual global footprint to respond to changing sourcing requirements. Robust assessments of Sustainability Report (www.coats.com/sustainability) which is published at the same time financial performance of key suppliers and evaluation of suppliers’ own risk management Link to strategy as this Annual Report. plans are undertaken, and our dependency on key suppliers and raw materials was reviewed frequently. From August 2022 onwards, supply concerns on most raw materials We continue to track and implement new and updated Environment, Health & Safety • Accelerate profitable were viewed to have eased. (EHS) legislative requirements using a subscription based environmental system, thereby sales growth enhancing our performance in relation to EHS legal requirements. We also utilise a permit We continue to work closely with our key suppliers to ensure our requirements are met • Transform the business Link to strategy management system for management of all environmental permits and licences held in and rely on systems and tools, such as the supplier portal, to manage costs. Coats’ scale • Create value • Transform the business each country we operate in. and global footprint offers security to both brands and contractors. Our environmental incident management system ensures that we have a consistent and transparent way of managing any 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 effluent treatment plants that discharge direct to natural waterways, to ensure we meet local permit conditions and ZDHC limits. Following our acquisitions of Texon and Rhenoflex in 2022, we have commenced the program of aligning those business units to the Coats environmental policies and procedures, and use of common systems. During the due diligence their environmental performance was assessed as fully as possible, and no concerning issues were identified. 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 define, measure, analyse, improve and control (DMAIC) process. ## 47 Coats Group plc Annual Report and Accounts 2022 # Principal risks and uncertainties cont. | 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, financial 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. | The Board continues to receive and discuss with management – as a priority at each Board meeting – detailed reviews of health and safety (H&S) performance and monitoring of progress against established annual H&S targets and objectives. Senior management and employees throughout the Group likewise remain closely focused on creating an injury-free work environment through the identification and remediation of hazards and training and behavioural change programmes. Covid-19 has continued to be an area of focus in 2022, but at a much lower level than in the two previous years. Our units performed commendably in maintaining appropriate levels of workplace controls and were able to protect employees from workplace infection and maintain operations. With the significant increase in Covid-19 cases in China towards the end of 2022 as societal controls were lifted, we immediately re-introduced tighter workplace controls to protect employees. We continued pursuing our Journey to Zero safety strategy that was launched in 2019. We maintain a consistent focus on proactive and preventive actions as well as leading indicators, as well as full investigation of any incident or near miss. We maintained broadly the same level of employee training hours as in 2021 (30 hours vs 29 in 2021). | | **Risk trend** | All of our proactive, preventive actions translated into the following results for 2022: – 11% reduction in work-related recordable injury rate (0.40 vs 0.45 in 2021) – 27% reduction in lost time case rate (0.24 vs 0.34 in 2021) – 36% reduction in days lost per lost time injury (13 vs 21 in 2021) – 24% reduction in first aid case rate (2.27 vs 2.97 in 2021) | | **Link to strategy** • Transform the business | At the end of 2022, to align our H&S management structure to the new business structure, and recognising the significant progress made in the last few years, we embedded much of the global team more directly into the business Divisions where they will be better able to work closely with units to maintain the improvement momentum. Our slimmer global team will work with divisional and geographic H&S leaders on global development and delivery of global strategies. During 2023 we will continue our Journey to Zero strategy and will be revising and updating our safety management system. We will also be ensuring that our new acquisitions made in 2022 are aligned with our H&S policies and procedures. We have also detected a marginal increase in commuting-related incidents in 2022 that we believe is related to a post-Covid-19 behavioural shift of employees from public to private transport and we will be enhancing still further our focus on developing awareness and mitigation of commuting risks amongst our employees. | Coats Group plc Annual Report and Accounts 2022 ### Principal risks and uncertainties cont. Key risks Emerging risks Principal risk Action/mitigation In addition to these principal risks, the Group has The 2018 UK Corporate Governance Code, which ## 4. LEGACY also identified a number of key risks. These are came into effect from 1 January 2019, requires monitored by the GET, who receive regular updates, Boards to assess emerging risks in addition to Lower Passaic River legacy The Board continues to monitor developments very closely and oversees the strategy in STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO and periodic deep dives, on them from the risk principal risks. In adherence with this, we have environmental matter relation to the Lower Passaic River proceedings. champions assigned to eachrisk. integrated emerging risks into our current risk Detail of the Lower Passaic management practices monitoring the internal and River legacy environmental An example of such a key risk is the risk of matter can be found in note external business environment to identify and disruption to our business operations as a result of 28 on page 151. review new and emerging risks to the Group. events such as pandemics, fire or water shortages, Risk trend or natural catastrophes (flood, hurricane, monsoon, The Board and management continue to remain earthquake, etc). Discussions on this risk, and the alert to emerging risks. These are identified through steps taken to mitigate it, include regularly stress internal discussions and activities as well as testing the business continuity plans prepared by conversations with external third parties and insights units and functions across the Group, to ensure we from observing and reflecting on the broader Link to strategy are able to respond quickly and effectively to any environment in which the Groupoperates. • Transform the business such event. Modern Slavery The list of key risks also includes a number of During the year, the Board approved the Group’s potential disruptive risks arising from, for example, Modern Slavery Statement. We remain committed to new competitors and new technology. The GET and addressing the potential risks of modern slavery and Board, as appropriate, continue to monitor these human rights abuses, to acting in an ethical manner potential disruptive risks and also the opportunities with integrity and transparency in all business that these may present. dealings, and to investing in the creation of effective systems and controls across the Group to safeguard against adverse human rights impacts. ## 49 Coats Group plc Annual Report and Accounts 2022 ### Long term viability statement In accordance with provision 31 of the revision of the The Directors consider that the three year period After assessing the potential impact of the principal – The assumption that following a material risk 2018 UK Corporate Governance Code, the Directors considered by the Medium Term Plan reflects an risks, the specific areas considered as part of the event, the Group would adjust capital have assessed the longer term viability of the Group appropriate period over which its business and severe but plausible scenarios include: management to preserve cash; and over the period to December 2025. investment cycles, as well as its prospects, can be – The assumption that the Group will be able to – Sales growth is lower than expected throughout STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO considered. The Medium Term Plan and the severe mitigate risks effectively through other available The Directors’ assessment has been made with the assessment period, with reduced margins and but plausible downside scenarios (as set out below) actions. reference to the Group’s current position and cash generation. Lower sales growth could result both consider the implications of risks around prospects, as detailed in the Strategic Report. This from a further prolonged Ukraine war, Covid As part of the going concern assessment, the sustainability and climate change over the three takes into account the Group’s business model, lockdowns, continued supply chain challenges, Directors also considered a reverse stress test year assessment period. Longer term implications strategy, approach to allocating capital and the inflation and current demand uncertainty, as well flexing sales to determine what circumstance would and prospects, including both risks and potential impact of the principal risks and how these as Coats being unable to meet customer be required to either reduce headroom to nil on opportunities, of climate change have been are managed. The Directors have also considered expectations (including sustainability targets); committed borrowing facilities or breach borrowing considered as part of the Task Force on Climate- committed finance facilities which, following the – Benefits from strategic projects are lower than covenants, whichever occurred first. As set out on related Financial Disclosures report. refinancing exercise concluded in February 2023, expected; page 119, the Directors consider the likelihood of the have maturities which range from approximately 19 The Directors have taken into account the Group’s condition in the reverse stress test occurring to be – Benefits from synergies, following the Texon and months to c7 years. current position and the potential impact of the remote. Rhenoflex acquisitions, are lower than expected; principal risks set out on pages 42 to 49 as well as The Group’s strategic objectives and associated and Based on this assessment, the Directors have a other risks that could crystallise during the medium principal risks are underpinned by an annual budget – Supply chain challenges cause unavailability and/ reasonable expectation that the Group will be able term. The Directors have considered a range of and Medium Term Plan process, which comprises or price increases of raw materials, labour, freight to continue in operation and meet its liabilities as severe but plausible scenarios that explore the financial projections for the next three years (2023 and/or logistical challenges causing major they fall due over the period of the assessment. Group’s resilience to the potential impact of the – 2025). The Medium Term Plan represents a disruption to Coat’s supply chain. principal risks as set out on pages 42 to 49 as well common process with standard outputs and asother risks that could crystallise during the The Directors have also taken into account a requirements at the Group level. The Board reviews mediumterm. number of assumptions that they consider and challenges the Medium Term Plan annually. reasonable within these assessments including: Although this period provides less certainty of outcome, the underlying methodology is considered – The assumption that funding facilities will continue to provide a robust planning tool against which to be available throughout the period under strategic decisions can be made. review: the core US private placement borrowings are due between 2024 and 2030 and the revolving facility matures in 2024, with the ability for two one-year extensions. It has been assumed that the US private placement borrowings and the revolving facility that mature before 31 December 2025 are successfully refinanced during the assessment period; ## 50 Coats Group plc Annual Report and Accounts 2022 ### Operating review 2022 Operating Results overview Apparel & Footwear (‘A&F’) 2022 vs 2021 | | | | | | 2021 | | CER 1 | | Organic ⁴ | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | | | Group revenue of $1,584 million increased 9% on a | Coats is the global market leader in supplying | | | 2022 | | 2021 ³ | | CER 1 | Inc | | inc | | inc | | | | Continuing operations | | $m | | $m | $m | % | | % | | % | | | | | | | | | | | | | | | reported basis, 16% on a CER basis (which includes | premium sewing thread and footwear structural | | Revenue | | | | | | | | | | | the initial impact of the Texon and Rhenoflex | components to the A&F industries. We are the | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO By segment acquisitions), and 10% on an organic basis. This was trusted value-adding partner, providing critical 1,163 1,048 988 11% 18% 9% driven by pricing actions which fully offset ongoing supply chain components and services, and our A&F | | | | | heightened inflationary pressures, market share | portfolio of world-class products and services exist | | --- | --- | --- | --- | --- | --- | | | PM | | 420 399 373 5% 13% 13% | | | | | | | | gains and a strong market recovery during H1. As | to serve the needs and requirements of our | | Total | | 1,584 1,447 1,361 9% 16% 10% | | | | | | | | | anticipated, year-on-year performance slowed | customers and brand owners. Coats is also the | | | | | | during the second half, in part due to the 2021 | global market leader in footwear structural | By region | | | | | comparator strengthening, as well as a softening in | components. Our highly engineered products have | | --- | --- | --- | --- | --- | --- | | | Asia | | 912 850 826 7% 10% 6% | | | | | | | | demand due to macroeconomic factors, with some | strong brand component specification, primarily | | | Americas | | 341 314 311 9% 10% 9% | | | | | | | | destocking. This was most noticeable in Apparel | targeted at the attractive athleisure, performance, | | | EMEA | | 331 283 225 17% 48% 25% | | | | | | | | markets in Q4 but also impacted Footwear towards | and sports markets. The combination of Coats, | | Total | | 1,584 1,447 1,361 9% 16% 10% | | | | | | | | | the end of the year. | Texon and Rhenoflex in this market has enabled us | to accelerate our innovation and sustainability. Group adjusted operating profit of $235 million Adjusted operating profit ² increased 27% on a CER basis (2021: $198 million Our A&F business benefited from market share By segment | | | | reported), with operating margins up 120bps to | gains and strong pricing/mix fully offsetting | | --- | --- | --- | --- | --- | | | A&F | 201 171 162 18% 24% 18% | | | | | | | 14.8% (2021: 13.7%). On a reported basis operating | inflationary pressures, along with post-COVID-19 | | | PM | 34 27 23 26% 47% 47% | profit was $181 million (2021: $178 million) after $54 | industry inventory restocking, buffer buying in the | | Total adjusted operating profit | | 235 198 185 19% 27% 22% | million of strategic project costs and acquisition- | face of supply chain disruption and continued | | | | (54) (20) | related items. | underlying market recovery during H1. As | Exceptional and acquisition-related items anticipated, year-on-year performance slowed Operating profit 181 178 Adjusted earnings per share (‘EPS’) for the year during the second half, in part due to the 2021 increased by 14% to 8.2 cents (2021: 7.2 cents) comparator strengthening, as well as a softening in Adjusted operating margin² as operating profits grew significantly due to the demand due to macroeconomic factors, with some By segment strong trading performance and the delivery of destocking. This was most noticeable in Apparel savings from the strategic projects, alongside A&F 17.3% 16.3% 16.4% 100bps 90bps 140bps markets in Q4 but also impacted Footwear towards a reduction in the underlying effective tax rate. PM 8.1% 6.8% 6.2% 130bps 190bps 190bps the end of the year. Despite these industry dynamics There was some offset from higher interest Total 14.8% 13.7% 13.6% 120bps 120bps 150bps we have continued to leverage our key customer costs. Reported EPS of 4.8 cents (2021: 5.8 1 Constant Exchange Rate (CER) are 2021 results restated at 2022 exchange rates. relationships, strong sustainability credentials, cents) was 18% lower, including the impact of 2 On an adjusted basis which excludes exceptional and acquisition-related items. market-leading product ranges and technical exceptional and acquisition related items. 3 Restated to reflect the results of the Brazil and Argentina business as a discontinued operation. services, and our flexibility and agility in a turbulent 4 Organic on a CER basis excluding contributions from Texon and Rhenoflex acquisitions supply chain environment. ## 51 Coats Group plc Annual Report and Accounts 2022 ## Operating review cont. Revenue of $1,163 million (2021: $1,048 million) reflected strong growth of 18% on a CER basis (11% reported), which included the initial contribution of the Texon and Rhenoflex acquisitions, which were acquired in July and August 2022 respectively. Excluding acquisitions, organic growth was 9% for the full year with H2 adversely impacted, following the exceptional H1 (organic growth 21%), as a result of the changing market conditions described above, and strengthening comparators. The performance in the year reflects the flexibility of our global footprint and our ability to support customers during the COVID-19 recovery and ongoing uncertainty in global supply chains. Our global accounts programme, in which we dedicate customer relationship resources to our key brands and retailers, saw significant new customer and programme wins, which contributed to further overall share gains; this has included a new programme win with a major European retailer in relation to a sportwear brand launch where we are the nominated recycled thread supplier. We have also been able to further leverage our technical advisory and fast sampling service to deliver notable further sales successes in a number of Asian markets. All of our geographic regions (Asia, Americas and EMEA) benefited from positive end market sentiment during H1, led by our ongoing ability to supply product. Market trends towards Sports and Athleisure, as well as casualisation, continued to accelerate. In addition, increasing online activity, a shift towards premium products and supply chain digitisation trends also continued during the year. Supplier consolidation, nearshoring and the need for agility were also prominent trends and, unsurprisingly, customers continue to place increasing emphasis on their sustainability agendas. Despite the slowdown in the second half of the year, largely driven by macroeconomic factors and resulting destocking, these longer-term trends remain and are opportunities to underpin further accelerated medium-term growth and share gains. All A&F's sub-segments delivered organic revenue growth in 2022; A&F thread was up 9%, Zips and Trims was up 16%, and Coats Digital was up 3%. Adjusted operating profit of $201m (2021: $171m) increased 24% vs 2021. Adjusted operating margin was up 90bps to 17.3% (2021: 16.4% at CER). Excluding the marginally dilutive initial impact of acquisitions (which are expected to be accretive, post synergies), A&F margins were up organically 140bps year-on-year to 17.8%. This was as a result of excellent commercial and operational delivery, pricing and procurement actions fully offsetting heightened inflationary pressures, alongside strategic project benefits and general cost discipline. ### Performance Materials ('PM') We are experts in the design and supply of a diverse range of technical products that serve a variety of strategic end use markets. Building on over 250 years of leadership in thread, we incorporate specific design features to be able to provide highly engineered solutions for our customers. The segment operates across Personal Protection, Composites and Performance Threads. Personal Protection offers multi-hazard industrial applications for industrial, energy, firefighting and military wear. Coats Group plc Annual Report and Accounts 2022 # Operating review cont. ## Revised segmental reporting – from 1 January 2023 As mentioned above, in July and August 2022 we completed the acquisitions of Texon and Rhenoflex respectively. This has made us the global leader in footwear components, alongside our existing global leadership position in industrial thread. As a result of these acquisitions, and as announced at our Capital Markets Day in 2022, our new organisational and reporting structure, effective 1 January 2023, is comprised of three divisions; Apparel, Footwear and Performance Materials. The new Footwear segment will consist of the existing Coats footwear thread business (currently part of A&F), and the acquired footwear components businesses, Texon and Rhenoflex. We will report our financial results on the new segmental basis from our HY23 results. As announced at our 2022 Capital Markets Day, the medium-term sales growth CAGR for the new operating segments are anticipated to be 3-4% for Apparel, c.8% for Footwear, and 6-9% for Performance Materials, resulting in Group growth of c.6%. The goal for the Group 2024 adjusted operating margin is c.17%, comprising 15-16% for Apparel, >20% for Footwear, and 13-14% for Performance Materials. ## Geographical performance We saw strong revenue growth in all regions driven primarily by pricing actions, mix and positive end market sentiment during H1. Our Asia revenue, 58% (2021: 59%) of Group, increased 6% CER to $912 million (2021: $850 million), despite some headwinds. While Vietnam and India delivered strong growth, following COVID-19 disruption in 2021, the market in China was impacted by COVID-19 disruption during H1 2022. Overall, Asian markets experienced significant demand and supply volatility throughout the year, with our performance underpinned by agility, customer focus and self-help initiatives. Our Americas revenue, 22% (2021: 22%) of Group, increased 9% CER to $341 million (2021: $314 million), with a particularly strong performance in Colombia and Central America. In addition, our US Personal Protection business performed well, with strong demand and operational delivery improving significantly. Coats Group plc Annual Report and Accounts 2022 ## Financial review ### Revenues Group revenue increased 9% on a reported basis and 16% on a CER basis. On an organic basis revenue increased 10%, which excludes the Texon and Rhenoflex acquisitions. All commentary below is on an organic basis unless otherwise stated. ### Operating profit At a Group level, adjusted operating profit increased from $198 million in 2021 to $235 million (including acquisitions) and adjusted operating margins increased 120bps to 14.8%. The table sets out the movement in adjusted operating profit during the year. | | $m | Margin % | | --- | --- | --- | | **2021 adjusted operating profit** | **198** | **13.7%** | | Volumes impact (direct and indirect) | (34) | | | Price/mix | 128 | | | Raw material inflation | (60) | | | Freight inflation | (10) | | | Other cost inflation (e.g. labour, energy) | (48) | | | Productivity benefits (manufacturing and sourcing) | 22 | | | Strategic projects savings | 20 | | | Other SD&A savings | 16 | | | Others (e.g. FX) | (6) | | | Contribution from Texon and Rhenoflex acquisitions | 9 | | | **2022 adjusted operating profit** | **235** | **14.8%** | | Exceptional and acquisition related items | (54) | | | **2022 reported operating profit** | **181** | | In the first half of the year, there were volume tailwinds as a result of the significant demand recovery in the period. In the second half, as anticipated, we saw a slow-down, particularly in Apparel. The direct and indirect volume impact of this, together with the increasingly strong 2021 comparators (due to the exceptional demand conditions, which continued into H1 2022), resulted in a direct and indirect volume headwind in the year. In part as a result of increasing oil prices in the latter part of 2020, and throughout 2021 and 2022, we experienced year-on-year inflationary pressures for a number of major cost categories, most notably raw materials, freight and other costs such as labour and energy. As in previous years, we were able to fully offset these headwinds, by means of productivity benefits and increased pricing. These inflationary pressures continued throughout 2022, albeit with some flattening out and price moderation in certain areas in the latter part of the year. There was early evidence of this, for example, in relation to some raw materials and freight. Selling, Distribution and Administration costs have continued to be well controlled, despite ongoing inflationary impacts. These are below last year as we reduced our costs, particularly in the face of more challenging conditions in H2. We have also benefited from $20 million of savings in the year, in relation to our strategic projects announced in early 2022, and these are ahead of our initial expectations for the year. We have increased the total efficiencies we expect to deliver by 2024 by $20 million through expanding the scope of the projects, in particular focusing on our Asian operations, and we now expect to deliver a total of $70 million incremental benefits. Coats Group plc Annual Report and Accounts 2022 ## Financial review cont. Turkey as a result of the adoption of hyperinflation accounting. The adjusted taxation charge for the year was $60 million (2021: $53 million). Excluding the impact of exceptional and acquisition-related items, the effective tax rate on pre-tax profit was 29% (2021: 30%). The reported tax rate was 37% (2021: 34%), after exceptional and acquisition related items. Profit attributable to minority interests increased by 13% to $22 million (2021: $20 million) and was predominantly related to Coats' operations in Vietnam and Bangladesh, in which it has controlling interests. ### Exceptional and acquisition-related items Net exceptional and acquisition-related items before taxation were $55 million (2021: $20 million). These include strategic project costs of $31 million (of which $5 million are non-cash impairments) and acquisition-related items of $24 million. Strategic project costs of $31 million relate to the commencement of a number of strategic initiatives during 2022; and primarily consist of severance costs of $22 million, non-cash right-of-use asset impairment charges in relation to UK and US office exits of $5 million, and legal/advisor/closure costs of $5 million, offset by a profit of $1 million from the sale of property. These significant actions have supported the acceleration of project benefits, as mentioned earlier, with $20 million of incremental adjusted operating profit delivered in 2022. Acquisition-related items of $24 million consisted of the provisional amortisation charges from the newly recognised intangible assets from the Texon/Rhenoflex acquisitions ($8 million), related transaction costs ($13 million) and the amortisation of intangible assets acquired in previous acquisitions ($3 million). ### Discontinued items In May 2022, Coats completed the disposal of its business in Brazil and Argentina to Reelpar SA, an entity backed by a Sao Paulo Private Equity Firm. As a result of the strategic exit from Brazil and Argentina, the operating results of these businesses prior to sale have been reported within discontinued operations during the current (2022 operating losses of $3 million) and prior years. This has resulted in an overall increase to the Group adjusted operating margin of around 50bps. As a result of the transaction, we have disposed of $49 million of net assets (of which $45 million relates to working capital) for a cash payment to the purchaser and fees of $20 million. In addition, $15 million of historic foreign exchange losses have been recycled to discontinued operations. The Group's statutory profit of $7 million in the year (2021: $109 million) is stated after the loss on disposal from this divestment. The exit from the Brazil and Argentina business is in line with Coats' strategic initiatives, announced in March 2022, to accelerate profitable sales growth and transform the company. ### Cash flow The Group delivered $114 million (2021: $124 million) of adjusted free cash flow in the year. Free cash flow is measured before annual pension deficit recovery payments, acquisitions, disposals and dividends, and excludes exceptional items. Adjusted free cash flow performance was strong, albeit slightly below 2021, which benefited from some significant, favourable non-recurring items, including non-payment of 2020 staff bonuses. We managed net working capital closely, although there was a $22 million outflow (2021: $14 million outflow). Coats Group plc Annual Report and Accounts 2022 ## Financial review cont. ### UK funding update We continue to maintain strong and collaborative relations with the Scheme Trustees around strategic planning and have established a joint working group between the Company and Trustees to review further opportunities for de-risking the scheme, beyond the significant positive progress that has already taken place. As part of this constructive planning the Trustee of the Coats UK Pension Scheme completed a partial buy-in transaction in December 2022 by purchasing a c.£350 million bulk annuity policy from Aviva which insures benefits payable under the scheme in respect of c.3,700 pensioner and dependant members. These members represent roughly 20% of the scheme's liabilities. The purchase of this policy sees all the Scheme's financial and demographic risks fully hedged for the covered liabilities. The Scheme will receive a regular stream of income that matches the pension payments for the covered members, making it a precise liability hedging asset. This further de-risks the Scheme and reduces future balance sheet volatility. It builds on the significant positive steps taken to de-risk the Scheme in recent years, resulting in 90% of the Scheme's inflation/interest rate exposure having previously been hedged. The Aviva buy-in is consistent with Coats' aspiration of fully insuring the Scheme and removing it from the Group balance sheet, in a cost effective manner. When the Technical Provisions (funding) deficit for the Scheme was last formally assessed at 31 March 2021, as part of the triennial valuation cycle, it showed a £193 million deficit. As a result of this valuation, future contributions were maintained at the previously agreed levels of £22 million ($27 million) per annum (indexing) up until 2028, which was expected to result in the pay-down of the deficit slightly earlier than originally planned. The Group agreed to continue to pay the Scheme administrative expenses and levies of around $5 million per annum. Updates since then indicate that the funding deficit has fallen significantly and is now approaching fully funded on a technical provisions basis. This significant improvement has been due to employer contributions, favourable movements in the market (increasing discount rates) and the de-risking actions that we and the Trustees have taken, for example the buy-in transaction referred to above. As a result of this significantly improved funding position, and reflective of the collaborative working relationship with the Trustees, we have agreed a mechanism to switch off/switch on the regular cash contributions to the scheme based on monthly estimates of the latest funding position. As such, if the scheme remains in surplus for a consecutive number of months cash contributions will cease entirely until any trigger on the downside (i.e. a return to deficit) has been hit. At this point, contributions on a pre-agreed basis would resume. Given the latest funding position, this has the potential to significantly reduce or eliminate the existing levels of contributions made into the Scheme, and thereby increase free cash flows generated by the Group, within the short to medium term. Coats Group plc Annual Report and Accounts 2022 ### Chair’s introduction to governance Subject matter Page(s) Board leadership and Company purpose ## The Board's role has been to guide the business through a challenging Promoting the long-term sustainable success of the Company 12 to 13 e xternal environment and through a period of internal transformation, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Generating value for shareholders 14 to 15 ## while maintaining our high standards of Corporate Governance and Contributing to wider society 32 Purpose, values and strategy, and how ## ensuring we deliver long term value to our stakeholders” these and our culture are aligned 2, 11 to 13, 65 to 66 Resources available to allow Coats to meet its objectives and measure performance against them 30 to 31 Our stakeholders and returning Control framework 74 ## DEAR SHAREHOLDER, to face-to-face engagement Stakeholder engagement 32 to 34 On behalf of the Board, it is my pleasure to present The need for the Board to consider and understand Workforce policies and practices 38 the corporate governance report for the year ended the insights from and the concerns of our 31 December 2022, which provides insights into the stakeholders continues to be a critical part of the Division of responsibilities Board’s and its Committees’ activities this year. Group’s ongoing success. We were delighted to The Chair 64 continue our programme of Board visits in 2022, Board roles 64 Board oversight of transforming the business with the Directors holding their annual away week in Non-Executive Directors 64 2022 has been a year of transformation for Coats. Mexico and engaging informally with our employees ## David Gosnell Information and support 64 and 67 Our long history demonstrates our track record and communities, including local officials, as well as of proactively identifying when we need to adapt Chair Composition, succession and evaluation more formally with customers in the Boardroom. and innovate to ensure we are well positioned Succession planning 77 to 79 The Board visited some of our newly acquired sites to continue to deliver sustainable long-term Board diversity 78 to 79 and met a selection of our new colleagues, both growth and success for our stakeholders. I am Board evaluation 22 through the acquisition processes and during the proud of the way in which we have responded Board visit to the Rhenoflex facilities in Germany in to the challenges of the external environment Audit, risk and internal control September. Our Designated Non-Executive Director by thoughtfully considering and taking bold Independence and effectiveness of internal for Workforce Engagement, Fran Philip, has decisions to change the shape of our business. and external audit functions 74 to 76 continued her programme of in-person and remote The acquisition of Texon and Rhenoflex led to the Fair, balanced and understandable reporting 72 engagement during the year. This provides the decision being taken to create three Divisions; Principal risks 42 to 49 Board with direct insights, which are of critical Apparel, Footwear and Performance Materials. importance during this period of significant change Thiswill enable effective integration, drive synergies Remuneration to allow a full understanding of the effect of the and allow for end-to end accountability. Accordingly, Remuneration policies and practices that transformation of the Group and the impact on during 2022 the Board devoted substantial time support strategy and promote long-term culture and the workforce. sustainable success 85 to 104 to considering these acquisitions, including their funding, and their various impacts on the business A formal and transparent procedure for developing policy on executive remuneration 85 to 104 and operations, as well as on our stakeholders. ## 57 Coats Group plc Annual Report and Accounts 2022 ## Chair's introduction to governance cont. Ensuring our investors understand our strategy and vision is critical to our success and it was gratifying to see the turnout of existing and prospective shareholders at our Capital Markets Day in October. Members of the executive team presented our enhanced Footwear business to bring this to life for investors and demonstrated the synergies available to the Group. Investors also had the opportunity to experience how the integration of the Coats, Rhenoflex and Texon workforces position us strongly going forward. ### Sustainability The need to be socially responsible, including changing how businesses operate to reduce their environmental impact, is rightly a focus for our stakeholders, as well as society as a whole. Our proactive approach and commitment to deliver real change is well documented in our previous reports but more is needed. At the start of this year the Board approved a suite of progressive ESG policies including a new Climate Change policy and Living Wage policy, as well as the consolidated Environmental Policy (which combines elements of our previous environmental and energy policies with appropriate updates). Sustainability at Coats, including climate-related governance, is led by the Board, supported by the Board Sustainability Committee. Strategy development and monitoring of action plans at an executive level is championed by the Group CEO and the whole Group Executive Team (GET). The responsibilities for each element of our ESG activities are set out in the Committees' section (see page 67). Our independent Non-Executive Directors play a large role in the Board's ESG oversight, including through Committee membership and designated responsibilities at Board level. Further details of the Group's stance and focus on ensuring effective stewardship in respect of key ESG matters are set out in the Sustainability section of this Annual Report, and also in our Sustainability Report (available on www.coats.com/sustainability). You can also read more about our new 2026 sustainability targets and ![img-4.jpeg](img-4.jpeg) Coats Group plc Annual Report and Accounts 2022 ### Chair’s introduction to governance cont. The Nomination Committee, together with the Steve and Heather bring their significant skills and Remuneration Committee, continues to oversee the experience to further strengthen our Board and social elements of our ESG responsibilities. enhance our succession processes. You can find more details in the Board biographies set out on Board effectiveness STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO pages 61 to 63. In line with the requirements of the Code, this year an You can read more about the processes undertaken evaluation of the effectiveness of the Board and its in 2022 in the Nomination Committee report on Committees, including consideration of the factors to pages 77 to 79 and find further details about the be considered by Directors to fulfil their duties under members of the GET and their remits on page 68. s172 of the Companies Act 2006, was undertaken by Independent Audit Limited, an external service David Gosnell provider. Full details of the process, outcomes and Chair how this will inform the Board's development plan for 1 March 2023 2023 can be found on pages 70. You can read about the elements of the Board evaluation concerning the effectiveness of the Committees in their individual reports. Audit and Risk Committee on 1 September 2022. ## THE UK CORPORATE GOVERNANCE CODE Further details are provided in the Nomination Board composition Committee report on page 78. Compliance statement Ensuring the correct composition of the leadership of the Company, including the Board, GET and Coats has applied all of the principles and During the year there was non-compliance with senior management is key to achieving our goals. complied with all the relevant provisions of the provision 38. Jackie Callaway was appointed in Following Anne Fahy stepping down from the Board 2018 UK Corporate Governance Code (Code) December 2020 with a pension benefit which was in May 2022, Nicholas Bull became Chair of the during the course of the year ended 31 December aligned to the workforce. A policy setting out | Audit and Risk Committee. I’m delighted that our | 2022, with the exception of a short period of non- | phased arrangements was in place for Rajiv | | --- | --- | --- | | Non-Executive Director search processes resulted in | compliance with provision 24 (Membership of the | Sharma which limited his pension benefit with | | the appointment of Steve Murray, as a Non- | Audit Committee) and provision 38 (alignment of | effect from 1 January 2020 to a fixed amount and | | Executive Director and member of the ARC, | executive director pension contribution rates with | his pension benefit reduced to 12% to ensure | | Nomination and Remuneration Committees, in | those available to the workforce). | compliance by 31 December 2022, as detailed in | | September 2022 and the appointment of Heather | | the Remuneration Report on page 96. The Board | During the year there was a temporary period of Lawrence, as a Non-Executive Director and Chair considers it appropriate that there was a phased non-compliance with provision 24 following Anne Designate of the ARC and a member of the transition of the pension benefits for existing Fahy stepping down from the Board on 18 May Nomination Committee, in November 2022. Executive Directors who originally had a 2022 as there were only two members of the contractual entitlement to a higher level of Audit and Risk Committee (Nicholas Bull, who has pension benefit. recent and relevant financial experience, and | Jakob Sigurdsson). This position was resolved | A summary of how we have applied the principles | | --- | --- | | when Steve Murray was appointed as a Non- | set out in the Code is presented in the table on | | Executive Director and became a member of the | page 57. | ## 59 Coats Group plc Annual Report and Accounts 2022 ### Chair’s introduction to governance cont. Stakeholders key How governance supports strategy ## CUSTOMERS Strategic goal STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## COMMUNITIES ## ACCELERATE PROFITABLE TRANSFORM THE BUSINESS CREATE VALUE ## EMPLOYEES ## SALES GROWTH ## ENVIRONMENT Read more on page 12 Read more on page 12 Read more on page 12 ## SHAREHOLDERS Key stakeholders ## SUPPLIERS The Board’s governance role The Board approves the Group’s strategy and annual The Board reviews the strategy for sustainable growth The Board reviews key proposals relating operating plan, reviews subsequent progress and and leverages its collective experience to advise on to business capability. makes decisions related to matters reserved for the related matters. Board in order to support the delivery of this strategy. Examples of areas of focus in 2022: – Acquisitions of Texon and Rhenoflex and – Update on Culture, talent plan processes for 2023 and – Review of UK pension scheme £350 million buy-in implementation of the Strategic Projects the update on the launch of 'Coats for All' and updates and subsequent agreement of mechanism to switch from our designated Non-Executive Director for off/on regular cash contributions to UK pension – In-depth review of Footwear strategy Workforce Engagement’s meetings with employees scheme, based on monthly estimates of latest – In-depth review of Performance Materials strategy funding position – Oversight of Strategic Projects including ensuring – Monitoring of key metrics, including sustainability and appropriate people and resource allocation – Review and selection of funding process for KPIs, at each Board meeting acquisition of Rhenoflex and impact on leverage – Review of organisational structure – Review of Group’s dividend policy – Divestment of Brazil and Argentinian businesses – Approval of 2026 sustainability targets and ESG policies (including Living Wage and Climate Change policies) ## 60 Coats Group plc Annual Report and Accounts 2022 ### Board of Directors N S S ### Board profiles (excluding Executive Directors) Length of service Relevant Functional STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Experience | | | David Gosnell OBE | Rajiv Sharma | Jackie Callaway | | --- | --- | --- | --- | --- | | 0–3 years 45% | People 20% | | | | | 3–6 years 22% | Legal 13% | | | | | | | Chair of the Board | Group CEO | Chief Financial Officer | Risk 18% | | British | Singaporean | New Zealander | | --- | --- | --- | --- | | Finance 20% | Appointed as a Non-Executive Director on 2 March 2015, | Appointed as an Executive Director in March 2015, | Appointed as an Executive Director on 1 December 2020, | | | Chair of the Board since 19 May 2021 | Group CEO since 1January 2017 | Chief Financial Officer since 1 April 2021 | Technology/Digital 13% Key skills and experience Key skills and experience Key skills and experience Geographic Experience – Strong and deep supply and procurement background in global – 30 years’ global multi-industry leadership experience – Strong finance track record multinational companies – Growth, digital, sustainability and acquisitions track record – Experience across multinational manufacturing and supply – International and strategic mindset chainbusinesses External appointments Previous experience and external appointments External appointments Was previously Chair of Old Bushmills Distillery Company Ltd and a Non- Rajiv joined Coats in November 2010 as Global CEO Industrial and was Previously Chief Financial Officer of Devro plc, one of the world’s leading Executive Director of Brambles Ltd. David retired from Diageo plc in responsible for developing and executing a growth strategy. He has manufacturers of collagen products for the food industry. Prior to that, 2014 where he had most recently held the role of President of Global lived and worked in the US, Europe and Asia. Jackie was Group Financial Controller of Brambles Ltd, the ASX top 20 Supply and Procurement. Prior to joining Diageo, David spent 25 years supply chain logistics company. Non-Executive Director of Senior plc. Rajiv has been on the board of at HJ Heinz in various operational roles. joint ventures at both GE and Shell and held management positions with Member of Australian Institute of Company Directors since 2017. Saab, Honeywell, GE and Shell. Global Business Experience 26% US Market Experience 24% Qualifications Qualifications Qualifications David is a Fellow of the Institute of Engineering and Technology and Rajiv holds a degree in Mechanical Engineering, as well as an MBA from Jackie is a Fellow of the Chartered Accountants Australia and New European Market Experience 26% holds a Bachelor of Science degree in Electrical and Electronic the University of Pittsburgh, USA. Zealand, and of the Institute of Chartered Accountants in England and Engineering from Middlesex University. He has completed Supply Chain Wales. She has a Bachelor of Business Management Studies from the See the Group CEO’s statement on page 8. Manufacturing – Drive Operational Excellence at INSEAD (Singapore). University of Waikato, New Zealand. See the Nomination Committee report on page 77 and an overview of the activities of the Sustainability Committee on page 67. Key to Committee memberships Committee chair R Remuneration A Audit and Risk S Sustainability N Nomination ## 61 6–9 years 33% Customer 16% Asia Market Experience 24% Coats Group plc Annual Report and Accounts 2022 ### Board of Directors cont. S N RR A NNA STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | Nicholas Bull | Heather Lawrence | Hongyan Echo (Echo) Lu | | --- | --- | --- | | Senior Independent Non-Executive Director | Independent Non-Executive Director | Independent Non-Executive Director | | British | British | British/Chinese | | Appointed as a Non-Executive Director and Senior | Appointed as a Non-Executive Director on 7 November 2022 | Appointed 1 December 2017 | Independent Director on 10 April 2015 Key skills and experience Key skills and experience Key skills and experience – Global financial services and banking experience – More than 25 years' experience in finance – Global business experience gained in different sectors in Europe, – International business experience and insights, especially in China – Strong background in corporate finance and investment banking, and Asia and the US – Advocate for ESG and SRI matters at the Board track record of delivering positive change globally and regionally – Strong background in general management and track record of delivering positive change External appointments External appointments External appointments Deputy Chair of Conran Holdings Ltd, Trustee of the Design Museum, Non-Executive Director and Chair of the Audit Committee at Melrose Managing Director, UK and ROI, of Sonova Group, the global leader Camborne School of Mines Trust, The Creative Education Trust and the Industries plc. Heather originally qualified as a Chartered Accountant for innovative hearing solutions. Previously Chief Executive Officer Conran Foundation and a member of the Advisory Panel of INTO and subsequently spent well over a decade working in senior roles in of Haulfryn Group Ltd, a UK leisure business, Managing Director, University. Previously served as Chair of Fidelity China Special Situations corporate finance and investment banking, where she honed her International of Holland & Barrett International and Managing Director plc, Chair of De Vere, Chair of the Advisory Board of Westhouse experience across industrial and transportation businesses. In her most of Homebase Ltd as part of Home Retail Group plc. Echo spent ten Securities and of Smith’s Corporate Advisory Limited and a member of recent role, Heather was a Managing Director at Citigroup, where she years at Tesco plc in a variety of senior leadership roles. Echo was a Council of the University of Exeter. Nicholas had a global career in ran the Aviation and Travel franchise in EMEA. She has served on Non-Executive Director of Dobbies Garden Centres and was a member banking with Morgan Grenfell (subsequently Deutsche Bank), Société several boards and retired from her role as a Non-Executive Director of of the Advisory Board for Diversity in Hospitality, Travel and Leisure. Générale and ABN AMRO. Flybe plc in 2019. Qualifications Qualifications Qualifications Nicholas has a BSc in Chemistry from the University of Exeter and is a Heather holds a bachelor’s degree in Economics from the Echo has a Bachelor of Arts in International Economy and Finance from Fellow of the Institute of Chartered Accountants in England and Wales. University of Exeter. Fudan University, Shanghai and a Master of Science in Industrial He received an Honorary Doctorate of Law from the University of Exeter Relations and Human Resources from West Virginia University. Heather was appointed as Chair Designate of the Audit and Risk in 2022. Key