Coats Group Plc Regulatory News (COA)

GUINNESS PEAT GROUP plc

Chairman's Statement for Half Yearly Financial Report

The first half of 2012 has seen a focus on the key objectives I set out in my report to shareholders on 27 March 2012:

Ø to develop the operational, marketing and financial strength of Coats such that all of the foundations necessary for it to be the core of the listed group are in place by the end of the current year;

Ø to adopt a rigorous approach in realising assets which have no clear path to value increase in a short time frame;

Ø by the end of this year to be able to show a clear future for legacy pension schemes.

An update on these initiatives is included in this report. Progress has been made though Coats' trading performance has fallen short of our aims and the asset disposal programme has not progressed at the pace I would have liked. Nevertheless, up to 24 August 2012, asset realisations and cash proceeds from the investment portfolio since the beginning of the year have generated £168 million (NZ$328 million) and total net proceeds since 1 January 2011 are £310 million (NZ$605 million), as set out in the Appendix to this statement.

As signalled at the AGM in May the Board intends to undertake an on-market buyback of shares and I can confirm the intention to commence this process with the purchase of shares up to a value of £10 million (approximately NZ$20 million) as a first stage. We see this as one efficient means of returning surplus cash to shareholders. A specific announcement with the details of the buyback will be made shortly, subject to the Board confirming that the prevailing market conditions are appropriate. As the asset realisation process continues further surplus cash will be returned to shareholders in appropriate forms, taking into account the obligations in respect of the capital notes and support to the pension schemes.

It would be foolish to advance this return of cash without having full regard for all of the other potential claims on GPG assets which rank ahead of equity which is in the correct technical sense the "residual claimant" on those assets.

REPORTED FINANCIAL RESULTS

GPG's results for the period have been impacted by the confirmation of the EC Fine imposed on Coats by the European Court at the full amount of €110 million (NZ$174 million) and, taking into account interest and provisions made previously, this resulted in an exceptional charge of £76 million (NZ$148 million) to the Income Statement. The provisions held previously had been based on judgments reached after taking account of external advice. However, the Court reached a different conclusion. The merits of the Court's view are no longer relevant but the impact is substantial notwithstanding that we had ensured adequate funding was available to meet the worst case (which indeed we had to meet). The loss attributable to GPG shareholders for the period after taking account of this charge was £36 million (NZ$70 million) compared to a profit of £13 million (NZ$25 million) in the same period in 2011 and of £1 million (NZ$2 million) for the full year to 31 December 2011.

Shareholders' funds decreased in the period by £99 million (NZ$193 million) to £503 million (NZ$982 million) and the net asset backing per share decreased from 37.1p (NZ72.4¢) to 31.0p (NZ60.5¢) in part as a result of the loss for the period.

Set out below is a simplified balance sheet for GPG as at 30 June 2012.

OVERVIEW OF GPG'S NET ASSET VALUE COMPONENTS

The constituent parts of the GPG simplified balance sheet are addressed below.

Investment portfolio (excluding Coats)

A table of GPG's investments (excluding Coats) as at 24 August 2012 is set out below. This includes listed and non-listed investments, subsidiaries, associated undertakings and joint ventures which together have a valuation of £363 million, representing the mark-to-market value of its listed investments and the current book value of non-listed investments.

Notes:

1. Non-listed investments, which include Green's General Foods (72.5%), Tourism Asset Holdings (10.2%), Gosford Quarry Holdings (100%), Touch Holdings (56.0%) and Tourism Property Investment Group (10.0%), are shown at consolidated book value.

2. The market and book value at 30 June 2012 of listed subsidiary and associated undertakings (being CIC Australia, Capral, ClearView Wealth and Tower) were £175m and £219 million respectively. At 24 August 2012 the market value of these investments had risen to £210 million.

