Coats : 09 March 2023 Annual Report 2022

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, TEXTILES AND TECHNOLOGY TO MAKE

A BETTER AND MORE SUSTAINABLE WORLD.

Big, bold, game-changing ideas are crucial to delivering this.

We are accelerating profitable sales growth through our ground-breaking sustainable products and solutions, transforming Coats for the future and creating value for our customers, their industries, our shareholders, our people and the communities in which we operate.

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

TABLE OF CONTENTS

Strategic report

03 2022 full year results and highlights

1. Coats at a glance

1. Chair's statement

1. CEO's statement

1. Our values
2. Strategy

1. Business model

1. People and culture

1. Case studies

1. Sustainability

1. Innovation

1. Market trends

1. Key performance indicators

1. Stakeholder engagement

35 TCFD

39 Section 172 statement

1. Principal risks and uncertainties

1. Long term viability statement
2. Operating review

1. Financial review

Corporate governance

1. Chair's introduction to governance

1. Board of Directors

1. Corporate governance report

1. Audit and Risk Committee report

1. Nomination Committee report

1. Directors' report

1. Remuneration Committee report

1. Directors' remuneration report

Financial statements

1. Independent Auditor's report

1. Primary financial statements

1. Notes to the financial statements

1. Company financial statements

171 Notes to Company financial statements

Other information

1. Group structure

1. Five-yearsummary

1. Shareholder information

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL

DISCOVER OUR STRATEGY IN ACTION

Accelerating profitable sales growth:		Transforming the business:	Value creation:
Winning with the winners		Building for the future	Creating a global footwear champion

18 20 22

About this report

This report has been produced in landscape format to optimise the reading experience online.

Look out for these throughout the report: 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 downloaded from coats.com/investors

STATEMENTS OTHER INFO

02

Coats Group plc Annual Report and Accounts 2022

2022 full year results and highlights

We have had a very successful year with adjusted EBIT margins now ahead of pre-Covid levels, despite a year of record inflation."

Rajiv Sharma

Group CEO

10%

ORGANIC REVENUE

GROWTH

37%

RECYCLED SALES

GROWTH

17

NEW PRODUCTS

LAUNCHED

8.2c

ADJUSTED EPS UP 14%

2.43c

TOTAL DIVIDEND UP 15%

1.4x

PRO FORMA BALANCE

SHEET LEVERAGE

$235m

ADJUSTED EBIT

22%

ADJUSTED ORGANIC EBIT GROWTH

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO

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+ 17,000

CountriesEmployees

34,000 >250

Customers globally	Years of textiles experience
Revenue by division	Revenue by region

Apparel & Footwear 73%		Asia 58%
	Americas 21%
Performance materials 27%
	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, pro forma 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

Financial performance

Continuing operations	FY 2022	FY 20213		FY2022 vs FY 2021
			Reported	CER	Organic
Revenue*	$1,584m	$1,447m	9%	16%	10%
Adjusted
Operating profit*	$235m	$198m	19%	27%	22%
EBITDA*	$284m	$243m
Basic earnings per share*	8.2c	7.2c
Free cash flow*	$114m	$124m
Net debt (excl. IFRS 16)	$394m	$147m
Pro forma leverage*2	1.4x	0.7x
Reported1
Operating profit	$181m	$178m	2%	9%	9%
Basic earnings per share	4.8c	5.8c
Net cash generated by	$96m	$129m
operating activities
Final dividend per share	1.73c	1.50c
Total dividend per share	2.43c	2.11c

Alternative Performance Measures - see note 37.

• Indicates our KPI measures. See pages 30-31 for more details and historical performance.

1. Reported metrics refer to values contained in the IFRS column of the primary financial statements in either the current or comparative period.
2. Leverage calculated on a pro forma and frozen GAAP basis and therefore excludes the impact of IFRS 16 on both adjusted EBITDA and net debt and includes a full 12 months of EBITDA for Texon and Rhenoflex.
3. Restated to reflect the results of the Brazil and Argentina business, divested in 2022, as a discontinued operation.

Some of our customers

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER INFO

04

Coats Group plc Annual Report and Accounts 2022

ATTRACTIVE MARKETS ACROSS THREE DISTINCT DIVISIONS

APPAREL

Coats is the global market leader in supplying premium sewing thread to the apparel industry, and is estimated to be over twice the size of the nearest thread competitor. The global thread market is estimated to be c.$3.4bn and whilst thread alone is 1-2% of the cost of a typical garment, it is a critical component in the manufacturing process and for the quality and performance of the finished product. We are one of the few global players of a key supply chain component in the $1.4tn global apparel industry which is projected to grow at low single digits in the medium term. We also manufacture selected zip and trim products, and our fashion tech business supplies software solutions for speed, productivity and transparency in customers'

PERFORMANCE MATERIALS

We are global experts in the design and supply of highly engineered performance threads, yarns and lightweight composites used in a range of industries including thermal and cut-protective wear, telecom and oil & gas infrastructure, automotive and feminine hygiene products. We estimate the total addressable market that we could realistically supply in the near term to be c.$3.0bn, giving us an estimated market share of around 15%. We aim to deliver mid- to high-single digit organic growth in the medium-term in Performance Materials as a whole. Specifically, Composites and Personal Protection affords better growth opportunities where we expect to grow revenues at a higher rate compared to Performance Thread where growth is likely to be in the mid-single digit range.

FOOTWEAR

STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS OTHER

operations. Whilst economic volatility, inflation and supply chain disruption impacted our industry in 2022, we expect industry growth rates to continue to demonstrate resilience in the medium term. In Apparel we are growing faster than the market because of our excellent reputation for quality, our value proposition, our global footprint and our strong sustainability agenda.

Our new organisational and reporting structure, effective 1 January 2023, is comprised of three divisions; Apparel, Footwear and Performance Materials.

Coats is the global market leader in supplying highly engineered structural components and performance thread to the footwear industry. We estimate the structural components addressable markets to be $0.6bn in which, through our recent acquisitions of Texon and Rhenoflex, we enjoy a market leading share of over 20% in a fragmented market. The 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.

These markets are driven by sustainable innovation, reliability and reputation, and we are well positioned to take advantage of future growth in this industry.

INFO

05