TIDMCOA
RNS Number : 1346Z
Coats Group PLC
10 March 2017
10 March 2017
COATS GROUP PLC
Annual Financial Report 2016
Coats Group plc ('Coats' or the 'Company') has today submitted
to the Financial Conduct Authority's national storage mechanism its
Annual Financial Report for the year ended 31 December 2016
('Annual Report 2016'), as required by UK Listing Rule 9.6.1.
The Annual Report 2016 is available from the Company's website,
www.coats.com/ara2016, and will also be available for viewing at
the Financial Conduct Authority's national storage mechanism at
www.morningstar.co.uk/uk/NSM.
This announcement also contains as appendices additional
information for the purposes of compliance with the UK Disclosure
Rules and Transparency Rules, including principal risk factors, a
responsibility statement and details of related party transactions.
This information is extracted, in full unedited text, from the
Annual Report 2016. The Preliminary Announcement released on 24
February 2017 contained a condensed set of financial statements
together with extracts of the Company's management report, and is
also available to view on the Company's website
www.coats.com/investors. These announcements should be read in
conjunction with and are not a substitute for reading the full
Annual Report 2016.
Stuart Morgan
Company Secretary
10 March 2017
Enquiry Details
Rob Mann Coats Group plc 020 8210 5175
Appendix
Principal Risks overview
A description of the principal risks the company faces is
extracted from pages 22 to 24 of the Annual Report 2016.
During the year the Board, supported by the Group Risk
Management Committee, has continued to consider a broad range of
risks and uncertainties and has carried out a robust assessment of
the principal risks facing the Group along with the current levels
of risk appetite for each of those risks.
In 2016, as a result of this ongoing review process, the
Directors made the following changes to the risk register:
- 'Economic risk' moved up to become a principal risk - with a
particular focus on risks to free trade and the potential
consequences for economic growth given the Group's geographic
footprint and globally connected supply chain.
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-- 'M&A execution/integration risk' moved down and off the list
of principal risks - on the basis that M&A processes
are now embedded, learnings have been identified and applied
and the Group has stable internal and external resources.
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-- 'Joint Ventures and minority shareholder relationships' moved
down and off the list of principal risks - in light of the robust
controls and effective mitigating actions demonstrated by the
executive team in managing key JV relationships.
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-- 'Supply and supplier risk' moved down and off the list of principal
risks - again in light of the robust controls and effective
mitigating actions in place.
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Currently, the Board has identified 10 principal risks, which
fall into one of the following three categories:
1. High impact operational risks: risks inherent in our ongoing
commercial operations and geographic footprint, which if not
effectively managed, would be liable to cause significant
commercial disruption.
2. Material legacy risks: risks relating to the Group's past
operations and activities, including through historical mergers and
acquisitions, which could create material financial exposure for
the Group in its present form.
3. Risks to strategy delivery: risks that could adversely impact
the Group's ability to achieve its defined strategic
objectives.
These principal risks, along with a summary of the measures in
place to manage and mitigate them, are set out in the table
below.
The Board will continue to keep these principal risks, as well
as the appropriateness of this list and the ever evolving broader
risk environment, under ongoing review.
Principal Risk nature/potential impact Action/mitigation
risk
1. High impact operational risks
----------------------------------------------------------------------------------------------------------------
Product liability Our expanding product range, Products are tested and measured
Trend on year: in particular in our growing against stringent quality standards.
Upwards - Performance Materials business, Controls in the Performance Materials
could potentially create more area specifically have been strengthened
product liability exposure with enhanced batch by batch testing
for the Group. of safety critical products. Coats'
global insurance programme includes
product liability cover.
---------------------------- --------------------------------------- -----------------------------------------
Environmental Potential non-compliance with Coats' Environmental Policy applies
non-performance environmental control procedures across the Group and effluent
Trend on year: and/or local requirements could discharge quality of all dyeing
No move lead to a discharge of pollution operations is monitored against
resulting in legal and regulatory a pre-determined schedule. We
action, financial penalties, continue to monitor very closely
damage to reputation and an throughout the Group compliance
adverse impact with local laws and regulations
on ongoing operations. and with Coats' Environmental
Policy.
---------------------------- --------------------------------------- -----------------------------------------
Failure of Key information systems and The Group's manufacturing and
critical infrastructure data stores could malfunction; supply chain function monitors
Trend on year: and/or key manufacturing and and reviews internal supply chains,
No move distribution centres could fire protection and other systems
be adversely affected as a and creates and tests disaster
result of a number of different recovery plans. Actions have been
scenarios. taken to further strengthen our
Disproportionate reliance on Business Continuity Management
such systems and plants could systems. Rolling property risk
have a significant impact on surveys are conducted and acted
profitability in the event upon in respect of all Coats'
of such disruption. critical supply chain nodes. Actions
in relation to information systems
and data stores are set out in
'Data controls and security'.