to Committee memberships Committee on 7 November 2022, and she is expected to succeed Echo was appointed as Chair of the Remuneration Committee on Nicholas was appointed as Chair of the Audit and Risk Committee on 19 Nicholas Bull as Chair following the 2023 AGM. 1 May 2021, having served on the Remuneration Committee since her Committee chair R Remuneration May 2022 and he is expected to step down as Chair following the 2023 appointment to the Board in December 2017. Her background and AGM. Nicholas brings extensive financial experience through his qualifications in Industrial Relations and Human Resources provide | A | Audit and Risk | S | Sustainability | | | | --- | --- | --- | --- | --- | --- | | | | | | previous roles with Fidelity China Special Situations plc, De Vere Group | the Company with an ideally experienced Chair of the | | | | | | Limited, Morgan Grenfell, Société Générale and ABN Amro. | RemunerationCommittee. | | N | Nomination | | | | | | | | | | See the Audit and Risk Committee report on page 71. | See the Remuneration Committee report on page 85. | ## 62 Coats Group plc Annual Report and Accounts 2022 ### Board of Directors cont. N S NR R AA N STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | Steve Murray | Fran Philip | Jakob Sigurdsson | | --- | --- | --- | | Independent Non-Executive Director | Independent Non-Executive Director, Designated | Independent Non-Executive Director | | British | Non-Executive Director for Workforce Engagement | Icelandic | | Appointed 1 September 2022 | | Appointed 1 October 2020 | American Appointed 1 October 2016 Key skills and experience Key skills and experience Key skills and experience – More than 30 years' experience in the apparel and footwear industry – Extensive speciality retailing business experience – International business experience across a diverse range of sectors – Strong background in general management and track record of – Deep background in product innovation, design and development with particular emphasis on growth in new or developing markets delivering positive change globally and regionally – Workforce dynamics experience – Strong background in general management and track record of delivering positive change External appointments External appointments External appointments Previously Global Brand President of The North Face and a member of Non-Executive Director of Vera Bradley Inc., Sea Bags, Totes Isotoner Chief Executive Officer of Victrex plc, an innovative world leader in the group executive leadership team at VF Corporation, one of the and Vista Outdoor Inc. Previously Fran worked for The Gap, Williams- high-performance polymer solutions. Jakob has more than 20 years’ world's largest apparel, footwear and accessories companies and the Sonoma, The Nature Company, and LL Bean, where she initially served experience in large multinational companies, both listed and private, parent company of The North Face, Timberland and Vans. Steve as Director of Product Development, Home Furnishings, going on to including nine years with Rohm & Haas (now part of Dow Chemical) in previously served as CEO of Airwair International (Dr. Martens, the iconic hold a number of roles including Vice President, Affiliated Brands, before the US, as well as Chief Executive of food manufacturer Alfesca in British footwear brand), and prior to that he served as Global Brand becoming Chief Merchandising Officer until her retirement. Fran was Europe and Chief Executive of Promens. President of Vans, Global Brand President of Urban Outfitters and EMEA previously a Non-Executive Director of Regent Holdings and an industry Between September 2016 and June 2017, Jakob was Chief Executive President of Deckers Brands. executive for Freeman Spogli. Officer of VÍS, the largest Icelandic insurance and reinsurance company. He has held various Non-Executive roles and was a Member of the University of Iceland Council and a Non-Executive Director of the Icelandic Technology and Development Board. Qualifications Qualifications Qualifications Steve holds a bachelor’s degree in Business Studies from Middlesex Fran has a degree in English and Sociology from Bowdoin College, Jakob has a BSc in Chemistry from the University of Iceland and an MBA Key to Committee memberships University, England. Maine, and an MBA from the Harvard Business School. from the Northwestern University. Committee chair R Remuneration A Audit and Risk S Sustainability N Nomination ## 63 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance ## LEADERSHIP AND ENGAGEMENT ## Our governance framework enables effective decision making and STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## ensures collaboration between the Board, its Committees and the GET. ## THE BOARD CHAIR NON-EXECUTIVE DIRECTORS The Board is collectively responsible for the long- – Primarily responsible for the overall effectiveness – Contribute to developing our strategy. term success of the Group and for ensuring of the operation, leadership and governance of – Scrutinise and constructively challenge leadership within a framework of effective controls. the Board. the performance of management in the execution The key roles of the Board are: – Leads the Board, sets the agenda and promotes of our strategy. aculture of open debate between Executive and – setting the strategic direction of the Group, – Responsible for the governance of the Company. Non-Executive Directors. Ensures that there is including consideration of strategic acquisitions; – Bring their diverse expertise to the Board and afocus on Board succession plans to maintain – overseeing implementation of the strategy Board Committees. continuity of skilled resource. Responsible for and monitoring performance by ensuring that – Devote such time as is necessary to the CEO succession. the Group is suitably resourced to achieve proper performance of their duties. – Provides advice and acts as a sounding board to its aspirations; the Board and management. Has open and – overseeing returns to shareholders and regular contact and interaction with the CEO. monitoring the share price; ## – Ensures effective communication with COMPANY SECRETARY – encouraging entrepreneurial leadership by ourshareholders. providing a framework of prudent and effective – Provides support to the Board and ensures controls which enables risk, including risk information is made available to the Board tolerance, to be assessed and managed, in a timely manner. supported by robust systems of governance, – Supports the Chair on meeting management ## SENIOR INDEPENDENT DIRECTOR ethics and compliance; arrangements including setting the agendas for – Provides a sounding board to the Chair. – engaging appropriately with stakeholders to the Board, administering Board effectiveness – Leads the appraisal of the Chair’s performance understand their views; and reviews, ensuring appropriate Board training with the other Directors annually. and coordinating Board inductions. – setting and monitoring the Group’s culture, – Acts as an intermediary for other Directors, supported by its values, and ensuring alignment – Provides advice on corporate governance matters. ifneeded. with the Company’s purpose and strategy. All Directors have access to the advice of the – Available to respond to shareholder concerns Company Secretary. The 'Role of the Board' section on page 65 ifcontact through the normal channels sets out how the Board has discharged these isinappropriate. keyroles in 2022. ## 64 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. the Rights of the Child, the core International Labour Stakeholder engagement Organisation Conventions and The Organisation for ## THE ROLE OF THE BOARD The Board ensures that there is continued Economic Co-operation and Development compliance with the Code (see page 59) and with Guidelines for Multinational Enterprises. We uphold wider statutory and regulatory requirements. Setting the strategy STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO the aims of the California Transparency in Supply TheBoard acts fairly between stakeholders and The Board's forward-looking agenda focused on Chains Act of 2010. In accordance with the UK engages in appropriate dialogue to obtain the views strategic matters including ESG and regulatory Modern Slavery Act 2015, we publish on our website of stakeholders as a whole. You can read more issues, as well as any other matters that may a statement, which is approved annually by the about our engagement with stakeholders on influence or affect the Company’s achievement of its Board, on our actions to prevent modern slavery in pages32 to 34. goals, including generating sustainable growth. our operations and in our supply chain. We expect During 2022, the Board considered a wide range of Culture our employees and our suppliers to behave ethically topics including the structure of the organisation, in all their dealings relating to our business. All our The Board and its Committees assess and monitor the progress of Strategic Projects as well as employees receive training on ethics, compliance culture through a number of indicators and divestment of the Brazil and Argentinian business and modern slavery including focussed training and mechanisms including in 2022: and the acquisitions of Texon and Rhenoflex. The online training modules for our senior employees – A presentation on Culture, diversity, equity and Board held its annual Strategy Meeting in and those with customer or supplier facing roles. inclusion initiatives, including the setting of September at Rhenoflex and focussed on the These training programmes are regularly refreshed, Setting the framework of internal controls and targets, and talent management plans for 2023 at strategy of the Footwear business and considered available in 12 languages, form part of the induction risk management the December 2022 Board meeting the Performance Materials strategy for growth. for new starters and are rolled out biannually for all The Board sets the Company’s risk appetite, – Health and safety updates at every Board meeting relevant employees including Directors. Performance and monitoring including shareholder assesses principal and emerging risks and reviews and an annual review into wellbeing returns mitigation plans. Responsibility for monitoring the – Designated Non-Executive Director for Workforce Company’s risk management and internal control The Board and its Committees evaluate and oversee Engagement updates and Great Place to Work systems is delegated to the Audit and Risk current performance, including against ESG targets, certifications and updates Committee (see page 74). You can read more about and are responsible for approving annual plans and – A review of whistleblowing cases and remedial our principal and emerging risks on pages 42 to 49. budgets, results, dividends and announcements, actions (read more on page 81) including the going concern and viability statements. Robust systems of governance, ethics and – Insights from supplier audits The Board also oversees returns to shareholders compliance – A sustainability strategy review and consideration and ensures pensioners’ interests are safeguarded. The Board regularly reviews information relating to, of sustainability metrics that are presented at all Post-acquisition reviews are undertaken to ensure among other areas, anti-bribery and corruption and Board meetings performance is in line with expectations. whistleblowing as set out in the Audit and Risk Performance monitoring includes non-financial – Appropriately monitoring policies, practices and Committee Report and in the principal risks and performance such as employee wellbeing, behaviour and how they support strategy via uncertainties section. As set out in the Sustainability environmental and social measures, and ethical reports given at Board meetings Report, we support the United Nations Guiding business practice. 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 ## 65 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. Directors’ indemnities ## GOVERNING DOCUMENTS The Company maintains Directors’ and Officers’ liability insurance, which provides appropriate cover Articles of Association for any legal actions brought against its Directors. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO The Articles of Association set out the rules agreed Each Director has been granted indemnities in between shareholders as to how the Company is respect of potential liabilities that may be incurred run, including the powers and responsibilities of as a result of their position as an officer of the theDirectors. Company. A Director will not be covered by the insurance in the event that they have been proven Coats’ Articles of Association were approved to have acted dishonestly or fraudulently. for adoption at the 2021 AGM and these reflect best practice and current legal and Delegated Authorities governancestandards. The Coats Delegated Authorities policy is an internal Service contracts document that sets out the delegations below Board level. It is reviewed and approved annually. Details of the Executive Directors’ service contracts It provides a structured framework to ensure the and the Chair’s and the Non-Executive Directors’ correct level of scrutiny of various decisions covering letters of appointment are set out in the Directors’ matters including contracts, capital expenditure, Remuneration Report on page 92. These documents tax, treasury and human resourcing decisions. are available for inspection at the registered office Ensuring alignment of the Company during normal business hours and at the AGM venue. These documents are reviewed The Board, with support from its Committees, plays regularly. a crucial role in ensuring the alignment of the Group's culture with the purpose and strategy. As Committee terms of reference set out elsewhere in this Annual Report, the Board The Board is assisted by four Board Committees to has considered the changes to the organisational which it delegates matters as appropriate. Each structure resulting from the Strategic Projects, ## Good governance is key to Committee has full terms of reference that are acquisitions and divestments as part of the updates reviewed annually and have been approved by the ## d elivering a strategy. The Board presented at Board meetings and a key part of Board and which can be found on our website at these discussions, and ultimate decisions, relate to www.coats.com/en/About/Corporate-Governance/ ## has the global view which enables our people and culture. The Board and its Board-Committees. ## them to ensure that individual Committees continue to consider any trends in, and the insights from, the cultural indicators and metrics ## plans align and therefore that the as well as other information presented at and in ## group’s strategy and broader between Board meetings, through the lens of ensuring the desired alignment between culture, ## purpose is met." values, strategy and purpose, and provide feedback and direction if required. You can read more about Heather Lawrence our values on page 11. ## Non-Executive Director 66 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. Nomination Committee ## BOARD COMMITTEES OTHER COMMITTEES – Reviews the structure, size, composition and Audit and Risk Committee mix of skills and experience of the Board and Disclosure Committee STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO itsCommittees. – Oversees and monitors the integrity of the The Disclosure Committee oversees the Company’s financial statements, accounting – Identifies and nominates suitable executive Company’s compliance with its disclosure processes and audits (internal and external). candidates to be appointed to the Board and obligations. The Group CEO chairs the Committee, reviews the talent pool. and its other members are the Chief Financial – Ensures that risks are carefully identified and Officer and the Group Company Secretary. assessed, and that effective systems of risk – Considers wider elements of succession management and internal control are in place planning below Board level, including Acquisition Committee and appropriately monitored. diversity and inclusion. The Acquisition Committee is authorised to – Reviews matters relating to fraud. – Oversight of the diversity and inclusion-related oversee specified projects by the Board when social element of ESG. – Oversight of the governance-related appropriate. The Group CEO chairs the Committee, element of ESG. See page 77 for more information. and it includes the Chief Financial Officer and the Group Company Secretary. See page 71 for more information. Sustainability Committee Group Risk Management Committee (GRMC) Remuneration Committee – Provides strategic oversight and monitors the execution of the Company’s Sustainability The GRMC is responsible for formulating risk – Reviews and recommends the framework and strategy and initiatives. management strategies and polices, and policy for the remuneration of the Chair, the monitoring risk management throughout the Group. Executive Directors, the Company Secretary and – Oversees, reviews and provides input as Its Chair is the Group CEO and its membership senior executives, in alignment with the Group’s required to refine, enhance and accelerate the is aligned to the Group Executive Team. reward principles. progress of the Company’s sustainability strategy, projects and targets. – Reviews workforce remuneration and related See page 68 for information on our Group Executive Team. policies, and alignment of incentives and rewards – Oversees the environmental and employee with culture, to help inform the setting of the engagement-related social elements of ESG. Directors’ Remuneration Policy. The Sustainability Committee is chaired by the – Consults with shareholders on the Remuneration Chair of the Board, and its other members are the Policy. Group CEO and two Non-Executive Directors. | – Considers the business strategy of the Group | | Itwas established in December 2021 and its terms | | --- | --- | --- | | | and how the Remuneration Policy reflects and | of reference are available on coats.com. | | | supports that strategy. | TheCommittee met twice during 2022. | | – Oversight of the remuneration-related | | See the Working Responsibly section of this Annual | | | social element of ESG. | Report and the Sustainability Report, available from | www.coats.com/sustainability, for more information. See page 85 for more information. ## 67 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. ## GROUP EXECUTIVE TEAM (GET) MEMBERS’ RAJIV SHARMA STUART MORGAN FREDERIC VERAGUE Group CEO Chief Legal & Risk Officer and Chief Operations Officer, EMEA ## ROLES AND RESPONSIBILITIES See biography on page 61 Group Company Secretary – Responsible for all operations in the EMEA region, ### The GET is responsible for the operational STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO – Responsible for legal and compliance, including quality, compliance, customer service – Responsible for executive management of the governance, risk management and company and sustainability programmes. ### delivery of the Group’s strategy. Group as a whole. secretarial matters. He has executive oversight ### This includes day-to-day management – Delivers strategic and commercial objectives of the Group Internal Audit function. ## BILL WATSON within the Board’s stated risk appetite (see page ### of operations and responsibility for 42 for more detail on key risks). – You can read more about the Group Internal Audit Chief Operations Officer, Asia ### monitoring detailed performance of function’s work during the year on page 74. – Responsible for all operations in the Asia region, – Builds positive relationships with all the Group’s ### all aspects of our business. including quality, compliance, customer service stakeholders (see page 32). and sustainability programmes. ## During 2022 the following roles were FARNAZ RANJBAR part of the GET: Chief Human Resources Officer ## JACKIE CALLAWAY – The President, Performance Materials, left the – Responsible for delivering the global Human business on 31 December 2022 . This role was Chief Financial Officer Resources strategy, including performance responsible for delivering the overall strategy See biography on page 61 management, progression planning, reward for Performance Materials, including commercial – Responsible for financial management and talent acquisition. activities and developing talent, and and implementing and monitoring effective Groupinnovation. – You can read more about People and Culture financialcontrols. onpage 16. – Supports the Group CEO in developing and ## GET ROLES IN 2023 implementing the Company’s strategy. From 1 January 2023, a new GET structure is in ## SOUNDAR RAJAN – Oversees relationships with the investment and effect following the Board’s decision to change to a Chief Supply Chain Officer banking community. divisional operating structure. The changes to GET – Responsible for supply chain management, membership and responsibilities are set out below: sustainability, and health and safety. ## ADRIAN ELLIOTT – Adrian Elliott is now CEO of Apparel; President, Apparel & Footwear – Soundar Rajan is now CEO of Performance ## MICHAEL SCHOFER – Responsible for the overall strategy for A&F, Materials; and Chief Operations Officer, Americas including the development and delivery of value- – Frederic Verague is now CEO of Footwear. adding products and customer propositions. – Responsible for all operations in the Americas Alsoresponsible for Coats Digital and Marketing. region, including quality, compliance, customer Rajiv Sharma, Jackie Callaway, Stuart Morgan and service and sustainability programmes. Farnaz Ranjbar continue in their existing roles. ## 68 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. Board and Committee attendance and physical meetings. This approach will be kept Board effectiveness improvements in 2022 under review to ensure effectiveness is optimised. The Directors’ attendance record at the last AGM, The Board progressed the agreed action plan in relation to the feedback received as part of the 2021 scheduled Board meetings and Board Committee internal effectiveness review and a summary is set out below: The Board visited the Rhenoflex facilities in meetings regularly attended by Non-Executive September and held the Annual Strategy Meeting Actions taken in 2022 as a result of previous evaluation feedback STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Directors, for the year ended 31 December 2022 onsite to allow engagement with the local workforce Continue focus on ESG – Appointment of new Chief Human Resources Officer, launch of 'Coats for All' isset out in the table below. For Board and Board and other stakeholders to enhance strategic matters, particularly related to including new DE&I targets and initiatives Committee meetings, attendance is expressed as ‘social’ including culture, at discussions and understanding of the Footwear – Continuation of ‘Great Place to Work’ certification the number of meetings attended out of the number Board meetings and through business. The Board travelled to Mexico for its – New sustainability targets recommended by Sustainability Committee to Board Committees, including the that each Director was eligible to attend. annual away week and toured various sites, met – Development of Audit and Assurance Policy by Audit and Risk Committee newly formed Sustainability with stakeholders and participated in community During the year, the Board held seven scheduled Committee – Development of new Remuneration Policy by Remuneration Committee events. You can read more about the Board’s meetings and an additional four Board calls were Continue to ensure that the – Further information available in Stakeholder engagement section of this Annual engagement with stakeholders on pages 32 to 34. held to discuss business matters that the Chair Board engages appropriately Report on pages 32 to 34 with all stakeholder groups and Group CEO decided should be considered – Focus on maximising time at Board visits to engage with all stakeholders, including In addition to the scheduled meetings, the Senior by the Board. All Directors received papers for employees at all levels of the business Independent Director and the Non-Executive meetings in advance. The Board resumed meeting Lead by example on – Agreed new ways of working to identify desired paper length relative to discussion Directors meet once a year without the Chair simplification by reducing the time allocated at meetings, with traffic light tracking system to easily see in person for the majority of meetings held during present in order to appraise his performance. demand on management time compliance the year but utilised technology to hold hybrid TheChair and the Non-Executive Directors also through the preparation of – Revised Board paper templates shared with presenters or fully virtual meetings when it was appropriate periodically attend sessions without management shorter, more-focussed Board – Significant reduction in length of Board packs demonstrated in 2022 to do so, recognising the environmental benefits present to discuss, amongst other things, the packs, that maintain the and other efficiencies in balancing a mix of virtual quality of information required performance of key members of management. for effective decision making 5 Board Audit and Risk Nomination Remuneration Sustainability AGM David Gosnell 11/11 1/1 2/2 1/1 Rajiv Sharma 11/11 2/2 1/1 Jackie Callaway 11/11 1/1 Nicholas Bull 11/11 5/5 1/1 4/4 2/2 1/1 1 Anne Fahy 4/4 3/3 1/1 3 Heather Lawrence 2/2 1/1 4 Echo Lu 10/11 1/1 4/4 1/1 2 Steve Murray 4/4 1/1 2/2 Fran Philip 11/11 1/1 4/4 2/2 1/1 Jakob Sigurdsson 11/11 5/5 1/1 1/1 1. Anne Fahy stepped down from the Board on 18 May 2022. 2. Steve Murray was appointed to the Board on 1 September 2022. 3. Heather Lawrence was appointed to the Board on 7 November 2022. 4. Echo Lu was unable to attend the ad hoc Board call convened at short notice on 25 July 2022 due to a long-standing commitment that could not be changed. The business of the meeting was time sensitive. Echo had been involved in all previous discussions regarding the business of the meeting and discussed the outcomes of the call with the Chair shortly after the meeting. ## 5. Certain Nomination Committee discussions were conducted as part of scheduled Board meetings. 69 Coats Group plc Annual Report and Accounts 2022 ### Corporate governance cont. 2022 review of effectiveness IAL and the Chair of the Board and each of the Chairs of the Committees, the Group CEO, the In line with the Code, this year an external ChiefFinance Officer and the Company Secretary. evaluation of the effectiveness of the Board and its IALalso observed a Board and Remuneration Committees was conducted by Independent Audit STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Committee meeting and examined a sample of Limited (‘IAL’). IAL were also used by the Company materials prepared for Board and Committee to conduct the 2019 external evaluation and it was meetings to enable them to make a full and considered beneficial to track changes in the transparent evaluation of the ways of working. IAL previous findings and adopt a consistent approach presented a summary of their findings to the Chair to allow true comparisons, noting the period of and the Group Company Secretary to discuss key substantial change both internally and externally outcomes. The full report was then circulated to the over the intervening time frame. IAL has no other Board and was considered at the December 2022 connection to the Company nor any Directors. meetings of the Board and its Committees, where The process included the circulation of an electronic afull and frank discussion and analysis were questionnaire, that was developed and administered undertaken. The report identified key strengths, by IAL, pertaining to the Board and its Committees including the Board's interaction with the GET, its which was completed by all Board members and contribution to strategy and its oversight of risks and also by regular Board and Committee meeting Group culture, and areas for development. Action attendees. The questionnaire covered a wide range plans and focus areas for 2023, including timelines of topics, including Board operations and dynamics, for delivery, were agreed as set out below and in the Board and Committee composition including relevant Committee reports. Noting that there had diversity and how the Board and senior only been two meetings of the newly formed management interacted. The questionnaire also Sustainability Committee, it was deemed probed the content and scope of topics covered at appropriate not to have a full formal evaluation Board meetings, including stakeholder engagement but instead to include open ended questions on and overseeing culture, as well as considering the relevant areas to identify any relevant feedback discharge of other S172 duties. This process was and areas of concern. supplemented with interviews conducted between Areas for development and actions planned for 2023 Key areas for focus Actions identified for 2023 Effectively telling the strategic story – Ongoing Investor Relations programme with regular updates presented at externally Board meetings – Refreshing the Annual Report Board’s oversight and assurance of – Regular Board updates from the Head of Cyber Security technology – Cyber Security deep dive at the Board Continuing to work on executive – Continuing to invite appropriate Group Executive Team members to attend succession planning Board meetings as an observer – Talent and succession reviews with Chief HR Officer ## 70 Coats Group plc Annual Report and Accounts 2022 # Audit and Risk Committee report ![img-5.jpeg](img-5.jpeg) ### Nicholas Bull (Chair since 19 May 2022) Member since 2015 ### Heather Lawrence (Chair Designate) Member since 7 November 2022 ### Steve Murray Member since 1 September 2022 ### Jakob Sigurdsson Member since 2020 **Dear Shareholder,** I am pleased to present this report, which is my first as Chair of the Audit and Risk Committee, for the year ended 31 December 2022. This report sets out how the Committee has discharged the duties delegated to it by the Board, and the key topics and findings during the year. This year we completed a competitive external audit tender process which resulted in the appointment of Ernst & Young LLP, subject to approval by the shareholders at the 2023 AGM, for the financial year commencing 1 January 2023. You can read more about the process undertaken on page 75. The Committee reviewed and considered the governance of the Strategic Projects that were undertaken during the year. Ensuring the correct accounting policies and assurance processes including, where relevant, post investment reviews (in particular in relation to acquisitions) enable the Company's strategy to be appropriately and effectively executed. The Committee has continued to look ahead towards potential future regulatory changes and emerging best practice. In anticipation of the reforms proposed by the UK government in its publication from May 2022, the Committee has overseen the development and approval of an Audit and Assurance Policy which is available on our website www.coats.com. During the year, the Committee also continued to consider ESG-related reporting requirements and expectations. The Company will continue to consider the appropriate timing and process to progress the external assurance of its sustainability data. Coats Group plc Annual Report and Accounts 2022 ### Audit and Risk Committee report cont. Membership and meetings Financial reporting, going concern and The Committee continues to focus on both the basis Highlights of 2022 viability statement of preparation of the going concern and viability The members of the Committee are independent analysis as well as the external disclosures, to – Completion of audit tender resulting in Non-Executive Directors. During the year, the During the year, the Committee reviewed the interim ensure they are prepared in line with current appointment of Ernst & Young LLP. Committee met four times and held one additional results announcement, including the interim financial STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Financial Reporting Council (FRC) guidance. call, and all Committee Members attended the statements, the Annual Report and associated – Development of assurance policy. maximum number of meetings possible. Further preliminary results announcement, focussing on key – Developing regulatory environment for audit. Fair, balanced and understandable details of individual Directors’ attendance can be areas of financial judgement and estimates made by – Deep dives into cyber-security and expense As part of its review of the company’s Annual Report found on page 69. The Committee met privately management to ensure it was satisfied with the controls processes. and associated disclosures, the Committee has with the external auditor and with the Group Internal outcome, critical accounting policies, disclosures considered whether the report is ‘fair, balanced and Audit function. In addition to the Committee (including those relating to contingent liabilities, Areas of focus for 2023 understandable’ and provides the information members, the Group Chief Financial Officer, the climate change and principal risks), provisioning and – Design and rollout of automated controls necessary for shareholders to assess the Company’s Chief Legal & Risk Officer and Group Company any changes required in these areas or policies. testing. position, performance, business model and strategy, Secretary, the Group Financial Controller, the Senior Particular focus areas during the year were the – External auditor transition. as required by the Code. The Committee used the Financial Reporting Manager, the Head of Group accounting treatment of our recent acquisitions and established processes to ensure its input was – Supplier payment terms review. Internal Audit, the Chief HR Officer and the external our Strategic Projects. The Committee reviewed the appropriately timed, including providing feedback – Progressive implementation of assurance auditor attended parts of these meetings by updated wording of the Group’s longer-term viability on the planning process, and considering the policy including the assurance of invitation. The Group Chair and Group CEO may also statement, set out on page 50. The Committee reviews taken by external advisers. The Committee sustainability data. attend meetings. The Deputy Company Secretary reviewed the process undertaken to ensure that the received a full draft of the Annual Report and acts as Secretary to the Committee. The Chair of the model used was consistent with the approved provided feedback on it, highlighting the areas that Committee holds regular meetings with both internal Business Plan and that the relevant scenario and would benefit from further clarity or balance, and and external auditors, and each has an opportunity sensitivity testing aligned clearly with the principal this feedback was appropriate incorporated. In this to discuss matters with the Committee without risks of the Group. The Committee challenged the respect the Committee focussed on ensuring management being present. underlying assumptions used and reviewed the consistency and completeness in non-financial results of the detailed work performed. The ‘Financial expert’, recent and relevant financial reporting, including ESG and TCFD reporting, Committee was satisfied that the analysis experience principal risks and uncertainties and reviewing the supporting the viability statement had been use of alternative performance measures and their The Board has confirmed that it is satisfied that prepared on an appropriate basis. The Committee appropriateness in aiding users of our financial Committee members possess an appropriate level also reviewed the going concern statement, set out statements to understand better our performance of independence and depth of financial and on page 81 and confirmed its satisfaction with the year-on-year. On this basis, the Committee commercial, including sectoral, expertise. For the methodology including the appropriateness of recommended to the Board that it could make the purposes of the Code, in respect of the financial sensitivity testing. required statement that the Annual Report is ‘fair, year ended 31 December 2022, Nicholas Bull, Anne balanced and understandable’. Fahy and Heather Lawrence were the members of the Committee determined by the Board as having recent and relevant financial experience. You can read more about the skills and experience of the members of the Committee on pages 61 to 63. ## 72 Coats Group plc Annual Report and Accounts 2022 ## Audit and Risk Committee report cont. Following their review of the Annual Report for the year ended 31 December 2021, the FRC wrote to the Company in May 2022 requesting additional information to understand the basis for recognising the insurance reimbursement receivable relating to the Lower Passaic River legacy environmental matter, as well as details of other provisions. We provided this information as part of our response, which the FRC accepted as being satisfactory and closed the matter. In addition, the FRC listed some observations from their review in the appendix to their letter and we have reflected the appropriate changes in this Annual Report. ### Significant issues relating to the financial statements The Committee considered the following issues relating to the external auditor's report:[{"box_2d": [530, 182, 999, 746], "label": "table", "caption": "
IssueReview and conclusion
Exceptional and acquisition-related itemsIn 2022, exceptional and current financial data are further details. The Committee also stated that the accounting treatment is not a part of the financial statements.
Acquisition accounting – purchase price allocationFollowing the acquisition of the company, the company has assets acquired and liabilities of $338.7 million; the company has taken by management, which is included in the financial statements.
Pension matters – valuation of obligations and recognition of surplusesAt 31 December 2022, the company has determined that the company has determined key assumptions regarding the impact of the buy-in transaction on the company's assets. The company has also assessed aspects of the continuing operations of the company's assets, which are expected to be expected of both the UK and the UK and provided in note 10 to the UK.
US legacy environment provisionThe Group has recognised the following: the professional costs for the development of the company, the implications surrounding the company's operations. Following the delivery of the company, the company has agreed to review whether subsequent operations are not a part of the company's operations. The Committee is satisfied with the following: The Committee is satisfied with the following: the disclosures provided in note 10 to the UK.
TaxationThe Group operates in no way to collect any tax, tax, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other 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the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of 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taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other 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taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, or for the company's use of the company's income, taxes, or other taxing, Coats Group plc Annual Report and Accounts 2022 ### Audit and Risk Committee report cont. Internal control and risk management The Committee received updates on internal control Audit follow-up actions. There were also regular Internal audit matters from the management, Group Internal Audit updates on the governance and reporting of the The Board is responsible for the Group’s risk The Group Internal Audit plan for the year is agreed and the external auditor at every meeting, as part of Strategic Projects, divestments and acquisitions with management framework and risk appetite. The in advance and reviewed at each Committee its key duty to review the Company’s internal control agreement on how to communicate any relevant Committee supports the Board in the management meeting. Updates are provided on audit coverage STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO processes to facilitate timely identification of issues lessons learned. of risk and is responsible for reviewing the and any recommended changes to the schedule of and formal tracking of remedial actions. Instances effectiveness of risk management and internal work. The Committee reviews key findings from Again, the Committee conducted its annual review where the effectiveness of internal controls were control processes during the year. The principal risks Group Internal Audit reports, receives detailed of the effectiveness of the Company’s risk considered insufficient, or where there was and uncertainties facing the Company are reports from management where appropriate, and management and internal control systems covering opportunity for enhanced controls, were discussed addressed in the Strategic Report and in the table monitors the rate at which actions agreed with all material controls, including operational and during the year with updates being provided when on pages 42 to 49 in this Annual Report. management are implemented. Group Internal Audit compliance controls. Following a robust process, the required. In particular, the Committee conducted a present their annual audit opinion at the February Committee was satisfied that these systems operate Fundamental components of the Company’s internal deep dive into cyber security risks and controls, and meeting of the Committee. The Head of Group effectively in all material respects with no significant control and risk management framework include: this will continue to be a focus in 2023. Remediation Internal Audit also consolidated and presented to weaknesses identified and others remediated plans are monitored closely on an ongoing basis, – management structure supported by clear the Committee a biannual review of in-country appropriately. The Committee also undertook its including a further review of the application of HR approval limits and delegated authorities operational risks, which included a summary of any annual review of ESG reporting and disclosures, controls to ensure these remained on track after the new risks that have arisen in the period with – appropriately drafted and communicated policies, including consideration of the TCFD disclosures. focus in 2021. The Committee continued to receive agreement on appropriate actions and interventions. procedures, and guidance to support business The Committee reviews the minutes of all Group detailed bi-annual reports on internal controls over operations During the year, key themes in the Group Internal Risk Management Committee meetings and financial reporting, which included analytical reviews – a thorough and co-ordinated annual planning Audit reports included compliance with discusses any relevant matters that have arisen of balance sheets conducted in the business, deep process and strategy review, combined with environmental and regulatory requirements across withmanagement. dives into key financial risks and judgements and a comprehensive financial forecasting, reporting, locations including reviews of compliance with zero review of the timeliness of previous Group Internal and budgeting discharge of hazardous chemicals rules. Group Internal Audit provided several updates on the – embedded tools and technology such as SAP consistency of the application of the expenses andConcur policy for those using our standard SAP Concur – a well-established sign off system in relation to system noting any remediation activities in the event financial reporting and other business matters of exceptions, and this will be a regular activity – appropriate post-acquisition integration activities going forward. Data analytics were also being used to ensure adherence to Group standards to review controls where certain exceptions to – Group Internal Audit activities and investigations certain IT controls had been observed, with – an externally operated whistleblowing helpline appropriate reporting being provided to the and robust process to allow anonymous reporting Committee. Investigations were conducted both and suitable investigations remotely and physically on site during 2022, and the Committee continued to monitor the way internal audits were undertaken and the findings to ensure there was consistency of approach on audit delivery. ## 74 Coats Group plc Annual Report and Accounts 2022 # Audit and Risk Committee report cont. For any control findings identified as part of any investigation or audit, remediation plans were put in place and the Committee reviewed these and the adequacy of the implementation measures. Group Internal Audit also provide regular resourcing updates, and this was a priority in 2022 with a focus on the appropriate provision of external and internal resource to fill any temporary staffing gaps. Group Internal Audit continued to progress the actions identified as part of the effectiveness evaluation carried out by the Chartered Institute of Internal Auditors in 2021 and provided regular updates to the Committee. An internal assurance map was developed during 2022 and this will continue to be monitored. Group Internal Audit grade the severity of any findings in their reporting to the Committee, with significant control findings being defined as a material deficiency in the design or implementation of a control. This might include a risk of material misstatement of financial information where controls in operations are largely deficient or where there is a pervasive violation of policies and procedures. No significant control findings were identified during the period. In response to the BEIS consultation on “Restoring Trust in Audit and Corporate Governance”, and our desire to take a proactive stance in this area, we have produced an Audit and Assurance Policy which outlines our approach to audit and assurance within the Group in all key areas, including future developments. This policy statement reflects our current position and this will continue to evolve, reflecting the final outcomes of the BEIS consultation and associated regulatory reform. In-line with the ongoing consultation it is hoped that this policy statement will act as engagement facilitation tool. The Committee welcomes consultation with our stakeholders in this matter. ### 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. This will be Deloitte’s last year auditing the Company. 