The current investment portfolio of £363 million compares to a starting valuation on 1 January 2011 of £677 million. Net cash proceeds from investment activities to date total £310 million or 46% of the initial valuation. These proceeds include completion during the current year of the sale of GPG's entire shareholdings in Turners & Growers, Young & Co's Brewery and Daniel Thwaites. Investment performance (including divestments) has been relatively flat compared to starting valuations at 1 January 2011.

In addition to the completed divestments achieved to date, further transactions representing nearly £20 million are in advanced stages and are expected to complete in the current year. A large amount of activity is also on-going with respect to our remaining investment portfolio. I comment below on some of the assets which we still hold:

□ ClearView - An unsolicited, conditional takeover offer of A$0.50 per share was received on 12 July 2012 from a consortium led by Crescent Capital and involving a former GPG director. The Board of ClearView has responded by advising shareholders to reject the offer. GPG has also indicated to the market that it considers the unsolicited offer to be inadequate and unrepresentative of ClearView's fair value. The takeover process is on-going and GPG is supportive of the company's approach with respect to the actions it has taken in response to current events.

□ Tower - The share price of Tower strengthened following the release of half-year results at the end of May. We have encouraged the Board and management of Tower to undertake a review of its strategies and we await news of the results of this review. Despite the recent strengthening in Tower's share price, we believe the value of Tower's component parts is not being fully reflected. Additionally, we are of the view that the company should affirmatively embark on an immediate process to optimise the structure and composition of its businesses, consistent with the interests of all shareholders.

□ Ridley - this company continues the process of reconstruction of its business via a sale or demerger of its salt division.

□ It is also noteworthy that the investment team has a number of active processes in train with respect to other portfolio positions.

It should be noted that specific action plans are in place for each remaining investment with target realisation time scales. These plans are kept under constant review and are modified as experience dictates and to take account of market developments.

Cash

At 30 June 2012 the GPG Parent Group had cash of £289 million (31 December 2011 £200 million). A breakdown of this balance by currency is included later under Capital Management.

Capital notes

As previously reported, the notes with an initial election date of 15 December 2013 with a principal value of NZ$77 million (£39 million) were purchased and cancelled by the Company on 15 March 2012. The remaining capital notes have an initial election date of 15 November 2012 and a principal value of NZ$350 million (£179 million). No notice of early repurchase will be given in respect of this issue. The Board intends to give notice in due course of the intention to purchase and cancel these notes on the election date.

Pensions

The carrying value of the Coats Plan and the two GPG pension schemes, Brunel and Staveley, (the "GPG Pension Schemes") on an IAS19 financial reporting basis has (in total) improved from the position at 31 December 2011, as set out in the table below:

This improvement in the overall position is mainly the result of a fall in inflation expectations which impacts future pension liabilities. The effect of the change in the inflation assumption has outweighed the impact of the slight fall in the yield on AA rated corporate bonds used to discount the liabilities.

Work is being undertaken within all plans to contain future costs to GPG and Coats as far as practicable within the constraints of the plans.

Coats Pension Plan

Cash contributions into the Coats Pension Plan (the "Coats Plan") are currently £7 million per annum based on the deficit arising from the 2009 actuarial valuation. As described more fully below, the 2012 valuation is in progress and the outcome of this will determine the rate of future contributions to the Plan.

GPG Pension Schemes

The 2011 valuation of the Staveley scheme has recently been completed resulting in a deficit of £20.3 million. A deficit repair plan has been agreed with the scheme trustee requiring an initial contribution of £5.0 million in July 2012 and subsequent contributions of £1.3 million per annum over eight years commencing at the same date. No contributions are currently being made to the Brunel scheme as the last actuarial valuation (as at 31 March 2010) did not result in a deficit. The next valuation of the Brunel scheme is due as at 31 March 2013.

As at 30 June 2012 the net assets backing the GPG schemes totalled £129 million. This will reduce in future to the extent of the deficit repair payments being made to the Staveley scheme and increase with the accrual of interest.

