(Alliance News) - Coats Group PLC on Tuesday said that the trustee of its UK pension scheme purchased GBP350 million bulk annuity policy from Insurer and wealth manager Aviva PLC, helping Coats to reduce its deficit.

Coats, an Uxbridge, England-based industrial thread maker, said the annuity policy insures benefits payable under the scheme in respect of around 3,700 pensioner and dependant members.

The company noted that once the scheme is fully funded, the firm's free cash generation will "improve significantly", allowing it increased investment in growth or the return of excess capital to shareholders.

Coats highlighted its Technical Provisions unit, which saw its deficit reduce to GBP55 million by mid-November from GBP193 million at the end of March. It expects the deficit to shrink further to around GBP25 million to GBP30 million after the buy-in.

Coats Chief Financial Officer Jackie Callaway said: "The purchase of this bulk annuity policy represents an important step in further de-risking our UK defined benefit pension scheme. It moves us closer to eliminating our Technical Provisions deficit and achieving our ultimate plan of fully insuring, in a cost effective manner, the scheme and moving it off our balance sheet. Once the scheme is fully funded and cash contributions cease this will lead to a significant improvement in the group's free cash generation. The completion of the buy-in reflects the constructive and collaborative working relationship between the group and the trustee and I would like to thank all involved for helping us get to this position, which will benefit all stakeholders."

The company will issue another update at its 2022 full year results in March.

Coats shares were 3.4% higher at 69.10 pence each on Tuesday midday in London, while Aviva shares rose 0.2% to 444.40p each.

By Tom Budszus, Alliance News reporter

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