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 financial information or any other review of accounts required by law to be provided by the auditor. - Any service that is not on the list of permitted services, if in excess of $25,000, requires the approval of the Committee. - 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. Coats Group plc Annual Report and Accounts 2022 ### Audit and Risk Committee report cont. Assessment of audit process Assessment of the effectiveness of the Committee Areas of focus in 2022 Key stakeholders The scope of the external audit is formally The Committee effectiveness in respect of the year Corporate reporting – Half and full year external reporting SHAREHOLDERS documented by the auditor. They discuss the draft ended 31 December 2022 was evaluated as part of – Interim and preliminary results announcements proposal with management before it is referred to the external evaluation conducted by Independent – Annual Report and consolidated financial statements STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO the Committee which reviews its adequacy and Audit Limited (you can read more about this on page – Review of tax and statutory filing status holds further discussions with management and the 70). The Committee considered the findings of the auditor before final approval. process in relation to both the Committee and the Group Internal Audit function at its December Internal controls – Group Internal Audit updates In respect of the financial year ended 31 December EMPLOYEES meeting, as well as considering whether the – Bi-annual review of internal financial controls 2022, and noting that this would be the final audit feedback identified in the previous year’s – Monitoring agreed actions status SHAREHOLDERS conducted by Deloitte LLP, the Committee assessment had been adequately addressed. The conducted an assessment of the performance and – Group Internal Audit resourcing reviews 2022 evaluation indicated that the Committee was effectiveness of the external auditor, as well as their – Update on HR related controls compliance working effectively and identified opportunities for independence and objectivity, on the basis of the 2023 Committee work plan, which have been meetings and a questionnaire-based internal review appropriately included and are set out below. which was completed by the Committee members, Risk management – Litigation, cyber, expenses and tax risk reviews CUSTOMERS regular attendees to the Committee and those Looking forward – Bi-annual risk review including environmental compliance Coats colleagues globally who interact most – Review of governance of reporting of acquisitions EMPLOYEES As well as the regular cycle of matters that the frequently with the external auditor. The – Horizon scanning for changes to regulatory environment for audit Committee schedules for consideration each year, ENVIRONMENT questionnaire covered topics such as the robustness – Sanctions update including review of Company’s ways of working to we are planning over the next 12 months to: of the audit, and the quality of delivery, reporting ensure compliance SHAREHOLDERS – Monitor the design and rollout of automated and service as well as including free-from questions controls testing to allow consideration of any other points that SUPPLIERS respondents wished to raise. The summary of the – Oversee the external auditor transition External audit – External audit tender results of the questionnaire has been reviewed by CUSTOMERS – Conduct a deep dive into supplier payment terms – Report on external audit at half and full year the Committee and appropriate feedback has been – Progressive implementation of assurance policy – Insights and observations on reporting review EMPLOYEES shared with the external auditor, noting that prior including the assurance of sustainability data. year feedback was acted on. Key themes of the – Auditor independence and non-audit work reviews SHAREHOLDERS feedback, including the opportunities identified for Signed on behalf of the Audit and Risk Committee – Review of management representation letters process enhancement will be shared with the by: – Review of fees of external auditor SUPPLIERS Company's incoming auditor. – Auditor effectiveness review Nicholas Bull Chair, Audit and Risk Committee 1 March 2023 ## 76 Coats Group plc Annual Report and Accounts 2022 # Nomination Committee report ![img-6.jpeg](img-6.jpeg) David Gosnell (Chair) Member since 2015 Nicholas Bull Member since 2015 Heather Lawrence Member since 7 November 2022 Echo Lu Member since 2017 Steve Murray Member since 1 September 2022 Fran Philip Member since 2016 Jakob Sigurdsson Member since 2020 Dear Shareholder, On behalf of the Nomination Committee, I am pleased to present this report for the year ended 31 December 2022. As set out elsewhere in this Annual Report, 2022 was a year of transformation for the Group. The Board has also seen changes with Anne Fahy stepping down at the 2022 AGM and Nicholas Bull succeeding her as Chair of the Audit & Risk Committee (ARC). Following rigorous recruitment processes as set out in this report, Steve Murray was appointed to the Board as a Non-Executive Director on 1 September and Heather Lawrence joined as a Non-Executive Director and Chair Designate of the ARC on 7 November. The Committee, at times in discussions conducted as part of scheduled Board meetings, has also considered the pipeline for senior management and Group Executive Committee (GET) succession planning following the changes resulting from the implementation of the Strategic Projects, and the acquisitions of Texon and Rhenoflex. This will be a continued focus in 2023 as the Group transitions to its new divisional operating model and revised succession planning is required. At the core of all discussions, the Committee and Board as a whole have focussed on maintaining the desired culture of the Group while achieving the footprint and business model required for the Company's long-term success in the current challenging climate. The Committee continued to fulfil its other core responsibilities by keeping Board composition under review, including reviewing director independence, the balance of skills and experience of the existing Non-Executive Directors and tenure to allow the necessary recommendations to be made for election and re-election of Directors to Coats Group plc Annual Report and Accounts 2022 ### Nomination Committee report cont. Recommendations were then made to the Board. In Board members as well as identifying any potential culminated in the appointment of Steve Murray, was These new tools support the achievement of the the case of Executive Director or GET appointments, opportunities to enhance the overall portfolio of concluded. In fact, given the timing of Steve’s Company’s aspirations for DE&I and wellbeing, which an executive leadership assessment would be talent on the Board and in senior management is a appointment, only one meeting was convened with contribute to us realising our overall strategy and carried out by an external professional agency. key responsibility of the Nomination Committee. The the quorum of two. The recruitment of Heather objectives to facilitate our long-term sustainable STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Committee continued to develop the skills matrix to Lawrence further strengthens the succession plan success. Diversity creates innovation, which is core to Any new Directors are appointed by the Board provide a detailed and transparent assessment of for the ARC. Coats' culture and business model. The ‘Coats for and, in accordance with the company’s articles of the current skill set on the Board and identify any Her’ programme utilises the passion and experience association, they must be elected at the next AGM The Committee and Board have continued to monitor training needs. During 2022, the Board undertook of some of our senior leaders across five initiatives to continue in office. All existing Directors stand for the GET and senior management talent pool to all required regular training for Coats' employees, as designed to support women in our workplace from re-election every year. ensure that succession planning for business-critical well as receiving tailored training updates at Board recruitment, through mentoring and leadership roles is proactively reviewed. The Committee has Board direction induction programme example and Committee meetings for specific topics as training and during any return-to-work processes. continued its regular review of the progress on Group appropriate. A summary of the skills matrix is set TheBoard has approved new 2026 sustainability CEO succession plans and in 2022 a number of Effectiveness Leadership out below: targets linked to the senior management Long Term members of the GET were given the opportunity to – Training on ethics and – Meeting senior executives Incentive Plan (LTIP). other governance topics – Site visits observe and participate in a full Board meeting to – Briefed on outcomes Criteria of most recent enhance their understanding of the Board ways of The Board supports the recommendations of the effectiveness review working and to allow the Board greater face-to-face FTSE Women Leaders Review (formerly the PLC leadership experience contact. Chair succession planning has been Hampton-Alexander Review) on gender diversity Accountability Relations with undertaken with discussions underway considering and the Parker Review on ethnic diversity and – Information on the Group stakeholders the appropriate timing and approach. There were continues to monitor developments in these areas. Relevant functional experience budget and strategy – Meeting with employees also regular considerations of talent changes in the We are aware of the forthcoming Listing Rule – Last Annual Report during site visits – Meeting with key customers business at the Board as part of the conversations requirements relating to diversity and we have Specific value-added expertise regarding the Strategic Projects, the divestment of started to gather information from our employees on the Brazil and Argentina business and the a voluntary basis. This will continue to be a focus acquisitions of Texon and Rhenoflex. These allowed in2023. Ahead of the forthcoming Listing Rule Relevant sectoral experience Succession planning timely feedback to be made to management. changes, I am pleased to confirm that we have 44% The Committee, on behalf of the Board, regularly female representation on the Board, including our assesses the composition of the Board and its Geographic experience Diversity Chief Financial Officer, Jackie Callaway, and there Committees in terms of skills, experience, diversity The Board acknowledges the important role are two Directors from an ethnic minority and capacity. The Board tenure tracker is regularly growing talent internally plays in our diversity background. Accordingly, as at 31 December 2022, Following Anne Fahy stepping down from the Board, presented to the Committee to ensure that ambitions, aligning with the Board’s own diversity we are in line with the recommendations of the there was a temporary period of non-compliance discussions are held well in advance of planned policy, which encourages our leadership to FTSE Women Leaders Review and the Parker review with provision 24 of Code as there were only two departures, to allow appropriate skills gap contribute to the development of a diverse and we are currently in line with the targets set out members of the ARC. This position was resolved identification and timely succession. Neither the range of future leaders. During 2022, the Board in our refreshed diversity policy (seepage 79). following the recruitment of Steve Murray. After Chair nor any of the Non-Executive Directors has considered proposals regarding the Company’s careful consideration, it was agreed that it was exceeded the maximum nine-year recommended new ‘Coats for All’ initiative, together with the preferable to proceed with the two existing term of service set out in the Code. Ensuring the Group’s ‘Future of Work’ framework policies and members of the ARC forming quorums for meetings right balance and diversity of skills and experience leadership packs (see the People and Culture until the recruitment process for a new Non- on the Board creates the conditions for the success section on pages 16 to 17 for further information). Executive Director, which was already in train and ## of the Group. Reviewing the strengths of existing 78 Coats Group plc Annual Report and Accounts 2022 ### Nomination Committee report cont. Please see below for some insights based on the work-style and cognitive and personal strengths. environment. You can access our Coats Key People data collected in 2022. Ourworkforce diversity policy is included in our Coats Principles onour website ## REFLECTIONS ON INDUCTION BY STEVE MURRAY Key People Principles, which set out the range of (https://www.coats.com/en/Download-Centre). Number What were the highlights of your induction? of senior policies to ensure fair and equitable treatment of our positions Number in Percentage Independence and overboarding on the executive of executive All my sessions were highly informative. Through STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO diverse workforce. The diversity section includes the Board management management Number of Percentage (CEO, (GET and (GET and Number of Percentage The Chair was considered to be independent on meeting with a thoughtful cross section of same definitions and references as our Board policy Board of the CFO, SID direct direct employees in of employees members Board and Chair) reports) reports) the Group in the Group appointment and is committed to ensuring that the executives by business area and function, and aims to promote an inclusive working Men 5 56% 3 38 70% 13,266 65% Board comprises a majority of independent Non- I feel Icame away with a good understanding Executive Directors who maintain constructive and ofCoats' business. Women 4 44% 1 16 30% 7,081 35% ## REFLECTIONS ON INDUCTION BY challenging debate in the boardroom. The Company White Who did you meet? British maintains the terms of appointment of the Chair and ## HEATHERLAWRENCE In addition to the GET, I met members of the or other Non-Executive Directors to ensure that they White 7 78% n/a – – – – What were the highlights of your induction? Finance and Sustainability functions as well as continue to meet the requirements of the Code. As Asian/ GIA. I also met with several of the Company's The highlight of my induction was the Global such, the Board considers that all its Non-Executive Asian advisors. Additionally, Icompleted various Leadership Conference and plant tour in Bursa. Directors continue to demonstrate independence. British 2 22% n/a – – – – interactive compliance trainings covering The plant in Bursa produces for all three During the course of the year, Board members arange of topics from cyber security awareness divisions and also has an Innovation Hub where We define our senior management team as continued to inform the Chair of any proposed new to modern slavery. you can really understand how Coats listens to employees that are band three or above in the external appointments and these were considered the needs of its customers and develops the organisation (Senior Management). As at 31 December and approved by the Board. The Company What did you learn? next generation of products. 2022, there were 37 women (21%) and 139 men (79%) Secretary maintains a register of Interests and The background information provided via my in Senior Management. You can find further details in Who did you meet? Conflicts to track the commitments of the Directors induction programme helped to put the reasons relation to the diversity of our Group in our and ensure these are in line with overboarding and objectives behind the re-structure of the As well as the GET, I was able to meet a Sustainability Report (www.coats.com/sustainability). guidance. The Committee is satisfied that the organisation into three divisions – Apparel, diverse group of Coats employees from Our refreshed Board Diversity Policy can be viewed external commitments of its Chair and members do Footwear and Performance Materials – into around the world and hear their perspectives. on our corporate website (www.coats.com/about/ not conflict with their duties as Directors of the proper context. Coats’ greatest strength is the calibre of corporate-governance/board-composition) and it sets Company and that any situational conflicts have its people and the collaborative way they out an indicative range of diversity criteria, that will be been authorised in line with the process set out in work together to achieve its purpose. considered alongside merit and other objective Board meeting, discussed the key themes of the the Company’s Articles of Association. factors, when recruiting to ensure the continued areas identified for further focus, which included What did you learn? calibre of the Board while being an effective driver of Committee performance and effectiveness executive succession and DE&I monitoring, and I heard from the GET what they are working the spirit of true diversity. Our refreshed Board these are appropriately reflected in the 2023 The Committee‘s effectiveness in respect of the to achieve, the challenges they may face and diversity policy aligns with the new Listing Rule workplan for theCommittee. year ended 31 December 2022 was evaluated by how they are preparing for those challenges. benchmarks and has been expanded to include Independent Audit Limited, an external service I learned about Coats’ manufacturing Signed on behalf of the Nomination Committee by: reference to knowledge and understanding of provider, in line with the Code requirements. You systems and processes and got into the David Gosnell relevant diverse geographies, peoples and their can read more about this on page 70. The detail of its sustainability agenda and how Chair, Nomination Committee backgrounds and includes, and is not limited to, race, Committee also considered the key points that were it is working to meet its ambitious 2030 socio-economical, educational and professional 1 March 2023 identified in the previous year’s assessment. The goals. I was also able to familiarise myself background, disability, gender, sexual orientation, Committee, as part of a discussion on the full with the financial aspects of the business. ## religion, belief and age, as well as culture, personality, 79 Independent Audit Limited report conducted at a Coats Group plc Annual Report and Accounts 2022 ## 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 17 May 2023 at 2.30pm at FTI Consulting, 200 Aldersgate, London EC1A 4HD. ### Corporate Governance Statement The Corporate Governance Statement, prepared in accordance with rule 7.2 of the Financial Conduct Authority's Disclosure Guidance and Transparency Rules, comprises the following sections of the Annual Report: the 'Strategic Report'; the 'Corporate Governance Report'; the 'Audit and Risk Committee Report'; the 'Nomination Committee Report'; the 'Remuneration Committee Report'; together with this Directors' Report. As permitted by legislation, some of the matters required to be included in the Directors' Report have been included in the Strategic Report by cross-reference, including details of the Group's financial risk management objectives and policies, business review, future prospects, stakeholder engagement, Section 172 Statement and environmental policy. The 2018 UK Corporate Governance Code is available from the Financial Reporting Council's website (www.frc.org.uk). ### Directors The names and biographical details of the current Directors are shown on pages 61 to 63 of this Annual Report. Particulars of their emoluments and beneficial and non-beneficial interests in shares are given in the Directors' Remuneration Report on pages 85 to 97. The appointment and removal of Directors are governed by the Company's Articles of Association and the Companies Act 2006. The Directors may, from time to time, appoint one or more Directors. In accordance with the provisions of the Code, all Directors will retire and submit themselves for election or re-election at the forthcoming AGM. ### Directors' powers The Board manages the business of the Company under the powers set out in the Company's Articles of Association. These powers include the Directors' ability to issue or buy back shares. Shareholders' authority to empower the Directors to make market purchases of up to 10% of its own ordinary shares is sought at the AGM each year (as set out in the Share Capital section below). The Company's Articles of Association can only be amended, or new Articles adopted, by a resolution passed by shareholders in a general meeting by at least three quarters of the votes cast. The Company adopted new Articles at the AGM held in May 2021. In the event that a Director raises any concerns about the operation of the Board or management of the Company that cannot be resolved, a record would be kept in the Board minutes and this should also be noted in the Director's resignation letter. Further discussion of the Board's activities, powers and responsibilities appears within the Corporate Governance Report on pages 64 to 68. Information on compensation for loss of office is contained in the Directors' Remuneration Report on page 92. ### Directors' conflicts of interests The Company has procedures in place for managing conflicts of interest, including situational conflicts of interest. Potential situational conflicts of interest are identified prior to appointment and the Board Coats Group plc Annual Report and Accounts 2022 ### Directors’ report cont. on the Company’s website. The following Political donations Going concern Concern is raised via information has been received, in accordance with No contributions were made to political parties The Company’s business activities, together with whistleblowing procedure DTR 5, from holders of notifiable interests in the during the year (2021: £nil). the factors likely to affect its future development, Company’s issued share capital. Acknowledgement is sent to the whistleblower performance and position are set out in the Chair’s Whistleblowing procedure STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO within seven days of receipt of the concern. As at statement. 31 December As at Nature of A whistleblowing, ethics and fraud report is a 2022* 1 March 2023* holding In addition, note 34 to the financial statements standing agenda item that is presented quarterly at Liontrust Investment includes the Group’s objectives, policies and Board meetings. Coats has a well-publicised Partners LLP 10.52 10.52 Direct The investigation team, independent of the processes for managing its capital; its financial risk whistleblowing procedure, which can be found on Kempen Capital relevant operational business or function, is management objectives; details of its financial our website. This is designed to empower all Management N.V. 7.49 7.49 Indirect nominated by the CFO, Chief Legal & Risk instruments and hedging activities; and its employees, contractors and anyone else who is FIL Limited 6.12 6.12 Indirect Officer and Group Company Secretary, Chief exposures to credit risk and liquidity risk. The aware of, suspects, or is concerned about potential M&G Plc 5.30 5.30 Indirect Human Resources Officer and the relevant Directors believe that the Group is well placed to misconduct, illegal activities, fraud, abuse of assets Invesco Ltd 5.05 5.01 Indirect Group Executive Team member. manage its business risks successfully. or other violations of Company policy/Ethics Code to * % holding based on total number of shares in issue at the time of report these confidentially via email through the respective notification. The Board expects to be able to meet any actual Group ethics channel or via an externally hosted and contingent liabilities from existing resources. The Company has not been notified of any other web service whistleblowing hotline. ‘Doing the right Further information on the Group’s cash and substantial interests in its securities. The Company’s Allegation is investigated by thing’ and ways to raise concerns are regularly borrowings is set out in note 30(g). substantial shareholders do not have different voting the nominated team communicated and discussed. rights. The Group, as far as is known by the Findings are presented to the CFO, Chief Legal The Directors are satisfied that the Company and Company, is not directly or indirectly owned or During the year ended 31 December 2022, there & Risk Officer and Group Company Secretary, Group have sufficient resources to continue in controlled by another corporation or by any were 97 whistleblowing concerns raised (2021: 98). Chief Human Resources Officer and the operation for the foreseeable future, a period of not government. Of these concerns raised, following investigation relevant Group Executive Team member who less than 12 months from the date of this report. 22% (2021: 30%) of the closed cases were upheld decide appropriate remedial actions and any Accordingly, the Directors consider that the going Change of control and 7 cases are still under review. In the case of controls/process enhancements. concern basis of accounting is appropriate for the The Company is not party to any significant substantiated concerns, disciplinary action, up to Company and the Group and the financial agreements that would take effect, alter or terminate and including termination, was taken whenever statements have been prepared on that basis. upon a change of control of the Company following there was any evidence of misdemeanour and a takeover bid. However, the Group’s Revolving In assessing the Group’s going concern position, the training and enhanced controls were implemented The outcome of the investigation is Credit Facility Agreement and US Private Placement Directors have considered a number of factors, wherever appropriate. An independent review of the appropriately communicated to the would terminate upon a change of control of the including the current balance sheet position and | | Group’s whistleblowing policy and associated | whistleblower once any remedial actions and/ | | | --- | --- | --- | --- | | Company. The Company does not have agreements | | | available liquidity, the principal and emerging risks | | | processes is currently being conducted to ensure | or any controls/process enhancements (even in | | | with any Director or employee providing | | | which could impact the performance of the Group | | | these continue to align appropriately with best | circumstances where the allegation has not | | | compensation for loss of office or employment that | | | and compliance with borrowing covenants. Further | | | corporate governance practice. | been upheld) have been determined. | | | occurs because of a takeover bid, except for | | | details are provided in note 1 of the accounts. | provisions in the rules of the Company’s share schemes which result in options or awards granted Reports and outcomes are reviewed by the to employees vesting on a takeover. Board and the Audit and Risk Committee. ## 81 Coats Group plc Annual Report and Accounts 2022 ### Directors’ report cont. 3 Indirect emissions relate mainly to the purchase of electricity from third 1 Results and dividends Emissions Intensity The overall value intensity for Scopes 1&2 emissions party suppliers. This is mostly taken from local electricity grids, but does include some on-site generation of electricity or steam from third party reduced 22% compared to 2021, a 17% reduction on The results of the Group are shown on page 114 and Greenhouse gas emissions intensity suppliers. The methodology converts the electricity or other purchased a like for like basis, excluding acquisitions in 2022. | movements in reserves are set out in note 27 to the | energy from kWh to CO | e using the country level conversion factors | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 2 | per unit ofproduction | | | | | | | | | | published by the International Energy Authority (IEA) for electricity and | | | | | | | | | As for volume the Texon and Rhenoflex emissions | | financial statements. | | | | | 3 | | 3 | | 3 | | | | | | kg CO | 2 e per kg of finishedproduct 2022 | | 2021 | | 2020 | | | DEFRA conversion factors for other energy types. This provides the STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO value intensity is lower than for the rest of the Coats location based calculation. Market based calculation deducts any certified 2 Scopes 1&2 2.23 2.67 2.87 The Board is mindful of the importance of returns to renewable energy that is purchased by country and continues to calculate business. The difference between the volume and the residue of the energy consumed at the IEA country or DEFRA shareholders and is pleased to propose a final Scope 3 9.39 9.40 8.86 conversion factors as appropriate. The data is then consolidated globally. value intensity reductions for the Coats business is dividend of 1.73 cents per share (2021 final 4 Scope 3 value chain emissions cover all other emissions that occur due mainly to movements in price and mix. throughout our product and business value chain. This includes the Greenhouse gas emissions intensity dividend:1.50 cents). Subject to approval at the cumulative emissions to produce our raw materials and capital equipment Full details on emissions of all reportable per salesvalue | forthcoming AGM, the final dividend will be paid on | and installations, product and people transport at all stages, downstream | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | processing and consumer use of our sold products and treatment for our | | | 3 | | 3 | | 3 | greenhouse gas emissions and on the reporting | | | | tonnes CO | 2 e per million $ sales 2022 | | 2021 | | 2020 | | | 25 May 2023 to ordinary shareholders on the waste and our products at the end of their life. The methodology for this 2 methodology used for the above figures can be varies for each Scope 3 category and follows the GHG Protocol hierarchy Scopes 1&2 132 169 187 register at 28 April 2023, with an ex-dividend date of data quality to determine the best available inventory calculation found in our online Sustainability Report. of 27 April 2023. Alongside the interim dividend of Scope 3 511 593 577 approach. Calculation models are maintained for each individual category and are updated annually as required and consolidated globally. 0.70 cents per share, this makes a total of 2.43 cents 1 We have used these two ratios for several years. The first uses volume of Energy Consumption | | Scopes 1 and 2 combined emissions on a market | finished goods production in tonnes (Kilo tonnes used for Scopes 1&2 are | | | | | --- | --- | --- | --- | --- | --- | | per share for the full year 2022. | | | | 1 | | | | | | Million kWh 2022 | | 2021 2020 | 2022 95, 2021 95, 2020 76) and hence relates directly to the industrial based approach decreased by 16% compared to activity that drives emissions, while the second uses group turnover and Direct (Fuels) 284.9 319.7 260.3 Greenhouse Gas (GHG) emissions hence relates to overall commercial activity. Since Scope 3 emissions data 2021. On a pure like for like basis, excluding Brazil does not include new acquisitions the production volume used for 2022 Indirect (bought electricity and Argentina divestments and Texon and intensity is 83 kilo tonnes; there is no change to 2021 and 2020 production. Absolute emissions for last 3 years plus 2019 andsteam) 446.1 481.1 409.2 For Scope 3 value intensity, 2022 sales excluding new acquisitions were Rhenoflex acquisitions for both years, the reduction baseline $m 1,522.9. 2019 is not used as a baseline for these intensity metrics as Total 731 800.8 669.5 in 2022 was 18% compared to 2021, attributable to that year is only our baseline for our absolute Science Based Targets. Thousands of tonnes 1 ofCO 2 e 2022 2021 2020 2019 2 Figures are calculated on a market basis for Scope 2 emissions. 1 2022 data includes Brazil and Argentina prior to their divestment (May), three principal factors: production volumes on a like Texon data from August and Rhenoflex data from September. 3 Overall these figures do not provide a like-for-like comparison as they Scope 1 | | | | for like basis which declined by 10% in 2022 due to | include Brazil and Argentina up to May 2022 and Texon and Rhenoflex | | | --- | --- | --- | --- | --- | --- | | | 2 | | | | Our principal global activities to reduce energy | | Direct | | 54.1 62.7 51.3 64.6 | | from August and September 2022 respectively. | | the textile industry slowdown in the second half of consumption were based on the insights provided Location Based 200.1 216.1 186.2 235.3 The Scopes 1&2 volume emissions intensity shows a Scope 2 the year; our continued efforts to reduce energy by our detailed energy monitoring pilot project that 3 Indirect Market Based 158.1 190.7 165.9 209.2 17% drop between 2021 and 2022. 8% is due to consumption (described in more detail below); and ran in 7 sites during the year. The results allowed us reduced energy use and transition to renewables in | Scope 3 | | | our progressive transition to Scope 2 energy | | | | --- | --- | --- | --- | --- | --- | | | 4 | | | | to identify new areas of energy wastage and to see | | ValueChain | | 777.6 891.3 671 849.2 | | Coats operations, 9% is due to significantly lower | | through the purchase of renewable electricity. where increased efficiency in energy use was emissions intensity of the Texon and Rhenoflex 1 2022 data includes Brazil and Argentina prior to their divestment (data Scope 1 and 2 emissions from our four UK offices possible. Multiple initiatives were developed through included to May). Texon for Scopes 1 & 2, data from August and Rhenoflex businesses. These businesses have lower energy data from September. Texon and Rhenoflex Scope 3 data is not yet plus the newly acquired Texon site in Skelton (from this programme and replicated from pilot sites to included as the full inventory for these units has not been completed. All consumption per unit of output and have also made data is calculated following GHG Protocol guidelines. August) in 2022 were 431 tonnes CO e and other areas which may also benefit. Two examples 2 progress towards transitioning to renewable indirect 2 Direct emissions relate to the use of fuels to generate energy on group represented 0.2% of our global emissions, compared are: first, we found that ovens in bonding machines facilities, mainly the use of oil and gas to generate heat in the form of steam energy. Scope 3 volume intensity decreases for use in processing. On-site generation of electricity using diesel or gas to 0.02% in 2021. The tenfold increase shows the consumed a lot of energy when the machines were marginally compared to 2022, mainly reflecting fired generators and the use of diesel, petrol and LPG for on-site transport impact of the addition of the Skelton manufacturing idle, so we programmed more effective energy cut- is also included. The calculation methodology here is to convert fuel material stock movements between the years. purchased in each country to kWh and then to CO 2 e equivalent using site, whereas all the other sites are offices. off protocols to significantly reduce consumption in DEFRA conversion factors; the data is consolidated globally. this phase. ## 82 Coats Group plc Annual Report and Accounts 2022 ## Directors' report cont. Second, we identified that by extending the centrifuge cycle and reducing the microwave drying process, we reduced the overall energy consumed in drying thread post-dyeing. Our continued efforts to reduce water consumption led to energy savings, both in terms of the energy needed to pump water through multiple stages of use, but also using less heat energy to bring the water to the temperature needed in the dyeing processes where it is mainly used. As a result of these two principal projects our overall energy intensity reduced by 4% compared to 2021 (from 8.6 kWh/kg to 8.3). In 2021 we had just started to use granular energy monitoring to pinpoint reduction targets, so the benefits that year were less, and most of the improvements we achieved were due to water saving measures (as also in 2022) and a focussed drive in energy reduction activities in our Indian spinning mills. Energy consumption in our four UK office locations and the newly acquired Texon plant in Skelton in 2022 was 2,270 MWh and represented 0.3% of our global energy consumption. This compares to 0.04% in 2021 due to the acquisition of a new factory during 2022. The following methodology is used for calculating emissions and energy consumption: | **Boundary** | All emissions from operating companies that are consolidated in the Group financial statements are included. Operational joint ventures are included based on equity share. | | --- | --- | | **Scope 1** | Fuel consumption data is collated monthly from all units, based on metered or invoiced consumption converted into kWh. We use DEFRA published gross calorific value conversion factors to standardise emissions. | | **Scope 2** | Electricity or steam purchase volumes are collected from all units monthly. All electricity kWhs are converted using IEA country level conversion factors for the location based data. For the market based data certified renewable electricity purchased is not included and the remainder is converted using the same IEA country factors. | | **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. Products & Services, Upstream Energy and Transport are the main components of Scope 3 emissions. More detail on methodology is available in our **Sustainability Report online**. | Coats Group plc Annual Report and Accounts 2022 ### Directors’ report cont. Directors’ responsibilities In preparing the Group financial statements, Directors’ responsibility statement International Accounting Standard 1 requires We confirm that to the best of our knowledge: The Directors are responsible for preparing the thatDirectors: Annual Report and the financial statements in – the financial statements, prepared in accordance accordance with applicable law and regulations. – properly select and apply accounting policies; with the relevant financial reporting framework, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Company law requires the directors to prepare – present information, including accounting policies, give a true and fair view of the assets, liabilities, financial statements for each financial year. Under in a manner that provides relevant, reliable, financial position and profit or loss of the that law the directors are required to prepare the comparable and understandable information; Company and the undertakings included in group financial statements in accordance with the consolidation taken as a whole; – provide additional disclosures when compliance United Kingdom adopted international accounting with the specific requirements in IFRS is – the Strategic Report includes a fair review of the standards. The Directors have chosen to prepare insufficient to enable users to understand the development and performance of the business the parent company financial statements in impact of particular transactions, other events and and the position of the Company and the accordance with United Kingdom Generally conditions on the entity’s financial position and undertakings included in the consolidation taken Accepted Accounting Practice (United Kingdom financial performance; and as a whole, together with a description of the Accounting Standards and applicable law), including principal risks and uncertainties that they face; – make an assessment of the Company’s ability FRS 102 “The Financial Reporting Standard and to continue as a going concern. applicable in the UK and Republic of Ireland”. Under – the Annual Report and financial statements, taken company law the Directors must not approve the The Directors are responsible for keeping adequate as a whole, are fair, balanced and understandable financial statements unless they are satisfied that accounting records that are sufficient to show and and provide the information necessary for they give a true and fair view of the state of affairs explain the Company’s transactions and disclose shareholders to assess the Company’s position, of the Company and of the profit or loss of the with reasonable accuracy at any time the financial performance, business model and strategy. Company for that period. position of the Company and enable them to ensure | In preparing the parent company financial | that the financial statements comply with the | This responsibility statement was approved by | | --- | --- | --- | | statements, the Directors are required to: | Companies Act 2006. They are also responsible for | the Board of Directors on 1 March 2023 and is | | | safeguarding the assets of the Company and hence | signed on its behalf by: | – select suitable accounting policies and then apply for taking reasonable steps for the prevention and them consistently; Rajiv Sharma detection of fraud and other irregularities. Group CEO – make judgements and accounting estimates that The Directors are responsible for the maintenance are reasonable and prudent; 1 March 2023 and integrity of the corporate and financial – state whether applicable UK Accounting information included on the Company’s website. Standards have been followed, subject to any Legislation in the United Kingdom governing the material departures disclosed and explained in preparation and dissemination of financial the financial statements; and statements may differ from legislation in – prepare the financial statements on the going otherjurisdictions. concern basis unless it is inappropriate to presume that the Company will continue inbusiness. ## 84 Coats Group plc Annual Report and Accounts 2022 # Remuneration Committee report ![img-7.jpeg](img-7.jpeg) Echo Lu (Chair) Chair from May 2021 Member since 2017 Nicholas Bull Member since 2015 Fran Philip Member since 2016 Steve Murray Member since 1 September 2022 ### Principal objectives of the Remuneration Committee Our main objectives are to have fair, equitable and competitive reward packages that support our vision and help ensure that rewards are performance based and encourage longer term shareholder value creation. ### Key responsibilities - Implementing the Directors' Remuneration Policy (the 'Policy') - Ensuring the competitiveness of reward. - Designing the incentive plans - Setting incentive targets and determining award levels - Reviewing workforce remuneration and related policies and the alignment of incentives and rewards with business strategy and culture ### Dear Shareholder, As Chair of the Committee, I am pleased to present the Directors' Remuneration Report for 2022. This report consists of three parts: this letter summarising the work of the Committee and the decisions made, the Annual Report on Remuneration for 2022 (the 'Report'), and the updated Directors' Remuneration Policy (the 'Policy'). This letter and the Report will be subject to an advisory vote from shareholders at the 2023 AGM, whilst the Policy will be subject to a binding vote. Coats Group plc Annual Report and Accounts 2022 ## Remuneration Committee report cont. Total Shareholder Return performance was encouraging and reflected the growth in the company's share price and our strong dividend growth. Sustainability is at the heart of our company purpose and strategy and I am pleased to confirm that, overall the Sustainability targets were achieved and 10% of the award vested in full. In determining vesting, the Committee considered the potential for windfall gains and concluded that the value on vesting of the 2020 awards did not benefit from windfall gains. In reaching this conclusion the Committee noted that following the first half of 2020 our share price recovery had been consistent through the balance of the three year performance period (i.e. performance has been a result of robust underlying financial performance as opposed to any short-term change in market sentiment. Furthermore, the targets were, unlike many other companies, set prior to the onset of Covid, with no delay to the target setting process nor to the date of grant of the award. This ensures that the above vesting is considered a fair and balanced result by the Committee. Accordingly, the Committee did not use any discretion in connection with the 2020 award. The Committee considered the formulaic outcome under both the annual bonus and LTIP to appropriately reflect the financial and non-financial performance of the business over the performance periods, and therefore the Committee did not apply its discretion to adjust the formulaic outcomes. The Committee can confirm that the current Policy approved at the 2020 AGM was implemented in 2022 as the Committee originally intended and was working effectively. In reaching this conclusion, the Committee considered the absolute levels of remuneration earned at executive level across the group and also the performance and relative amounts paid. ### Directors' Remuneration Policy review The existing Policy which was approved at the 2020 AGM will reach the end of its three-year cycle at the 2023 AGM. During 2022 the Committee undertook a review of the effectiveness of the existing Policy in supporting business strategy and considered whether it continued to align to both market and corporate governance best practice. The review confirmed that the existing Policy structure remains appropriate given our growth focused strategy and performance culture. As a result, the Committee is not proposing to make any substantive changes to the existing Policy although a number of minor changes are proposed to ensure our Policy aligns with current market best practice. There were a range of factors noted by the Committee in reaching the decision to roll over the existing Policy. Firstly, steps had already been taken to align Executive Director pension provision with that of the wider workforce. Secondly, our policy takes account of current institutional investor 'best practice' expectations. Finally, the policy continues to appropriately support our long-term business strategy. ### Stakeholder engagement Although no material changes are proposed to the Policy, ahead of the 2023 AGM we have undertaken an engagement process with our largest investors as well as major proxy voting agencies, to understand their views on our policy and its proposed implementation in 2023. Coats Group plc Annual Report and Accounts 2022 ## Remuneration Committee report cont. **Pension** – the pension provision for the CEO reduced from c20% of salary to the typical rate of pension provision for the UK workforce of 12% from 1 January 2023. No change is to be made to the CFO’s pension provision which is already 12%. **Annual bonus** – the maximum annual bonus opportunity will remain at 150% of salary for the CEO and be set at 125% of salary for the CFO with 50% deferred into shares for the CEO and 40% for the CFO. The deferral period is three years. The performance metrics are as detailed above. The targets for the annual bonus will be disclosed retrospectively in next year’s Remuneration Report. The Committee is comfortable that the targets set for 2023 reflect our business objectives and are appropriately stretching relative to prior years and current market conditions. **LTIP** – the long-term incentive awards are expected to be granted at 175% and 150% of salary for the CEO and CFO respectively with awards vesting subject to three-year performance targets relating to EPS (30%), TSR (30%), Cash Conversion (20%) and Sustainability (20%). Sustainability is at the heart of our Company purpose and strategy. Following the approval of new Science Based Targets in December 2022 the LTIP Sustainability measures and targets for the period 2023 to 2025 have been aligned to the longer term measures and goals. Coats’ Remuneration Policy creates the right balance between financial and non-financial performance and between short term objectives and long term strategy. ### Committee membership I was delighted to welcome Stephen Murray to the Committee from September 2022 following his appointment to the Board. ### Conclusion The Committee is satisfied that the decisions made during 2022 reflect the financial and non-financial performance of the Group during the year and balances the interests of all key stakeholders. I would like to thank those shareholders who provided feedback during the consultation process, as it was my first consultation as Chair of the Remuneration Committee I found the process very valuable. I look forward to receiving your support for both our new Policy and the Annual Report on Remuneration at our 2023 AGM. **Chair, Remuneration Committee** 1 March 2023 Coats Group plc Annual Report and Accounts 2022 ### Remuneration Committee report cont. | Remuneration Policy summary (ExecutiveDirectors) | | Summary implementation in 2022 | | | --- | --- | --- | --- | | Element Key features of policy | | Fixed remuneration Implementation in 2022 | | | Fixed base and benefits – Base salary is benchmarked against the FTSE250 and a selected comparator | | Base salary | – Increase of 5% for Rajiv Sharma and Jackie Callaway | | | group of similar size and complexity | 1 July 2022 review | | – Aligns to the average for the UK workforce of 5% STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO – Benefits benchmarked to local market practice and reflect the nature of the Pension benefit – For Rajiv Sharma fixed at £122,400 per annum until 31 December 2022 reducing Executive’s role Aligned to the UK workforce to 12% from 1 January 2023 – Pension benefits aligned to the workforce where the role is based – For Jackie Callaway 12% of salary Annual bonus – Maximum award opportunity: 150% of base salary Annual bonus – For Rajiv Sharma a maximum bonus of 150% of salary with a deferral of 50% of – A proportion of annual bonus is subject to a mandatory deferral. Deferred Performance measures: the outcome in shares bonuses are converted into share awards and are released after a three-year Sales: 30% – For Jackie Callaway a maximum bonus of 115% with a deferral of 40% of the retention period so that the value of annual incentives is significantly aligned to EBIT: 30% outcome in shares the longer term performance of the Company Free Cash Flow: 20% – Outcomes for 2022 shown on page 89 Personal objectives: 20% LTIP – Maximum LTIP award opportunity: 175% of base salary (200% exceptional circumstances) Long term incentive – Grant of 175% of salary to Rajiv Sharma Performance measures: – Awards are discretionary and may be made annually – Grant of 150% to Jackie Callaway EPS growth: 40% – Vesting is conditional on three-year performance conditions. Any shares vesting – 3 year performance period with subsequent 2 year holding period Cumulative Free Cash Flow: 20% after three years are also subject to an additional two-year holding period – Targets for 2022-2024 on page 91 Total Shareholder Return: 20% – Performance measures and targets are determined by the Committee, taking into Sustainability: 20% account the balance of strategic priorities for Coats for the upcoming three-year performance period – Any LTIP shares awarded are subject to malus and clawback Shareholding Requirement – 200% of salary within five years of appointment – Applies for 2 years post termination of employment based on the lower of the shareholding requirement or the actual shares held on termination Remuneration release profile 2022 2023 2024 2025 2026 Base salary/Benefits/Pension Cash & benefits Short-term incentive Cash Deferred shares Long-term incentive Performance Period Holding Period ## 88 Coats Group plc Annual Report and Accounts 2022 # Directors' remuneration report for the year ended 31 December 2022 ## Annual Report on Remuneration This Annual Report on Remuneration has been prepared in accordance with the relevant provisions of the Companies Act 2006 and as prescribed in The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended (the Regulations). Where indicated information has been audited by Deloitte LLP. The Annual Report on Remuneration will be subject to an advisory vote and the Directors' Remuneration Policy will be subject to a binding vote at the AGM on 17 May 2023. ## Executive Directors Two Executive Directors were employed during 2022. Rajiv Sharma was appointed to the Board on 2 March 2015 and was appointed as Group Chief Executive with effect from 1 January 2017. Jackie Callaway was appointed to the Board on 1 December 2020 and appointed as Chief Financial Officer on 31 March 2021. ## Single total figure for Executive Directors' remuneration for 2022 (audited information) | £000 | Rajiv Sharma | | Jackie Callaway | | Total | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | | Base salary | **646.2** | 621.3 | **401.3** | 385.8 | **1,047.5** | 1,007.1 | | Benefits | **41.4** | 47.4 | **21.3** | 15.7 | **62.7** | 63.1 | | Other | – | 50.0 | – | 100.0 | – | 150.0 | | Pension | **122.4** | 122.4 | **48.2** | 46.3 | **170.6** | 168.7 | | **Total Fixed** | **810.0** | 841.1 | **470.8** | 547.8 | **1,280.8** | 1,388.9 | | Annual bonus | **834.1** | 917.4 | **397.2** | 420.1 | **1,231.3** | 1,337.5 | | LTIP | **191.1** | – | – | – | **191.1** | – | | **Total Variable** | **1,025.2** | 917.4 | **397.2** | 420.1 | **1,422.4** | 1,337.5 | | **Total** | **1,835.2** | 1,758.5 | **868.0** | 967.9 | **2,703.2** | 2,726.4 | The figures in the table above have been calculated on the basis of the following: - Benefits: this is the value of all benefits including a car allowance, private medical insurance, life insurance and income replacement insurance. A car allowance of £20,000 per annum is paid to Rajiv Sharma and an allowance of £15,000 per annum is paid to Jackie Callaway - 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 benefits are payable in connection with this relocation Coats Group plc Annual Report and Accounts 2022 ## Directors’ remuneration report cont. EBIT performance also excludes the impact of acquisitions during the year and strategic and associated projects. The effect was to toughen the targets versus full year reported EBIT. For the 2022 annual bonus challenging individual objectives were established by the Committee for each Executive Director that reflected activities and initiatives intended to improve the performance of the Group. The objectives established and assessed for 2022 are reflected in the section below. ### Personal objectives linked to 2022 bonus At the beginning of the year the Committee determined that the following personal objectives would be linked to 20% of the maximum annual bonus outcome. All objectives were equally weighted. #### Rajiv Sharma: **Objective:** to successfully implement the planned 2022 strategic projects. **Outcome:** the projects completed in 2022 delivered substantial value to shareholders in terms of cost savings and are on track to deliver $70m by the end of 2024 which significantly exceeds planned expectations, the portfolio optimisation activities were successfully implemented with exits completed in Brazil, Argentina and South Africa and the opening of a new improved facility in Mexico. **Objective:** to deliver the 2022 sustainability targets and accelerate recycled and biomaterial use. **Outcome:** the Sustainability goals for 2022 were substantially achieved and momentum and focus in this area was increased and culminated in the adoption and approval by the Board of Science Based Targets for 2026. The performance to deliver against our 2022 goals for water recycling, energy usage, effluent quality, Great Place to Work accreditation and waste management was considered by the Committee to be a significant achievement which greatly enhanced Coats’ reputation with all our key stakeholders. The Committee determined the outcome of 19% out of a possible 20% of maximum bonus. #### Jackie Callaway: To complete two material acquisitions and to complete other actions relating to the company’s long term portfolio. Other elements of this personal objective remain commercially sensitive. The two acquisitions of Texon and Rhenoflex were completed efficiently and on time and, in the case of the latter, following a successful and oversubscribed capital raise. To co-lead the Company’s project to realise savings of $50m; to deliver various strategic projects and embed new ways of working. The savings that have been achieved significantly exceeded our planned expectations and the new operating model has been successfully embedded and the resulting efficiencies significantly delivering longer term benefits. The Committee determined the outcome of 19% out of a possible 20% of maximum bonus. Coats Group plc Annual Report and Accounts 2022 ### Directors’ remuneration report cont. Coats Group plc Long Term Incentive Plan Percentage Achievement of | | | | | | | | | | | | Share price to | | % vesting for | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Area Target Performance | | | Target | | | | | | | | | | | | | | | | | | | | | Number of options | | Face value at | | Award value as a | | calculate no of | | | minimum | | Performance | | | | | | | Executive Director Date of grant | | awarded | | award date | | % of salary | | shares | performance | | | | period Vesting date | | Water usage Achieve by 2022 a 40% reduction, vs | | Achieved a 38% reduction in 2022 | 95% | | | | | | | | | | | | | | | | | a 2018 baseline, of water usage per | (95% of target). | | Jackie Callaway 4–Mar–22 904,157 £587,250 150% | | | | | | | | | | | 1 Jan 2022 | | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | | kilogram of thread production | | | | to 31 Dec | | | --- | --- | --- | --- | --- | --- | --- | | | | | | £0.6495 25% | | 2024 4–Mar–25Rajiv Sharma 4–Mar–22 1,698,806 £1,103,375 175% | | Energy Achieve a 7% reduction of kWH per | | Achieved 10% reduction in 2022 (143% | 143% | | | | | | kilogram of product made | of target). | | | | | The share price shown above, which was used to calculate the number of options awarded under the terms Effluent & emissions To achieve compliance with Zero Achieved 92% compliance in 2022. 