COATS GROUP PLC ANNUAL REPORT 2020

Connecting talent, textiles and technology

to make a better and more sustainable world

CONNECTING TALENT, TEXTILES AND TECHNOLOGY

CONTENTS

Strategic report

  • 1 2020 full year results and highlights

  • 2 Coats at a glance

  • 4 Chairman's statement

  • 6 Market trends

  • 8 Business model

  • 10 Investment case

  • 12 Group Chief Executive's statement

  • 14 Our strategic goals

  • 15 Key performance indicators

  • 17 Stakeholder engagement

  • 23 Working responsibly

  • 34 Principal risks and uncertainties

  • 45 Operating review

  • 48 Financial review

Corporate Governance

  • 52 Chairman's introduction

  • 56 Board of Directors

  • 59 Corporate Governance Report

  • 66 Audit and Risk Committee Report

  • 71 Nomination Committee Report

  • 74 Directors' Report

  • 78 Directors' responsibilities statement

  • 79 Remuneration Committee Report

Financial statements

  • 96 Independent Auditor's Report

  • 108 Primary financial statements

  • 114 Notes to the financial statements

  • 180 Company financial statements

183

Notes to Company financial statements

Other information

185 Group structure

195 Five-year summary

196 Shareholder information

OUR PURPOSE IS TO CONNECT TALENT, TEXTILES AND TECHNOLOGY TO MAKE A BETTER AND MORE SUSTAINABLE WORLD

Coats is the world's leading industrial thread company. Coats' pioneering history and innovative culture ensure the Company leads the way around the world. We provide complementary and value-adding products, services and software solutions to the Apparel & Footwear (A&F) industries. We apply innovative techniques to develop high technology Performance Materials (PM) threads, yarns and fabrics in areas such as Transportation, Telecoms and Energy, and Personal Protection.

A key part of our Company purpose is to make a better and more sustainable world.

This report details how we deliver our purpose to support our customers, their industries, our shareholders, our people and the communities in which we operate.

We are achieving this by focusing on three key areas:

  • • Talent - our people are our greatest asset and we continue to invest in their development to enhance their specialised skills and acquire new ones through our ever-growing digital learning platform and peer-to-peer sessions led by internal experts

  • • Textiles - we develop innovative textile solutions to enhance people's lives, touching everything from sewing thread to fibre optic cables

  • • Technology - we embrace new, emerging and disruptive technologies to penetrate markets with new and improved textile applications and material solutions that are more sustainable and functional

Find out more online:

For a more visually engaging way to read about our progress in the year see our online 'Year in Review' at coats.com/ar2020

A full copy of this Annual Report can also be downloaded from coats.com/investors

Throughout this document you will see references to where supporting information can also be found online at coats.com

Sustainability Report:

To read our Sustainability Report, and for more on our policies, their impact and our approach to 'Pioneering a sustainable future', go to coats.com/sustainability

2020 FULL YEAR RESULTS AND HIGHLIGHTS

Continuing operations: Revenue ($m)

2020 1,163

2019 1,389

2018 1,415

Adjusted operating profit ($m)

2020 111

2019 198

2018 195

Operating profit ($m)

2020 103

2019 191

2018 147

Key Performance Indicators

We have indicated with * those measures we consider KPIs. See pages 15-16 for more details and historical performance.

  • 1. Adjusted measures are non-statutory measures (Alternative Performance Measures). These are reconciled to the nearest corresponding statutory measure in note 37. Constant exchange rate (CER) figures are 2019 results restated at 2020 exchange rates. Organic figures are results on a CER basis and excluding contributions from bolt-on acquisitions (Pharr HP and ThreadSol). Revenue figures are an IFRS measure; however CER and Organic growth rates constitute Alternative Performance Measures.

  • 2. Reported refers to values contained in the IFRS column of the primary financial statements in either the current or comparative period.

  • 3. All figures on a continuing basis, unless otherwise stated.

  • 4. Leverage calculated on a frozen GAAP basis, and therefore excludes the impact of IFRS 16 on both adjusted EBITDA and net debt.

