Coats Group plc is pleased to announce that the trustee of the Coats UK Pension Scheme (the “scheme”) has purchased a c.£1.3 billion ($1.7 billion) bulk annuity policy (“buy-in”) from Pension Insurance Corporation plc (“PIC”) which insures benefits payable under the scheme in respect of the remaining 80% of the scheme’s liabilities. This is further to the purchase of a bulk annuity policy for 20% of the scheme liabilities in December 2022.

As a result of the buy-in, all the financial and demographic risks relating to the scheme’s liabilities are now fully hedged, with the two policies paying the scheme a regular stream of income that matches its pension payments to all members.

This buy-in is the final and most significant step in Coats’ fully insuring its UK pension obligations.  Subject to customary post-transaction data reconciliations and the scheme liquidating certain assets in order to meet a deferred element of the PIC premium, it will also give Coats the option to remove the scheme fully from the Group balance sheet in the future at very limited further administrative cost.

The agreement with PIC is anticipated to require up to c.£100 million ($128 million) of additional funding from the Group, with Coats making a £70 million ($90 million) upfront cash contribution to the scheme and a further £30 million ($38 million) provided initially as a loan to the scheme.

As previously reported, deficit repair contributions to the scheme, of around $30 million per annum, were temporarily switched off in January 2024 and will now permanently cease as a result of this agreement.  Reflecting the additional scheme funding described above, leverage will increase modestly in 2024, but remain well within the Group’s target range of 1-2x. Moving forward, the structural improvement to cash generation will allow increased investment in growth or the return of excess capital to shareholders.

Jackie Callaway, Chief Financial Officer, said:

“The purchase of this bulk annuity policy represents a critical final step in de-risking our UK defined benefit pension scheme.  It means we have achieved our ultimate plan of fully insuring the scheme’s pension liabilities in a cost-effective manner and should allow us, in due course, to remove it from our balance sheet.  

This brings us close to the end of a lengthy journey of funding our UK pensions. From having $3 billion of liabilities across three schemes in 2016 with a Technical Provisions deficit of c.$750 million, we are now securing fully insured benefits for our pensioners and removing volatility and uncertainty for our investors.

Now that the scheme is fully funded and cash contributions have ceased this will lock in a significant improvement in the Group’s free cash generation. The completion of the buy-in reflects the constructive and collaborative working relationship between the Group and the trustee and I would like to thank everyone involved for helping us get to this position, which will benefit all stakeholders.”

Conference call

The Group will host a webcast for analysts and investors at 09.00 BST today to cover this statement. The webcast can be accessed via this link.

ENDS