92% of the Coats Group plc Long Term Incentive Plan, is based on the mid-market closing price for the day Discharge of Hazardous Chemicals immediately preceding the grant date.. effluent standards Social Achieve Great Place to Work Achieved 86% in 2022. Community 108% Awards were granted as nil cost options under the terms of the Coats Group plc Long Term Incentive Plan accreditation for locations that cover activities during various phases of that was approved by shareholders on 22 May 2014. Awards were also granted to approximately 100 senior 80% of employees worldwide and to lockdown pivoted to supporting managers on similar terms. The LTIP awards will vest, subject to the achievement of performance measures, enable all employees to contribute to communities and our employees’ on the third anniversary of the date of grant. For Executive Directors an additional two-year holding period community support activities. families. applies. The notional value of any dividends paid on any vested share during the period from grant to the Sustainability Reduce waste by 25% and achieve A 25% reduction in waste achieved in 100% end of the holding period is awarded as additional shares upon exercise. progress towards achieving a goal 2022 with substantial growth in use of that all premium polyester thread will recycled material Long Term Incentive Plan awards performance measures be from recycled material by 2024 The performance measures applicable to awards granted in respect of the three-year performance period Average achievement 107.5% that commenced on 1 January 2022 (LTIP 2022) are shown below. The Committee considered the Group’s overall performance for 2022 and felt that the outcome of 18.2% Threshold Mid Maximum appropriately reflected the performance of the business during the performance period. Measure Weighting (25% vesting) (62.5% vesting) (100% vesting) EPS CAGR 40.0% 5% 12.5% 20% In determining vesting, the Committee considered the potential for windfall gains and concluded that the Total Shareholder Return versus the FTSE 250 62.5 Upper value on vesting of the 2020 awards did not benefit from windfall gains. In reaching this conclusion the excluding investment trusts 20.0% Median percentile quartile Committee noted that following the first half of 2020 the share price recovery had been consistent through Cumulative Free Cash Flow 20.0% $321m $359m $396m the balance of the three year performance period (i.e. performance has been a result of robust underlying Sustainability (see details below) 20.0% See below – See below financial performance as opposed to any short-term change in market sentiment). Furthermore, the targets were set prior to the onset of Covid, with no delay to the target setting process or grant of award which was The Board will consider the achievement of normalised EPS, adjusted to exclude the impact of exceptional common practice by other companies during 2002. This ensures that the above vesting is considered an costs such as property gains or losses and the impact of variation of the IAS19 (pensions finance) charge. exceptional result by the Committee. Accordingly, the Committee did not use any discretion in connection with the 2020 award. 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 Share awards granted in 2022 (audited information) group consisting of the FTSE250, excluding investment trusts. The following share awards were granted to Executive Directors during the financial year ended 31 December 2022. The targets for achieving minimum performance for each measure, where these apply, are shown in thetable below. ## 91 Coats Group plc Annual Report and Accounts 2022 ### Directors’ remuneration report cont. | The Sustainability targets were based on targets for the end of 2024 in 3 areas, measured against | | | | | 1 | | | 2 | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Base fee | Supplementary fee | | Benefits | | Other fee | | | Total | | | £000 | | £000 | £000 | | | £000 | | £000 Comments | a2022baseline; 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 1) to achieve an increase in product made from recyclable material. The target is to achieve a growth in David sustainable (non-virgin oil based) materials to 40% by 2024; Gosnell 250.0 177.3 – 4.2 – 0.6 – – 250.0 182.1 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Nicholas 2) to achieve a reduction in emissions. The target is a pro-rata reduction in Scope 1&2 emissions of 11%; Bull 61.5 60.0 18.3 10.0 – 4.2 1.5 1.5 81.3 75.7 3) to achieve a reduction in water usage. The proposed target is to increase the water recycling rate and Resigned achieve a 5% increase. 18–May– Anne Fahy 25.0 60.0 5.2 12.5 – – – 1.5 30.2 74.0 22 The Committee will test the extent of achievement against each target shown above. Based on a partial Heather Appointed achievement of each measure up to 25% of the award will vest if a minimum threshold performance standard Lawrence 10.5 – – – – – – – 10.5 – 1–Nov–22 is obtained in all three targets rising to 100% vesting for the achievement of all three. Echo Lu 61.5 60.0 12.5 8.3 – 0.8 – 1.5 74.0 70.6 The Committee retains the discretion to consider whatever adjustments it considers are fair and reasonable Stephen Appointed when considering performance against the targets shown. The Committee may adjust the level of vesting if it Murray 21.0 – – – – – – – 21.0 – 1–Sep–22 considers that the performance measures do not reflect the overall performance of the Company during the Fran Philip 61.5 60.0 7.5 7.5 – 0.2 6.0 – 75.0 67.7 performance period or if there has been a material event such as an acquisition or disposal during the course Jakob of the performance period. Sigurdsson 61.5 60.0 – – – – 1.5 1.5 63.0 61.5 Total 552.5 477.3 43.5 42.5 – 5.8 9.0 6.0 605.0 531.6 Non-Executive Directors 1 The figure under benefits for Non-Executive Directors relates to business expense reimbursements which are deemed to be taxable in the UK and include the The base fee was increased by 5% from £60,000 to £63,000 per annum with effect from 1 July 2022 (this tax paid by the Company directly to HMRC. was the first increase since 1 October 2013). The fee for the Chair payable to David Gosnell following his 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. appointment on 19 May 2021 remained fixed at the level that was paid to his predecessor. 3. Nicholas Bull was appointed Chair of the Audit and Risk Committee in May 2022. Single total figure for Non-Executive Directors’ remuneration for 2022 (audited information) The base fee paid by Coats Group plc is currently £63,000 per annum for Non-Executive Directors and £250,000 for the Chair. Non-Executive Directors, excluding the Chair, who are required to travel long haul (more than five hours one- way) to meetings are entitled to an additional travel allowance of £1,500 for each roundtrip subject to a A supplementary fee is paid to the Senior Independent Director (£10,000 per annum) and Chairs of the Audit maximum of five trips per annum. Additional fees may be paid for additional duties and time commitments and Risk Committee and Remuneration Committee (£12,500 per annum). Fran Philip receives £7,500 per that are undertaken outside the terms of appointment. annum for undertaking additional responsibilities concerning employee engagement. Payments for loss of office (audited information) & Payments to former Directors (audited information) There have been no payments for loss of office during the year. No payments were paid to former Directors in the year. Directors service agreements and appointment letters All Executive Directors have service agreements which are rolling with an indefinite term and provide for a notice period from either side of 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 office during normal hours of business and will also be available for inspection at the Company’s Annual General Meeting. ## 92 Coats Group plc Annual Report and Accounts 2022 ### Directors’ remuneration report cont. Statement of Directors’ shareholding and share interests (audited information) Details of scheme interests as at 31 December 2022 (audited information) The interests of the Directors who held office during the year, and their closely associated persons (if any), in Rajiv Sharma the shares, options and listed securities of Coats Group plc and its subsidiaries as at 31 December 2022, are Performance Award Vesting date Retention period Expiry date No. Status conditions? set out below. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Deferred bonus shares subject to vesting period Deferred bonus shares subject LTIP share options Share options Shareholding requirement in 2022 Shares beneficially owned to vesting period (subject to performance conditions) (no performance conditions) DABP20 6–Mar–23 N/A 6–Mar–30 349,640 Unvested No Equivalent DABP22 4–Mar–25 N/A 4–Mar–32 706,218 Unvested No | Number of | | | % of | | Condition | | | | | | | | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | 3 | | | 1 | | 2 | | 1 | | 2 | | 1 | | 2 | | 1 | | 2 | | | shares | salary | | | | met? 01-Jan-22 | | 31-Dec-22 | | 01-Jan-22 | | 31-Dec-22 | | 01-Jan-22 | | 31-Dec-22 | | 01-Jan-22 | | 31-Dec-22 | | Sub-total 1,055,858 Executive Director LTIP share options (subject to performance conditions) Jackie LTIP20 6–Mar–23 6–Mar–25 6–Mar–30 1,558,573 Unvested Ye s Callaway 1,200,000 200% No 151,606 269,716 – 258,709 942,148 1,846,305 – – LTIP21 5–Mar–24 5–Mar–26 5–Mar–31 1,770,247 Unvested Ye s Rajiv LTIP22 4–Mar–25 4–Mar–27 4–Mar–32 1,698,806 Unvested Ye s Sharma 2,000,000 200% Ye s 4,439,012 4,596,492 511,684 1,055,858 4,422,071 5,027,626 184,542 346,586 Sub-total 5,027,626 Chair and Non-Executive Directors Share options (no performance conditions) David Gosnell N/A 1,409,990 1,567,470 – – – – – – DABP18 4–Mar–21 N/A 4–Mar–28 184,542 Vested No Nicholas Bull N/A 500,000 550,000 – – – – – – DABP19 4–Mar–22 N/A 4–Mar–29 162,044 Vested No Anne Fahy N/A 40,000 40,000 – – – – – – Sub-total 346,586 Heather Lawrence N/A – – – – – – – – Echo Lu N/A 15,000 22,874 – – – – – – Jackie Callaway Stephen Murray N/A – – – – – – – – Performance Award Vesting date Retention period Expiry date No. Status conditions? Fran Philip N/A 50,000 75,984 – – – – – – Deferred bonus shares subject to vesting period Jakob Sigurdsson N/A 30,000 77,244 – – – – – – DABP22 4–Mar–25 N/A 4–Mar–32 258,709 Unvested No 1. Or date of appointment, if later. 2. Or date of resignation, if earlier. Sub-total 258,709 3. The target number of shares is based on the average share price for 2022 which was 66.6p. LTIP share options (subject to performance conditions) The Executive Directors’ shareholding requirement must be met within five years of their appointment to the LTIP21 5–Mar–24 5–Mar–26 5–Mar–31 942,148 Unvested Ye s Board (2 March 2020 for Rajiv Sharma, and 1 December 2025 for Jackie Callaway). There is no requirement LTIP22 4–Mar–25 4–Mar–27 4–Mar–32 904,157 Unvested Ye s for Non-Executive Directors. For the purposes of achieving this target the total number of shares beneficially Sub-total 1,846,305 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 Share options (exercised during the year) performance condition. All unexercised Long-Term Incentive Plan awards granted to Executive Directors No share options were exercised by Directors during the year. include a requirement to retain any vested shares (save for any shares that may be sold to satisfy income tax No options have been exercised by any Director between the year end and the signing of this report. No liabilities) until a minimum of the fifth anniversary of the date of grant. other Directors have entered into any transactions since the year end. The middle market price of Coats Group plc shares at 31 December 2022 was 67.5 pence and the range during the year was 51.2 pence to 81.2 pence. ## 93 Coats Group plc Annual Report and Accounts 2022 ### Directors’ remuneration report cont. Review of performance Director’s remuneration – annual percentage change from 2020 to 2022 The graph (below left) shows the difference between investing £100 in the Company and the constituents of The table below shows the percentage change in the annual remuneration of Directors and the average UK the FTSE All Share Index and FTSE 250 from 1 January 2013 to 31 December 2022. It is assumed dividends colleague from 2019 onwards. are reinvested over that period. The Board feels the FTSE All Share Index and the FTSE 250 each provide an 3 Salary or fees (% change) Benefits (% change) Bonus (% change) STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO appropriate comparator given the Company’s market capitalisation and its presence on the London Stock 2021 to 2022 2020 to 2021 2019 to 2020 2021 to 2022 2020 to 2021 2019 to 2020 2021 to 2022 2020 to 2021 2019 to 2020 Exchange. Rajiv Sharma 4.0% 6.9% –3.6% –12.7% 25.8% –46.8% –9% 1,898.8% –91.1% To enable comparison with the LTIP performance period an additional graph (below right) is shown on the Jackie Callaway 4.0% 1.4% N/A 35.7% –0.6% N/A –5.5% 100% N/A same basis that reflects the three-year performance period ending 31 December 2022. Nicholas Bull 13.7% 4.4% –5% 0% 0% 0% N/A N/A N/A Anne Fahy 0% 7.4% –5% 0% 0% 0% N/A N/A N/A David Gosnell 37.7% 163.4% –5% 0% 0% 0% N/A N/A N/A £100 Heather Lawrence 0% N/A N/A N/A N/A N/A N/A N/A N/A £80 Echo Lu 6% 22.5% –5% 0% 0% 0% N/A N/A N/A £60 £150 Stephen Murray 0% N/A N/A N/A N/A N/A N/A N/A N/A £40 £100 Fran Philip 11.1% 2.9% –5% 0% 0% 0% N/A N/A N/A £20 £50 Jakob Sigurdsson 2.4% –6.8% –5% 0% 0% 0% N/A N/A N/A 1 | £0 | | | | | | | | | | | | £0 | | | | | Average of all employees | 5.5% 3.1% 0% 0% 0% 0% –12.4% 322.8% –51.4% | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | 31-Dec | | 31-Dec | 31-Dec | 31-Dec | | | | | | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | | 2019 | 2020 | 2021 | 2022 | | | 1. The average of all employees reflects the total number of employees based in the UK. The UK has been chosen as the most appropriate comparator group because the CEO is employed by the UK parent company and the majority of Coats employees who are employed outside the UK are working in locations with very different inflationary and market pressures. The UK employee population includes employees across all levels of the organisation and excludes acquisitions made during the year. 2. Non-Executive Directors do not receive benefits-in-kind however, figures are disclosed in the benefits Single Figure table to reflect business expense payments 1 that are regarded as taxable by the UK tax authority. Year-on-year variations in the reported taxable benefits value have been ignored for this purpose unless Chief Executive total remuneration for the last 10 years there is the provision of a material specific benefit or if the difference in benefit is greater than £5,000 from one year to the next. Executive Director 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 3. To enable comparisons, leaver and joiners figures have been annualised. The figures for David Gosnell, Echo Lu and Nicholas Bull in 2022 and 2021 reflect their increased fees following their appointments as Group, Remuneration Committee and Audit Chairs respectively. Paul Paul Rajiv Rajiv Rajiv Rajiv Rajiv Rajiv 4. Jackie Callaway’s increase in benefits reflects the cost of non-taxable insurance benefits for the full year 2022 which were not incurred in 2021. Name N/A N/A Forman Forman Sharma Sharma Sharma Sharma Sharma Sharma Relative importance of spend on pay CEO single figure of remuneration (£k) – – 1,017.0 1,760.3 2,566.9 3,356.7 2,228.1 787.4 1,758.5 1,835.2 The table below shows the total pay for all of the Company’s employees compared to other key financial Annual bonus as a % of indicators. maximum opportunity – – 87.1% 77.0% 79.5% 66.7% 67.3% 5.0% 97% 84% | | | | | Year to | | Year to | | | --- | --- | --- | --- | --- | --- | --- | --- | | | LTIP award as a % of | | 31December | | 31December | | | | £350 | | £120 | | | | | | | | | | | 2022 | | | 2021 % change | maximum opportunity – – – 43.6% 60.0% 84.2% 95.8% 0% 0% 18.2% £300 Employee costs (US$m) 325.7 344.3 –5% 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 £250 1 Distributions to shareholders (US$m) 32.9 27.6 19% Guinness Peat Group plc to Coats Group plc. £200 2. The increase in CEO remuneration from 2015 to 2016 is therefore largely influenced by the 2015 single figure data being part year data. The CEO figures for Average number of employees 17,713 16,998 4% 2017, 2018 and 2019 reflect the appointment of Rajiv Sharma and in particular the increase in benefits reflect the relocation and expatriate support that was offered to him following his appointment as CEO on 1 January 2017. Revenues from continuing operations (US$m) – CER basis 1,583.8 1,361.4 16% Operating profit pre-exceptional (US$m) – CER basis 234.9 185.4 27% 1. By way of dividends. ## 31-Dec 94 Coats FTSE250 Index FTSE All-Share Index Coats FTSE250 Index FTSE All-Share Index Coats Group plc Annual Report and Accounts 2022 ## Directors' remuneration report cont. Additional information on number of employees, total revenues and profit has been provided for context. The figures for employee costs, average number of employees, revenues and operating profit in 2022 and 2021 have been stated on the basis of continuing operations only. Information for 2022 includes acquisitions made during the year. The figures for revenues and operating profit are on a constant exchange rate (CER) basis with amounts for 2021 restated at 2022 exchange rates. ### CEO pay ratio Coats is not required to publish a CEO pay ratio as the Group employs less than 250 employees in the UK. However, the Company publishes a disclosure on a voluntary basis. | Financial Year | Calculation methodology | Salary | | | Salary plus bonus | | | Total pay | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 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 | | 2022 | A^{1} | 15 | 10 | 6 | 34 | 21 | 10 | 42 | 23 | 11 | $^{1}$ During the year, Coats acquired Texon which includes approximately 100 UK based employees. Giving the timing of this acquisition and associated complications in relation to incorporating these employees into the calculation of the CEO Pay Ratio, these employees have been excluded for 2022. Coats intends to incorporate these employees going forwards. Although employees from Texon have been excluded from the calculations, based on high-level analysis, Coats is comfortable that the inclusion of these employees would not have a material impact on the overall CEO pay ratio, and that the ratio set out above is reflective of the overall Group. ### Year-on-year change in ratio of CEO pay to median employee pay ![img-8.jpeg](img-8.jpeg) The ratio of salary, salary plus bonus and Total Pay have marginally decreased during 2022, largely due to the reduction in the number of UK based head office employees. The lower quartile, median and upper quartile employees in the table below were identified on the basis of full-time equivalent total remuneration and benefits in the 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 Coats Group plc Annual Report and Accounts 2022 # Directors’ remuneration report cont. The Company also implemented the requirement contained in Provision 38 to align the pension benefit provision of the Executive Directors with those of the UK workforce within effect from 1 January 2023. The pension benefit for Jackie Callaway was implemented at 12% of salary upon her appointment in 2020 and for Rajiv Sharma his pension benefit reduced to 12% of salary from 31 December 2022. The 12% benefit level is the typical Company pension contribution rate to UK employees for 2023. 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 2022. Remuneration arrangements are clearly communicated and straightforward. Incentives are linked to the key performance metrics of sales, profit and cash generation. These measures are aligned throughout the groups incentive schemes and there is a balance between overall group performance across all three metrics and each individual local business unit. Personal performance is also an element, both in incentives and in salary reviews, but there is an overall link to the achievement of company performance to ensure that the risk of excessive rewards in cases of poor performance is managed. Teamwork is a key strength and cultural aspect for Coats and incentives are managed to ensure that there is cooperation and flexibility in delivering performance and to ensure that incentive structures 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 Non-Executive for Workforce Engagement and is also a member of the Remuneration Committee. During 2022 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 alignment of executive remuneration with the wider workforce, directly or through line managers. Further details of the Board’s engagement with the workforce is set out on page 32. In addition, during 2022 the Board conducted a series of in depth review meetings 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 profile and pay differentials of the workforce and the level of pension or other benefit programmes. During the review meetings business leadership teams were encouraged to provide as much feedback from their teams as possible. ## Statement of implementation of Remuneration Policy for 2023 Base salaries for Executive Directors and fees for the Non-Executive Directors will be reviewed on 1 July 2023. Rajiv Sharma will, until the review date, continue to receive a base salary of £662,000, a car allowance of £20,000 and a pension contribution (aligned to the UK workforce) of 12%. Jackie Callaway will continue to receive a base salary of £411,000, a car allowance of £15,000 and a pension benefit of 12%. Both Directors also receive private medical insurance, life and income replacement insurance. Coats Group plc Annual Report and Accounts 2022 # Directors' remuneration report cont. ## Consideration by the Directors of matters relating to Directors' remuneration The members of the Committee were: Echo Lu (Chair), Fran Philip, Nicholas Bull and Stephen Murray (from 1 September 2022). In reviewing remuneration arrangements, the Committee considers the terms and conditions of employees across the Group. In this regard, Fran Philip, as a member of the Committee, is able to provide insight and support from her role as the designated director responsible for wider employee engagement. The responsibilities of the Committee are set out in the Corporate Governance section of the Annual Report. The Committee also received assistance from Stuart Morgan (who also acted as Secretary to the Committee), Farnaz Ranjbar (Group HR Director) and Brendan Fahey (Reward Director). No Directors are involved in deciding their own remuneration. The Company received advice from Herbert Smith Freehills LLP in relation to legal matters relating to the Group's incentive plans. During the year, the Committee undertook a competitive tender process in respect of the adviser to the Committee. Following this process Korn Ferry replaced Mercer-Kepler as the Committee's advisor from 30 September 2022. Mercer-Kepler received fees of £12,650 for time spent and materials used in providing advice to the Company during the period to 30 September 2022. Korn Ferry received fees of £42,900 for time spent and material used in providing advice to the Committee during the period to 31 December 2022. Both Korn Ferry and Mercer-Kepler provided no other remuneration advice to the Company or any of the Directors, and are signatories of the Remuneration Consultants Group code of conduct. The Committee is satisfied that the advice provided the Committee was independent and was fair and objective. Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report The Remuneration Policy was last approved by shareholders at the 2020 AGM. This updated policy will be There are no material changes to the previous Remuneration Policy being made. This is because the subject to a binding shareholder vote at the 2023 AGM on 17 May 2023. If approved, the policy will apply for Committee reviewed the current Policy’s effectiveness in aligning performance and reward as well as a period of up to three years from the date of approval. considered how it compared with market and institutional investor best practice. The conclusion of this process was that the policy has achieved a fair relationship between performance and reward and is aligned As set out in the Remuneration Committee Chair’s statement, following a review of the existing Policy, the STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO with best practice. As a result, the Committee determined no material changes should be made. The Committee determined that the Policy should be rolled-forwards with no material changes. changes that are being made are to better align the Policy wording with the intended application of the Directors’ Remuneration Policy policy. The changes to the previous Policy wording provide for: The Remuneration Committee has responsibility for determining remuneration for the Company’s Directors – Flexibility in relation to the timing of the annual salary review date. This is currently set as 1 July each year including the Group Chair but excluding the Non-Executive Directors. The remuneration for Non-Executive for Executive Directors, with the refined Policy wording enabling the salary review date for Executive Directors, excluding the Group Chair, is determined by the Board albeit the Non-Executive Directors are not Directors to be aligned with the appropriate workforce if there was a change of review date. The Company present when their fees are discussed. The Committees take into account the need to recruit and retain does not currently intend to change the existing review date Directors who have the suitable skills and experience to perform in the interests of the Company and its – Aligning the pension Policy wording with pension practice from 1 January 2023. This is for Executive shareholders, while paying no more than is necessary. Director pension to be set at 12% and so aligned with the typical rate of Company pension provision to UK The table below sets out how the proposed Policy specifically addresses the provisions of the UK Corporate based employees Governance Code. – Defining the portion of annual bonus that is normally deferred within policy (i.e. 50% of any bonus earned where the maximum bonus opportunity is 150% of salary and 40% of any bonus earned where the Alignment of the Remuneration Policy to the provisions of the 2018 Corporate Governance Code | Clarity Simplicity Risk | | | maximum bonus opportunity is below 150% of salary) | | --- | --- | --- | --- | | The approach to all elements of | The Policy structure is simple and aligns | All elements of variable remuneration | | | remuneration for Executive | with FTSE market practice. | have been designed to discourage | | | Directors is set out clearly within | Performance measures which are well | excessive risk taking and all contain | | | the Policy. | understood by our stakeholders have | appropriate maximum limits. | | | | been chosen with targets and | Executive Directors are required to | | | | achievement of these targets clearly | develop and maintain, including post- | | | | disclosed either prospectively or | employment, material shareholdings in | | | | retrospectively. | line with the shareholding requirements. | | This provides significant alignment to the long-term experience of shareholders. Predictability Proportionality Alignment to culture Maximum opportunity levels for Variable remuneration opportunity levels Variable remuneration is based on the each component of variable have been set at an appropriate level, achievement of financial and non- remuneration are defined within proportionate to the size of the business, financial measures which link to the the Policy. and mindful of the levels of fixed overall business strategy. The scenario chart later in this remuneration. Policy sets out an illustration of Performance measures are linked to the how the Policy may operate in Company’s strategy and aligned with long- practice, including maximum and term creation of value for shareholders. minimum potential values. The Committee retains its discretion to adjust formulaic variable remuneration outcomes where these do not align to the financial or non-financial performance of the business. ## 98 Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report cont. The Remuneration Policy set out below applies to all Directors who are appointed to the Board during the life of this policy. ## VARIABLE REMUNERATION Executive Directors’ Remuneration Policy table Purpose and linktostrategy Operation and opportunity Performance STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Annual bonus, Cash bonus and deferral into shares under the rules of the Deferred Bonus Plan ## FIXED REMUNERATION Annual bonus Annual bonuses will be determined by The performance measures, weightings and incentivises key reference to performance, measured over one targets for the annual bonus will be set by the Purpose and linktostrategy Operation and opportunity individuals to financial year. Committee on an annual basis. Salary achieve the The maximum annual bonus that may be Performance measures will normally include objectives of the To attract and retain Salaries for new Executive Directors will be set by the Board taking into account such factors as it awarded to any executive director will be 150% tests of both business and individual annual business the key talent that determines to be necessary, as discussed above. of salary. performance. plan. the Company needs Following recruitment, salaries will normally be reviewed annually with effect from 1 July (or such Any bonuses awarded will be subject to a The weighting for each objective will be to achieve its The deferred other date so as to align with the appropriate workforce review date). Salary reviews take account mandatory deferral which is normally 50% of determined annually by the Committee to objectives. element ensures of factors including the market competitive level of pay in other companies, average salary any bonus earned where the maximum bonus reflect the strategic importance of each that the final value of increases applied elsewhere across the Group, the performance of the Company, the relative opportunity is 150% of salary and 40% of any objective for the year ahead. the annual incentive skills, performance and talent of the individual and any increase in the scope and/or responsibility bonus earned where the maximum bonus is linked to the The Target level of performance will result in a of the individual’s role. opportunity is below 150% of salary. longer-term value of payment of 50% of the maximum award. The There is no set maximum salary but the Committee’s approach will consider the median level of the Group. Deferred bonuses will be transferred into Committee will determine the Target level of salary of similar positions in the FTSE 250 (excluding financial services), as well as companies in shares, to be held for a three year retention remuneration on a basis that it feels is similar sectors and of a similar international scope and size to Coats, for UK based roles to reflect period, under the terms of the Deferred Bonus stretching and challenging. Below Target, the global scope and dimensions of the Group’s operations and the sector in which it operates. Plan. payment will increase between nil (below External benchmark data is considered only as a reference point and the median figure will not be Threshold performance) and Target pay-out, on Deferral may operate so that shares will be held regarded as a target level of remuneration. a straight- line basis. Above Target, payment beneficially by the Executive Director during Pension will increase on a straight-line basis up to 100% this period, in which case dividends will be for Maximum performance. To provide a market From 1 January 2023 Executive Directors will be entitled to participate in a defined contribution payable on shares during such period. The competitive level of scheme, on a non-contributory basis, with an employer contribution of up to the typical UK deferral may alternatively be achieved by the The Committee will have the discretion to retirement provision. workforce (or other relevant local workforce where appropriate) rate which is currently 12% of grant of a share award or nil cost option in lieu reduce vesting levels if it determines the result salary, or will be provided with a cash alternative in lieu of any pension benefits of up to an of the deferred portion of the bonus, in which of the performance targets does not accurately equivalent value. case an additional payment in cash or shares reflect the financial health of the Company. Benefits may be made to reflect dividends that may have All annual bonus payments and awards are been earned during the period from grant to To provide a market Benefit provision to Executive Directors will be determined by the Committee taking into account made at the discretion of the Committee and vesting. competitive level of such factors as it determines to be necessary, with the aim of creating a competitive overall the terms of the awards may be amended by benefits. package. There are no set maximum levels. The annual bonus including cash paid or the Committee at any time provided that they deferred element of the bonus may be subject remain within the terms of this policy. Benefits may include the provision of private medical insurance, ill-health protection and/or life to malus or clawback. Details of malus and insurance and a cash-for- car-allowance. clawback terms are set out below. In addition, the Company may provide assistance in connection with the relocation of an Executive Director and, in the event of an international transfer, may provide tax equalisation arrangements. Executive Directors may also participate in any all-employee incentive plan operated by the Company from time to time, up to the same limit for participation as applies for other employees. ## 99 Coats Group plc Annual Report and Accounts 2022 # Remuneration policy report cont. ## VARIABLE REMUNERATION cont. | Purpose and link to strategy | Operation and opportunity | Performance | | --- | --- | --- | | **Long Term Incentive Plan** | | | | To incentivise key individuals to achieve key long term objectives, in line with the Group's long-term strategy. To create alignment between executives and shareholders. To retain key individuals. | Awards will be made annually, conditional on the achievement of three-year performance conditions. Any vested shares will be subject to an additional two-year holding period. Award levels for any Director will be up to a maximum of 175% of salary. Awards may be made to other senior executives within the Group. Larger awards may be made in exceptional circumstances, but in no case to exceed 200% of salary. Awards will normally be made in the form of nil cost options, exercisable between the third and the tenth anniversary of grant (subject to the additional two-year holding period), although awards may be made in other forms. An additional payment in cash or shares may be made to reflect dividends that may have been earned on the proportion of the award that vests during the period from grant to the end of the holding period. Awards will be subject to malus and clawback provisions. The malus provisions give the Committee discretion to reduce the level of an award prior to vesting in the event of personal misconduct or if events have happened that caused the Committee to determine the grant level was not appropriate. Details of malus and clawback terms are set out below. | The performance measures used, the weighting on each measure, the definition of the measures and the performance targets, will be determined by the Committee considering the balance of strategic priorities for the Company for the upcoming three-year performance period. In addition, the Committee may consider setting an underpin condition which must be satisfied prior to vesting of an award. No awards will vest for performance below Threshold, 25% of each element will vest for achieving Threshold performance, increasing on a straight-line basis to 100% for Maximum performance. The Committee will be able to reduce vesting levels if it determines the result of the performance targets does not accurately reflect the financial health of the Company. Following grant of an award, the Committee will have power to amend performance measures and targets if events happen that mean they are no longer a fair test of performance, but not so as to make the assessment of performance materially less onerous. | ### Shareholding requirements Executive Directors will be required to attain a shareholding, over a five-year period, equivalent to 200% of salary. This requirement will apply for a two year period post termination of employment based on the lower of the in-post requirement and the Executive Director's actual shareholding on termination of employment. Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report cont. The above charts give an illustrative value of the remuneration package for each of the executive Directors External appointment in the upcoming year. In the cases of hiring or appointing a new Executive Director from outside the Company, the Committee may make use of all the existing components of remuneration, as follows: – Minimum is the base salary and pension contributions as of 1 January 2023 plus the value of benefits as disclosed in the FY 2022 single figure table Component Approach Maximum annual grant value STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO – On target is the aforementioned minimum plus an assumed 50% pay-out of the annual bonus opportunity Base salary Salaries for new appointees will be determined by reference to the relative skills and experience of the and 50% vesting of LTIP awards to be made in FY 2023 individual, the market competitive level of pay in other – Maximum is the aforementioned minimum with an assumed 100% pay-out of the annual bonus opportunity companies and any other relevant external or internal and full vesting of LTIP awards to be made in FY 2023 comparisons. – Maximum + share price assumption shows maximum plus a 50% share price appreciation on the shares Benefits New appointees will be eligible to receive benefits which may include (but are not limited to) the provision of private subject to vested LTIP awards to be made in FY 2023 medical insurance, ill-health protection and/or life insurance and a cash- for-car-allowance, and, where Legacy matters in respect of future Executive Directors appropriate, relocation, international transfer or tax In the event that an executive of the Group is promoted to the Board, the Company retains discretion to equalisation arrangements. honour any existing remuneration commitments. In particular, any long term awards, both cash and share Pension New appointees will receive pension contributions or cash Currently 12% of salary if UK based awards, will continue to be capable of vesting on their existing terms. This would include awards previously alternative in lieu of any pension benefit. granted under legacy Group incentive plans. This would also include any awards granted under the Long Annual bonus The structure described in the policy table will apply to 150% of salary Term Incentive Plan or Deferred Bonus Plan prior to the individual being appointed as a Director (although it new appointees with the relevant maximum being pro- would be intended that any such awards would in any event comply with the Policy as set out above). rated to reflect the proportion of employment over the year. Targets for the personal element will be tailored to Recruitment Policy each Executive Director. The Committee retains discretion to set different targets for a new Executive Director in the When appointing an Executive Director, including a promotion to the Board of an executive from within the year of appointment to the other Executive Director(s) Group, the Committee will offer the recruit a remuneration package that it believes is appropriate, taking into targets depending on the timing of their appointment. account the skills and experience of the individual and the need to attract, retain and motivate individuals of LTIP New appointees will be granted awards under the LTIP on 200% of salary in exceptional the appropriate calibre. In determining the remuneration package that may be offered to a new Executive the same terms as other Executive Director’s, as described circumstances Director, the Committee may also take into account external and internal comparisons and relevant market in the policy table. factors, as well as any other factors which the Board determines to be relevant. For external appointment, the Committee may determine that there may be exceptional circumstances where it would be appropriate, in order to secure the right candidate, to compensate for lost awards incurred by an individual as a result of leaving their former employer. In the case of any long term incentive awards, save where such awards are close to vesting, any such award on appointment would normally be granted as a share based award, subject to such vesting and/or performance conditions as the Committee determines tobe appropriate, either under a one-off arrangement or under the terms of the Long Term Incentive Plan. Indetermining the terms of any such awards, the Committee would take account of the vesting schedule and conditions attached to the forfeited awards, but also other factors that it determines to be relevant, including the need to suitably incentivise and retain the individual during the initial years of their applicableappointment. ## 101 Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report cont. Internal promotion Policy on payment for loss of office of Executive Directors In cases of appointing a new Executive Director by way of internal promotion, the Committee and Board will In the case of an executive of the Group who is promoted to the Board, the terms on cessation of office or be consistent with the policy for external appointees detailed above. employment would be governed by the terms of the individual’s existing employment agreement. In addition, the terms of any incentive awards made to the individual prior to being appointed as an Executive Director, Service contracts for Executive Directors STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO and the terms of any pre-existing participation in a pension scheme, would govern the treatment of such The Committee’s policy is for service contracts for Executive Directors to reflect the Committee’s arrangements. understanding of best corporate practice for listed companies. However, in the event that an executive of the The policy that applies to the appointment of any Executive Director is shown below. The remuneration Group is promoted to the Board, the Committee may include terms in any new service contract which are package may include the components of remuneration described below in the Executive Directors’ consistent with that individual’s existing service contract and legacy arrangements. Remuneration Policy table subject to the relevant limits as set out in the following tables. Subject to this, the key elements of a service contract offered to a UK based Executive Director appointment Notice periods, salary and contractual rights are: The notice periods and contractual rights on termination that would be included in a service contract offered Notice period Contracts are rolling with an indefinite term. The notice period is no more than 12 months (in the to an external recruit are set out above. In addition, the Executive Director would be entitled to accrued but case of notice being given by the Company or the Executive Director). untaken holiday. An Executive Director may be placed on garden leave during some or all of the notice period. Payment in lieu of Save in circumstances justifying summary termination, employment may be terminated without In respect of any awards made to an Executive Director under any all-employee share plan, the same leaver notice (‘PILON’) notice by paying a PILON comprising basic salary and contractual benefits. Subject to any legacy conditions will apply as apply in respect of employees generally. terms, the Company will have discretion to pay on a phased basis, which will normally be subject to mitigation. Discretions Pension The service contract may include entitlement to pension benefits, subject to the provisions and any In considering the exercise of its discretions under the incentive arrangements, as referred to above, or limits set out in this Policy and the pension scheme rules or an annual allowance. The entitlement to otherwise in connection with the cessation of office or employment of an Executive Director, the Committee pension benefits may continue during any notice period. will take into account all relevant circumstances, having regard to their duties as Directors. Benefits The service contract may include entitlement to other benefits, subject to the provisions and limits set out in this Policy. The entitlement to benefits may continue during any notice period. In doing so, factors that the Committee may take into account shall include, but not be limited to, considering Incentive plans The Executive Director will be eligible to be considered (at the Committee’s discretion) to participate the best interests of the Company, whether the Executive Director has presided over an orderly handover, in the annual bonus and long term incentive arrangements operated from time to time, subject to the contribution of the Executive Director to the success of the Company during their tenure, the need to the provisions and limits set out in this Policy. The terms of such arrangements would apply in the ensure continuity, the need to compromise any claims that the Executive Director may have, whether the event of a cessation of office or employment, as set out in the table below. Executive Director received a PILON and whether, had the Executive Director served out their notice, Service contracts offered to non-UK based, external appointments will generally be in line with the agreater proportion of the outstanding award may have vested. provisions set out above, subject to any local law requirements. All Executive Director letters of appointment Other are available for inspection at the Company’s registered office during normal hours of business, and will also The Company may enter into new contractual and financial arrangements with a departing Executive be available at the Company’s AGM. Director in connection with the cessation of office or employment, including (but not limited to) in respect of Executive Directors will be able to accept non-executive appointments outside the Company (as long as this settlement of claims, confidentiality, restrictive covenants and/or consultancy arrangements, where the does not lead to a conflict of interest) with the consent of the Board, as such appointments can enhance their Committee determines it necessary or appropriate to do so. Appropriate disclosure of any such arrangement experience and add value to the Company. Any fees received (excluding positions where the Executive would be made. Director is appointed as the Company’s representative) may be retained by the Executive Director. ## 102 Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report cont. Corporate actions Incentive plans Good leavers Other leavers On a corporate action affecting the Company, the rules of the Long Term Incentive Plan and Deferred Bonus Long Term A departing Executive Director will be a ‘good Unvested awards will lapse in full where the Incentive Plan leaver’ on ceasing employment due to cessation of office or employment is on grounds Plan will apply. In summary, on