Coats' global insurance programme
includes property destruction
and business interruption cover.
---------------------------- --------------------------------------- -----------------------------------------
Data controls As owners of corporate data, Coats coordinates the management
and security a data controller of personal of its technology infrastructure
Trend on year: data and a processor of third on a global basis and has a number
Upwards - party data, failure by the of cyber security controls in place.
Group to comply with ever- Internal data networks are monitored
more stringent data protection on a 24/7 basis by a central team.
laws and security controls External internet access is controlled
in different countries could by policy-based web filtering and
lead to high profile incidents access management tools. Other
of data loss or theft and could technologies, including data encryption,
create significant financial continue to be deployed to protect
and other penalties as well data assets hosted at its data
as adverse relationships and centres and on laptops and mobile
reputational consequences. devices. The Group continues to
The Group also maintains other build its capabilities and progressively
business critical electronic to add controls as part of an ongoing
information, and inappropriate cyber security risk management
access to and use of such information, process.
including through cyber-attack, Coats continues to refine measures
could again create significant to ensure that all internal users
financial and commercial exposure. have appropriate access rights
and permissions for their roles.
There is a global data protection
policy in place that is dedicated
to protecting the rights of the
Group's customers and investors.
Progress is underway to ensure
compliance with the EU General
Data Protection Regulation ahead
of it becoming effective in May
2018.
-------------------------- ----------------------------------------- -------------------------------------------
Bribery and Non-compliance with applicable The Group has clear and well publicised
anti- competitive bribery and corruption and/or ethics policies including in relation
behaviour competition/anti-trust laws, to partners, contractors and suppliers
Trend on year: regulations and standards by which are reinforced through a
No move the Group or one of its partners comprehensive Supplier Code. These
could result in material civil policies are reviewed annually.
or criminal penalties, exclusion There is extensive online and face-to-face
from future contract bidding training and regular communications
processes and reputational through a range of channels.
damage. A sub-committee of the Group Risk
Management Committee comprising
key business and functional leaders
meets quarterly to consider specific
ethics risks, legislative and regulatory
developments and mitigation plans.
The Group actively maintains a
whistle blower system, enabling
employees and others who are aware
of or suspect unethical behaviour
to report it confidentially.
-------------------------- ----------------------------------------- -------------------------------------------
2. Material legacy risks
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Pension scheme The UK pension schemes' triennial The funded pension schemes are
deficit funding valuations could lead to increased overseen by their Trustees, who
and pensions and/or accelerated cash contributions. are required to have the appropriate
investigation These could impact one or more knowledge and understanding in
Trend on year: of free cash flow and dividend this area and who take professional
No move payments. and actuarial investment advice
Additionally, the UK Pensions as necessary.
Regulator's investigation in Where appropriate independent professional
respect of the Staveley Scheme trustees are appointed to schemes
could lead to a Financial Support to provide additional expertise.
Direction being imposed on The Group and the scheme trustees
the Group. routinely review de- risking of
the schemes through liability management
and investment strategies.
The strategy relating to the ongoing
investigation in relation to the
Staveley Scheme and the schemes'
funding positions more generally,
are regularly reviewed by the Board
in light of recommendations from
the Pensions Committee.
-------------------------- ----------------------------------------- -------------------------------------------
Legacy environmental Under the laws of certain countries, The Board continues to monitor
risks Coats' subsidiaries could potentially the strategy and developments in
Trend on year: be responsible for investigating relation to the Lower Passaic River
No move and/or remediating conditions proceedings, more detail of which
alleged to be associated in can be found in note 28. Beyond
whole or in part with former that the Group continues to refine
operations. its policies and procedures for
managing and mitigating potential
legacy risks associated with former
operations.
-------------------------- ----------------------------------------- ------------------------------------------- ---
3. Risks to strategy delivery
-----------------------------------------------------------------------------------------------------------------------
Appropriate Failure to identify and retain The Board and senior management remain
capability key staff and/or continue to very focused on talent and capability
development develop key skill sets among development, as well as retention
Change in them could result in an inability and succession planning. 2016 capability
year: Downwards to execute the Group's growth development actions have included
-- strategy. new cohorts on a range of sales force,
management and senior management development
programmes and individual coaching
for selective senior managers.
In addition, our annual Talent Management
and Succession Planning process reviews
talent in the top 300 roles.
------------------------ --------------------------------------------- ----------------------------------------------
Emergence Planned or irrational strategies We strongly believe in the importance
of disruptive or behaviours by one or more of healthy competition and the benefits
competitor industry competitors in relation that brings to both our customers
behaviour to the Group's core markets and ourselves. We maintain a deep
in core markets could adversely understanding of emerging industry
Change in impact its position, profitability trends through our relationships and
year: No move and strategic goals. contacts with customers and global
brands and through our R&D activities
with university and specialist led
research projects. Outputs and insights
from these allow us to undertake ongoing
'horizon scanning' and planning strategies.