Currently the covenant is represented by equivalent amounts receivable from a GPG holding company by the scheme sponsoring companies. The Staveley trustee has recently agreed a mechanism whereby the net assets of the sponsor company are expected ultimately to be fully backed by cash proceeds, which will not be available for distribution to the Group's shareholders. We are working on reaching a similar agreement with the Brunel scheme trustee.

We continue to explore means of supporting the GPG schemes in the longer term as part of the listed group or separately if more beneficial to shareholders and acceptable to the scheme trustees.

Coats

A more detailed description of Coats' performance in the period can be found in its own results announcement. As reported at the GPG AGM, Coats' trading in the first half of 2012 has been behind plan. This, together with adverse movements in exchange rates has resulted in sales at US$819 million being US$43 million lower than in 2011 (US$862 million). In the first half of 2012, Coats sales at constant exchange rates increased by 1 per cent over the same period in 2011; Crafts division sales grew by 5 per cent while Industrial division sales fell 1 per cent. Coats recorded a GPG attributable loss of £69 million (2011 profit - £23 million) after taking account of the EC Fine charge of £76 million.

These trading results are not acceptable and steps are being implemented to improve capital utilisation and cash generation throughout the business. We expect to see progress on these in the second half. Trading conditions are not easy for Coats but like all businesses it has to play the game on the pitch and in the conditions it finds.

Coats met its banking covenants at 30 June 2012 and expects to continue to do so. Subsequent to the period end Coats settled its obligation in respect of the EC fine through utilisation of its bank facilities.

A new actuarial valuation as at 5 April 2012 is being undertaken for the Coats Plan the results of which are due to be determined by mid-2013. It is too early in the process to be able to predict the outcome of the valuation but lower real bond yields at the effective date are expected to lead to a higher deficit than in the previous valuation. As part of this process a deficit recovery plan will be established based on affordability which will determine the new contributions to be made to the Plan.

We remain committed to supporting Coats in its development to enable it to become the core of the listed group at the appropriate point and work has been initiated with advisors to define further the necessary steps. This work is fully integrated with the wind down process within GPG itself.

OVERHEAD COSTS

A table of overhead costs arising in the period is set out below:

As stated previously a large proportion of the other staff incentive costs have been committed as part of securing the continuation of a successful asset realisation process. Staff numbers have been further reduced in the period in accordance with the wind-down plan.

CAPITAL MANAGEMENT

The management of foreign currency risk remains a key focus and to this end the migration of surplus cash to NZD continues to be pursued. The table below summarises the position at 30 June 2012:

The policy of switching AUD to NZD as investments are sold will be maintained. While we are mindful of the activity of central banks, and the impact that and other factors may have on the relative strength of our core currencies, the Board has elected not to adopt a more active hedging policy.

As noted earlier in this report:

- the Board has determined that an on-market share buyback of up to £10 million will be effected and this is to be launched in early September; and

- the Board also intends to purchase and cancel the capital notes with an election date of 15 November 2012 on their election date.

Subsequent to the period end the Board has elected to cancel the undrawn GPG revolving credit facility. Eliminating this committed facility will generate savings in the second half.

CONCLUSION

Progress has been made during the current year to date in executing the strategy announced in February 2011 and the next twelve months will be a critical period. The introduction of Scott Malcolm as Chair of the Investment Committee to support our Chief Investment Officer has been instrumental in this. Mike Allen has taken on the role of Coats Chairman and is leading the management of that business as it prepares for the future.

Nothing has changed in our objectives, and the work currently underway in each of the areas is still directed towards substantive achievement by the close of the year.

Rob Campbell

Chairman

29 August 2012

Note: All amounts stated in NZ$ are for illustrative purposes only based on the NZ$: GBP exchange rate on 30 June 2012, NZ$1.9514: £1.00

Enquiry details are:

New Zealand and Australian media: Geoff Senescall on: +64 9 309 5659

UK media: Kevin Smith on: +44 20 7282 1054

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