Alternative Performance Measures - see note 37 on pages 176-179.

Financial performance

Continuing operations3

Revenue

Adjusted1

Operating profit

Basic earnings per share

Free cash flow

Net debt (excl. IFRS 16)

Reported2,3

Operating profit

Basic earnings per share

Net cash generated by operating activities

Final dividend per share

2020

2019

ChangeCER change1

Organic change1

$1,163m

$1,389m

(16)%

(14)% (19)%*

$111m 2.4c $28m* $181m

$198m 7.0c $107m $150m

(44)%

(43)% (43)%*

$103m 1.8c

$191m 6.7c

(46)%

(45)% (44)%

$66m 1.30c

$144m nil

Highlights

  • • Improving sales momentum with Group organic sales exit rate down 5% for November and December (versus down 26% H1 2020 and down 15% four months to October 2020), following the impact of Covid earlier in the year.

  • • Continued share gains in Apparel & Footwear and customer wins in Performance Materials as customers' priorities pivot to reliability, speed and flexibility during Covid.

  • • Continued Innovation focus despite Covid disruption; 22 new products launched in the year, generating $13 million of incremental revenue, and with a rich pipeline of opportunities.

  • • Adjusted operating profit of $111 million, ahead of previous expectations, with solid recovery in H2; ability to significantly flex cost base leading to resilient margins of 12.2% in H2

    (6.4% H1).

  • • Further advancement on Sustainability agenda; increased demand for EcoVerde product range with revenues up 6x year-on-year; signed up to Science Based Targets initiative, specifically to achieving net-zero emissions by 2050.

  • • Net debt (excl. IFRS 16) of $181 million, 1.2x leverage4; committed facility headroom of $330 million.

  • • Proposed final dividend of 1.30 cents per share as a result of the strength of the balance sheet, the encouraging recovery, and the Board's confidence in the strategy and outlook for the Group.

coats.com/investors

1

COATS AT A GLANCE

COATS IS THE WORLD'S LEADING INDUSTRIAL THREAD COMPANY. HEADQUARTERED IN THE UK, WE OPERATE GLOBALLY AND IN 2020 GENERATED REVENUES OF $1.2BN

What we do

$1.2bn Group revenues 9.5% operating margins 1.2x leverage

We deliver innovative and value add product and service solutions for our c.40,000 global customers to meet the design specifications they require.

Our products are a small but critical component in international global industries such as Apparel & Footwear, Telecoms and Energy, Personal Protection and Automotive industries.

Sustainability is at the heart of our core business values.

Years of textiles experience

We look to do business at all times in an ethical manner, respectful of our environment, and delivering peace of mind for our customers. Each year we aim to produce more from less of the planet's resources.

Whilst our industry was significantly impacted by Covid during 2020 we were able to use our flexible business model to maintain robust financial performance.

71% Apparel & Footwear29% Performance Materials

27% Americas54% Asia19% EMEA

100

Headquartered in the UK and quoted on the London Stock Exchange, we have a global sales presence and digital platforms to enable us to serve customers wherever they are located. Our unrivalled global reach and footprint serve as one of our competitive advantages.

HQ

HQ

Innovation Hub

Innovation Hub

Manufacturing Site

PresencePresence

Manufacturing Site

How we operate: Our Sustainability Strategy

We launched our strategy in 2019 with challenging targets for 2022 and 2024. We have continued to make good progress towards these goals notwithstanding the considerable disruption caused by Covid, but not all the actions that we planned for 2020 were achievable in the circumstances. This was especially the case with our Social targets (for details go to coats.com/ sustainability).

While this means that we have more to achieve in the time remaining to deliver on our targets, we are holding to our commitments and not extending the strategy horizon or reducing our ambition. Action plans have been revised to accelerate progress in 2021.

Our strategy 'Pioneering a sustainable future' focuses on five priority areas:

WATER

ENERGY

EFFLUENT & EMISSIONS SOCIAL

LIVING SUSTAINABLY

2

coats.com/investors

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Coats Group plc published this content on 11 March 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 11 March 2021 13:19:06 UTC.