------------------------ --------------------------------------------- ----------------------------------------------
Economic risk Like any company with global The Group conducted a thorough risk
Change in activities, the Group is exposed assessment prior to the UK referendum
year: Upwards to risks arising from uncertainty and continues to monitor developments
- around future macroeconomic closely. In addition, the Group is
conditions and, in particular, well diversified in its operations
the risks to free trade and across geographies and sectors, is
the potential consequences for cash generative and has committed
economic growth. Following the debt facilities with significant levels
results of the British referendum of headroom to support the business.
on its membership of the European The Group also has an established
Union and the forecasting and planning process which
US Presidential election, this takes into account and responds to
risk has increased. both macro and micro economic trends.
As a global industrial manufacturing It has a defined policy on hedging
company with no UK manufacturing its exposure to fluctuations in foreign
facilities and minimal direct exchange and a culture of cost control
sales in the UK, Coats is of to manage and preserve cash.
the view that there would be
limited direct adverse impacts
on the Group from Brexit. Both
the UK and the EU, however,
are significant markets for
both Apparel and Footwear and
Performance Materials sales
and therefore any impact on
future growth expectations for
these markets could have an
indirect consequence on the
business.
Whilst the future relationship
between the UK and EU remains
uncertain, there have been indirect
factors which have impacted
the 2016 results, primarily
the effect of lower discount
rates on the accounting valuation
of pension liabilities and the
depreciation of sterling on
our UK costs.
In the near and longer term
there may be other impacts,
notably the risk of greater
protectionism in the US and
fluctuations in foreign exchange
rates that create volatility
in the Group's results.
------------------------ --------------------------------------------- ----------------------------------------------
Responsibility statement
The following responsibility statement is repeated here solely
for the purpose of complying with Disclosure and Transparency Rule
6.3.5. This statement relates to and is extracted from page 78 of
the Annual Report 2016. Responsibility is for the full Annual
Report 2016 and not the extracted information presented in this
announcement or the Preliminary Announcement released on 24
February 2017.
We confirm that to the best of our knowledge:
* the financial statements, prepared in accordance with
the relevant financial reporting framework, give a
true and fair view of the assets, liabilities,
financial position and profit or loss of the Company
and the undertakings included in the consolidation
taken as a whole;
* the strategic report includes a fair review of the
development and performance of the business and the
position of the Company and the undertakings included
in the consolidation taken as a whole, together with
a description of the principal risks and
uncertainties that they face; and
* the Annual Report and financial statements, taken as
a whole, are fair, balanced and understandable and
provide the information necessary for shareholders to
assess the Company's performance, business model and
strategy.
This responsibility statement was approved by the Board of Directors.
Related party transactions
A description of the related party transactions of the Company
is extracted from page 133 of the Annual Report 2016:
Remuneration of key management personnel
The remuneration of the directors, who are the key management
personnel of the Group, is set out below in aggregate for each of
the categories specified in IAS 24 - Related Party Disclosures.
Further information regarding the remuneration of individual
directors is provided on pages 52 to 71 in the audited part of the
Directors' remuneration report.
2016 2015
US$m US$m
------------------------------ ------ ------
Year ended 31 December 5.1 5.1
------------------------------ ------ ------
Short-term employee benefits 1.3 -
------------------------------ ------ ------
Share based payments 6.4 5.1
------------------------------ ------ ------
Trading transactions
Transactions between the Company and its subsidiaries, which are
related parties, have been eliminated on consolidation and are not
disclosed in this note. Transactions between the Group and its
joint ventures are disclosed below.
During the year, Group companies entered into the following
transactions with related parties who are not members of the
Group:
Sale of goods Purchase of goods Other income
---------------- ---------------- -------------------- -----------------
2016 2015 2016 2015 2016 2015
US$m US$m US$m US$m US$m US$m
---------------- ------- ------- --------- --------- --------- ------
Joint ventures 2.8 5.5 46.2 44.1 - 0.1
---------------- ------- ------- --------- --------- --------- ------
About Coats Group plc
Coats is the world's leading industrial thread manufacturer and
a major player in the Americas textile crafts market. At home in
some 60 countries, Coats employs 19,000 people across six
continents. Coats' pioneering history and innovative culture ensure
the company leads the way around the world: providing complementary
and value added products and services to the apparel and footwear
industries; applying innovative techniques to develop high
technology Performance Materials threads and yarns in areas such as
automotive and fibre optics; and extending the crafts offer into
new markets and online. Headquartered in the UK, Coats has a
premium listing on the London Stock Exchange. To find out more
about Coats visit www.coats.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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