a change of control awards will vest, subject to the performance conditions retirement, injury, disability, ill-health, death, of personal misconduct. and, unless the Committee determines otherwise, time pro-rating. redundancy or the sale of a business or STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO In other cases, the Committee will have Deferred shares awarded under the terms of the Deferred Bonus Plan, which represent deferrals of subsidiary out of the Group. discretion to determine that unvested awards will previously earned bonus, will vest in full. Under the Long Term Incentive Plan and Deferred Bonus Plan, the Awards held by ‘good leavers’ will normally vest vest (in which case the terms applicable to ‘good Committee may determine that a demerger or similar event shall constitute a corporate action. on the normal vesting date (i.e. the third leavers’ will apply). Unless this discretion is anniversary of grant) to the extent that the exercised, no bonus will be payable. On a variation of share capital or similar event, the Committee may make such adjustment to awards under performance conditions are met, and be pro- the Long Term Incentive Plan and the Deferred Bonus Plan as the Committee considers appropriate. rated for time. Incentive plans Good leavers Other leavers Any awards that the Committee determines to Where the reason for cessation of office or have vested will ordinarily be subject to the Annual bonus The Company does not consider it appropriate employment is personal misconduct no bonus additional two- year holding period, unless the to set defined ‘good leaver’ and ‘bad leaver’ will be payable. Committee determines in its discretion to conditions in respect of the annual bonus accelerate vesting to the date of cessation. The arrangements. Instead, where an Executive In other cases, unless the Committee determines Committee also will have discretion to waive the Director has ceased to hold office or that the departing Executive Director is eligible time pro-rating requirement. employment with the Group, or is under notice, to receive a bonus, no bonus will be payable. other than due to personal misconduct, the Deferred Bonus Unvested deferred shares (which represent Where the reason for cessation of office or Committee will determine whether or not the Plan deferrals of earned bonus) will vest in full on the employment is personal misconduct unvested individual will be eligible to receive any annual normal vesting date (i.e. the third anniversary of awards lapse in full. bonus. grant), provided that the Committee will have discretion to accelerate vesting to the date of If the Committee determines that a departing cessation. Executive Director is eligible to receive a bonus, the amount of the bonus will be assessed by Non-Executive Directors reference to the performance targets set for that financial year. The Chair and Non-Executive Directors receive an annual fee (paid in monthly instalments). Non-Executive Directors (excluding the Chair) may also receive an additional fee in respect of travel if over five hours of one- The deferral requirement in respect of any bonus awarded will continue to apply if the Committee way flight time is required to attend a Board meeting, up to an annual cap. The fee for the Chair is set by the so determines. Remuneration Committee and the fees for the Non-Executive Directors are approved by the Board, on the recommendation of the Chair. In determining the appropriate level of fees the Committee and the Chair The amount of any bonus will be pro-rated for time, provided that the Committee has discretion consider advice from external sources and data on the fee levels in other similar companies. No individual is to waive time pro-rating. present when his or her own level of remuneration is discussed. ## 103 Coats Group plc Annual Report and Accounts 2022 ### Remuneration policy report cont. For Non-Executive Directors, the remuneration arrangements will be in line with those set out in the relevant Under their respective Non-Executive Director appointment letters, all of the Non-Executive Directors are Section below. entitled to receive an annual fee. None of the appointment letters contains a set term of office. None of the appointment letters contains a notice period. There are no provisions in the Non-Executive Directors’ letters Non-Executive Directors’ Remuneration Policy table of appointment that would give rise to any compensation payments for loss of office. Element Purpose and link to strategy Operation STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Removal of the Non-Executive Directors would be governed by the Articles of Association of the Company. Fees To attract and retain a high-calibre Chair and The Chair is paid an all-inclusive fee for all Board All Non-Executive Director letters of appointment are available for inspection at the Company’s registered Non-Executive Directors by offering market responsibilities. The other Non-Executive competitive fee levels. Directors receive a basic Board fee, with office during normal hours of business, and will also be available at the Company’s AGM. supplementary fees payable for additional Board responsibilities and travel (if appropriate). The fee Development of this policy levels are reviewed on a periodic basis and may Statement of consideration of employment conditions elsewhere in the Company be increased taking into account factors such as the time commitment of the role and market levels Prior to setting the Remuneration Policy the Committee the Committee does consider the pay structures in companies of comparable size and complexity. elsewhere in the Group. The approach to benchmarking identifies similar comparator companies in each local market that the Company wishes to recruit from; the same underlying principles of fairness, Additional payments may be made above the basic Board fee if duties significantly exceed transparency and market competitiveness are applied to executive appointments and to local remuneration expectations. arrangements. Benefit provision follows the same principles of being security minded and in line with local Supplementary Supplementary fees may be payable to the Senior market practice with an objective of promoting mental and physical well-being. There is a greater level of “at fees Independent Director, Chair of the Audit and Risk risk” remuneration for more senior roles reflecting the extent to which pay is conditional on company Committee, and Chair of the Remuneration performance. The Committee annually reviews the details, market competitiveness and quantum of the Committee and the Director responsible for remuneration policies in each of the Company’s major markets and compares that, where applicable, to employee engagement. senior leadership roles based in that location. This consideration is also extended to the implementation of Travel fees The Board benefits from the diverse global An additional fee may be payable to any the Company’s Living Wage policy, which is reviewed annually to ensure it is relevant to all our employees business experience of its Non-Executive Non-Executive Director (excluding the Chair) and corrective actions are identified to increase compensation where this is required. Committee takes into Directors, some of whom do not reside in the whois required to travel for more than a specified UK. However, the increasingly global nature of length of time to attend a Board meeting. account the impact on and comparison with pay arrangements throughout the Company. The Committee our business means that our Non-Executive Themaximum total fees for travel will be subject does not directly consult with employees when determining remuneration policy. Directors are required to travel, with recent to an annual cap. meetings held in Brazil, China, Mexico, Sri The structure of remuneration for Coats’ senior management team is consistent with that for the Executive For 2023, a travel fee will be payable for any Lanka, the USA and Vietnam. The Board wishes Directors. Senior executives participate in annual bonus and long-term incentive arrangements based on journey longer than 5 hours of one-way flight time to recognise the additional time commitment performance measures that are aligned to the measures applicable to Executive Directors. and the maximum fee will be capped at the required for Non- Executive Directors equivalent of 5 trips. The length of journey and (excluding Chair) in travelling to Board Statement of consideration of shareholder views maximum cap will be reviewed annually to ensure meetings. their continued relevance andappropriateness. The Committee remains committed to shareholder dialogue and takes an active interest in voting outcomes. The Committee sought the views of our major shareholders before submitting this Policy for shareholder No benefits or other remuneration will be provided to Non-Executive Directors. However in some cases reimbursement of business travel, entertaining and accommodation expenses claimed in accordance with the UK expenses policy may be deemed taxable benefits under UK tax rules. The Company pays the approval at the 2023 AGM. resulting tax liability. In addition, professional fees may be paid to assist a non-UK tax resident Director submit appropriate UK income tax returns; the cost of these fees may be regarded as a taxable benefit The Committee may, without seeking shareholder approval, make minor changes to this Policy that do not In determining the level of fees for a new Non-Executive Director, the Committee will take into account all have a material advantage to Directors. factors it determines to be relevant, including the skills and experience of the individual and the need to A copy of the Remuneration Policy will be made available at www.coats.com/governance attract Non-Executive Directors of the appropriate calibre. The Committee will also take into account the level of fees offered by equivalent companies. ## 104 Coats Group plc Annual Report and Accounts 2022 ### Independent auditor’s report to the members of Coats Group plc 2 Basis for opinion Report on the audit of the financial statements 1 Opinion We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial statements section of our report. In our opinion: STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO We are independent of the group and the parent company in accordance with the ethical requirements that – the financial statements of Coats Group plc (the ‘parent company’) and its subsidiaries (the ‘group’) are relevant to our audit of the financial statements in the UK, including the Financial Reporting Council’s (the give a true and fair view of the state of the group’s and of the parent company’s affairs as at ‘FRC’s’) Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical 31December 2022 and of the group’s profit for the year then ended; responsibilities in accordance with these requirements. The non-audit services provided to the group are set – the group financial statements have been properly prepared in accordance with United Kingdom out in note 5 to the financial statements and further detail on the nature of services provided is set out in the adopted international accounting standards; Audit and Risk Committee report on page 71. We confirm that we have not provided any non-audit services – the parent company financial statements have been properly prepared in accordance with United prohibited by the FRC’s Ethical Standard to the group or the parent company. Kingdom Generally Accepted Accounting Practice, including Financial Reporting Standard 102 “The We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for Financial Reporting Standard applicable in the UK and Republic of Ireland”; and ouropinion. – the financial statements have been prepared in accordance with the requirements of the Companies 3 Summary of our audit approach Act 2006. Key audit matters The key audit matters that we identified in the current year were: – Uncertain tax provisions; We have audited the financial statements which comprise: – Material assumptions underlying UK retirement benefits obligations; and – the consolidated income statement; – Acquisition accounting: Valuation of acquired intangibles . – the consolidated statement of comprehensive income; Materiality The materiality that we used for the group financial statements was $9.9m – the consolidated statement of financial position; which was determined on the basis of 0.6% of revenue. For further details refer to – the consolidated statement of changes in equity; section 6 of this report. – the consolidated statement of cash flows; Scoping Coats Group plc was subject to a full statutory audit by the group auditor. Due to – the notes to the financial statements 1 to 37; the broad geographical spread of the group, the audit is subject to scoping decisions on overseas components. Our full-scope audit and specified audit – the Company Balance Sheet; procedures performed covered 76% of the group’s net assets, 81% of the group’s – the Company Statement of Changes in Equity; adjusted profit before tax within the group’s trading components, and 77% of the – the Company Cash Flow Statement; and group’s revenue. – the Notes to the Company Financial Statements 1 to 6 Significant changes in Due to the developments referred to on page 151, we no longer consider there to ourapproach be a key audit matter relating to Lower Passaic River provisioning. The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and United Kingdom adopted international accounting standards. The financial reporting In light of the Group’s acquisition of Texon International Group (“Texon”) and framework that has been applied in the preparation of the parent company financial statements is applicable Rhenoflex GmbH (“Rhenoflex”), we have identified a key audit matter over the law and United Kingdom Accounting Standards, including FRS 102 “The Financial Reporting Standard valuation acquisition of intangibles relating to these businesses. applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice). ## 105 Coats Group plc Annual Report and Accounts 2022 ### Independent auditor’s report to the members of Coats Group plc cont. 4 Conclusions relating to going concern 5.1 Uncertain Tax Positions In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of Key audit matter Given the global operations of Coats, the Group is exposed to a large number of accounting in the preparation of the financial statements is appropriate. description tax jurisdictions and this exposure gives rise to a number of judgemental taxation positions, particularly in respect of intercompany cross-border transactions. The Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO group’s uncertain tax provisions at 31 December 2022 amount to $26.3 million the going concern basis of accounting included: (2021: $20.2 million). – Considering as part of our risk assessment the nature of the group, its business model and related risks The group evaluates uncertain tax items, which are subject to interpretation and including where relevant the impact of Covid, the requirements of the applicable financial reporting agreement of the position with the local tax authorities, and consequently framework and the system of internal control; agreement may not be reached for a number of years. – Considering emerging issues such as current macroeconomic conditions; There is a risk that there are matters excluded from the gross exposure calculation – Assessing the sales and gross margin forecast in management’s base case against the historical trading and there is judgement required by management and their external advisors to results of the group, the latest economic forecasts, the latest customer order book, and our determine the amount to be provided against known exposures. The valuation of understanding of management’s discussions with key customers; central provisions relating to ongoing Advanced Pricing Agreement (“APA”) – Testing the mechanical and logical accuracy of management’s calculations in their forecast; negotiations between the UK and Indonesian jurisdiction tax authorities is – Assessing the consistency of management’s forecast covenant compliance calculation in relation to the considered to be the most significant uncertain tax exposure in the group, however facility agreements; and management do not consider this to be a key source of estimation uncertainty. – Assessing the likelihood of management’s reverse stress test. Refer to note 1 for the relevant accounting policy. The group’s effective tax rate Based on the work we have performed, we have not identified any material uncertainties relating to events reconciliation is provided in note 9 and the matter is discussed as a significant or conditions that, individually or collectively, may cast significant doubt on the group’s and parent company’s financial and reporting issue in the Audit and Risk Committee report on page 73. ability to continue as a going concern for a period of at least twelve months from when the financial How the scope of our In responding to the key audit matter identified, we performed the following audit statements are authorised for issue. audit responded to the procedures: In relation to the reporting on how the group has applied the UK Corporate Governance Code, we have key audit matter Obtained an understanding of the relevant controls over the central tax provision nothing material to add or draw attention to in relation to the directors’ statement in the financial statements and evaluated whether these had been implemented as designed. Worked with about whether the directors considered it appropriate to adopt the going concern basis of accounting. our tax specialists to evaluate and challenge the appropriateness of judgements Our responsibilities and the responsibilities of the directors with respect to going concern are described in and assumptions made by management with respect to their assessment and the relevant sections of this report. valuation of the central tax provision. This included a review of applicable third- party evidence and inspection of correspondence with tax authorities to assess 5 Key audit matters the adequacy of the associated provision and disclosures. Key audit matters are those matters that, in our professional judgement, were of most significance in our Key Worked with our transfer pricing specialist to challenge management and their audit matters are those matters that, in our professional judgement, were of most significance in our audit of external advisors on the basis for the provision recognised in respect of the the financial statements of the current period and include the most significant assessed risks of material ongoing Indonesian Advanced Pricing Agreement. misstatement (whether or not due to fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts Assessed the completeness and accuracy of management’s disclosures within of the engagement team. the financial statements in accordance with IAS 12 Income Taxes and whether any critical accounting judgements or key sources of estimation uncertainty exist These matters were addressed in the context of our audit of the financial statements as a whole, and in that require further disclosure under IAS 1. forming our opinion thereon, and we do not provide a separate opinion on these matters. ## 106 Coats Group plc Annual Report and Accounts 2022 ## Independent auditor’s report to the members of Coats Group plc cont. | **Key observations** | Following our analysis and considerations of the Uncertain Tax Provisions, we are satisfied that the provisions raised in respect of the potential taxation exposures lie within an acceptable range, and are therefore appropriate. We concluded that the related disclosures in the financial statements are appropriate. | | --- | --- | | **5.2 Material assumptions underlying retirement benefit obligations** | | | **Key audit matter description** | The retirement benefit obligations recognised in the statement of financial position in respect of defined employee benefits are the present values of the defined benefit obligations at the year-end less the fair value of any associated assets. The gross actuarial value of scheme liabilities of Coats Group plc at 31 December 2022 was $1,912 million (2021: $3,197 million), determined by management’s expert. 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 $105.4 million (2021: $21.1 million net surplus). The Coats UK Pension Scheme is the most significant scheme, the gross liabilities of which amount to $1,786.2 million (2021: $3,034.9 million). During the period, the trustee purchased a £350 million bulk annuity insurance policy with Aviva to be held as an investment of the scheme. The key assumptions involved in the determination of the present values of the UK defined benefit obligation include discount rates, mortality, and inflation 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, in line with IFRIC 14. The carrying values of the group’s pension obligations as well as a sensitivity analysis relating to the group’s major defined benefit pension arrangements are included in note 10 of the financial statements and the accounting policy is detailed in note 1. Management identify UK retirement benefit obligations as a key source of estimation uncertainty in note 1 of the financial statements and discuss the matter as a significant financial and reporting issue in the Audit and Risk Committee report on page 69. | Coats Group plc Annual Report and Accounts 2022 # Independent auditor’s report to the members of Coats Group plc cont. ## 5.3 Acquisition accounting: Valuation of acquired intangibles | **Key audit matter description** | During the financial year, the Group acquired Texon and Rhenoflex for $211.0 million and $81.5 million respectively. Supported by external valuation specialists, management has recognised acquisition intangibles of $240.2 million and goodwill of $98.5 million as a result of these acquisitions. The valuation of these assets involved management determining a number of significant assumptions, being: the discount rate, attrition rate for customer relationships and royalty rates for the trade name and technology. The matter is discussed as a significant financial and reporting issue in the Audit and Risk Committee report on page 73. | | --- | --- | | **How the scope of our audit responded to the key audit matter** | In responding to the key audit matter identified, we performed the following audit procedures: Obtained an understanding of the relevant controls over the valuation of acquired intangible assets and whether these had been implemented as designed. Worked with our valuation specialists to challenge the valuation of acquired intangibles by obtaining underlying data used in the calculation and benchmarking it against market data and comparable organisations. Evaluated associated underlying assumptions and forecasts by agreeing the underlying data to acquisition due diligence reports. Assessed the mechanical and logical accuracy of the models underpinning the valuation. Assessed the competence capability and objectivity of management’s external valuation specialist. Assessed the opening balance sheet of the acquired businesses, including any fair value adjustments determined by management; and Assessed the completeness and accuracy of management’s disclosures within the financial statements in accordance with IFRS 3 *Business Combinations* and whether any critical accounting judgements or key sources of estimation uncertainty exist that require further disclosure under IAS 1. | | **Key observations** | Following our audit procedures performed, we have concluded that the key assumptions sit within an acceptable range. We are therefore satisfied that the valuation of acquired intangibles relating to Texon and Rhenoflex, and related disclosures, are appropriate. | Coats Group plc Annual Report and Accounts 2022 # Independent auditor’s report to the members of Coats Group plc cont. ## 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 financial statements as a whole. | | Group financial statements | Parent company financial statements | | --- | --- | --- | | **Performance materiality** | 70% (2021: 70%) of group materiality | 70% (2021: 70%) 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 significant deficiencies and errors identified in previous years. For FY22 purposes, Deloitte has continued to apply a performance materiality threshold of 70% (FY21: 70%) of group materiality, given the quality of the control environment, the relatively low level of misstatements identified in the current and prior years, as well as the fact that management is generally willing to correct these misstatements. | | ## 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 (2021: $0.5 million), as well as differences below that threshold that, in our view, warranted reporting on qualitative grounds. We also report to the Audit and Risk Committee on disclosure matters that we identified when assessing the overall presentation of the financial statements. ## 7 An overview of the scope of our audit ### 7.1 Identification 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 was subject to scoping decisions on overseas components. Following the Group’s acquisition of Texon and Rhenoflex, we have refreshed and updated our understanding of the group and its environment, including assessing the risks of material misstatement at the group level, in order to ensure that the components selected for audit provide an appropriate basis on which to undertake audit work to address the identified risks of material misstatement. We focused our Group audit scope on 14 (2021: 11) overseas components spread across four continents, which were subject to full audits. The increase in component full scope audits is as a result of the Texon and Rhenoflex acquisitions in the year. Additionally, 7 (2021: 7) components were subject to specified audit procedures. Coats Group plc Annual Report and Accounts 2022 ### Independent auditor’s report to the members of Coats Group plc cont. 7.3 Our consideration of climate-related risks Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In planning our audit, we have considered the potential impact of climate change on the Group’s business and its financial statements. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or The Group continues to develop its assessment of the potential impacts of climate change which is currently STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO otherwise appears to be materially misstated. 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 36. Management has identified specific transitional If we identify such material inconsistencies or apparent material misstatements, we are required to determine and physical climate related risks. whether this gives rise to a material misstatement in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are As a part of our audit, we have obtained management’s climate-related risk assessment and held discussions required to report that fact. with the head of sustainability and finance management to understand the process of identifying climate- related risks, the determination of mitigating actions and the impact on the Group’s financial statements. As explained in note 1(v), the key areas in the consolidated financial statements considered were the impact on We have nothing to report in this regard. 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 9 Responsibilities of directors in the financial statements as explained in note 1(v). As explained more fully in the directors’ responsibilities statement, the directors are responsible for the We performed our own qualitative risk assessment of the potential impact of climate change on the Group’s preparation of the financial statements and for being satisfied that they give a true and fair view, and for such account balances and classes of transaction and did not identify any reasonably possible risks of material internal control as the directors determine is necessary to enable the preparation of financial statements that misstatement. With the involvement of climate change and sustainability specialists, we evaluated are free from material misstatement, whether due to fraud or error. management’s risk assessment process in respect of the potential impact of climate change in judgements In preparing the financial statements, the directors are responsible for assessing the group’s and the parent and estimates taken in the financial statements, and evaluated management’s Task Force on Climate-Related company’s ability to continue as a going concern, disclosing as applicable, matters related to going concern Disclosures in line with the latest guidance. We also read the climate-related disclosures in the Strategic and using the going concern basis of accounting unless the directors either intend to liquidate the group or Report to consider whether it is materially consistent with the financial statements and our knowledge the parent company or to cease operations, or have no realistic alternative but to do so. obtained in the audit. 10 Auditor’s responsibilities for the audit of the financial statements 7.4 Working with other auditors Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are As part of our year end audit work, the group engagement team visited the Mexico and US component audit free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes and management teams during the year-end audit process. our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit For all overseas components, including Coats Bangladesh and all subsidiaries within the Texon Group conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. audited by non-Deloitte firms, we held planning calls, assessed their independence, maintained regular Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, contact throughout the audit process, directed the audit procedures performed and reviewed the risk they could reasonably be expected to influence the economic decisions of users taken on the basis of these assessment and work of overseas component auditors. financial statements. 8 Other information A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. The directors are responsible for the other information contained within the annual report. ## 110 Coats Group plc Annual Report and Accounts 2022 ### Independent auditor’s report to the members of Coats Group plc cont. 11 Extent to which the audit was considered capable of detecting irregularities, including fraud In addition, we considered provisions of other laws and regulations that do not have a direct effect on the financial statements but compliance with which may be fundamental to the group’s ability to operate or to Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design avoid a material penalty. These included the group’s environmental regulations that affect the group’s procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of operations. irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO including fraud is detailed below. 11.2 Audit response to risks identified 11.1 Identifying and assessing potential risks related to irregularities 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. 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: Our procedures to respond to risks identified included the following: – the nature of the industry and sector, control environment and business performance including the design – reviewing the financial statement disclosures and testing to supporting documentation to assess of the group’s remuneration policies, key drivers for directors’ remuneration, bonus levels and compliance with provisions of relevant laws and regulations described as having a direct effect on the performance targets; financial statements; – results of our enquiries of management, group internal audit, and the Audit and Risk committee about – enquiring of management, the Audit and Risk committee and external legal counsel concerning actual their own identification and assessment of the risks of irregularities; and potential litigation and claims; – any matters we identified having obtained and reviewed the group’s documentation of their policies and – performing analytical procedures to identify any unusual or unexpected relationships that may indicate procedures relating to: risks of material misstatement due to fraud; – identifying, evaluating and complying with laws and regulations and whether they were aware of any – in addressing the risk of fraud in revenue recognition, we tested the accuracy and completeness of the instances of non-compliance; year end rebate accrual by comparison to contractual requirements of principal end customers and by – detecting and responding to the risks of fraud and whether they have knowledge of any actual, performing a retrospective assessment of the accuracy of the 2022 rebate accrual; suspected or alleged fraud; – reading minutes of meetings of those charged with governance, reviewing internal audit reports and – the internal controls established to mitigate risks of fraud or non-compliance with laws and regulations; reviewing correspondence with tax and licensing authority; and – the matters discussed among the audit engagement team including significant component audit teams, – in addressing the risk of fraud through management override of controls, testing the appropriateness of and relevant internal specialists, including tax, valuations, pensions, IT and industry specialists regarding journal entries and other adjustments; assessing whether the judgements made in making accounting how and where fraud might occur in the financial statements and any potential indicators of fraud. estimates are indicative of a potential bias; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business. As a result of these procedures, we considered the opportunities and incentives that may exist within the organisation for fraud and identified the greatest potential for fraud in the following area: the valuation of We also communicated relevant identified laws and regulations and potential fraud risks to all engagement global accrued customer rebates in relation to revenue recognition. In common with all audits under ISAs team members including internal specialists and significant component audit teams, and remained alert to (UK), we are also required to perform specific procedures to respond to the risk of management override. any indications of fraud or non-compliance with laws and regulations throughout the audit. We also obtained an understanding of the legal and regulatory framework that the group operates in, focusing on provisions of those laws and regulations that had a direct effect on the determination of material amounts and disclosures in the financial statements. The key laws and regulations we considered in this context included the UK Companies Act, Listing Rules, pensions legislation and tax legislation. ## 111 Coats Group plc Annual Report and Accounts 2022 # Independent auditor's report to the members of Coats Group plc cont. ## Report on other legal and regulatory requirements ### 12. Opinions on other matters prescribed by the Companies Act 2006 In our opinion the part of the directors' remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006. In our opinion, based on the work undertaken in the course of the audit: - the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and - the strategic report and the directors' report have been prepared in accordance with applicable legal requirements. In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit, we have not identified any material misstatements in the strategic report or the directors' report. ### 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 specified 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 financial 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 identified set out on page 77; - the directors' explanation as to its assessment of the group's prospects, the period this assessment covers and why the period is appropriate set out on page 77; - the directors' statement on fair, balanced and understandable set out on page 80; - the board's confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 49; - the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 42; and - the section describing the work of the audit committee set out on page 67. Coats Group plc Annual Report and Accounts 2022 # Independent auditor’s report to the members of Coats Group plc cont. ## 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 financial statements for the year ending 31 December 2003 and subsequent financial periods. The period of total uninterrupted engagement including previous renewals and reappointments of the firm is 20 years, covering the years ending 31 December 2003 to 31 December 2022. The year ended 31 December 2022 will be the final year under audit by Deloitte. ### 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 financial statements form part of the European Single Electronic Format (ESEF) prepared Annual Financial Report filed 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 financial report has been prepared using the single electronic format specified in the ESEF RTS. **Edward Hanson (Senior statutory auditor)** For and on behalf of Deloitte LLP **Statutory Auditor** London, United Kingdom 1 March 2023 Coats Group plc Annual Report and Accounts 2022 ### Consolidated income statement Consolidated statement of comprehensive income | | | | | 2022 2021* | | | | | | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | | | | | | Year ended 31 December | US$m | US$m | | | Before | | Exceptional and | | | Before | | Exceptional and | | | | | exceptional and | | acquisition related | | | exceptional and | | acquisition related | | | | | Profit for the year 7. 3 10 8 . 6 acquisition related items acquisition related items items (see note 4) Total items (see note 4) Total Items that will not be reclassified subsequently to profit or loss: Year ended 31 December Notes US$m US$m US$m US$m US$m US$m STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Actuarial gains on retirement benefit schemes (note 10) 59. 8 2 12 . 8 Continuing operations: Tax relating to items that will not be reclassified (1. 4) (1. 0) Revenue 2,3 1, 5 8 3 . 8 – 1, 5 8 3 . 8 1, 4 4 6 . 7 – 1, 4 4 6 .7 58.4 2 11. 8 Cost of sales (1 ,087 . 1) (9.9) (1 , 0 9 7. 0) (97 9.3) – (9 79 .3) Items that may be reclassified subsequently to profit or loss: Gross profit 4 9 6 .7 (9.9) 486.8 4 6 7. 4 – 4 6 7. 4 Exchange differences on translation of foreign operations (3 1. 9) (17. 0) Distribution costs (12 6 .1) (3.8) (12 9 . 9) (12 5 .1) – (12 5 .1) Administrative expenses (13 5 . 7) (41 . 4) (1 7 7.1) (14 4 . 6) (19 . 5) (16 4 .1) Items reclassified to profit or loss: Other operating income – 1. 2 1. 2 – – – Exchange differences transferred to income statement on sale of business (note 32) 15 . 0 – Operating profit 2,4,5 23 4.9 (53.9) 18 1. 0 1 9 7. 7 (19 . 5) 17 8 . 2 Other comprehensive income and expense for the year 41. 5 19 4 . 8 Share of profits of joint ventures 16 1 .1 – 1 .1 1. 2 – 1. 2 Net comprehensive income and expense for the year 48.8 3 03.4 Finance income 6 2 .6 – 2 .6 0.4 – 0.4 Attributable to: Finance costs 7 (32 . 3) (1 .1) (33 .4) (2 1. 8) – (2 1. 8) Equity shareholders of the company 2 7. 5 2 8 4. 2 Profit before taxation 5 206.3 (55 .0) 151. 3 17 7. 5 (19 . 5) 15 8 . 0 Non-controlling interests 2 1. 3 19 . 2 Taxation 9 (6 0 .1) 3 .7 (5 6. 4) (53.3) 0. 2 (5 3 .1) 48.8 3 03.4 Profit from continuing operations 14 6 . 2 (51. 3) 94 .9 12 4 . 2 (1 9 .3) 10 4 . 9 (Loss)/profit from discontinued Notes on pages 118 to 169 form part of these financial statements. operations (3 .7) (8 3.9) (8 7. 6) (5. 2) 8. 9 3 .7 Profit for the year 14 2 . 5 (13 5 . 2) 7. 3 11 9 . 0 (10 . 4) 10 8 . 6 Attributable to: Equity shareholders of the company 12 0 . 2 (13 4 . 9) (14 . 7) 9 9. 3 (10. 4) 88. 9 Non-controlling interests 2 2.3 (0. 3) 2 2 .0 19 . 7 – 19 . 7 14 2 . 5 (13 5 . 2) 7. 3 11 9 . 0 (10 . 4) 10 8 . 6 Earnings/(loss) per share (cents): 11 Continuing operations: Basic 4.80 5.8 4 Diluted 4 .7 7 5.82 Continuing and discontinued operations: Basic (0. 98) 6 .1 0 Diluted (0 .97) 6 .07 Adjusted earnings per share 37(d) 8 .17 7. 1 7 * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Notes on pages 118 to 169 form part of these financial statements. ## 114 Coats Group plc Annual Report and Accounts 2022 ### Consolidated statement of financial position | | 2022 | 2021 | | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | | 31 December Notes | US$m | US$m | 31 December Notes | US$m | US$m | | Non-current assets: | | | Non-current liabilities: | | | | Goodwill 13 12 4 . 7 2 6.2 | | | Trade and other payables 21 (26.3) (24. 2) | | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | Intangible assets 13 4 8 8 .7 2 5 6 .7 | | Deferred tax liabilities 24 (65. 3) (6.8) | | | --- | --- | --- | --- | | Property, plant and equipment 14 256.3 24 4.5 | | Borrowings 23 (5 5 0 .1) (2 3 5 .1) | | | Right-of-use assets 15 96.5 91 .6 | | Lease liabilities 15 (86.4) (8 1. 2) | | | Investments in joint ventures 16 13 .1 12 . 0 | | Retirement benefit obligations: | | | Other equity investments 16 5.9 6.0 | | – Funded schemes 10 (3.3) (5 .6) | | | Deferred tax assets 17 2 4.4 2 0 .7 | | – Unfunded schemes 10 (83. 4) (9 0. 2) | | | Pension surpluses 10 2 2 2 .7 15 9 . 7 | | Provisions 25 (2 5. 4) (2 7. 7 ) | | | Trade and other receivables 19 2 0. 2 2 8 .7 | | | (840 .2) (47 0. 8) | | | 1, 2 5 2 . 5 8 4 6 .1 | Total liabilities (1, 2 2 5 . 3) (9 2 7. 2) | | Current assets: Net assets 6 99 .3 5 8 4 .1 Inventories 18 2 11 . 4 2 5 0 .1 Equity: Trade and other receivables 19 2 86.3 3 0 2 .7 Share capital 26 9 9.0 9 0 .1 Pension surpluses 10 2 .0 5. 2 Share premium account 27 111 . 4 10 . 5 Cash and cash equivalents 30(g) 17 2 . 4 1 0 7. 2 Own shares 26, 27 (0 .1) (0. 5) 6 7 2 .1 6 65. 2 Translation reserve 27 (12 1 . 9) (10 5 .7) Total assets 1 ,924. 6 1 , 5 11 . 3 Capital reduction reserve 27 59. 8 5 9.8 Current liabilities: Other reserves 27 246. 3 246.3 Trade and other payables 21 (278 .4) (346 . 8) Retained profit 27 2 7 0 .7 252 .5 Current income tax liabilities (20. 2) (16 . 5) Equity shareholders’ funds 6 65.2 5 53 .0 Bank overdrafts and other borrowings 23 (16 .7) (19 . 2) Non-controlling interests 27 3 4 .1 3 1.1 Lease liabilities 15 (19 . 0) (17. 8) Total equity 6 99 .3 5 8 4 .1 Retirement benefit obligations: Rajiv Sharma Jackie Callaway – Funded schemes 10 (27 .6) (41. 9) Group Chief Executive Chief Financial Officer – Unfunded schemes 10 (5.0) (6 .1) Approved by the Board 1 March 2023 Provisions 25 (18 . 2) (8 .1) (3 8 5 .1) (45 6.4) Company Registration No.103548 Net current assets 2 8 7. 0 20 8.8 Notes on pages 118 to 169 form part of these financial statements. ## 115 Coats Group plc Annual Report and Accounts 2022 ## Consolidated statement of changes in equity | | Share capital US$m | Share premium account US$m | Own shares US$m | Translation reserve US$m | Capital reduction reserve US$m | Other reserves US$m | Retained profit/(loss) US$m | Total US$m | Non-controlling interests US$m | Total equity US$m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Balance as at 1 January 2021 | 90.1 | 10.5 | (3.2) | (89.2) | 59.8 | 246.3 | (23.8) | 290.5 | 28.4 | 318.9 | | Profit for the year | – | – | – | – | – | – | 88.9 | 88.9 | 19.7 | 108.6 | | Other comprehensive income and expense for the year | – | – | – | (16.5) | – | – | 211.8 | 195.3 | (0.5) | 194.8 | | Dividends (see notes 12 and 27) | – | – | – | – | – | – | (27.6) | (27.6) | (16.5) | (44.1) | | 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 | 90.1 | 10.5 | (0.5) | (105.7) | 59.8 | 246.3 | 252.5 | 553.0 | 31.1 | 584.1 | | (Loss)/profit for the year | – | – | – | – | – | – | (14.7) | (14.7) | 22.0 | 7.3 | | Other comprehensive income and expense for the year | – | – | – | (16.2) | – | – | 58.4 | 42.2 | (0.7) | 41.5 | | Application of IAS 29 (note 1) | – | – | – | – | – | – | 5.0 | 5.0 | – | 5.0 | | Dividends (see notes 12 and 27) | – | – | – | – | – | – | (32.9) | (32.9) | (18.3) | (51.2) | | Issue of ordinary shares | 8.9 | 100.9 | – | – | – | – | – | 109.8 | – | 109.8 | | Purchase of own shares by Employee Benefit Trust | – | – | (2.1) | – | – | – | – | (2.1) | – | (2.1) | | Movement in own shares | – | – | 2.5 | – | – | – | (2.5) | – | – | – | | Share based payments | – | – | – | – | – | – | 4.6 | 4.6 | – | 4.6 | | Deferred tax on share schemes | – | – | – | – | – | – | 0.3 | 0.3 | – | 0.3 | | **Balance as at 31 December 2022** | **99.0** | **111.4** | **(0.1)** | **(121.9)** | **59.8** | **246.3** | **270.7** | **665.2** | **34.1** | **699.3** | Notes on pages 118 to 169 form part of these financial statements. Coats Group plc Annual Report and Accounts 2022 ### Consolidated statement of cash flows | | 2022 | 2021 | | 2022 | 2021 | | --- | --- | --- | --- | --- | --- | | Year ended 31 December Notes | US$m | US$m | Year ended 31 December Notes | US$m | US$m | | Cash inflow from operating activities: | | | Net increase in cash and cash equivalents 7 2 .1 41. 0 | | | | Cash generated from operations 30(a) 176 . 5 18 9 . 0 | | | Net cash and cash equivalents at beginning of the year 9 0.8 5 2 .1 | | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Interest paid 30(b) (25.5) (12 . 5) Foreign exchange losses on cash and cash equivalents (5. 2) (2.3) Taxation paid 30(c) (5 4 .6) (4 7. 9) Net cash and cash equivalents at end of the year 30(g) 1 5 7. 7 9 0.8 Net cash generated by operating activities 96.4 12 8 . 6 Reconciliation of net cash flow to movements in net debt Cash outflow from investing activities: Net increase in cash and cash equivalents 7 2 .1 41. 0 Investment income 30(d) 0.5 0. 3 Drawdown of term loan acquisition facility 30(g) (2 40.0) – Net capital expenditure and financial investment 30(e) (3 1. 6) (30.3) Net increase in other borrowings (7 9. 2) (8.4) Acquisition of businesses 30(f) (2 71. 2) – Change in net debt resulting from cash flows (free cash flow) 37(e) (2 4 7 .1) 32 .6 Disposals of business 30(f) (1 7. 0) – Net movement in lease liabilities during the period (13 . 0) (3 3.0) Net cash absorbed in investing activities (3 19 . 3) (3 0.0) Movement in fair value hedges 5.2 3.0 Cash inflow/(outflow) from financing activities: Other non-cash movements (1. 0) (1 .3) Issue of ordinary shares 26 10 9 . 8 – Foreign exchange gains/(losses) 2.2 (0.8) Purchase of own shares by Employee Benefit Trust (2 .1) – (Increase)/decrease in net debt (2 5 3 .7) 0. 5 Dividends paid to equity shareholders (3 3.0) (2 7. 4) Net debt at the start of the year (2 4 6 .1) (2 46 . 6) Dividends paid to non-controlling interests (18 . 3) (16 . 5) Net debt at the end of the year 30(g) (49 9. 8) (2 46. 1) Payment of lease liabilities (1 8 .1) (2 2 .1) Notes on pages 118 to 169 form part of these financial statements. Borrowings settled on completion of acquisitions 31 (62 .5) – Drawdown of term loan acquisition facility 30(g) 2 4 0.0 – Net increase in other borrowings 79. 2 8.4 Net cash generated from/(absorbed in) financing activities 2 95.0 ( 5 7. 6) ## 117 Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements ## 1 Principal accounting policies The following are the principal accounting policies adopted in preparing the financial statements. ### Critical accounting judgements and key sources of estimation uncertainty The principal accounting policies adopted by the Group are set out in this note to the consolidated financial statements. Certain of the Group's accounting policies inherently rely on subjective assumptions and judgements, such that it is possible over time the actual results could differ from the estimates based on the assumptions and judgements used by the Group. Due to the size of the amounts involved, changes in the assumptions relating to the following policies could potentially have a significant impact on the result for the year and/or the carrying values of assets and liabilities in the consolidated financial statements: In the course of preparing the financial statements, the below critical judgements and key sources of estimation uncertainty have had a significant effect on the amounts recognised in the financial statements for the years ended 31 December 2022. The critical accounting judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2021, except for the critical accounting judgement relating to the sale of the Brazil and Argentina business in 2022 set out below. ### Critical judgements in applying the Group's accounting policies #### Exceptional and acquisition related items As set out in the Group's accounting policy below, judgement is used to determine those items which should be separately disclosed as exceptional and acquisition related items to provide valuable additional information for users of the financial statements in understanding the Group's performance. This judgement includes assessment of whether an item is of sufficient size or of a nature that is not consistent with normal trading activities. Please see note 4 for further details. #### UK pension surplus recognition The Group has recognised a net defined benefit pension surplus for the Coats UK Pension Scheme under IAS 19 of $180.7 million at 31 December 2022 (2021: $108.0 million). Judgement has been applied when interpreting the scheme rules to determine whether the Group can recognise this surplus asset amount on the statement of financial position or whether any economic benefits available as a refund are contingent upon factors beyond the Group's control and instead require an adjustment to be made to restrict the amount of the surplus recognised and reflect a liability arising from future committed contributions to the Coats UK Pension Scheme under IFRIC 14. The Group has determined that it has an unconditional right to a refund of the surplus assuming the gradual settlement of liabilities over time and therefore has recognised the full amount of the net defined benefit pension surplus. Please see note 10 for further details. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 1 Principal accounting policies cont. ### 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 financial statements of subsidiaries to align their accounting policies with those used by the Group. Where subsidiaries are not 100% owned by the Group, the share attributable to outside shareholders is reflected in non-controlling interests. Non-controlling interests are identified separately from the Group's equity, and may initially be measured at either fair value or at the non-controlling interests' share of the fair value of the subsidiary's identifiable net assets. The choice of measurement is made on an acquisition-by-acquisition basis. Changes in the Group's interests in subsidiaries, that do not result in a loss of control, are accounted for as equity transactions. Where control is lost, a gain or loss on disposal is recognised through the consolidated income statement, calculated as the difference between the fair value of consideration received (plus the fair value of any retained interest) and the Group's previous share of the former subsidiary's net assets. Amounts previously recognised in other comprehensive income in relation to that subsidiary are reclassified and recognised through the income statement as part of the gain or loss on disposal. #### *Discontinued operations* On 10 May 2022 the Group announced the agreement to sell its business in Brazil and Argentina to Reelpar SA, an entity backed by a Sao Paulo Private Equity Firm. The sale was completed on 26 May 2022, the date which control passed to the acquirer. The results of the Brazil and Argentina business are presented as a discontinued operation in the consolidated income statement for the year ended 31 December 2022. Amounts for year ended 31 December 2021 in the consolidated income statement have been represented to reclassify the results of the Brazil and Argentina business from continuing operations to discontinued operations. Note 32 provides further details of the sale. #### *Joint ventures* Joint ventures are entities in which the Group has joint control, shared with a party outside the Group. The Group reports its interests in joint ventures using the equity method. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 1 Principal accounting policies cont. ### *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 financial covenants under the borrowing agreements are for leverage (net debt/EBITDA) less than 3.0 and interest cover (EBITDA/interest charge) to be in excess of 4.0. All banking covenants tests were met comfortably at 31 December 2022, with leverage of 1.4x and interest cover of 19.0x. 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 financial 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 financial 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 2022. ### 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. ## 121 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. h) Property, plant and equipment Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation and any accumulated impairments. Subsequent expenditure Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property, plant and equipment. All other expenditure is recognised in the income statement as an expense as incurred. Depreciation Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of property, plant and equipment, and major components that are accounted for separately. Land is not depreciated. The estimated useful lives are as follows: Freehold buildings 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 office equipment 2 years to 10 years Assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each period end. i) Business combinations and Intangible assets Business combinations Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The consideration for each acquisition is measured as the sum of the acquisition-date fair values of assets given, liabilities incurred or assumed in exchange for control of the acquiree. Acquisition-related costs are recognised in the consolidated income statement, as incurred, in operating costs. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see below), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed as of the acquisition date that, if known, would have affected the amounts recognised as of that date. * Cumulative inflation rates over a three-year period exceeded 100% in Turkey in Q2 2022 and is considered as hyperinflationary and as a result IAS 29 “Financial Reporting in Hyperinflationary Economies” has been applied for the first time for the year ended 31 December 2022. In accordance with IAS 29, the financial statements of the Company’s subsidiary in Turkey are translated into the Group’s US Dollar presentational currency at the 31 December 2022 year end exchange rate. Monetary assets and liabilities are not restated. All non-monetary items recorded at historical rates are restated for the change in purchasing power caused by inflation from the date of initial recognition to the year end balance sheet date. The income statement of the Company’s subsidiary in Turkey is adjusted for inflation during the reporting period. Comparative amounts in the Group’s financial statements are not restated. The translation adjustment resulting from the initial application of IAS 29 of $5.0 million was recognised in equity and a net monetary gain of $1.9 million was recognised within finance income on non-monetary items held in Turkish Lira. The inflation rate used is the consumer price index published by the Turkish Statistical Institute, TurkStat. The movement in the price index for the year ended 31 December 2022 was 64%. e) Operating segments Operating segments are components of the Group about which separate financial information is available that is evaluated by the Coats Group plc Group Executive Team in deciding how to allocate resources and in assessing performance. See note 2 for further details. f) Operating profit Operating profit is stated before the share of results of joint ventures, investment and interest income, finance costs and foreign exchange gains and losses from financing activities. g) Exceptional and acquisition related items The Group has adopted an income statement format which seeks to highlight significant items within the Group results for the year. Exceptional items may include significant restructuring associated with a business or property disposal, litigation costs and settlements, profit or loss on disposal of property, plant and equipment, non-actuarial gains or losses arising from significant one off changes to defined benefit pension obligations, regulatory investigation costs and impairment of assets. Acquisition related items include amortisation of acquired intangible assets, acquisition transaction costs, contingent consideration linked to employment and adjustments to contingent consideration. Please see note 4 for further details on why management consider these items to be exceptional. Judgement is used by the Group in assessing the particular items, which by virtue of their scale and nature, should be presented in the income statement and disclosed in the related notes as exceptional items. In determining whether an event or transaction is exceptional, materiality is a key consideration and qualitative factors, such as frequency or predictability of occurrence, are also considered. This is consistent with the way financial performance is measured by management and reported to the Board. 1 Principal accounting policies cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 122 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. Intellectual property, comprising trademarks, designs, patents and product development which have a finite useful life, are carried at cost less accumulated amortisation and impairment charges. Amortisation is calculated using the straight-line method to allocate the cost over the assets’ useful lives, which vary from 5 to 10 years. The amortisation charge for both acquired and other intangibles assets is included within the distribution costs and administrative expense lines in the consolidated income statement. Impairment of property, plant and equipment, right-of-use assets and intangible assets excluding goodwill Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to depreciation or amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment charge is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. For the purposes of assessing impairment, assets are measured at the CGU level. Research and development All research costs are expensed as incurred. An internally-generated intangible asset arising from development is recognised only if all of the following conditions are met: – an asset is created that can be separately identified; – it is probable that the asset created will generate future economic benefits; and – the development costs can be measured reliably. Internally-generated intangible assets are amortised on a straight-line basis over their useful lives. Where no internally-generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred. The measurement period is the period from the date of acquisition to the date the Group obtains complete information about facts and circumstances that existed as of the acquisition date and is subject to a maximum of one year. Goodwill Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non- controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is recognised as an asset and tested for impairment at least annually. Any impairment is recognised immediately in the income statement. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Goodwill is allocated to cash-generating units (CGUs) for the purpose of impairment testing. CGUs represent the smallest group of assets that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Negative goodwill is recognised immediately in the income statement. I ntangible 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 15 years The useful life of the Coats Brand is considered to be indefinite. Other intangibles Acquired computer software licences and computer software development costs are capitalised on the basis of the costs incurred to acquire and bring to use the specific software and are amortised over their estimated useful lives of up to 5 years. 1 Principal accounting policies cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 123 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. Right-of-use assets are depreciated over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Group expects to exercise a purchase option, the related right-of-use asset is depreciated over the useful life of the underlying asset. The depreciation starts at the commencement date of the lease. Variable rents that do not depend on an index are not included in the measurement of the lease liability and the right-of-use asset. The related payments are recognised as an expense in the period in which the event or condition that triggers those payments occurs. k) Financial instruments Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the relevant financial instrument. Financial assets (i) Investments in equity securities Investments in equity securities are recognised and derecognised on a trade date basis and are initially measured at fair value, plus directly attributable transaction costs and are remeasured at subsequent reporting dates at fair value, with movements recorded in other comprehensive income. Listed investments are stated at market value. Unlisted investments are stated at fair value based on directors’ valuation, which is supported by external experts’ advice or other external evidence. (ii) Cash and cash equivalents Cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits maturing in less than three months. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. (iii) Trade and other receivables Trade receivables are recognised at fair value (which ordinarily reflects the invoice amount) and carried at amortised cost, less an allowance for expected lifetime losses as permitted under the simplified approach in IFRS 9. Fully provided balances are not written off from the balance sheet until the Group has decided to cease enforcement activity. Financial liabilities (i) Trade payables Trade payables are not interest-bearing and are recognised at fair value, and measured subsequently at amortised cost. j) Leases The Group assesses whether a contract is or contains a lease, at inception of the contract. The Group recognises a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low value assets (defined as assets with a value of US$5,000 or less when new). For these leases, the Group recognises the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Group uses its incremental borrowing rate. The lease liability is subsequently measured by increasing the carrying amount to reflect interest on the lease liability (using the effective interest method) and by reducing the carrying amount to reflect the lease payments made. The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever: – the lease term has changed or there is a change in the assessment of exercise of a purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate; – the lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which cases the lease liability is remeasured by discounting the revised lease payments using the initial discount rate (unless the lease payments change is due to a change in a floating interest rate, in which case a revised discount rate is used); and – a lease contract is modified and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate. The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Whenever the Group incurs an obligation for costs to dismantle and remove a leased asset, restore the site on which it is located or restore the underlying asset to the condition required by the terms and conditions of the lease, a provision is recognised and measured under IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’. The costs are included in the related right-of-use asset, unless those costs are incurred to produce inventories. 1 Principal accounting policies cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 124 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. (v) Fair value hedges Changes in the fair values of derivatives that are designated and qualify as fair value hedges are recognised immediately through the income statement, together with any changes in the fair value of the related hedged items due to changes in the hedged risks. On discontinuation of the hedge the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the consolidated income statement from that date. (vi) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is deferred in equity. Once the related hedged item is recognised in the income statement, the amounts deferred in equity are recycled through the consolidated income statement. The gain or loss arising from any ineffective portion of the hedge is recognised immediately through the consolidated income statement. (vii) Hedges of net investments in foreign operations Gains and losses on hedging instruments relating to the effective portion of such hedges are recognised through the translation reserve, and recycled through the consolidated income statement on disposal of the respective foreign operations. The gain or loss arising from any ineffective portion of such hedges is recognised immediately through the consolidated income statement. l) Revenue Revenue comprises the fair value of the sale of goods and services, net of sales tax and discounts and rebates, and after eliminating sales within the Group. Revenue is recognised as follows: (i) Sales of goods Sales of goods are recognised in revenue at a single point in time when control of the goods has been transferred to the buyer. The point in time at which control is deemed to have transferred varies depending on the commercial terms agreed with the buyer. (ii) Sales of services Sales of services are recognised in the period in which the services are rendered, as follows: – Software implementation and licensing income – performance obligations are satisfied over a period of time and therefore revenue is recognised by reference to the stage of completion at the period end. The Group uses labour hours expended to assess the stage of completion as it is deemed to be the most appropriate basis to measure progress. – Maintenance income – performance obligations are satisfied evenly over a fixed period of time and therefore revenue is recognised on a straight line basis over the maintenance period. Advances received from customers are included within contract liabilities. ( ii) Borrowings Interest-bearing loans and overdrafts are initially measured at fair value, net of direct issue costs. These financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised over the period of the relevant liabilities. Financial liabilities 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 classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangement. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument, and this amount is recorded as a liability at amortised cost. The equity component is the fair value of the compound instrument as a whole less the amount of the liability component, and is recognised in equity, net of income tax effect, without subsequent remeasurement. (iv) Derivative financial instruments and hedge accounting The Group’s activities expose it to the financial risks of changes in foreign exchange rates and interest rates. The use of financial derivatives is regulated by the Board or that of the relevant operating subsidiary in accordance with their respective risk management strategies. Changes in values of all derivatives of a financing nature are included within finance costs in the income statement. Derivative financial instruments are initially measured at fair value at contract date and are remeasured at each reporting date. The Group designates hedging instruments as either fair value hedges, cash flow hedges or hedges of net investments in foreign operations. Hedges of interest rate risk are accounted for as fair value or cash flow hedges. At the inception of each hedge transaction the issuing entity documents the relationship between the hedging instrument and the hedged item and the anticipated effectiveness of the hedge transaction, and monitors the ongoing effectiveness over the period of the hedge. Hedge accounting is discontinued when the issuing entity revokes the hedging relationship, the hedge instrument expires, is sold, exercised or otherwise terminated, and the adjustment to the carrying amount of the hedged item arising from the hedged risk is amortised through the income statement from that date. 1 Principal accounting policies cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 125 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. For defined contribution plans, the Group pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis. The contributions are recognised as employee benefit expenses when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. (ii) Share-based compensation Cash-settled Cash-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at each reporting date. The fair value is expensed on a straight-line basis over the vesting period, with a corresponding increase in liabilities. Equity-settled The Group operates an equity-settled Long Term Incentive Plan for executives and senior management. Awards under this Plan are subject to both market-based and non-market-based vesting criteria. The fair value at the date of grant is established by using an appropriate simulation method to reflect the likelihood of market-based performance conditions being met. The fair value is charged to the consolidated income statement on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected vesting for non-market-based performance conditions and forfeitures. The corresponding credit is to equity shareholders’ funds. To satisfy awards under this Plan, shares may be purchased in the market by an Employee Benefit Trust over the vesting period. (iii) Non-share-based long-term incentive schemes The anticipated present value cost of non-share-based incentive schemes is charged to the consolidated income statement on a straight-line basis over the period the benefit is earned, based on remuneration rates that are expected to be payable. (iv) Termination benefits Termination benefits are payable when employment is terminated before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. The Group recognises termination benefits when it is demonstrably committed to either: terminating the employment of current employees according to a detailed formal plan without possibility of withdrawal; or providing termination benefits as a result of an offer made to encourage voluntary redundancy. Benefits falling due more than 12 months after the period end are discounted to present value. o) Taxation The tax expense represents the sum of the current tax and deferred tax. (iii) Income from sales of property Income from sales of property is recognised on completion when legal title of the property passes to the buyer. m) Inventories Inventories are valued at the lower of cost and net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials are valued at cost on a first-in, first-out basis. The costs of finished goods and work in progress include direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. Provision is made for obsolete, slow-moving and defective inventories. n) Employee benefits (i) Retirement and other post-employment obligations For retirement and other post-employment benefit obligations, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period by independent actuaries. Remeasurement comprising actuarial gains and losses, the effect of the asset ceiling (if applicable) and the return on scheme assets (excluding interest) are recognised immediately in the consolidated statement of financial position with a charge or credit to the consolidated statement of comprehensive income in the period in which they occur. Remeasurement recorded in the consolidated statement of comprehensive income is not recycled. Current and past service costs, along with the impact of any settlements or curtailments, are charged to the consolidated income statement. The net interest expense on pension plans’ liabilities and the expected return on the plans’ assets is recognised within finance expense in the consolidated income statement. In addition, pension scheme administrative expenses including the Pension Protection Fund (PPF) levy and actuary, audit, legal and trustee charges are recognised as administrative expenses. The retirement benefit and other post employment benefit obligation recognised in the consolidated statement of financial position represents the deficit or surplus in the Group’s defined benefit schemes. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the schemes or reductions in future contributions to the schemes and refunds expected from the schemes to fund other Group defined benefit schemes, in accordance with relevant legislation. 1 Principal accounting policies cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 126 Coats Group plc Annual Report and Accounts 2022 Notes to the financial statements cont. q) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in the income statement in the period in which they are incurred. r) Provisions A provision is recognised in the consolidated statement of financial position when the Group has a legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material, a provision is determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognised as a borrowing cost. When some or all of the economic benefits required to settle a provision are expected to be recovered from an insurer, a receivable is recognised as an insurance reimbursement asset and included separately within other receivables if it is virtually certain that reimbursement from the insurer will be received and the amount of the receivable can be measured reliably. s) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. t) Restructuring A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan, and the restructuring has either commenced or has been announced publicly. Future operating costs are not provided for. u) Assets held for sale and discontinued operations Non-current assets and businesses which are to be sold (disposal groups) classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell. Non-current assets (and disposal groups) are classified as held for sale if their carrying amount is expected to be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when such a sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the consolidated income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted by the period end. Deferred tax is provided using the liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred taxation is measured on a non-discounted basis. The following temporary differences are not provided for: goodwill not deducted for tax purposes, the initial recognition of assets or liabilities that affect neither accounting, nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the period end. A deferred tax asset is recognised only to the extent that it is probable that future profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying values of deferred tax assets are reviewed at each period end. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to other comprehensive income or equity, in which case the deferred tax is also dealt with in other comprehensive income or equity. p) Government grants Government grants are not recognised until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received. Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognises as expenses the related costs for which the grants are intended to compensate. Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognised in profit or loss in the period in which they become receivable. 1 Principal accounting policies cont. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 1 Principal accounting policies cont. Non-current assets are classified as held for sale from the date these conditions are met, and such assets are no longer depreciated. Discontinued operations are classified as held for sale and are either a separate business segment or a geographical area of operations that is part of a single coordinated plan to sell. Once an operation has been identified as discontinued, or is reclassified as discontinued, the comparative information in the Income Statement is restated. ### v) Climate change In preparation of the consolidated financial statements, consideration has been given to the impact of climate change on the Group's key accounting policies, estimates and judgements. As noted in the Taskforce on Climate-related Financial Disclosures (TCFD) section of the Strategic Report on pages 35-38 we are exposed to specific transitional and physical climate related risks. The key areas in the consolidated financial statements that were identified for consideration of potential impacts from these climate related risks were the assumptions used to support impairment reviews of cash generating units (CGUs) and accounting policies on estimated useful lives of tangible fixed assets. #### (i) Impairment of assets The key climate related risks considered were the introduction of carbon taxes, disruption of water supply and extreme weather events (floods and extreme heat). These risks as well as any potential mitigations were considered when assessing the appropriateness of the assumptions used to project future cash flows to support the value in use of a CGU. No specific significant financial impacts were identified in relation to the CGUs that were subject to an impairment review during the year ended 31 December 2022 (see note 13). In addition, no significant short to medium term (pre 2045) climate related impacts have been identified for individual assets or other CGUs in the Group. #### (ii) Fixed asset useful lives Consideration was given as to whether the impact of physical risks relating to extreme weather events (e.g. flood risk damage) may require a reassessment of the estimated useful lives of fixed assets. As noted in the physical risks section in our TCFD disclosures, no significant impacts are currently expected in the short to medium term (pre 2045), after which point the majority of the Group's current fixed asset portfolio will be fully depreciated. As such, the reassessment of fixed asset useful lives to reflect potential impacts of climate change was not deemed necessary. In light of the above, the Group's current assessment is that the climate related risks detailed in the TCFD disclosures section of the Strategic Report do not have a material impact on the key accounting policies, estimates and judgements that form the basis of these consolidated financial statements. Coats Group plc Annual Report and Accounts 2022 ### Notes to the financial statements cont. 2 Segmental analysis cont. As at December 2022, this internal reorganisation had not occurred with segment results grouped into two segments Apparel & Footwear and Performance Materials to which the CODM was provided financial information on which to assess performance and allocate resources. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO a) Segment revenue and results | | Apparel & | | Performance | | | | | --- | --- | --- | --- | --- | --- | --- | | | Footwear | | | Materials | | Total | | Year ended 31 December 2022 | | US$m | | | US$m | US$m | Revenue 1,163.4 420.4 1,583.8 Segment profit 200.8 34.1 234.9 Exceptional and acquisition related items (note 4) (53.9) Operating profit 181.0 Share of profits of joint ventures 1.1 Finance income 2.6 Finance costs (33.4) Profit before taxation from continuing operations 151.3 | | Apparel & | | Performance | | | | | --- | --- | --- | --- | --- | --- | --- | | | Footwear | | | Materials | | Total | | Year ended 31 December 2021* | | US$m | | | US$m | US$m | Revenue 1,048.1 398.6 1,446.7 Segment profit 170.7 27.0 197.7 Exceptional and acquisition related items (note 4) (19.5) Operating profit 178.2 Share of profits of joint ventures 1.2 Finance income 0.4 Finance costs (21.8) Profit before taxation from continuing operations 158.0 * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Cost of sales and other operating costs not directly attributable to a segment are allocated to segments on an aggregated basis. Exceptional and acquisition related items are not allocated to segment s to align to the reporting provided to the chief operating decision maker. In addition, no measures of total assets, total liabilities and depreciation charges are reported for each reportable segment as such amounts are not regularly provided to the chief operating decision maker. The accounting policies of the reportable operating segments are the same as the Group’s accounting policies described in note 1. ## 128 b) Geographic information Year ended 31 December Revenue by origin Revenue by destination Non-current assets 2022 US$m 2021* US$m 2022 US$m 2021* US$m 2022 US$m 2021 US$m Europe, Middle East & Africa (EMEA) UK 23.1 14.4 13.0 14.8 256.8 258.9 Rest of EMEA 308.3 268.8 281.6 250.9 195.0 70.3 Americas USA 219.4 205.4 240.7 218.4 51.0 63.3 Rest of Americas 121.2 108.4 118.1 116.2 52.8 46.6 Asia & Rest of World India 184.4 166.7 184.3 161.8 39.7 46.1 China and Hong Kong 234.9 217.5 198.4 194.1 301.8 77.1 Vietnam 213.5 192.0 215.0 178.7 38.7 34.9 Other 279.0 273.5 332.7 311.8 63.7 67.2 1,583.8 1,446.7 1,583.8 1,446.7 999.5 664.4 Non-current assets excludes derivative financial instruments, investments, pension surpluses and deferred tax assets. 3 Revenue An analysis of the Group’s revenue is as follows: Year ended 31 December 2022 US$m 2021* US$m Goods transferred at a point in time 1,573.6 1,435.6 Software solutions services transferred over time 10.2 11.1 1,583.8 1,446.7 Other operating income 1.2 – Finance income 2.6 0.4 1,587.6 1,447.1 * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). The software solutions business is included in the Apparel & Footwear segment. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 3 Revenue cont. ### Disaggregation of revenue The following table shows revenue disaggregated by primary geographic markets which reconciles with the Group's reportable segments: | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | **Continuing operations:** | | | | Asia | 911.8 | 849.7 | | Americas | 340.6 | 313.8 | | EMEA | 331.4 | 283.2 | | | **1,583.8** | **1,446.7** | | **Continuing operations:** | | | | Apparel & Footwear | 1,163.4 | 1,048.1 | | Performance Materials | 420.4 | 398.6 | | | **1,583.8** | **1,446.7** | \* Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Revenue from Texon and Rhenoflex totalling $87.2 million for the period to 31 December 2022 from their respective acquisition dates (see note 31) is included in the amount above for the Apparel & Footwear segment of which $34.4 million is included in Asia, $1.2 million is included in Americas and $51.6 million is included in EMEA. The Group had no revenue from a single customer which accounts for more than 10% of the Group's revenue. ## 4 Exceptional and acquisition related items The Group's consolidated income statement format is presented before and after exceptional and acquisition related items. Adjusted results exclude exceptional and acquisition related items on a consistent basis with the previous reporting period to provide valuable additional information for users of the financial statements in understanding the Group's performance and reflects how the performance of the business is managed and measured on a day-to-day basis. Further details on alternative performance measures are set out in note 37. Exceptional items may include significant restructuring associated with a business or property disposal, litigation costs and settlements, profit or loss on disposal of property, plant and equipment, non-actuarial gains or losses arising from significant one off changes to defined benefit pension obligations, regulatory investigation costs and impairment of assets. Acquisition related items include amortisation of acquired intangible assets, acquisition transaction costs, contingent consideration linked to employment and adjustments to contingent consideration. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 4 Exceptional and acquisition related items cont. **Strategic project costs** – At the end of 2021 the Group commenced a strategic project to improve margins by optimising the portfolio and footprint, improving the overall cost base efficiency, and mitigating structural labour availability issues in the US. During the year a new facility was established in Mexico, manufacturing processes were transferred from the US and a legacy facility in the US was exited. In EMEA thread operations in Romania were consolidated in a purpose-built logistics facility and warehouses in Poland and Hungary were exited. Corporate and overhead activities in the UK and US were moved closer to the Group's operations and customers. As a result of these activities, exceptional restructuring costs totalling $32.4 million were incurred during the year ended 31 December 2022 which included severance costs of $22.5 million, non-cash impairment charges of tangible fixed assets and right-of-use assets of $4.7 million and $5.2 million of legal, advisers, closure and related costs. The Group accelerated the implementation of this strategic project during the year ended 31 December 2022, delivering in-year efficiencies in 2022 ahead of the Group's expectations. In addition, the Group expect to deliver total savings of $70 million by 2024, a significant increase on the $50 million the Group previously expected to deliver. The additional $20 million savings will primarily arise from the transformation of Asian operations, in particular in China and India. During the previous year ended 31 December 2021, exceptional strategic project costs of $3.7 million were incurred which included advisers' costs of $0.9 million, impairment charges relating to plant and equipment in North America of $2.0 million and closure and 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. **Profit from sale of property** – During the year ended 31 December 2022 a profit of $1.2 million was made from the sale of a property as part of the above strategic project. ### Acquisition related items Acquisition related items are set out below: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Acquisition related items:** | | | | **Administrative expenses:** | | | | Acquisition transaction costs | 11.9 | 12.4 | | Amortisation of acquired intangible assets | 10.8 | 3.3 | | Acquisition earnouts and contingent consideration | – | 0.1 | | | 22.7 | 15.8 | | **Finance costs:** | | | | Acquisition transaction costs | 1.1 | – | | **Total acquisition related items before taxation** | **23.8** | **15.8** | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 5 Profit for the year (including discontinued operations) | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Profit for the year is stated after charging/(crediting):** | | | | Amortisation of intangible assets | 12.6 | 6.0 | | Depreciation of owned property, plant and equipment | 26.5 | 28.2 | | Depreciation of right-of-use assets | 19.4 | 19.4 | | (Profit)/loss on disposal of property, plant and equipment | (1.1) | 0.1 | | Fees charged by Deloitte LLP | | | | Group audit fees: | | | | – Fees payable for the audit of the Company's annual accounts | 1.0 | 0.7 | | – Fees payable for the audit of the Company's subsidiaries | 1.7 | 1.5 | | Other Deloitte services: | | | | – Taxation services | 0.1 | 0.2 | | – Other services | 0.1 | 0.2 | | Total fees charged by Deloitte LLP | 2.9 | 2.6 | | Research and development expenditure | 6.2 | 6.1 | | Bad and doubtful debts | 1.1 | (0.2) | | Net foreign exchange losses | 3.5 | 0.5 | | Rental income from land and buildings | (0.2) | (0.2) | | Inventory as a material component of cost of sales | 728.2 | 631.4 | | Inventory write-downs to net realisable value | 4.1 | 5.3 | ### 6 Finance income | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | Income from investments | 0.1 | 0.1 | | Net monetary gain arising from hyperinflation accounting (see note 1) | 1.9 | – | | Other interest receivable and similar income | 0.6 | 0.3 | | | 2.6 | 0.4 | * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 8 Staff costs cont. | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | **Employee aggregate remuneration comprised (including directors)^{1}:** | | | | Wages and salaries | **288.1** | 304.6 | | Social security costs | **28.2** | 29.7 | | Other pension costs (note 10) | **9.4** | 10.0 | | | **325.7** | 344.3 | | **Discontinued operations** | **5.6** | 12.3 | | | **331.3** | 356.6 | 1. This does not include any contingent consideration on acquisitions that is treated as an expense, due to it being linked to continued employment (see note 4). * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). ### 9 Tax on profit from continuing operations | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | UK Corporation tax at 19% (2021: 19%) | — | — | | Overseas tax charge | **(56.2)** | (55.0) | | Deferred tax (charge)/credit | **(0.2)** | 1.9 | | Total tax charge | **(56.4)** | (53.1) | * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). The overseas tax charge includes withholding tax charges and other taxes not based on profits for the year ended 31 December 2022 of $13.3 million (2021: $12.1 million). For the year ended 31 December 2022 the tax credit in respect of exceptional and acquisition related items was $3.7 million (2021: $0.2 million). This includes exceptional tax credits of $2.0 million relating to exceptional strategic projects and $1.7 million relating to the unwinding of tax liabilities on the amortisation of intangible assets acquired as a result of the acquisitions of Texon and Rhenoflex during the year ended 31 December 2022 (refer to note 32). Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ### 9 Tax on profit from continuing operations cont. The Group's adjusted effective tax rate is higher than the blended rate of the countries we operate in primarily due to the impact of 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 finance charges, the adjusted effective rate on pre-tax profits was 29% (2021: 31%). The lower rate was driven by higher year on year profits, improved profit mix and a reduction in withholding taxes. ### Uncertain tax positions The Group's tax liability includes a number of tax provisions, which together total $26.3 million (2021: $20.2 million). The increase in the year is primarily due to $5.6 million of tax provisions relating to acquisitions (see note 31). These provisions relate to management's estimate of the amount of tax payable on open tax returns yet to be agreed with the local tax authorities. The Group evaluates uncertain tax items, which are subject to interpretation and agreement of the position with the local Tax Authorities and consequently agreement may not be reached for a number of years. Primarily the tax items for which a provision has been made relate to the interpretation of transfer pricing legislation and practices across the jurisdictions in which the Group operates. The final outcome on resolution of open issues with the relevant local Tax Authorities may vary significantly due to the uncertainty associated with such tax items and the continual evolution and development of local Tax Authorities. There is a wide range of possible outcomes and any variances in the final outcome to the provided amount will affect the tax financial results in the year of agreement. However, it is not expected that a material adjustment would be required to these provisions within the next year. The amount provided for uncertain tax positions has been made using the best estimate of the tax expected to be ultimately paid, taking into account any progress on the discussions with local Tax Authorities, together with expert in-house and third-party advice on the potential outcome and recent developments in case law, Tax Authority practices and previous experience. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 9 Tax on profit from continuing operations cont. The taxes paid in the UK and Singapore are primarily withholding taxes on royalties, group charges and dividends, deducted and paid at source. In the current year the Group paid withholding taxes in the following jurisdictions: | | 2022 US$m | 2021 US$m | | --- | --- | --- | | Indonesia | 2.4 | 2.9 | | India | 1.7 | 2.0 | | China | 1.5 | 1.9 | | Vietnam | 1.5 | 1.7 | | Bangladesh | 1.1 | 1.8 | | Thailand | 0.6 | 0.5 | | Estonia | 0.4 | 0.6 | | Others (each less than $0.5 million) | 2.2 | 0.4 | | **Total withholding taxes paid** | **11.4** | **11.8** | ### 10 Retirement and other post-employment benefit arrangements #### a) Pension and other post-employment costs Pension and other post-employment costs charged to operating profit for the year were (continuing and discontinued operations): | | US$m | Year ended 31 December 2022 US$m | US$m | Year ended 31 December 2021 US$m | | --- | --- | --- | --- | --- | | Defined contribution schemes | | 5.5 | | 4.0 | | Defined benefit schemes – | | | | | | Coats US funded | – | | 2.0 | | | Other funded and unfunded | 3.9 | | 4.0 | | | | | 3.9 | | 6.0 | | Past service cost/(credit) | | 1.3 | | (0.2) | | Settlements | | 0.1 | | (3.5) | | Administrative expenses for defined benefit schemes | | 4.7 | | 5.0 | | | | 15.5 | | 11.3 | Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 10 Retirement and other post-employment benefit arrangements cont. ### *Cash funding commitments* The Scheme is subject to full actuarial valuations every three years using assumptions agreed between the trustee board and the wider Group. The purpose of this valuation is to design a cash funding plan to ensure that the pension scheme has sufficient assets available to meet the future payment of benefits to Scheme members. It is this funding valuation basis, not accounting valuations under IAS 19, that determines the cash funding the Group provides to the Scheme. The valuation of liabilities for funding purposes differs from the IAS 19 valuation used for accounting purposes, mainly due to the different actuarial assumptions used. To calculate the funding valuation liabilities (the “Technical Provisions”) the assumptions agreed with the trustee board must be set more prudently overall, with the discount rate in particular reflecting a relatively cautious expectation of future returns on the Scheme’s assets. In contrast, under IAS 19, all the assumptions used to value the liabilities are the Company directors’ central best estimates according to established accounting principles with the exception of the discount rate, which is based on high-quality (AA rated) corporate bond yields regardless of scheme investment strategy and therefore differs in practice to the funding basis of valuation. In November 2021, the Group and the trustee board agreed the latest funding valuation of the Scheme with an effective date of 31 March 2021. This showed a prudent Technical Provisions (funding) deficit of £193 million ($261 million at 31 December 2021 exchange rates) and resulted in agreed ongoing deficit recovery payments of £22 million per annum ($27 million) until 31 December 2028. These payments are uprated each year by the increase in the UK Retail Prices Index, but capped at 5% in any year. The difference between the agreed schedule of payments which total around £170 million and the overall deficit of £193 million is expected to be met by modest asset outperformance vs valuation assumptions over the c.7 year period. The Group also meets the Scheme’s administrative expenses and levies estimated at £4 million ($5 million) per annum. In addition, over a number of months from May 2021 the Group had committed to pay circa $21 million of agreed deficit recovery payments that fell due in 2020, but were deferred as part of Covid-19 underpinning actions. The final monthly “catch-up” payment was made in November 2022. Coats Group plc Annual Report and Accounts 2022 ### Notes to the financial statements cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 136 Risk Description Commentary Investment risk The scheme assets are shown on a mark-to- market basis. A decrease in asset values at a relevant measurement date, to the extent assets do not hedge liabilities, would lead to an increased disclosed deficit or reduced surplus. The UK funded scheme is diversified by asset class, at individual securities level; geography; and by investment managers. To the extent that any assets are not Sterling denominated the scheme hedges the majority of this currency exposure back to Sterling. The US scheme is fully funded and has a significant proportion of fixed income. The fixed income is invested directly to protect the funded status of the scheme. Trustees work with fixed income managers to consider the liabilities (including key period durations, credit spread duration and convexity) and have created a custom fixed income benchmark to match the liabilities and protect the funded status. In addition the schemes’ investment policies recognise the need to generate cash flows to meet members’ benefits as they fall due. Liquidity risk The scheme needs available financial resources to meet obligations when they fall due. Not being able to sell assets in a timely manner for the expected valuation could lead to an increased disclosed deficit or reduced surplus. The schemes’ investment policies recognise the need to generate cash flows to meet members’ benefits as they fall due. In addition, the UK scheme’s hedging policy is run using low leverage in order to maintain strong liquidity, even after the pensioner buy-in transaction. The scheme suffered no meaningful impacts during the well documented market issues over September and October 2022, which faced those UK schemes relying heavily on “LDI” strategies. The following disclosures do not include information in respect of schemes operated by joint ventures. i) Principal risks The Group is exposed to actuarial and investment risks, the principal risks are: Risk Description Commentary Interest rate risk The present value of the defined benefit plan liabilities is calculated using a discount rate determined by reference to bond yields. A decrease in bond yield rates will increase defined benefit obligations. The impact of the movement in discount rates are shown on page 141. The Trustees of the UK and US schemes hedge these sensitivities through physical bonds and derivatives. The Coats UK Pension Schem e is currently over 90% (2021: over 85%) hedged against interest rate movements by reference to the Technical Provisions liability. Inflation The present value of the defined benefit liabilities are calculated by reference to assumed future inflation rates. An increase in inflation rates will increase defined benefit obligations. The impact of the movement in inflation rates are shown on page 141. The Trustees of the UK and US schemes hedge these sensitivities through physical bonds, derivatives and real assets. The Coats UK Pension Scheme is currently over 90% (2021: over 85%) hedged against inflation rate movements by reference to the Technical Provisions liability. Longevity risk The present value of the defined benefit plan liability is calculated by reference to the best estimate of member life expectancies. An increase in life expectancy will increase liabilities. The impact of an increase in life expectan cy is shown on page 141. Currently this is a ri sk that is largely unhedged by the Group’s pension schemes. However, the UK scheme’s recent £350 million pensioner buy-in with Aviva hedges roughly 20% of i ts longevity risk. 10 Retirement and other post-employment benefit arrangements cont. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 10 Retirement and other post-employment benefit arrangements cont. #### ii) Principal assumptions The principal assumptions for the UK and US schemes are as follows: | Principal assumptions at 31 December 2022 | Coats UK Pension Scheme % | Coats US % | Other % | | --- | --- | --- | --- | | Rate of increase in salaries | – | – | 5.7 | | Rate of increase for pensions in payment | Various | – | 4.1 | | Discount rate | 4.8 | 5.2 | 5.7 | | Inflation assumption | 3.3 | – | 4.5 | | 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 | | Inflation assumption | 3.5 | 2.2 | 3.0 | The rate of increase for pensions in payment for members of the combined Coats UK Pension Scheme vary in accordance with each member's former scheme category and period of membership. For former Coats UK plan members the increases for pensions in payment are assumed to be at a rate of 3.0% (2021: 3.4%). For former Staveley scheme members, the majority of the increases for pensions in payment fall within the range 2.2%–3.0% (2021: 2.6%–3.4%). For former Brunel scheme members, the majority of the increases for pensions in payment fall within the range 3.4%–4.0% (2021: 3.2%–4.0%). The assumed life expectancy on retirement is: | | Year ended 31 December 2022 | | Year ended 31 December 2021 | | | --- | --- | --- | --- | --- | | | Coats UK Pension Scheme Years | Coats US Years | Coats UK Pension Scheme Years | Coats US Years | | Retiring today at age 60: | | | | | | Males | 25.6 | 24.9 | 25.8 | 24.8 | | Females | 28.5 | 27.1 | 28.6 | 27.0 | | Retiring in 20 years at age 60: | | | | | | Males | 27.1 | 26.6 | 27.3 | 26.5 | | Females | 29.9 | 28.6 | 30.0 | 28.6 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 10 Retirement and other post-employment benefit arrangements cont. #### iv) Amounts recognised in the consolidated statement of comprehensive income Actuarial gains and losses were as follows: | | Year ended 31 December 2022 US$m | Year ended 31 December 2021 US$m | | --- | --- | --- | | Effect of changes in demographic assumptions | 10.8 | (30.7) | | Effect of changes in financial assumptions | 941.1 | 125.7 | | Effect of experience adjustments | (67.7) | 64.3 | | Remeasurement on assets (excluding interest income) | (855.5) | 50.6 | | Adjustment due to surplus cap | 31.1 | 2.9 | | Included in the statement of comprehensive income | 59.8 | 212.8 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 10 Retirement and other post-employment benefit arrangements cont. | Year ended 31 December 2021 | Coats UK Pension Scheme US$m | Coats US US$m | Other US$m | Total US$m | | --- | --- | --- | --- | --- | | Cash and cash equivalents | 73.3 | 4.0 | 2.7 | 80.0 | | **Equity instruments:** | | | | | | US | 124.0 | 17.8 | 1.2 | 143.0 | | UK | 7.9 | – | – | 7.9 | | Eurozone | 17.2 | – | – | 17.2 | | Other regions | 43.9 | 17.1 | 3.5 | 64.5 | | **Debt instruments:** | | | | | | Corporate bonds (Investment grade) | 767.5 | 68.7 | 3.6 | 839.8 | | Corporate bonds (Non-investment grade) | 244.3 | 2.6 | – | 246.9 | | Government/sovereign instruments | 1,440.9 | 31.2 | – | 1,472.1 | | Global real estate | 300.0 | – | 0.1 | 300.1 | | **Derivatives:** | | | | | | Total return, interest and inflation swaps | 0.6 | – | – | 0.6 | | **Assets held by insurance company:** | | | | | | Insurance contracts | 2.7 | 0.5 | 0.8 | 4.0 | | Diversified investment fund | – | – | 4.3 | 4.3 | | Other | 120.6 | 0.1 | 0.4 | 121.1 | | **Total market value of assets** | **3,142.9** | **142.0** | **16.6** | **3,301.5** | | Actuarial value of scheme liabilities | (3,034.9) | (46.9) | (114.9) | (3,196.7) | | **Net asset/(liability) in the scheme** | **108.0** | **95.1** | **(98.3)** | **104.8** | | Adjustment due to surplus cap | – | (83.5) | (0.2) | (83.7) | | **Recoverable net asset/(liability) in the scheme** | **108.0** | **11.6** | **(98.5)** | **21.1** | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 10 Retirement and other post-employment benefit arrangements cont. | | Year ended 31 December 2022 US$m | Year ended 31 December 2021 US$m | | --- | --- | --- | | Movements in the present value of defined benefit obligations were as follows: | | | | At 1 January | (3,196.7) | (3,588.5) | | Current service cost | (3.9) | (6.0) | | Decrease in liabilities on settlements | 0.4 | 69.6 | | Past service (cost)/credit | (1.3) | 0.2 | | Interest on defined benefit obligations – unwinding of discount | (54.8) | (46.5) | | Actuarial gains on obligations | 884.2 | 159.3 | | Contributions from members | (0.1) | (0.1) | | Benefits paid | 157.2 | 177.1 | | Net movement due to acquisitions and disposals of subsidiaries | (3.6) | – | | Exchange difference | 306.4 | 38.2 | | At 31 December | (1,912.2) | (3,196.7) | | Movements in the fair value of scheme assets were as follows: | | | | At 1 January | 3,301.5 | 3,447.1 | | Interest income on scheme assets | 56.6 | 44.4 | | Remeasurement on assets (excluding interest income) | (855.5) | 50.6 | | Decrease in assets on settlements | (0.5) | (66.1) | | Assets transferred out of schemes | – | (7.0) | | Contributions from members | 0.1 | 0.1 | | Contribution from sponsoring companies | 46.3 | 44.2 | | Benefits paid | (157.2) | (177.1) | | Net movement due to acquisitions and disposals of subsidiaries | (4.7) | – | | Administrative expenses paid from plan assets | (0.6) | (1.0) | | Exchange difference | (313.7) | (33.7) | | At 31 December | 2,072.3 | 3,301.5 | | 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 | 83.7 | 84.4 | | Interest cost on unrecognised surplus | 2.3 | 2.2 | | Changes in the effect of limiting a net defined benefit asset to the asset ceiling (excluding interest) | (31.3) | (2.9) | | Unrecognised surplus at 31 December | 54.7 | 83.7 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 10 Retirement and other post-employment benefit arrangements cont. #### ix) Duration of plan liabilities The weighted average duration of benefit obligations is 12 years (2021: 15 years) for the Coats UK scheme and 9 years (2021: 11 years) for the Coats US scheme. #### x) Sensitivities Sensitivities regarding the discount rate, inflation (which also impacts the rate of increases in salaries and rate of increase for pension in payments assumptions for the UK scheme) and mortality assumptions used to measure the liabilities of the principal schemes, along with the impact they would have on the scheme liabilities, are set out below. Interrelationships between assumptions might exist and the analysis below does not take the effect of these interrelationships into account: | | +0.25% US$m | Year ended 31 December 2022 -0.25% US$m | +0.25% US$m | Year ended 31 December 2021 -0.25% US$m | | --- | --- | --- | --- | --- | | Coats UK Pension Scheme discount rate | (51.4) | 53.9 | (108.8) | 115.0 | | Coats US discount rate | (0.7) | 0.7 | (1.2) | 1.3 | | Coats UK Pension Scheme inflation rate | 28.0 | (30.1) | 74.6 | (72.0) | | Coats US inflation 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 $192.3 million and $2.6 million (2021: $401.4 million and $4.9 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 $232.2 million and $3.1 million (2021: $502.7 million and $6.0 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 inflation rates. As noted on page 136, the Coats UK Pension Scheme is currently over 90% hedged against interest rate and inflation rate movements. Therefore on a Technical Provision basis, to the extent there is a change in the scheme liabilities due to movements in discount and inflation rates there would be offsetting impacts from the scheme assets due to the hedging in place. If members of the Coats UK Pension Scheme live one year longer the scheme liabilities will increase by $59.8 million (2021: $105.8 million). If members of the Coats US scheme live one year longer scheme liabilities will increase by $0.4 million (2021: $0.7 million), however, there would be no overall impact on the recoverable surplus. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 11 Earnings per ordinary share cont. | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | Profit from continuing operations attributable to equity shareholders | **72.9** | 85.2 | | (Loss)/profit from continuing and discontinued operations attributable to equity shareholders | **(14.7)** | 88.9 | | Year ended 31 December | 2022 Number of shares m | 2021 Number of shares m | | --- | --- | --- | | Weighted average number of ordinary shares in issue for basic earnings per share | **1,516.0** | 1,457.1 | | Adjustment for share options and LTIP awards | **9.3** | 5.9 | | **Weighted average number of ordinary shares in issue for diluted earnings per share** | **1,525.3** | 1,463.0 | | Year ended 31 December | 2022 cents | 2021* cents | | --- | --- | --- | | **Continuing operations:** | | | | Basic earnings per ordinary share | **4.80** | 5.84 | | Diluted earnings per ordinary share | **4.77** | 5.82 | | **Continuing and discontinued operations:** | | | | Basic (loss)/earnings per ordinary share | **(0.98)** | 6.10 | | Diluted (loss)/earnings per ordinary share | **(0.97)** | 6.07 | \* Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). ### 12 Dividends | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | 2022 interim dividend paid – 0.70 cents per share | **11.1** | – | | 2021 final dividend paid – 1.50 cents per share | **21.8** | – | | 2021 interim dividend paid – 0.61 cents per share | – | 8.8 | | 2020 final dividend paid – 1.30 cents per share | – | 18.8 | | | **32.9** | 27.6 | The proposed final dividend of 1.73 cents per ordinary share for the year ended 31 December 2022 is not recognised as a liability in the consolidated statement of financial position in line with the requirements of IAS 10 Events after the Reporting Period and, subject to shareholder approval, will be paid on 25 May 2023 to ordinary shareholders on the register on 28 April 2023, with an ex-dividend date of 27 April 2023. Coats Group plc Annual Report and Accounts 2022 ### Notes to the financial statements cont. STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO ## 143 The carrying amount of goodwill has been allocated as follows: Year ended 31 December 2022 US$m 2021 US$m Structural Footwear Components 100.1 – Gotex 12.3 13.0 US and Mexico 2.6 2.6 Coats Digital 8.0 8.8 Other 1.7 1.8 124.7 26.2 The carrying value of the provisional goodwill allocated to the Structural Footwear Components CGU, relating to the Texon and Rhenoflex businesses, which were acquired during the second half of 2022 was tested for impairment at the year end. The original business case cash flow forecasts which underpinned the amount of provisional goodwill recognised were reviewed, factoring in management’s latest view of th e future outlook. No material adjustments were deemed necessary to the original business case cash flow forecasts. The carrying value of the goodwill allocated to the Gotex, US and Mexico and Coats Digital CGUs has been tested for impairment during the year by comparing the carrying value of the CGU to their value in use. The value in use calculations were based on projected cash flows, derived from the latest budgets approved b y the Board and factoring in the most recent trading activity. Projected cash flows are, discounted at CGU specific, risk adjusted, discount rates to calculate the net present value. The calculation of ‘value in use’ is most sensitive to the following assumptions: – CGU specific operating assumptions that are reflected in the budget and medium-term plan periods for the financial year to December 2025; – discount rates; and – growth rates used to extrapolate risk adjusted cash flows beyond the medium-term period. The carrying value of Coats brands at 31 December 2022 and 31 December 2021 is $239.6 million. There i s no foreseeable limit to the net cash inflows from royalties, which are generated from continued sales of thread resulting from the Coats brands, and those brands are therefore assessed as having indefinite usefu l lives. The recoverable amount of these brands has been estimated using the relief from royalty method to calculate the fair value and is re-assessed annually by reference to the discounted cash flow arising from the royalties generated by those brands. The fair value measurement is categorised in its entirety in line wit h level 3 of the fair value hierarchy. The valuation has been based on the latest budget and medium-term plan approved by the Board, covering the period to 31 December 2025, applying a pre-tax discount rate of 11.6% (2021: 10.5%) and long-term growth of 2.7% (2021: 2.7%). Management believes that no reasonable potentia l 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 benefit from that business combination. The Group completed two acquisitions during the year obtaining control of both Texon and Rhenoflex, leading manufacturers of structural footwear components supplying the world’s leading footwear brands (see note 31). The provisional goodwill arisin g from these acquisitions has initially been allocated to a new Structural Footwear Components CGU. This initial allocation will be reviewed next year following further integration of Structural Footwear Components with the pre-existing Coats footwear and thread business . As set out in note 4, during the current year the Group commenced a strategic project to mitigate structura l labour availability issues in the US. As a result, a new facility was established in Mexico, and certain manufacturing processes were transferred from the US to Mexico. The Group has also integrated a number of key business processes of the US and Mexico businesses, and a significant proportion of US sales will now be fulfilled by Mexico. As such, the Group views the US and Mexico businesses as manufacturing sites serving customers in the US and Mexico rather than separate businesses. As the cash inflows of the US an d Mexico are inter-dependent, the Group considers goodwill arising from previous US acquisitions (Pharr HP and Patrick Yarn) to be allocated to the single CGU of US and Mexico. This is consistent with the informatio n used by the Board to monitor the goodwill arising from these acquisitions for impairment. 13 Intangible assets cont. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 13 Intangible assets cont. CGU specific operating assumptions are applicable to the cash flows for the years 2023 to 2025 and relate to revenue forecasts and forecast operating margins. A short-term growth rate is applied to the December 2025 plan to derive the cash flows arising in 2026–2027 and a long-term rate is applied to 2027 to determine a terminal value. Revenue growth and operating margin improvement assumptions in 2026–2027 are as follows: | | Revenue growth 2026 % | Revenue growth 2027 % | Operating margin improvement 2026 % | Operating margin improvement 2027 % | | --- | --- | --- | --- | --- | | Gotex | 7.5 | 3.0 | 0.7 | – | | US and Mexico | 5.0 | 5.0 | 0.1 | 0.2 | | Coats Digital | 33.3 | 5.0 | 1.0 | – | The pre-tax discount rates applied to the cash flow forecasts are derived from the Group's post-tax weighted average cost of capital. The Group's weighted average cost of capital is based on estimations of the assumptions that market participants operating in similar sectors to Coats would make, using the Group's economic profile as a starting point and adjusting appropriately. The pre-tax base discount rate of 11.6% (2021: 10.5%) has been adjusted for economic risks that are not already captured in the specific operating assumptions. This results in the impairment testing using a pre tax discount rate of 14.0% for Gotex, 11.9% for US and Mexico, and 14.2% for Coats Digital. The following scenarios would result in headroom being completely eliminated in the value in use impairment assessments: - the discount rate increasing by 1,100 bps in Gotex, 470 bps in US and Mexico and 1,700 bps in Coats Digital; or - cumulative 2023–2027 revenue is 54% lower in Gotex, 23% lower in US and Mexico and 49% lower in Coats Digital; or - cumulative 2023–2027 operating profit is 47% lower in Gotex, 34% lower in US and Mexico and 68% 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. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 14 Property, plant and equipment cont. | Analysis of net book value of land and buildings 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Freehold | **64.2** | 67.8 | | **Leasehold improvements:** | | | | Over 50 years unexpired | **2.7** | 1.8 | | Under 50 years unexpired | **15.1** | 12.2 | | | **82.0** | 81.8 | ### 15 Leases The Group leases several assets including buildings, plants, vehicles and office equipment. The average lease term is 5 years (2021: 4 years). The Group's consolidated balance sheet includes the following amounts relating to leases: #### Right-of-use assets | Net carrying amount | Land and buildings US$m | Plant and equipment US$m | Vehicles and office equipment US$m | Total US$m | | --- | --- | --- | --- | --- | | At 1 January 2022 | 80.4 | 4.5 | 6.7 | 91.6 | | **At 31 December 2022** | **87.5** | **3.7** | **5.3** | **96.5** | | Depreciation expense for the year ended | | | | | | 31 December 2021 | 14.3 | 2.1 | 3.0 | 19.4 | | **31 December 2022** | **14.1** | **2.5** | **2.8** | **19.4** | Additions to the right-of-use assets during the year ended 31 December 2022 were $23.9 million (2021: $51.1 million). #### Lease liabilities | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Current | **19.0** | 17.8 | | Non-current | **86.4** | 81.2 | | | **105.4** | 99.0 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 16 Non-current investments cont. | Interests in joint ventures | US$m | | --- | --- | | At 1 January 2022 | 12.0 | | Acquisitions (see note 31) | 0.7 | | Dividends receivable | (0.5) | | Share of profit after tax | 0.9 | | **At 31 December 2022** | **13.1** | | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Share of net assets on acquisition | **11.3** | 10.6 | | Share of post-acquisition retained profits | **1.8** | 1.4 | | **Share of net assets** | **13.1** | 12.0 | The following table provides summarised financial information on the Group's share of its joint ventures, relating to the period during which they were joint ventures, and excludes goodwill: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Summarised income statement information:** | | | | Revenue | **28.7** | 27.9 | | Profit before tax | **1.2** | 1.7 | | Taxation | **(0.3)** | (0.5) | | **Profit after tax** | **0.9** | 1.2 | | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Summarised balance sheet information:** | | | | Non-current assets | **5.5** | 5.6 | | Current assets | **15.4** | 15.0 | | | **20.9** | 20.6 | | Liabilities due within one year | **(7.8)** | (8.6) | | **Net assets** | **13.1** | 12.0 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 19 Trade and other receivables | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Non-current assets:** | | | | Trade receivables | 0.9 | 1.1 | | Other receivables | 15.3 | 20.5 | | Prepaid pension contributions | 4.0 | 5.8 | | Derivative financial instruments | – | 1.3 | | | **20.2** | **28.7** | | **Current assets:** | | | | Trade receivables | 235.5 | 240.4 | | Current income tax assets | 7.0 | 6.4 | | Prepayments and accrued income | 7.4 | 7.0 | | Derivative financial instruments | 1.6 | 4.2 | | Prepaid pension contributions | 1.6 | 1.2 | | Amounts due from joint ventures | – | 0.1 | | Other receivables | 33.2 | 43.4 | | | **286.3** | **302.7** | 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 $6.6 million (2021: $7.7 million) relating to software solutions revenue contracts, for which performance obligations are fulfilled over a period of time (see note 21). The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9, which requires the use of the lifetime expected loss provision for all trade receivables. Credit risk is minimised due to the quality and short-term nature of the Group's trade receivables as well as the fact that the exposure is spread over a large number of customers. An allowance has been made for expected losses on trade receivables of $7.6 million (2021: $8.9 million). The Group monitors receivables for any significant increases in credit risk, and fully provides for trade receivables which are more than 6 months overdue, unless there are specific circumstances which would indicate otherwise. For all other trade receivables, when determining expected losses, the Group takes into account the historical default experience and the financial position of the counterparties, as well as the future prospects considering various sources of information. Impairment has been considered for other receivables, and is considered not to be significant. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 21 Trade and other payables | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Amounts falling due within one year:** | | | | Trade payables | **151.3** | 208.5 | | Amounts owed to joint ventures | **15.0** | 16.3 | | Other tax and social security payable | **8.9** | 7.7 | | Other payables | **30.8** | 36.7 | | Accruals | **43.9** | 50.8 | | Contract liabilities | **7.9** | 6.8 | | Derivative financial instruments | **6.0** | 0.8 | | Employee entitlements | **14.6** | 19.2 | | | **278.4** | 346.8 | | **Amounts falling due after more than one year:** | | | | Other payables | **20.7** | 21.3 | | Contract liabilities | **1.5** | 1.7 | | Employee entitlements | **1.1** | 1.1 | | Derivative financial instruments | **3.0** | 0.1 | | | **26.3** | 24.2 | The fair value of trade and other payables is not materially different to the carrying value. Interest paid to suppliers in respect of overdue trade payables is immaterial. Contract liabilities amounting to $6.6 million (2021: $6.7 million) which were outstanding at 31 December 2021 were released to revenue during the year ended 31 December 2022, with the remainder expected to be released in 2023 and 2024. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 23 Borrowings cont. In April 2021 the Group entered into a $360.0 million three year bank facility, with the ability for two one-year extensions. The facility bears interest at the risk free rate plus a credit adjustment spread and a margin. The facility also includes an ESG component which impacts the margin based on performance against three of the Group's published sustainability targets. On 20 July 2022, the Group fully drew down on a new $240 million term loan acquisition facility to fund the purchase of Texon (see note 31). This facility was to mature in July 2024, and the Group had an option to extend this term by a further nine months to May 2025. In February 2023, the Group completed the refinancing of this acquisition facility via the US Private Placement market with $250 million of Notes. $150 million 5.26% Series A Senior Notes are due on 16 February 2028 and $100 million 5.37% Series B Senior Notes are due on 16 February 2030. Series A and Series B Senior Notes at 31 December 2022 of $222.3 million includes a fair value adjustment to the nominal amount outstanding of $2.7 million, for which the Group has interest rate swaps which are accounted for as fair value hedges. The currency and interest rate profile of the Group's borrowings is included in note 34 on page 163. ### 24 Deferred tax liabilities | | 2022 US$m | 2021 US$m | | --- | --- | --- | | At 1 January | 6.8 | 9.0 | | Currency translation differences | 2.0 | 0.2 | | Acquisition of subsidiaries (note 31) | 54.8 | – | | Reclassified from deferred tax assets | – | (0.1) | | Charged/(credited) to the income statement | 2.0 | (2.2) | | Credited to equity | (0.3) | (0.1) | | **At 31 December** | **65.3** | **6.8** | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 24 Deferred tax liabilities cont. The Group's income tax losses can be analysed as follows: | | 2022 US$m | 2021 US$m | | --- | --- | --- | | Expiring within 5 years | 17.0 | 33.2 | | Expiring in more than 5 years | 10.5 | 15.5 | | Available indefinitely | 1,457.8 | 1,510.5 | | | 1,485.3 | 1,559.2 | At 31 December 2022, the aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which deferred tax liabilities have not been recognised is $6.8 million (2021: $5.3 million). Deferred tax on distribution of these profits has not been provided on the grounds that the Group is able to control the timing of the reversal of the remaining temporary differences and it is probable that they will not reverse in the foreseeable future. ### 25 Provisions | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Provisions are included as follows:** | | | | Current liabilities | 18.2 | 8.1 | | Non-current liabilities | 25.4 | 27.7 | | | 43.6 | 35.8 | Provisions are analysed as follows: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Property related provisions | 0.9 | 2.1 | | Other provisions | 42.7 | 33.7 | | | 43.6 | 35.8 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 27 Reserves and non-controlling interests | | Share premium account US$m | Own shares US$m | Translation reserve US$m | Capital reduction reserve US$m | Other reserves US$m | Retained profit US$m | Non-controlling interests US$m | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2022 | 10.5 | (0.5) | (105.7) | 59.8 | 246.3 | 252.5 | 31.1 | | Dividends | – | – | – | – | – | (32.9) | (18.3) | | Currency translation differences | – | – | (16.2) | – | – | – | (0.7) | | Actuarial gains on employee benefits | – | – | – | – | – | 59.8 | – | | Tax on actuarial gains | – | – | – | – | – | (1.4) | – | | Application of IAS 29 (note 1) | – | – | – | – | – | 5.0 | – | | Issue of ordinary shares | 100.9 | – | – | – | – | – | – | | Purchase of own shares | – | (2.1) | – | – | – | – | – | | Movement in own shares | – | 2.5 | – | – | – | (2.5) | – | | Share based payments | – | – | – | – | – | 4.6 | – | | Deferred tax on share schemes | – | – | – | – | – | 0.3 | – | | Loss for the year | – | – | – | – | – | (14.7) | 22.0 | | **At 31 December 2022** | **111.4** | **0.1** | **(121.9)** | **59.8** | **246.3** | **270.7** | **34.1** | Other reserves of $246.3 million in the above table relate to legacy non-distributable reserves, which arose during the period when the Group was part of the Guinness Peat Group. The table below shows financial information of non-wholly owned subsidiaries of the Group that have non-controlling interests: | | Profit allocated to non-controlling interests | | Accumulated non-controlling interests | | | --- | --- | --- | --- | --- | | | Year ended 31 December 2022 US$m | Year ended 31 December 2021 US$m | 31 December 2022 US$m | 31 December 2021 US$m | | EMEA | 0.7 | 0.1 | 1.4 | 0.9 | | Asia & Rest of World | 21.3 | 19.6 | 32.7 | 30.2 | | | 22.0 | 19.7 | 34.1 | 31.1 | The proportion of ownership interests and voting rights of non-wholly owned subsidiaries of the Group held by non-controlling interests is set out on pages 173 to 179. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 28 Contingent liabilities and environmental matters cont. In March 2017, EPA notified 20 parties not associated with the disposal or release of any contaminants of concern as being eligible for early cash out settlements. As expected, EPA did not identify CC as one of the 20 parties. EPA invited approximately 80 other parties, including CC, to participate in an allocation process to determine their respective allocation shares and potential eligibility for future cash out settlements. In the allocation, CC presented factual and scientific evidence that it is not responsible for the discharge of dioxins, furans or PCBs – the contaminants that are driving the remediation of the LPR – and that it is a de minimis or even smaller de micromis party. The allocation process concluded in December 2020. The EPA-appointed allocator determined that CC is in the lowest tier (Tier 5) of allocation parties, and is responsible for only a de micromis share of remedial costs. On 30 June 2018, OCC filed a lawsuit against approximately 120 defendants, including CC, seeking recovery of past environmental costs and contribution toward future environmental costs. OCC released claims for certain past costs from 41 of the defendants, including CC, and is not seeking recovery of those past costs from CC. OCC's lawsuit seeks resolution of many of the same issues addressed in the EPA sponsored allocation process, and does not alter CC's defences or CC's continued belief that it is a de micromis party. In 2015, a provision totalling $15.8 million was recorded for remediation costs for the entire 17 miles of the LPR and the estimated associated legal and professional costs in defence of CC's position. The provision for remediation costs was based on CC's estimated share of de minimis costs for (a) EPA's selected remedy for the lower 8 miles of the LPR and (b) the remedy for the upper 9 miles proposed by the CPG, which was later substantively adopted by the EPA. This charge to the income statement was net of insurance reimbursements and was stated on a net present value basis. During the year ended 31 December 2018, an additional provision of $8.0 million was recorded as an exceptional item to cover legal and professional fees. The Group will continue to mitigate additional costs as far as possible through insurance and other avenues. At 31 December 2022, the remaining provision, taking into account insurance reimbursement, was $9.2 million (2021: $11.2 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 process and OCC's lawsuit, the share of remedial costs to be paid by the major polluters on the river, and the share of remaining remedial costs apportioned among CC and other companies. In 2022, CC and other parties entered into a settlement with EPA in which the settling parties agreed to pay $150 million toward remediation of the full 17-mile LPR in exchange for a release for those matters addressed in the settlement. CC's share of the cash-out settlement is consistent with a de micromis share of total remedial costs for the full 17-mile LPR. EPA has indicated it will seek the balance of LPR remedial costs from OCC and a small number of other parties that EPA has determined were not eligible to participate in a cash-out settlement. These work parties (and not the cash-out parties) would be responsible for remedial costs over-runs. The settlement does not address claims for natural resource damages by federal natural resource trustees. The Group believes that CC's share, if any, of such costs would be de micromis. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 30 Notes to the consolidated cash flow statement #### a) Reconciliation of operating profit to cash generated from operations | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Operating profit | 181.0 | 178.2 | | Depreciation of owned property, plant and equipment | 26.5 | 27.3 | | Depreciation of right-of-use assets | 19.4 | 19.4 | | Amortisation of intangible assets | 12.6 | 6.0 | | Decrease/(increase) in inventories | 43.6 | (66.8) | | Decrease/(increase) in debtors | 10.4 | (38.2) | | (Decrease)/increase in creditors | (76.2) | 91.5 | | Provisions and pension movements | (41.6) | (34.5) | | Foreign exchange and other non-cash movements | 8.8 | 13.0 | | Discontinued operations | (8.0) | (6.9) | | **Cash generated from operations** | **176.5** | **189.0** | #### b) Interest paid | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Interest paid | (24.8) | (11.0) | | Discontinued operations | (0.7) | (1.5) | | | **(25.5)** | **(12.5)** | #### c) Taxation paid | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Overseas tax paid | (54.6) | (47.8) | | Discontinued operations | – | (0.1) | | | **(54.6)** | **(47.9)** | #### d) Investment income | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Dividends received from joint ventures | 0.5 | 0.3 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 30 Notes to the consolidated cash flow statement cont. The components of net debt and movements during the periods are set out below: | | Series A and Series B Senior Notes US$m | Bank loans US$m | Lease liabilities US$m | Total financing activity liabilities US$m | Bank overdrafts US$m | Cash at bank and in hand US$m | Net debt US$m | | --- | --- | --- | --- | --- | --- | --- | --- | | At 1 January 2021 | (230.4) | (2.3) | (66.0) | (298.7) | (19.8) | 71.9 | (246.6) | | Financing cash flows | – | (8.4) | 22.1 | 13.7 | – | – | 13.7 | | Other cash flows | – | – | – | – | 3.1 | 37.9 | 41.0 | | Non-cash movements | 2.9 | (1.4) | (55.3) | (53.8) | – | – | (53.8) | | Foreign exchange | – | 1.7 | 0.2 | 1.9 | 0.3 | (2.6) | (0.4) | | **At 31 December 2021** | **(227.5)** | **(10.4)** | **(99.0)** | **(336.9)** | **(16.4)** | **107.2** | **(246.1)** | | Financing cash flows | – | **(256.7)** | **18.1** | **(238.6)** | – | – | **(238.6)** | | Other cash flows | – | – | **4.9** | **4.9** | **1.7** | **70.4** | **77.0** | | Acquisition of subsidiaries (note 31) | – | **(62.5)** | – | **(62.5)** | – | – | **(62.5)** | | Non-cash movements | **5.2** | **(1.0)** | **(36.0)** | **(31.8)** | – | – | **(31.8)** | | Foreign exchange | – | **0.8** | **6.6** | **7.4** | – | **(5.2)** | **2.2** | | **At 31 December 2022** | **(222.3)** | **(329.8)** | **(105.4)** | **(657.5)** | **(14.7)** | **172.4** | **(499.8)** | The non-cash movement during the year ended 31 December 2022 of $5.2 million (2021: $2.9 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 2022 of $36.0 million (2021: $55.3 million) within lease liabilities relates to the following: the unwind of lease liabilities of $4.9 million (2021: $5.2 million) and the impact of entering into new leases, disposals and modification of existing leases of $31.1 million (2021: $50.1 million). Total interest paid during the year ended 31 December 2022 was $25.5 million (2021: $17.6 million), which primarily relates to the above Senior Notes, bank loans and overdrafts and lease liabilities. Total interest charged to the profit and loss account for the year ended 31 December 2022 for the above Senior Notes, bank loans and overdrafts and lease liabilities was $23.8 million (2021: $15.6 million). Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. # 31 Acquisitions The Group completed two acquisitions during the year obtaining control of both Texon and Rhenoflex, leading manufacturers of structural footwear components supplying the world's leading footwear brands. Both have operations in Asia and Europe and are complementary additions to Coats' existing footwear business with opportunities to leverage existing footprints and combine expertise in the attractive athleisure footwear market. - On 20 July 2022, the Group acquired the entire share capital of Torque Group International Fortune Limited ('Texon') for $211.0 million. On completion, the Group immediately settled all of Texon's external bank debt of $24.4 million such that total cash outflow was $235.4 million. - On 23 August 2022, the Group also purchased the entire share capital of Rhenoflex GmbH ('Rhenoflex') for $81.5 million. On completion, the Group immediately settled all of Rhenoflex's external bank debt of $38.1 million such that the total cash outflow was $119.6 million. The Texon transaction was funded through a new $240.0 million term loan acquisition facility and the Rhenoflex transaction was predominately financed through an equity raise of $109.8 million net of costs. These acquisitions have been accounted for as business combinations using the acquisition method in accordance with IFRS 3 'Business Combinations.' For each acquisition, a provisional assessment of the fair values of identified assets acquired and liabilities assumed has been undertaken with assistance provided by external valuation specialists. In the provisional accounting, adjustments are made to the book values of the net assets of the companies acquired to reflect their provisional fair values to the Group. Previously unrecognised assets and liabilities at acquisition are included. As part of this exercise, accounting policies are aligned with those of the Group and as the acquisitions were made in the second half of the year and given their global footprint, the fair values presented below are provisional as these assessments will be completed within 12 months from each relevant acquisition date. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 31 Acquisitions cont. The fair value assessed for intangible customer relationship assets was $107.1 million for Texon and $51.7 million for Rhenoflex. In both cases this will be amortised over a fifteen-year useful economic life. As fair value level one observable market prices are not available for these assets, management engaged external professional valuation advisors to assist in identifying and valuing these assets. The excess earnings method was used to value these customer relationships which considers the use of other assets in the generation of projected cash flows to isolate the economic benefit generated by the relationships. The fair value assessed for brands and trade names was $26.7 million for Texon and $14.2 million for Rhenoflex and for technology was $26.3 million for Texon and $14.2 million for Rhenoflex. The relief from royalty method was used to value both the technology and the trade names which will be amortised over a useful economic life of ten years. The relief from royalty method looks at the savings from owning the trade name and technology compared to paying royalties for their use based on comparable market royalty rates. The net deferred tax position reflected adjustments related to the deferred tax impact of the fair value uplifts on acquired intangible assets and other fair value adjustments at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that were enacted or substantively enacted. Deferred tax liabilities recognised as a result of the acquisition of Texon and Rhenoflex total $54.8 million. The Group’s total deferred tax liabilities at 31 December 2022 were $65.3 million (2021: $6.8 million). Fair value adjustments were also made to uplift property, plant and equipment by a total of $3.5 million for Texon. Other adjustments were made to decrease pension obligations on an IAS 19 basis by $2.1 million and $0.7 million at the acquisition dates for Texon and Rhenoflex respectively. Due to their contractual dates, the fair value of receivables acquired approximated to the gross contractual amounts receivable. There was no material expected credit losses for either acquisition and these receivables have materiality been settled between the respective acquisition dates and the 31 December 2022 year-end date. There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3. Provisional goodwill of $64.3 million for Texon and $34.2 million for Rhenoflex represents the premium attributable to purchasing separately established businesses with assembled workforces, opportunities for synergies and exploitation of the general technological capabilities and knowledge base of each company. Goodwill is not expected to be deductible for tax purposes. Goodwill is not amortised but tested annually for impairment. For the purposes of annual impairment testing the combined provisional goodwill has initially been allocated to a new Structural Footwear Components cash generating unit. This initial allocation will be reviewed during 2023 following further integration of Structural Footwear Components with the pre-existing Coats footwear and thread business. Provisional goodwill and intangible assets acquired for Texon and Rhenoflex totalled $338.7 million. From their respective acquisition dates to 31 December 2022, amortisation charges for acquired intangible assets amounted to $5.6 million for Texon and $2.1 million for Rhenoflex. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 32 Discontinued operations #### Sale of Brazil and Argentina On 10 May 2022 the Group announced the agreement to sell its business in Brazil and Argentina to Reelpar SA, an entity backed by a Sao Paulo Private Equity Firm. The sale was completed on 26 May 2022, the date which control passed to the acquirer. Under the terms of the disposal, the Group paid $15.0 million to Reelpar S.A. to support restructuring of the business. During the five years following the completion date earn-out payments are payable to the Group in the event that certain operational cash flow targets are met by the Brazil and Argentina business. No earn-out payments have been recognised by the Group as at 31 December 2022. #### a) Discontinued operations The results of the discontinued operations are presented below: | Year Ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | **Revenue** | **26.3** | 66.8 | | Cost of sales | (22.6) | (49.8) | | **Gross profit** | **3.7** | 17.0 | | Distribution costs | (3.8) | (10.2) | | Administrative expenses | (3.3) | (5.6) | | **Operating (loss)/profit** | **(3.4)** | 1.2 | | Investment income | – | 4.2 | | Finance costs | (0.3) | (0.4) | | **(Loss)/profit before taxation** | **(3.7)** | 5.0 | | Taxation | – | (1.3) | | **(Loss)/profit from discontinued operations for the year** | **(3.7)** | 3.7 | | Loss on disposal (note 32 (b)) | (68.9) | – | | Exchange loss transferred to income statement on disposal | (15.0) | – | | **Total (loss)/profit from discontinued operations** | **(87.6)** | 3.7 | * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Revenue reported above includes inter-company sales for the year ended 31 December 2022 of $1.6 million (2021: $3.6 million). External revenue of the Brazil and Argentina business for the year ended 31 December 2022 was $24.7 million (2021: $63.2 million). Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 32 Discontinued operations cont. #### Cash flows from discontinued operations The table below sets out the cash flows from discontinued operations: | Year Ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | Net cash outflow from operating activities | (8.7) | (8.5) | | Net cash outflow from investing activities | (0.5) | (0.7) | | **Net cash flows from discontinued operations** | **(9.2)** | **(9.2)** | * Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). #### b) Loss on disposal The major classes of assets and liabilities disposed relating to the Brazil and Argentina business was as follows: | | US$m | | --- | --- | | Property, plant and equipment | 10.8 | | Inventories | 26.9 | | Trade and other receivables | 35.7 | | Cash and cash equivalents | 0.7 | | **Total assets** | **74.1** | | Trade and other payables | (18.1) | | Current income tax liabilities | (1.2) | | Bank overdrafts | (2.5) | | Retirement benefit obligations | (2.0) | | Provisions | (0.9) | | **Total liabilities** | **(24.7)** | | **Net assets disposed** | **49.4** | | Consideration paid | 15.0 | | Disposal costs | 4.5 | | **Exceptional loss on disposal – discontinued operations** | **68.9** | The consideration paid on the date of disposal was $15.0 million and net of cash and cash equivalents and bank overdrafts disposed was $13.2 million. Disposal costs of $3.8 million were paid in the year ended 31 December 2022 and as a result the cash outflow in the year ended 31 December 2022 on the sale of the Brazil and Argentina business was $17.0 million. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. # 34 Derivatives and other financial instruments The Group's main financial instruments comprise: Financial assets: - cash and cash equivalents; - trade and other receivables that arise directly from the Group's operations; and - derivatives, including forward foreign currency contracts and interest rate swaps. Financial liabilities: - trade, other payables and certain provisions that arise directly from the Group's operations; - bank borrowings and overdrafts; and - derivatives, including forward foreign currency contracts and interest rate swaps. # Financial assets The Group's financial assets are summarised below: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Financial assets carried at amortised cost:** | | | | Cash and cash equivalents | **172.4** | 107.2 | | Trade receivables (note 19) | **236.4** | 241.5 | | Amounts due from joint ventures (note 19) | – | 0.1 | | Other receivables (note 19), net of non-financial assets $29.8 million (2021: $29.9 million) | **18.7** | 34.0 | | | **427.5** | 382.8 | | **Financial assets carried at fair value through the income statement:** | | | | Derivative financial instruments (note 20) | **1.6** | 5.5 | | | **1.6** | 5.5 | | **Other financial assets carried at fair value through the statement of comprehensive income:** | | | | Other investments (note 16) | **5.9** | 6.0 | | | **5.9** | 6.0 | | **Total financial assets** | **435.0** | 394.3 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 34 Derivatives and other financial instruments cont. #### Fair value of financial assets and liabilities The fair value of the Group's financial assets and liabilities is summarised below: | Year ended 31 December | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Book value US$m | Fair value US$m | Book value US$m | Fair value US$m | | **Primary financial instruments:** | | | | | | Cash and cash equivalents | 172.4 | 172.4 | 107.2 | 107.2 | | Trade receivables | 236.4 | 236.4 | 241.5 | 241.5 | | Amounts due from joint ventures | – | – | 0.1 | 0.1 | | Other receivables | 18.7 | 18.7 | 34.0 | 34.0 | | Other investments | 5.9 | 5.9 | 6.0 | 6.0 | | Trade payables | (151.3) | (151.3) | (208.5) | (208.5) | | Amounts owed to joint ventures | (15.0) | (15.0) | (16.3) | (16.3) | | Other financial liabilities and provisions | (75.6) | (75.6) | (118.4) | (118.4) | | Borrowings | (566.8) | (566.8) | (254.3) | (254.3) | | **Derivative financial instruments:** | | | | | | Forward foreign currency contracts | (4.3) | (4.3) | 2.7 | 2.7 | | Interest rate swaps | (3.1) | (3.1) | 1.9 | 1.9 | | **Net financial liabilities** | **(382.7)** | **(382.7)** | **(204.1)** | **(204.1)** | Unlisted investments are stated at fair value. For floating rate financial assets and liabilities, and for fixed rate financial assets and liabilities with a maturity of less than 12 months, it has been assumed that fair values are approximately the same as book values. Fair values for forward foreign currency contracts have been estimated using applicable forward exchange rates at the year end. All other fair values have been calculated by discounting expected cash flows at prevailing interest rates. Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ## 34 Derivatives and other financial instruments cont. ### Financial liabilities measured at fair value | Year ended 31 December | Total US$m | Level 1 US$m | Level 2 US$m | Level 3 US$m | | --- | --- | --- | --- | --- | | **2022** | | | | | | **Financial liabilities measured at fair value through the income statement:** | | | | | | Trading derivatives | (5.9) | – | (5.9) | – | | Derivatives designated as effective hedging instruments | (3.1) | – | (3.1) | – | | | (9.0) | – | (9.0) | – | | **2021** | | | | | | **Financial liabilities measured at fair value through the income statement:** | | | | | | Trading derivatives | (0.9) | – | (0.9) | – | | | (0.9) | – | (0.9) | – | Level 1 financial instruments are valued based on quoted bid prices in an active market. Level 2 financial instruments are measured by discounted cash flow. For interest rates swaps future cash flows are estimated based on forward interest rates (from observable yield curves at the end of the reporting period) and contract interest rates, discounted at a rate that reflects the credit risk of the various counterparties. For foreign exchange contracts future cash flows are estimated based on forward exchange rates (from observable forward exchange rates at the end of the reporting period) and contract forward rates, discounted at a rate that reflects the credit risk of the various counterparties. Equity instruments that are classified as level 3 financial instruments relate to the Group's investment in Twine Solutions Limited. Given the business is at an early stage of its lifecycle and there have been no indications of impairment, the carrying value is deemed to approximate to fair value. The main risks arising from the Group's financial instruments are as follows: - 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 161 to 165 and, except as noted, have remained unchanged since the beginning of the year to which these financial statements relate. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 34 Derivatives and other financial instruments cont. A reasonably possible change of one per cent in market interest rates would reduce profit before tax by approximately $5.0 million (2021: $2.5 million), and would reduce shareholders' funds by approximately $5.0 million (2021: $2.5 million). If interest rates fluctuate by a different rate, the aforementioned approximate impact can be linearly interpolated. Trade and other receivables and trade and other payables are excluded from the following disclosure (other than the currency disclosures) as there is limited interest rate risk. #### Capital risk management The Group manages its capital so as to ensure that the Company and the Group will be able to continue as a going concern. The Group's capital structure comprises cash and cash equivalents and borrowings (see Summary of net debt on page 153), and share capital and reserves attributable to the equity shareholders of the Company. #### Currency exposure The table below shows the extent to which Group companies have financial assets and liabilities, excluding forward foreign currency contracts, in currencies other than their functional currency. Foreign exchange differences arising on retranslation of these assets and liabilities are taken to the Group income statement. The table excludes loans between Group companies that form part of the net investment in overseas subsidiaries on which the exchange differences are dealt with through reserves, but includes other Group balances that eliminate on consolidation. | Functional currency 2022 | Net foreign currency financial assets/(liabilities) | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Sterling US$m | US dollars US$m | Euro US$m | Indian Rupees US$m | Brazilian Reals US$m | Other US$m | Total US$m | | Sterling | – | (0.3) | 1.9 | – | – | 0.2 | 1.8 | | United States dollars | (8.4) | – | (6.6) | 0.5 | – | 7.5 | (7.0) | | Euros | – | 5.1 | – | – | – | – | 5.1 | | Indian Rupees | – | (6.0) | (0.1) | – | – | – | (6.1) | | Brazilian Reals | – | – | – | – | – | – | – | | Other currencies | (0.2) | 14.3 | 7.7 | – | – | 1.3 | 23.1 | | | (8.6) | 13.1 | 2.9 | 0.5 | – | 9.0 | 16.9 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 34 Derivatives and other financial instruments cont. #### Currency profile of financial assets The currency profile of the Group's financial assets was as follows: | 31 December | 2022 | | | | | | | | | | 2021 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Investments US$m | Cash and cash equivalents US$m | Trade and other receivables US$m | Derivative financial instruments US$m | Total US$m | Investments US$m | Cash and cash equivalents US$m | Trade and other receivables US$m | Derivative financial instruments US$m | Total US$m | | | **Currency:** | | | | | | | | | | | | | Sterling | – | 1.7 | 6.2 | 10.7 | 18.6 | – | 0.4 | 4.7 | 66.0 | 71.1 | | | United States dollars | 5.0 | 97.1 | 114.3 | (26.7) | 189.7 | 5.0 | 55.1 | 127.2 | (99.7) | 87.6 | | | Euros | 0.1 | 8.6 | 42.1 | (3.9) | 46.9 | 0.1 | 2.5 | 22.7 | (14.9) | 10.4 | | | Indian Rupees | 0.8 | 18.9 | 26.3 | (0.5) | 45.5 | 0.9 | 9.2 | 22.3 | 12.5 | 44.9 | | | Brazilian Reals | – | – | – | – | – | – | 2.2 | 22.9 | – | 25.1 | | | Other currencies | – | 46.1 | 66.2 | 22.0 | 134.3 | – | 37.8 | 75.8 | 41.6 | 155.2 | | | **Total financial assets** | **5.9** | **172.4** | **255.1** | **1.6** | **435.0** | **6.0** | **107.2** | **275.6** | **5.5** | **394.3** | | The investments included above comprise unlisted investments in shares and bonds. #### Currency and interest rate profile of financial liabilities The currency and interest rate profile of the Group's financial liabilities was as follows: | 31 December | 2022 | 2021 | | --- | --- | --- | | Floating rate US$m | Fixed rate US$m | Interest free US$m | Lease liabilities US$m | Derivative financial instruments US$m | Total US$m | Floating rate US$m | Fixed rate US$m | Interest free US$m | Lease liabilities US$m | Derivative financial instruments US$m | Total US$m | | **Currency:** | | | | | | | | | | | | | Sterling | 0.3 | – | 4.1 | 3.8 | (44.3) | (36.1) | 0.5 | – | 13.8 | 4.5 | (42.9) | | United States dollars | 400.5 | 160.0 | 99.5 | 28.5 | 41.3 | 729.8 | 79.6 | 160.0 | 143.6 | 17.1 | 42.8 | | Euros | 4.0 | – | 26.9 | 12.2 | 22.7 | 65.8 | 9.4 | – | 17.5 | 9.5 | 10.3 | | Indian Rupees | – | – | 37.4 | 6.6 | (2.4) | 41.6 | – | – | 52.0 | 10.3 | – | | Brazilian Reals | – | – | – | – | – | – | – | – | 10.4 | – | 1.2 | | Other currencies | – | 2.0 | 74.0 | 54.3 | (8.3) | 122.0 | 2.0 | 2.8 | 105.9 | 57.6 | (10.5) | | **Total financial liabilities** | **404.8** | **162.0** | **241.9** | **105.4** | **9.0** | **923.1** | **91.5** | **162.8** | **343.2** | **99.0** | **0.9** | The benchmark for determining floating rate liabilities in the UK is the risk-free rate for both sterling and US$ amounts. