Coats Regulatory News (COA)

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'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.

Principal risk

Risk nature/potential impact

Action/mitigation

1. High impact operational risks

Product liability Trend on year: Upwards -

Our expanding product range, in particular in our growing Performance Materials business, could potentially create more product liability exposure for the Group.

Products are tested and measured against stringent quality standards. Controls in the Performance Materials area specifically have been strengthened with enhanced batch by batch testing of safety critical products. Coats' global insurance programme includes product liability cover.

Environmental non-performance Trend on year: No move ~

Potential non-compliance with environmental control procedures and/or local requirements could lead to a discharge of pollution resulting in legal and regulatory action, financial penalties, damage to reputation and an adverse impact

on ongoing operations.

Coats' Environmental Policy applies across the Group and effluent discharge quality of all dyeing operations is monitored against a pre-determined schedule. We continue to monitor very closely throughout the Group compliance with local laws and regulations and with Coats' Environmental Policy.

Failure of critical infrastructure Trend on year: No move ~

Key information systems and data stores could malfunction; and/or key manufacturing and distribution centres could be adversely affected as a result of a number of different scenarios.

Disproportionate reliance on such systems and plants could have a significant impact on profitability in the event of such disruption.

The Group's manufacturing and supply chain function monitors and reviews internal supply chains, fire protection and other systems and creates and tests disaster recovery plans. Actions have been taken to further strengthen our Business Continuity Management systems. Rolling property risk surveys are conducted and acted upon in respect of all Coats' 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 and security Trend on year: Upwards -

As owners of corporate data, a data controller of personal data and a processor of third party data, failure by the Group to comply with ever- more stringent data protection laws and security controls in different countries could lead to high profile incidents of data loss or theft and could create significant financial and other penalties as well as adverse relationships and reputational consequences. The Group also maintains other business critical electronic information, and inappropriate access to and use of such information, including through cyber-attack, could again create significant financial and commercial exposure.

Coats coordinates the management of its technology infrastructure on a global basis and has a number of cyber security controls in place. Internal data networks are monitored on a 24/7 basis by a central team. External internet access is controlled by policy-based web filtering and access management tools. Other technologies, including data encryption, continue to be deployed to protect data assets hosted at its data centres and on laptops and mobile devices. The Group continues to build its capabilities and progressively to add controls as part of an ongoing cyber security risk management process.

Coats continues to refine measures to ensure that all internal users 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 anti- competitive behaviour

Trend on year: No move ~

Non-compliance with applicable bribery and corruption and/or competition/anti-trust laws, regulations and standards by the Group or one of its partners could result in material civil or criminal penalties, exclusion from future contract bidding processes and reputational damage.

The Group has clear and well publicised ethics policies including in relation to partners, contractors and suppliers which are reinforced through a comprehensive Supplier Code. These policies are reviewed annually. There is extensive online and face-to-face training and regular communications through a range of channels.

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

Pension scheme deficit funding and pensions investigation Trend on year: No move ~

The UK pension schemes' triennial valuations could lead to increased and/or accelerated cash contributions. These could impact one or more of free cash flow and dividend payments.

Additionally, the UK Pensions Regulator's investigation in respect of the Staveley Scheme could lead to a Financial Support Direction being imposed on the Group.

The funded pension schemes are overseen by their Trustees, who are required to have the appropriate knowledge and understanding in this area and who take professional and actuarial investment advice as necessary.

Where appropriate independent professional trustees are appointed to schemes to provide additional expertise.

The Group and the scheme trustees 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 risks

Trend on year: No move ~

Under the laws of certain countries, Coats' subsidiaries could potentially be responsible for investigating and/or remediating conditions

alleged to be associated in whole or in part with former operations.

The Board continues to monitor the strategy and developments in relation to the Lower Passaic River proceedings, more detail of which can be found in note 28. Beyond that the Group continues to refine its policies and procedures for managing and mitigating potential legacy risks associated with former operations.

3. Risks to strategy delivery

Appropriate capability development Change in year: Downwards ¯

Failure to identify and retain key staff and/or continue to develop key skill sets among them could result in an inability to execute the Group's growth strategy.

The Board and senior management remain very focused on talent and capability development, as well as retention and succession planning. 2016 capability development actions have included 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 of disruptive competitor behaviour in core markets

Change in year: No move ~

Planned or irrational strategies or behaviours by one or more industry competitors in relation to the Group's core markets could adversely

impact its position, profitability and strategic goals.

We strongly believe in the importance of healthy competition and the benefits that brings to both our customers and ourselves. We maintain a deep understanding of emerging industry trends through our relationships and 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 Change in year: Upwards -

Like any company with global activities, the Group is exposed to risks arising from uncertainty around future macroeconomic conditions and, in particular, the risks to free trade and the potential consequences for economic growth. Following the results of the British referendum on its membership of the European Union and the

US Presidential election, this risk has increased.

As a global industrial manufacturing company with no UK manufacturing facilities and minimal direct sales in the UK, Coats is of 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.

The Group conducted a thorough risk assessment prior to the UK referendum and continues to monitor developments closely. In addition, the Group is well diversified in its operations across geographies and sectors, is cash generative and has committed debt facilities with significant levels of headroom to support the business.

The Group also has an established forecasting and planning process which takes into account and responds to both macro and micro economic trends. It has a defined policy on hedging its exposure to fluctuations in foreign exchange and a culture of cost control to manage and preserve cash.

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.

2016

US$m

2015

US$m

Year ended 31 December

5.1

5.1

Short-term employee benefits

1.3

-

Share based payments

6.4

5.1

Sale of goods

Purchase of goods

Other income

2016

US$m

2015

US$m

2016

US$m

2015

US$m

2016

US$m

2015

US$m

Joint ventures

2.8

5.5

46.2

44.1

-

0.1