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 34 Derivatives and other financial instruments cont. | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Impact of a 10% increase in prices:** | | | | Increase in pre-tax profit 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 | 2022 US$m | 2021 US$m | | --- | --- | --- | | Expiring between one and two years | – | – | | Expiring between two and five years | 270.0 | 350.0 | #### Maturity of undiscounted financial assets (excluding derivatives) The expected maturity of the Group's financial assets, using undiscounted cash flows, was as follows: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | In one year or less, or on demand | 419.6 | 366.2 | | In more than one year but not more than two years | 5.0 | 12.6 | | In more than two years but not more than five years | 2.9 | 4.0 | | In more than five years | 5.9 | 6.0 | | | 433.4 | 388.8 | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 34 Derivatives and other financial instruments cont. #### Credit risk | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **The Group considers its maximum exposure to credit risk to be as follows:** | | | | Cash and cash equivalents | **172.4** | 107.2 | | Derivative financial instruments | **1.6** | 5.5 | | Trade receivables (net of impairment provision) | **236.4** | 241.5 | | Amounts due from joint ventures | – | 0.1 | | Other receivables | **18.7** | 34.0 | | | **429.1** | 388.3 | | **Financial assets considered not to have exposure to credit risk:** | | | | Other investments | **5.9** | 6.0 | | **Total financial assets** | **435.0** | 394.3 | | **Analysis of trade receivables over permitted credit period:** | | | | Trade receivables up to 1 month over permitted credit period | **21.0** | 17.5 | | Trade receivables between 1 and 2 months over permitted credit period | **5.5** | 5.1 | | Trade receivables between 2 and 3 months over permitted credit period | **2.2** | 1.7 | | Trade receivables between 3 and 6 months over permitted credit period | **2.0** | 1.3 | | Trade receivables in excess of 6 months over permitted credit period | **1.5** | 1.7 | | Total trade receivables (net of impairment provision) in excess of permitted credit period | **32.2** | 27.3 | | Trade receivables within permitted credit period | **204.2** | 214.2 | | **Total net trade receivables** | **236.4** | 241.5 | | **Analysis of trade receivables impairment provision:** | | | | Trade receivables up to 1 month over permitted credit period | **0.6** | 0.8 | | 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** | 0.3 | | Trade receivables between 3 and 6 months over permitted credit period | **0.7** | 0.7 | | Trade receivables in excess of 6 months over permitted credit period | **5.8** | 6.9 | | **Total impairment provision** | **7.6** | 8.9 | Trade receivables consist of a large number of customers, spread across diverse geographical areas and industries. Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 35 Share-based payments The total cost recognised in the consolidated Income Statement in respect of equity settled share-based payment plans was as follows: | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Long Term Incentive Plan (LTIP) | 3.7 | 3.9 | | Deferred bonuses | 0.9 | 0.5 | | | 4.6 | 4.4 | The average share price for the year ended 31 December 2022 was 66.0p (2021: 65.8p). ### LTIP Under the terms of the Coats Group LTIP, executive directors and key senior executives may be awarded each year conditional entitlements to ordinary shares in the Company (in the form of nil cost options). The vesting of awards is subject to the satisfaction of a three-year performance condition, which is determined by the Remuneration Committee at the time of grant. The performance condition includes both market and non-market based measures. Details of options outstanding under equity settled awards: | | 2022 Options | 2021 Options | | --- | --- | --- | | Outstanding at 1 January | 42,003,141 | 40,532,920 | | Granted during the year | 12,221,204 | 15,492,212 | | Vested during the year | (6,467,817) | (7,136,430) | | Lapsed during the year | (4,422,917) | (2,689,364) | | Exercised during the year | (2,438,040) | (4,196,197) | | **Outstanding at 31 December** | **40,895,571** | **42,003,141** | | **Exercisable at 31 December** | **3,692,768** | **4,917,104** | The options outstanding at 31 December 2022 had a weighted average remaining contractual life of 7.5 years (2021: 7.7 years). Coats Group plc Annual Report and Accounts 2022 # Notes to the financial statements cont. ### 37 Alternative performance measures cont. Alternative performance measures are non-GAAP (Generally Accepted Accounting Practice) measures and provide supplementary information to assist with the understanding of the Group's financial results and with the evaluation of operating performance for all the periods presented. Alternative performance measures, however, are not a measure of financial performance under International Financial Reporting Standards ('IFRS') and should not be considered as a substitute for measures determined in accordance with IFRS. As the Group's alternative performance measures are not defined terms under IFRS they may therefore not be comparable with similarly titled measures reported by other companies. A reconciliation of alternative performance measures to the most directly comparable measures reported in accordance with IFRS is provided on pages 167 to 169. #### a) Organic growth on a constant exchange rate (CER) basis Organic growth measures the change in revenue and operating profit before exceptional and acquisition related items after adjusting for acquisitions. The effect of acquisitions is equalised by: - in the following year, removing the revenue and operating profit for the number of months equivalent to the pre-acquisition period in the prior year. The effects of currency changes are removed through restating prior year revenue and operating profit at current year exchange rates. The principal exchange rates used are set out in note 1. Organic revenue growth on a CER basis measures the ability of the Group to grow sales by operating in selected geographies and segments and offering differentiated cost competitive products and services. Adjusted organic operating profit growth on a CER basis measures the profitability progression of the Group. Adjusted operating profit is calculated by adding back exceptional and acquisition related items (see note 4 for further details). | Year ended 31 December | 2022 US$m | 2021* US$m | % Growth | | --- | --- | --- | --- | | Revenue from continuing operations | **1,583.8** | 1,446.7 | 9% | | Constant currency adjustment | – | (85.3) | | | **Revenue on a CER basis** | **1,583.8** | 1,361.4 | 16% | | Revenue from acquisitions^{1} | **(87.2)** | – | | | **Organic revenue on a CER basis** | **1,496.6** | 1,361.4 | 10% | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 37 Alternative performance measures cont. Net debt including lease liabilities under IFRS 16 at 31 December 2022 was $499.8 million (2021: $246.1 million). This gives a leverage ratio of net debt including lease liabilities to adjusted EBITDA at 31 December 2022 of 1.8 (2021: 1.0). Net debt excluding lease liabilities under IFRS 16 at 31 December 2022 was $394.4 million (2021: $147.1 million). This gives a leverage ratio on a pre-IFRS 16 basis at 31 December 2022 of 1.5 (2021: 0.6). The Group's proforma leverage on a pre-IFRS 16 basis at 31 December 2022 is 1.4 after adjusting EBITDA to include Texon and Rhenoflex as if the acquisitions had taken effect at the beginning of the reporting period (1 January 2022) For the definition and calculation of net debt excluding lease liabilities see note 30 (g). #### c) Adjusted effective tax rate The adjusted effective tax rate removes the tax impact of exceptional and acquisition related items and net interest on pension scheme assets and liabilities to arrive at a tax rate based on the adjusted profit before taxation. A significant proportion of the Group's net interest on pension scheme assets and liabilities relates to UK pension plans for which there is no related current or deferred tax credit or charge recorded in the income statement. The Group's net interest on pension scheme assets and liabilities is adjusted in arriving at the adjusted effective tax shown below and, in management's view, were this not adjusted it would distort the alternative performance measure. This is consistent with how the Group monitors and manages the effective tax rate. | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | Profit before taxation from continuing operations | 151.3 | 158.0 | | Exceptional and acquisition related items (note 4) | 55.0 | 19.5 | | Net interest on pension scheme assets and liabilities | 0.5 | 4.1 | | **Adjusted profit before taxation from continuing operations** | **206.8** | **181.6** | | Taxation charge from continuing operations | 56.4 | 53.1 | | Tax credit in respect of exceptional and acquisition related items | 3.7 | 0.2 | | Tax credit in respect of net interest on pension scheme assets and liabilities | 0.5 | 0.5 | | **Adjusted tax charge from continuing operations** | **60.6** | **53.8** | | **Adjusted effective tax rate** | **29%** | **30%** | Coats Group plc Annual Report and Accounts 2022 ## Notes to the financial statements cont. ### 37 Alternative performance measures cont. | Year ended 31 December | 2022 US$m | 2021* US$m | | --- | --- | --- | | Change in net debt resulting from cash flows (free cash flow) | (247.1) | 32.6 | | Acquisition of businesses (note 31) | 346.0 | – | | Disposal of business (note 32) | 17.0 | – | | Net cash outflow from discontinued operations | 9.2 | 9.2 | | Payments to UK pension scheme | 42.7 | 42.4 | | Net cash flows in respect of other exceptional and acquisition related items | 22.5 | 12.2 | | Issue of ordinary shares (note 26) | (109.8) | – | | Purchase of own shares by Employee Benefit Trust | 2.1 | – | | Dividends paid to equity shareholders | 33.0 | 27.4 | | Tax inflow in respect of adjusted cash flow items | (1.4) | – | | **Adjusted free cash flow** | **114.2** | **123.8** | \* Represented to reflect the results of the Brazil and Argentina business as a discontinued operation (see note 1). Coats Group plc Annual Report and Accounts 2022 ### Company balance sheet Company statement of changes in equity | | 2022 | 2021 | | | | Share | | Capital | Share | | Capital | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | 31 December Notes | US$m | US$m | | Share | premium | | redemption | | options | reduction | | Own | Profit and loss | | Total | | | | | | capital | account | | | reserve | reserve | | reserve | shares | | account | equity | | Fixed assets: | | | | US$m | | US$m | | US$m | US$m | | US$m | US$m | | US$m | US$m | | Investments 4 1,354.0 1,244.2 | | | 1 January 2021 90.1 10.5 14.1 18.5 59.8 (3.2) 984.0 1,173.8 | | | | | | | | | | | | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Current assets: Profit and total comprehensive Trade and other receivables 0.2 – expense for Cash at bank and in hand 0.6 0.8 theyear – – – – – – 28.2 28.2 0.8 0.8 Dividends to equity shareholders – – – – – – (27.6) ( 27.6) Creditors: amounts falling due within one year: Movement in Loans from subsidiary undertakings (1.7) (68.7) ownshares – – – – – 2.7 (1.4) 1.3 Trade and other payables (0.5) (0.6) 31 December 2021 9 0.1 10.5 14.1 18.5 59.8 (0.5) 983.2 1,175.7 Net current liabilities (1.4) (68.5) Profit and total Net assets 1,352.6 1,175.7 comprehensive Capital and reserves: expense for theyear – – – – – – 100.0 100.0 Share capital 5 99.0 90.1 Issue of ordinary Share premium account 111.4 10.5 shares 8.9 100.9 – – – – – 109.8 Capital redemption reserve 14.1 14.1 Dividends to equity Share options reserve 18.5 18.5 shareholders – – – – – – (32.9) (32.9) Capital reduction reserve 59.8 59.8 Purchase of own shares – – – – – (2 .1) – (2 .1) Own shares 5 (0.1) (0.5) Movement in Profit and loss account 1,049.9 983.2 ownshares – – – – – 2.5 (0.4) 2.1 Shareholders’ funds 1,352.6 1,175.7 31 December 2022 99.0 111.4 14.1 18.5 59.8 (0.1) 1,049.9 1,352.6 The Company reported a profit for the financial year ended 31 December 2022 of $100.0 million (2021:$28.2 million). Rajiv Sharma Jackie Callaway Group Chief Executive Chief Financial Officer Approved by the Board 1 March 2023 Company Registration No.103548 ## 170 Coats Group plc Annual Report and Accounts 2022 # Company cash flow statement | Year ended 31 December | 2022 US$m | 2021 US$m | | --- | --- | --- | | **Net cash flows from operating activities:** | | | | Operating profit | 93.5 | 27.7 | | Decrease in creditors | – | (1.4) | | Increase in debtors | (0.2) | – | | **Net cash flows from operating activities** | **93.3** | **26.3** | | **Net cash flows from investing activities:** | | | | Investments in subsidiary undertakings | (109.8) | – | | **Net cash flows from investing activities:** | **(109.8)** | **–** | | **Net cash flows from financing activities:** | | | | Issue of ordinary shares | 109.8 | – | | Purchase of own shares | (2.1) | – | | Repayment of loans from subsidiary undertakings | (60.5) | – | | Proceeds from sale of own shares | 2.1 | 1.3 | | Dividends paid to equity shareholders | (33.0) | (27.4) | | **Net cash flows from financing activities** | **16.3** | **(26.1)** | | **Net (decrease)/ increase in cash and cash equivalents** | **(0.2)** | **0.2** | | Cash at bank and in hand at the beginning of the year | 0.8 | 0.6 | | **Cash at bank and in hand at the end of the year** | **0.6** | **0.8** | Coats Group plc Annual Report and Accounts 2022 # Notes to the company financial statements cont. ## 1 Accounting policies cont. ### *Equity-settled* The Group operates an equity-settled Long Term Incentive Plan for executives and senior management, settlement is in the form of Coats Group plc shares. Awards under this plan are subject to both market-based and non-market-based vesting criteria. The fair value at the date of grant is established by using an appropriate simulation method to reflect the likelihood of market-based performance conditions being met. As the Long Term Incentive Plan relates to employees of a subsidiary, when there is no recharge of the cost, the fair value is charged to Investments on a straight-line basis over the vesting period, with appropriate adjustments being made during this period to reflect expected vesting for non market-based performance conditions and forfeitures. The corresponding credit is to shareholders' funds. To satisfy awards under this Plan, shares may be purchased in the market by an Employee Benefit Trust (EBT) over the vesting period. Coats Group plc is the sponsoring employer of the EBT and its activities are considered an extension of the Company's activities. Therefore the shares purchased by the EBT are included as a deduction from shareholders' funds and other assets and liabilities of the EBT are recognised as assets and liabilities of Coats Group plc. ### f) Taxation Provision is made for taxation assessable on the profit or loss for the year as adjusted for disallowable and non-taxable items. Deferred taxation is provided in full in respect of timing differences which have arisen but not reversed at the balance sheet date, except that deferred tax assets (including those attributable to tax losses carried forward) are only recognised if it is considered more likely than not that they will be recovered. Deferred taxation is measured on a non-discounted basis. ### g) Dividends Dividends proposed are recognised in the period in which they are formally approved for payment. ### h) Critical accounting judgements and key sources of estimation uncertainty #### *Carrying value of investments:* The carrying values of investments are assessed annually for indicators of impairment. If an impairment review is required judgement is involved in calculating the recoverable amount. No indicators of impairment were identified during the year ended 31 December 2022. There are no sources of estimation uncertainty at the balance sheet date, that may have a significant risk of causing material adjustment to the carrying amounts of assets and liabilities within the next financial year. Coats Group plc Annual Report and Accounts 2022 ### Group structure The Company, through various subsidiaries, has branches in several different jurisdictions in which the Subsidiaries: business operates outside the UK. Unless otherwise indicated, all shareholdings owned directly or indirectly Indirect holdings of the Company by the Company represents 100% of issued share capital of the subsidiary. Country of Incorporation Company name Registered office address Share class Subsidiaries: Australia Coats Australian Unit 2, 56 Keys Road, Moorabbin VIC 3189, Australia AUD0.54 Ordinary STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Pty Ltd Direct holdings of the Company Australia Guinness Peat Level 44, 600 Bourke Street, Melbourne, Victoria, AUD1.00 Ordinary, Country of Incorporation Company name Registered office address Share class Group (Australia) 3000, Australia AUD14,977.77 United Kingdom Arrow HJC The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary Pty Limited Redeemable United Kingdom Preference | United Kingdom B. M. Estates | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Bangladesh Coats Bangladesh | | Tower 117, 117/A Tejgaon Industrial Area, Dhaka 1208, | BDT100.00 Ordinary | | | Limited | United Kingdom | | | | | | | | | | | | Limited | Bangladesh | | (80%) | United Kingdom Coats Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, | | | £1.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | United Kingdom | | Bangladesh Coats Crafts | | Novo Tower, 270 Tejgaon Industrial Area, Dhaka 1208, | BDT100.00 Ordinary | | | | | | | Bangladesh Limited | Bangladesh | | | United Kingdom Contractors’ | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | (80%) | | | Aggregates Limited | United Kingdom | | | | | | | | | | | Bulgaria Coats Bulgaria | | Tharigradsko shouse bld 7th Km, Sofia 1748, Bulgaria | BGL50.00 Ordinary | | United Kingdom GPG (UK) Holdings | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | Eood | | | | | Limited | United Kingdom | | | | | | | | | | | Cambodia Coats Threads | | Phnom Penh Tower, No. 445, Room No. 1, 7th Floor, | KHR4,000 Ordinary | | United Kingdom GPG March 2004 | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | (Cambodia) | Monivong Blvd corner street 232, 1, Boeng Proluet, | | | | Limited | United Kingdom | | | Company Limited | Prampir Meakkakra, Cambodia | | | United Kingdom S G Warburg Group | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | Canada Coats Canada Inc 10 Roybridge Gate Blvd, Vaughan ON L4H 3M8, | | | Common (no par | | | Limited | United Kingdom | | | | Canada | | value) Canada Staveley Services 44 Chipman Hill, Suite 1000, Saint John NB E2L 2A0, CAD Common, CAD Canada Inc Canada Class A Pref 1, CAD Class A Pref 2 Chile Coats Cadena Ltda Enrique Gomez Correa 5750, 3er piso, Oficina No.4, US$1.00 Ordinary Macul, Santiago, Chile | Chile The Central Agency | | Enrique Gomez Correa 5750, 3er piso, Oficina No.4, | US$1.00 Ordinary | | --- | --- | --- | --- | | | Limited – Chile | Macul, Santiago, Chile | | | China Coats Opti | | Phase two of high-tech park), B6/B15 of Coats Industrial | US$1.00 Ordinary | | | Shenzhen Limited | Park, Fengtang Avenue, Tangwei Community, Fuyong | | (90%) Street, Bao’An District, Shenzhen, China China Coats Shenzhen Coats Industrial Park, Fengtang Avenue, Zhancheng US$1.00 Ordinary Limited Community, Fuhai Street, Baoan District, Shenzhen, (90%) China 518103 China Donguan Rhenoflex Building 5, No. 77 Shilong Road, Guancheng Street, US$500,000.00 New Materials Co. Dongguan, Guangdong Province, China Ordinary Ltd ## 173 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. Country of Incorporation Company name Registered office address Share class Country of Incorporation Company name Registered office address Share class China Donguan Rhenoflex Room 1510, Business Building, Gosun Science and US$100,000.00 France UT France Zone Industrielle de la Bergerie, 10 rue Gustave Eiffel, €1.51178 Ordinary Shoe Materials Co. Technology Park, Nancheng Street, Dongguan, China 49280 La Seguiniere, Maine-et-Loire, Pays de la Loire, Ordinary Ltd France STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO | China Guangzhou Coats | | Unit B12, 2nd Floor, 2nd Building, No 11 Hao Ke Zhou | HKD1.00 Ordinary | Germany Coats GmbH 1 Suedwieke 180, 26817 Rhauderfehn, Germany | | | €12,000,000.00 | | --- | --- | --- | --- | --- | --- | --- | --- | | | Limited | East Street, Haizhu District, Guangzhou, China | | | | | | | | | | (90%) | | | | Ordinary | | China Jiangyin Rhenoflex | | No. 58 Dong Sheng Road, Hi-Tech Park, Jiangyin | US$1,500,000.00 | Germany Coats Opti | | 1 Suedwieke 180, 26817 Rhauderfehn, Germany | €1,000,000.00 | | | Waterproof Material | Economic Development Zone, China | | | Germany GmbH | | | | | | | Ordinary | | | | Ordinary | Co.Ltd | | | | Germany Coats Thread | | Adolf-Kolping-Straße 2 – 6, Donaueschingen, 78166, | €11,704,000.00 | | --- | --- | --- | --- | --- | --- | --- | | China Qingdao Coats | No. 6, Sanhuan Road, Jimo Environmental Protection | US$1.00 Ordinary | | | | | | | | | | Germany GmbH | Germany | | Ordinary Limited Industrial Park, Jimo District, Shandong, China (90%) Germany Rhenoflex GmbH Giulinistraße 2, 67065 Ludwigshafen, Germany €25,000.00 China Shanghai Coats No.8 Building, Export Processing Garden, Songjiang US$1.00 Ordinary Ordinary Limited Industrial Zone 201613, Shanghai, China (90%) Germany Schwanenwolle RHS, Stadtstrasse 29, 79104 Freiburg, Germany DEM1.00 Ordinary China Texon Dongguan No. 17 Weiheng Road, Niushan Foreign Economics US$1,420,000.00 Tittel & Krueger AG Non Woven Ltd Industrial Park, Dongcheng Street, Dongguan City, Ordinary i. L China Germany Texon Components Roigheimer Str., 69-72, Mockmuhl, 74219, Germany €126,000.00 Colombia Coats Cadena Avenida Santander, N.5E-87, Pereira, Colombia COP20.63 Ordinary GmbH Ordinary Andina SA – Germany Texon Mockmuhl Roigheimer Str., 69-72, Mockmuhl, 74219, Germany €27,041,999.59 Colombia GmbH Ordinary Ecuador Coats Cadena SA De las Avellanas E, 2-74 y El Juncal, Quito, Ecuador US$1.00 Ordinary Ecuador Guatemala Centraltex de 26 Avenida No. 7-27, Zona 4, Mixco oficina 11, GTQ100.00 | | | | | Guatemala, S.A. | Guatemala | | | --- | --- | --- | --- | --- | --- | --- | | Egypt Coats Craft Egypt New Cairo, 5th settlement, Villa 28, Egypt | | EGP1.00 Ordinary | | | | Ordinary | | Egypt Coats Egypt for | Industrial Area Zone B3, Plot 78, 10th of | | Guatemala Coats de | | 13-78 Zona 10, Edif. Intercontinental Plaza Torre | GTQ1.00 Ordinary | US$14.0625 manufacturing and Ramadan City, Cairo, Egypt Guatemala, S.A. Citigroup Nivel 17, Oficina 1702, Ciudad, Guatemala Ordinary dyeing sewing Guatemala Crafts Central 26 Avenida No. 7-27, Zona 4, Mixco oficina 11, GTQ100.00 thread SAE America, S.A. Guatemala Ordinary | Egypt Coats Industrial | | Industrial Area Zone B3, Plot 62, 10th of Ramadan City, | EGP4000.00 | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Guatemala Distribuidora Coats | 39 Avenida, 3-47 Zona 7, Colonia El Rodeo, Guatemala, | GTQ1.00 Ordinary | | | Trading Egypt | Cairo, Egypt | | | | | Ordinary de Guatemala, Guatemala El Salvador Coats El Salvador, Zona Franca Export Salva, Edificio No 18C, San Sociedad Anomina US$12.00 Ordinary | | S.A. de C.V. | Salvador, El Salvador | | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | Guatemala Guatemala Thread | | 39 Avenida, 3-47 Zona 7, Colonia El Rodeo, Guatemala, | GTQ10.00 Ordinary | | Estonia Coats Eesti AS – | | Ampri tee 9/4, Lubja küla 74010 Viimsi Vald, Harjumaa, | | Company Sociedad | Guatemala | | €63.90 Ordinary Estonia Estonia Anonima France Coats France S.A.S. 8 avenue Hoche, 75008, Paris, France Honduras Coats Honduras, Edificio #13 Zona Libre Inhdelva, 800 mts. Carretera a HNL100.00 Ordinary €0.60 Ordinary | | | | | S.A. | la Jutosa, Choloma, Cortes, Honduras | | | --- | --- | --- | --- | --- | --- | --- | | France Rhenoflex France | 3 rue du Moulin, 49450 St. Macaire en Mauges, France | €188,401.00 | | | | | | | | | Hong Kong China Thread | | Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, | HKD10.00 Ordinary | SAS Ordinary Development Wanchai, Hong Kong France Texon France SAS Zone Industrielle de la Bergerie, 10 rue Gustave Eiffel, €1.22104 Ordinary Company Limited 49280 La Seguiniere, Maine-et-Loire, Pays de la Loire, Hong Kong Coats (China) Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, HKD10.00 Ordinary France Limited Wanchai, Hong Kong ## 174 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. Country of Incorporation Company name Registered office address Share class Country of Incorporation Company name Registered office address Share class Hong Kong Coats China Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, HKD10.00 Ordinary Italy Coats Italy S.r.l. Sesto San Giovanni (MI), Via Milanese, 20 CAP, 20099, €5,000,000.00 Holdings Limited Wanchai, Hong Kong Milan, Italy Quota Hong Kong Coats Hong Kong Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, HKD10.00 Ordinary Italy Rhenoflex Italy S.r.l Via Borgogna 2, 20122 Milan, Italy €10.000.00 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Limited Wanchai, Hong Kong (90%) Ordinary | Hong Kong Coats Opti Hong | | Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, | HKD1.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Italy Texon Italia S.r.l. Via Felice, Casati 20, Milan, 20124, Italy | | | €1.00 Ordinary | | | Kong Limited | Wanchai, Hong Kong | | | | | | | | | | | Madagascar Coats (Madagascar) | | First Immo, Galaxy Industrial Estate, Rue du Dr. Raseta, | MGF100,000.00 | | Hong Kong Coats Thread HK | | Unit 1-4, 10/F, The Broadway, 54-62 Lockhart Road, | HKD10.00 Ordinary | | | | | | | | | | | International1 | Andraharo, Antananarivo, Madagascar | | Ordinary | | Limited | Wanchai, Hong Kong | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Madagascar Coats (Madagascar) | | First Immo, Galaxy Industrial Estate, Rue du Dr. Raseta, | MGF100,000.00 | | Hong Kong Fast React Asia | | Room 2203 22/F, Tower 1, Lippo Centre, 89 | HKD1.00 Ordinary | | | | | | | | | | | S.AR.L (EPZ)2 | Andraharo, Antananarivo, Madagascar | | Ordinary | | (HK) Limited | Queensway, Hong Kong | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Malaysia Coats Thread | | 49-B Jalan Melaka Raya 8, Taman Melaka Raya, 75000 | RM10.00 A, | | Hong Kong Fastreact Systems | | Room 2203 22/F, Tower 1, Lippo Centre, 89 | HKD1.00 Ordinary | | | | | | | | | | | (Malaysia) Sdn. | Melaka, Malaysia | | | | (Far East) Co | Queensway, Hong Kong | | | | | RM10.00 B, | Bhd. Limited RM10.00 C (99%) Hong Kong Rhenoflex Hong 17/F 700 Nathan Road, Monkok, Hong Kong HKD1.00 Ordinary Mauritius J & P Coats Allee des Mangues, Pailles, Mauritius Rs100.00 Ordinary Kong Ltd (Mauritius) Ltd3 | Hong Kong Texon International | | Room 1–4, 10th Floor, The Broadway, 54-62 Lockhart | HKD1.00 Ordinary | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Mauritius Coats Indian Ocean | 2nd Floor, IBL House, Caudan, Port-Louis, Mauritius | US$100.00 Ordinary | | | (Asia) Limited | Road, Wanchai, Hong Kong | | | | | Holding Co Limited Hungary Coats 1044 Budapest, Vaci ut 91, Hungary HUF100,000.00 Mexico Coats Mexico S.A. Periferico Sur #3325 Piso 8, Col. San Jerónimo Lídice, MXP1.00 Ordinary-A, Magyarorszag Ordinary de C.V. Magdalena Contreras, Mexico City, CP10200, Mexico MXP1.00 Ordinary-B Cernagyarto es Morocco Coats Maroc 220 Bld Chefchaouni, Ain Sebaa, Casablanca, Morocco MAD100.00 Ertekesito Korlatolt Ordinary Felelossegu Tarsasag Morocco Mercerie 220 Bld Chefchaouni, Ain Sebaa, Casablanca, Morocco MAD100.00 Industrielle de India Intellosol Softwares 1/22, Second Floor, Asaf Ali Road, New Delhi, Central INR10.00 Ordinary Ordinary Casablanca India Private Delhi, Delhi, 110002, India Limited | | | | Netherlands Coats Industrial | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | €1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | | | | | | Europe Holdings | United Kingdom | | | India Madura Coats | 7th Floor, Jupiter 2A, Prestige Tech Park, Sarjapur | INR10.00 Ordinary | | | | | B.V. | | Private Limited | Marathalli Ring Road, Bangalore, 560103, India | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | Netherlands Coats Industrial | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | €1.00 Ordinary | | India Texon (India) | | S. No. 376, Thirumudivakkam Main Road, Behind | INR100.00 Ordinary | | | | | | | | | | | Thread Holdings | United Kingdom | | | | Private Limited | Amarprakash Heritage Apartments, Thirumudivakkam, | | | | | | B.V Chennai, Tamil Nadu, 600044, India | | | | | Netherlands Coats Northern | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | €1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | Indonesia PT. Coats Rejo | | Ventura Building, Lantai 5, Suite 501-B, Jl. RA Kartini | IDR415.00 | | | | | | | | | | | Holdings B.V. | United Kingdom | | | | Indonesia | No. 26, Cilandak, Jakarta Indonesia | | | | | | Ordinary-A, Netherlands Coats South The Pavilions, Bridgwater Road, Bristol, BS138FD, €1.00 Ordinary IDR627.00 America Holdings United Kingdom Ordinary-B, US$1.00 B.V. Preference 1 Sold on 31st January 2023 Indonesia PT Coats Trading Ventura Building, Lantai 5, Suite 501-B, Jl. RA Kartini USD1.00 Ordinary Indonesia No. 26, Cilandak, Jakarta Indonesia 2 Sold on 31st January 2023 ## 3 Sold on 31st January 2023 175 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. | Country of Incorporation Company name Registered office address Share class | | | | Country of Incorporation Company name Registered office address Share class | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Netherlands Coats South Asia | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | €1.00 Ordinary | South Africa Coats South Africa | | 107 Escom Road, New Germany, 3620, KZN, Natal, | ZAR0.01 Ordinary, | | | Holdings B.V. | United Kingdom | | | (Proprietary) | South Africa | | ZAR0.01 Cumulative Limited Netherlands Coats Southern The Pavilions, Bridgwater Road, Bristol, BS138FD, €1.00 Ordinary Redeemable STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Holdings B.V. United Kingdom Preference, ZAR0.01 New Zealand Coats Patons (New 3 Mana Place, Wira, Auckland, New Zealand NZD1.00 Ordinary Non-redeemable Zealand) Ltd Preference Shares, Nicaragua Coats de Nicaragua Altamira d’este, Rotonda Madrid #235, Managua, NIO100.00 Ordinary ZAR0.01 SA Nicaragua Non-redeemable Pakistan J & P Coats Suites 112-113, Prime Office Lobby, Park Towers, PKR100.00 Ordinary Non-cumulative Pakistan (Pvt) Shahrah-e-Firdousi, Clifton, Karachi, 75600, Pakistan Variable Rate Limited Convertible Peru Coats Cadena SA Av. Republica de Panama 3461, Piso 9, San Isidro, Lima, PEN 0.01 Ordinary Preference – Peru Peru (99%) | | | | | Spain Gotex S.A. Avinguda de Montcau, No 5, Parcela A del VGP Llica | | €6.02 Ordinary | | --- | --- | --- | --- | --- | --- | --- | | Poland Coats Polska | | Nowe Sady 2, 94-104 Lodz, Poland | PLN1,000.00 | | d’Amunt, (Nave E2 y E3), Llica de Munt, Barcelona, | | | | Spolka z | | | | 08186, Spain | | Ordinary oganiczona Sri Lanka Coats Thread No. 479, Level–08, HNB Towers, T.B. Jayah Mawatha, LKR100.00 Ordinary odpowiedzialnoscia Exports (Private) Colombo, 10, Sri Lanka (99%) | Portugal Coats – Comercio | | Praca Duque de Saldhana, 1, Edif. Atrium Saldanha, Piso | €1.00 Ordinary | | Limited | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | de Linhas, Fechos | 7, Lisbon, 1050-094, Portugal | | | | | | | | | | Bearer Shares | Sri Lanka Coats Thread | | No. 479, Level–08, HNB Towers, T.B. Jayah Mawatha, | LKR10.00 Ordinary | e Acessorios, Para Lanka (Private) Colombo, 10, Sri Lanka (99%) a Industria SA Limited | Portugal Companhia de | | Praca Duque de Saldhana, 1, Edif. Atrium Saldanha, Piso | €1.00 Bare Shares | | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | Sweden Coats Industrial | Stationsvagen 2, SE-516 31 Dalsjofors, Sweden | SEK1,000.00 Bearer | | | Linha Coats & Clark | 7, Lisbon, 1050-094, Portugal | | | | | Scandinavia AB S.A. Switzerland Coats Stroppel AG c/o Haussmann Treuhand AG, Seefeldstrasse 45, 8008 CHF2,500.00 Romania Coats Romania SRL Municipiul Odorheiu Secuiesc, Str. Nicolae Balcescu, Nr. RON169.38 Zurich, Switzerland 71, Judetul Harghita, Romania Ordinary Thailand Coats Threads 39/60 Moo 2 Tambol Bangkrachaw, Amphur Muang, THB1,000.00 Ordinary Russian Federation Coats LLC 53 Lenin Street, Oktyabrsky, Lubertsy, 140060, RUB173.55 Ordinary (Thailand) Ltd Samutsakorn Province 74000, Thailand Moscow Region, Russia | | | | | Tunisia Coats Industrial | | 52, rue du Tissage, Douar Hicher, Manouba, 2086, | TND10.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | Singapore Coats International | | 12 Marina View, #11-01, Asia Square Tower 2, 018961, | SGD1.00 Ordinary | | Tunisie | Tunisia | | | | Pte. Limited | Singapore | | | | | | | | | | | Tunisia Coats Trading | | 52, rue du Tissage, Douar Hicher, Manouba, 2086, | TND10.00 Ordinary | | | | | | | Tunisie | Tunisia | | | | | | | Turkey Coats (Turkiye) Iplik | | BALAT OSB MAH Mavi Cad. No 2, 16220 Bursa, Turkey | TRY1.00 New | Sanayii AS Ordinary (92%) | Ukraine Coats Ukraine Ltd Moskovskiy ave. 28A, litera B, Kiev, 04655, Ukraine | | | UAH1.00 Ordinary | | --- | --- | --- | --- | | United Kingdom Allied Mutual | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | Insurance Services | United Kingdom | | Ltd ## 176 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. Country of Incorporation Company name Registered office address Share class Country of Incorporation Company name Registered office address Share class United Kingdom Anfield 1 Limited Mazars Llp, 45 Church Street, Birmingham, B3 2RT £1.00 Ordinary United Kingdom Coats Property The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary United Kingdom Management United Kingdom Limited United Kingdom Anfield 2 Limited Mazars Llp, 45 Church Street, Birmingham, B3 2RT £1.00 Ordinary, STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO United Kingdom United Kingdom Coats Shelfco The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary £1.00 Deferred | | | | | | (BDA) Limited | United Kingdom | | | --- | --- | --- | --- | --- | --- | --- | --- | | United Kingdom Barbour Threads | | Cornerstone, 107 West Regent Street, Glasgow, G2 | £10.00 Ordinary | | | | | | | | | | United Kingdom Coats Shelfco (CV | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | Limited | 2BA, United Kingdom | | | | | | | | | | | | Nominees) Limited | United Kingdom | | | United Kingdom Brown Shipley | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | United Kingdom Coats Shelfco (VV) | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.01 Ordinary, | | | Holdings Limited | United Kingdom | | | | | | | | | | | | Limited | United Kingdom | | £0.075 Deferred | United Kingdom Brunel Pension | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Trustees Limited | United Kingdom | | United Kingdom Coats Trading (UK) | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | Limited | United Kingdom | | | United Kingdom Cardpad Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, | | | £1.00 Ordinary | | | | | United Kingdom | | | United Kingdom Coats UK Pension | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | --- | --- | --- | --- | --- | --- | | United Kingdom Coats (UK) Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | Scheme Trustees | United Kingdom | | United Kingdom Limited | United Kingdom Coats Digital | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom Corah Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.25 Ordinary, | | | Limited | United Kingdom | | | | United Kingdom £1.00 4.2% United Kingdom Coats Finance Co. The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary Cumulative Limited United Kingdom Preference | United Kingdom Coats Group | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.33 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Finance Company | United Kingdom | | United Kingdom D. Byford & Co | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.20 Ordinary, | | | Limited | | | | Limited | United Kingdom | | £1.00 Preference | United Kingdom Coats Holding | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.125 Ordinary | | | | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom Embergrange The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | Company | United Kingdom | | | | United Kingdom (No. 1) Limited | | | | | United Kingdom Fast React Systems | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | United Kingdom Coats Holding | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.25 Ordinary | | | | | | | | | | | (Bangladesh) | United Kingdom | | | | Company | United Kingdom | | | | | | Limited (No. 2) Limited | | | United Kingdom Fast React Systems | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | --- | --- | --- | --- | --- | --- | | United Kingdom Coats Holdings Ltd The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | Limited | United Kingdom | | United Kingdom | | | | | United Kingdom GPG Securities | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | United Kingdom Coats Industrial | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | | Trading Ltd | United Kingdom | | | | Thread Brands | United Kingdom | | | | | | | | | | | United Kingdom Griffin SA Ltd The Pavilions, Bridgwater Road, Bristol, BS138FD, | | | £1.00 Ordinary | Limited United Kingdom | United Kingdom Coats Industrial | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom GSD (Corporate) | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | Thread Limited | United Kingdom | | | | | | | | | | | | Limited | United Kingdom | | | United Kingdom Coats Patons | | Cornerstone, 107 West Regent Street, Glasgow, G2 | £0.25 Ordinary | | | | | | | | | | United Kingdom GSD Holdings | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary-A, | | | Limited | 2BA, United Kingdom | | | | | | | | | | | | Limited | United Kingdom | | £1.00 Ordinary-B United Kingdom Coats Pensions The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary Trustee Limited United Kingdom ## 177 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. | Country of Incorporation Company name Registered office address Share class | | | | Country of Incorporation Company name Registered office address Share class | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | United Kingdom Hicking | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.50 Ordinary | United Kingdom Texon | | Skelton Industrial Estate, Skelton, | £1.00 Ordinary | | | Pentecost | United Kingdom | | | Management Ltd | Saltburn-By-The-Sea, Cleveland, TS12 2LH, | | | | Limited | | | | | England, United Kingdom | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO United Kingdom I.P. Clarke & Co. The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary United Kingdom Texon Non Skelton Industrial Estate, Skelton, £1.00 Ordinary Limited United Kingdom Woven Ltd Saltburn-By-The-Sea, Cleveland, TS12 2LH, England, United Kingdom United Kingdom J.& P. Coats, 1 George Square, Glasgow G2 1AL, United £1.00 Ordinary Limited Kingdom United Kingdom Texon Overseas Skelton Industrial Estate, Skelton, £1.00 Ordinary Saltburn-By-The-Sea, Cleveland, TS12 2LH, United Kingdom Marshaide The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary England, United Kingdom | | Limited | United Kingdom | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom The Central | | Cornerstone, 107 West Regent Street, Glasgow, | £10.00 Ordinary | | United Kingdom Needle Industries | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | | Agency Limited | G2 2BA, United Kingdom | | | | Limited | United Kingdom | | | | | | | | | | | United Kingdom The Coats | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | United Kingdom Patons & | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | | Trustee Company | United Kingdom | | | | Baldwins Limited | United Kingdom | | | | | | Limited | United Kingdom Patons Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, | | | £1.00 Ordinary, | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom Thomas Burnley | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £10.00 Ordinary | | | | United Kingdom | £1.00 7% Preference | | | | | | | | | | | & Sons, Limited | United Kingdom | | | United Kingdom Simpson, Wright | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | United Kingdom Tootal Group | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £0.25 Ordinary, | | | & Lowe, Limited | United Kingdom | | | | | | | | | | | | Limited | United Kingdom | £1.00 3.5 % | | United Kingdom Sir Richard | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | Cumulative Arkwright & Co. United Kingdom Preference Limited United Kingdom Tootal Limited The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary United Kingdom SIRBS Pension The Pavilions, Bridgwater Road, Bristol, BS138FD, £1.00 Ordinary United Kingdom | | Trustee Limited | United Kingdom | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | United Kingdom Torque Group | | Skelton Industrial Estate, Skelton, | £0.01 A Ordinary, | | United Kingdom Staveley 2005 | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | | International | Saltburn-By-The-Sea, Cleveland, TS12 2LH, | £0.01 B Ordinary, | | | No 3 Limited | United Kingdom | | | | | | | | | | | | Fortune Limited | England, United Kingdom | £0.01 C Ordinary | | United Kingdom Staveley | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | United Kingdom Torque Group | | Skelton Industrial Estate, Skelton, | £1.00 Ordinary | | | Industries Limited | United Kingdom | | | | | | | | | | | | International | Saltburn-By-The-Sea, Cleveland, TS12 2LH, | | | United Kingdom Staveley Services | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | £1.00 Ordinary | | | | | | | | | | | Wealth Limited | England, United Kingdom | | | | Limited | United Kingdom | | | | | | | | | | | United States Coats American | | CT Corporation System, 820 Bear Tavern Road, | US$10.00 | | United Kingdom Texon (Newco 2) | | Skelton Industrial Estate, Skelton, | £1.00 Ordinary | | | | | | | | | | | Inc | West Trenton, NJ 08628, USA | COMMON, US$5.00 | | | Ltd | Saltburn-By-The-Sea, Cleveland, TS12 2LH, | | | | | | 5% Cumulative England, United Kingdom Preference | United Kingdom Texon | | Skelton Industrial Estate, Skelton, | £0.0001 A Ordinary, | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | United States Coats Garments | | CT Corporation System, Corporation Trust | US$1.00 Ordinary | | | International | Saltburn-By-The-Sea, Cleveland, TS12 2LH, | £0.0001 B Ordinary, | | | | | | | | | | | (USA) Inc | Centre, 1209 Orange Street, Wilmington, DE | | | | Group Limited | England, United Kingdom | £0.00001 Deferred | | | | | 19801, USA Ordinary ## 178 Coats Group plc Annual Report and Accounts 2022 ### Group structure cont. | Country of Incorporation Company name Registered office address Share class | | | | Country of Incorporation Company name Registered office address Share class | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | United States Coats Holdings | | CT Corporation System, Corporation Trust | US$1.00 Ordinary | Vietnam Texon | | Plant No. 02 and Factory No. 03, An Phuoc | VND33,446,917,552 | | | Inc | Centre, 1209 Orange Street, Wilmington, DE | | | Manufacturing | Industrial Zoe, An Phuoc Ward, Long Thanh | Charter Capital | | | | 19801, USA | | | Vietnam | District, Dong Nai Province, Viet Nam | | STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Company Limited United States Coats HP CT Corporation System, 160 Mine Lake Ct., Suite US$1.00 Ordinary Holding Inc 200, Wake NC 27615-6417, USA Joint Ventures United States Coats HP Inc CT Corporation System, 160 Mine Lake Ct., Suite US$1.00 Ordinary Country of Incorporation Company Name Registered Office address Share class 200, Wake NC 27615-6417, USA | | | | | China Guangying | | 2 Yuan Cun Xi Jie Guangzhou, 510655, China US$1.00 Ordinary | | | --- | --- | --- | --- | --- | --- | --- | --- | | United States Coats North | | CT Corporation System, Corporation Trust | US$0.10 Ordinary, | | | | | | | | | | | Spinning | | (50%) | | | America | Centre, 1209 Orange Street, Wilmington, DE | US$1.00 Class B | | | | | Company Limited Consolidated Inc 19801, USA Voting Shares 4 | | | | | China Huizhou Uniqa | | Shop 30, 1st Floor, Building 5, Cunhu Modern | Ordinary (100%) | | --- | --- | --- | --- | --- | --- | --- | --- | | United States Coats North | | CT Corporation System, 160 Mine Lake Ct., Suite | US$1.00 Ordinary | | | | | | | | | | | Shoes | Huafu, West of Jiaoxiao Section, Shiwan Avenue | | | | America de | 200, Raleigh, North Carolina, 27615-6417, USA | | | | | | | | | | | | Component | (formerly Yongshi Avenue), Shiwan Town, | | Republica Manufacturing Huizhou City, Boluo County, China Dominica Inc Co., Ltd | United States Coats Sales | | CT Corporation System, 820 Bear Tavern Road, | US$100.00 Ordinary | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | China Tianjin Jinying | | 10m E of intersec. of Jinlai Rd and Mingqing Rd, | US$1.00 Ordinary | | | Corporation | West Trenton, NJ 08628, USA | | | | | | | | | | | | Spinning Co Ltd | Liqi Zhuang, Xiqing Qu, Tianjin, 300381, China | (50%) | | United States Jaeger | | CT Corporation System, 28 Liberty Street, New | US$ Common | | | | | | | | | | India S&P Threads | | Delite Theatre Building, III Floor, Asaf Ali Road, | INR10.00 Ordinary | | | Sportswear Ltd | York, NY 10005, USA | | | | | | | | | | | | Private Limited | New Delhi, 110 002, India | (50%) | | United States Patrick Yarn Mill, | | CT Corporation System, 160 Mine Lake Ct., Suite | US$1.00 Class A | | | | | | | | | | Italy AKCA | | Via Felice, Casati 20, Milan, 20124, Italy €1.00 Ordinary | | | | Inc., | 200, Raleigh, North Carolina, 27615-6417, USA | voting, Class B non- | | | | | | | | | | | Technologies S.r.l | | (60%) | voting | | | | | Italy Levante S.r.l. Via Traversa, Di Parezzana 14, 55012, Capannori | | | €1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | United States Rhenoflex | | Corporation Trust Center, 1209 Orange Street, | US$0.01 Ordinary | | | | | | | | | | | | (LU), Carraia, Italy | (40%) | | | Americas Corp. | Wilmington, DE, United States | | | | | | | | | | | Mexico Rhenoflex Shoe- | | Sigma 308, Fracc. Industrial Delta, CP 37545 | MXP500,000.00 | | United States Staveley Inc The Corporation Trust Co., 1209 Orange Street, | | | US$0.01 Ordinary | | | | | | | | | | | Mat S.R.L. de CV | León, Guanajuato, Mexico | Ordinary (50%) | Wilmington, DE 19801, USA. | | | | | Spain Texogan, S.L. C/ Fresser 21-23, 2P, Pol. Ind., Pla D' En Coll | | | €1.00 Ordinary | | --- | --- | --- | --- | --- | --- | --- | --- | | United States Texon Materials, | | Corporation Trust Center, 1209 Orange Street, | US$0.01 Ordinary | | | | | | | | | | | | Montacada i Reixac, Barcelona, 08110, Spain | (50%) | | | Inc. | Wilmington, DE, United States | | | | | | | | | | | United Kingdom Coats VTT | | The Pavilions, Bridgwater Road, Bristol, BS138FD, | US$0.01 Ordinary | | United States Westminster | | c/o The Corporation Trust, 1209 Orange Street, | US$1.00 Common | | | | | | | | | | | Limited | United Kingdom | (50%) | | | Fibers, Inc. | Wilmington, Delaware, USA | shares | | | | | | | | | | Uruguay Texogan S.A. Camino Bajo la Petisa 5040, Local 1, 12800 | | | US$1.00 Ordinary | | Vietnam Coats Phong Phu | | No. 48 Tang Nhon Phu Street, Tang Nhon Phu B | US$1.00 Ordinary | | | | | 5 Montevideo, Uruguay (65%) Limited Liability Ward, District 9, Ho Chi Minh City, Vietnam (64%) 4 % owned by Levante S.r.L Company | Vietnam Rheno Shoe- | | Plant 57, 1-7 street, Long Thanh Industrial Park, | VND17,581,335,900 | 5 % owned by Texogan S.L. | | --- | --- | --- | --- | --- | | | Components | Tam An Commune, Long Thanh District, Dong | Ordinary | | | | (VN) Co Ltd | Nai Province, Viet Nam | | | ## 179 Coats Group plc Annual Report and Accounts 2022 ### Five-year summary Shareholder information | | | | 3 | | | | United Kingdom | | --- | --- | --- | --- | --- | --- | --- | --- | | | 2018 | 2019 | | 2020 | 2021 | 2022 | | | For the year ended 31 December | US$m | US$m | | US$m | US$m | US$m | | The Pavilions Continuing operations (before exceptional and Bridgwater Road 1 acquisition related items) : Bristol BS13 8FD Revenue 1,340.9 1,326.2 1,115.1 1,446.7 1,583.8 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO Tel: 020 8210 5000 Cost of sales (848.0) (850.7) (769.4) (979.3) (1,087.1) coats.com Gross profit 492.9 475.5 345.7 467.4 496.7 Operating costs (295.3) (273.8) (232.1) (269.7) (261.8) Incorporated and registered in England No. 103548 Operating profit 197.6 201.7 113.6 197.7 234.9 Share of profits from joint ventures 0.1 1.1 0.6 1.2 1.1 Registered office: Finance income 1.7 1.7 0.7 0.4 2.6 The Pavilions Finance costs (26.1) (29.6) (25.5) (21.8) (32.3) Bridgwater Road Profit before taxation 173.3 174.9 89.4 177.5 206.3 Bristol BS13 8FD Taxation (53.8) (50.5) (35.2) (53.3) (60.1) Profit from continuing operations 119.5 124.4 54.2 124.2 146.2 UK registered members Adjusted earnings per share (cents) 6.87 6.97 2.42 7.17 8.17 To manage your shareholding online, please visit: investorcentre.co.uk 4 Dividend per share (cents) 1.66 0.55 1.30 2.11 2.43 Adjusted free cash flow ($m) 96.2 106.8 28.0 123.8 114.2 Location of share registers 2 Adjusted return on capital employed (%) 42.6% 42.3% 22.2% 44.8% 30.3% The Company’s register of members is maintained in the United Kingdom Notes: Register enquiries may be addressed direct to the Company’s share registrars named below: 1. The Income Statement amounts for 2018-2021 has been restated following the disposal of the Brazil and Argentina business. Adjusted earnings per Registrar Telephone and postal enquiries Inspection of Register share, adjusted free cash flow and adjusted return on capital employed for 2018-2020 are as previously reported. UK Main Register: 2. Operating profit from continuing operations before exceptional and acquisition related items for the year ended 31 December 2022 has been Computershare Investor The Pavilions The Pavilions adjusted in the adjusted return on capital employed calculation to include Texon and Rhenoflex as if the acquisitions had taken effect at the Services PLC Bridgwater Road Bridgwater Road beginning of the reporting period (1 January 2022). Bristol BS13 8FD Bristol BS13 8FD 3. The Group adopted IFRS 16 ‘Leases’ from 1 January 2019 using the modified retrospective approach and therefore results for 2018 are notrestated. Tel: 0370 707 1022 Facsimile: 0370 703 6143 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 final dividend payment of 1.30 cents per ordinary share which was due to be paid in May 2020. ## 180 Coats Group plc The Pavilions Bridgwater Road Bristol BS13 8FD 020 8210 5000 coats.com Incorporated and registered in England No. 103548