Coats Regulatory News (COA)

Guinness Peat Group plc

('GPG' or 'the Company')

Preliminary Results for the Year Ended 31 December 2013

Chairman's Statement

The past year has been frustrating for GPG. We completed the asset realisation process on time and on value expectations only to have the further announced intention to distribute surplus funds, while maintaining a listing for the Coats business, delayed by regulatory intervention in the UK.

The Board and management continue to engage, to the maximum extent possible, with the UK Pensions Regulator ('tPR'), and to maintain open dialogue with the trustees of the relevant pension schemes. It has always been and remains our intention to do the right thing, balancing our continuing obligations to the Group's ongoing schemes with our clear commitment to enhance shareholder returns and we believe a fair and timely resolution is in the interests of all concerned.

At the time of my half year report in August 2013 there were various positive messages: progression of the investment portfolio realisation programme; encouraging Coats trading results; and development of the Coats board transition. The regulatory intervention in the UK by tPR remains the only delay to the successful completion of our stated plan.

Further detail regarding the portfolio realisations will be provided later in this report.

A full description of the performance of Coats during 2013 can be found in this announcement. Reported turnover for the business of £1,089 million (US$1,704 million) represents year-on-year growth in GBP terms in excess of 4% and the net profit attributable to GPG of £19 million (US$29 million) compares to a loss in 2012 of £92 million (US$146 million). Coats also continues to generate improving levels of cash flow, with free cash flow of £29 million (US$45 million) having been generated during the year (2012, excluding payment of the EC fine and interest of £110 million (US$175 million): £28 million (US$45 million)).

During 2013 we announced two important non-executive appointments to the Coats board. Mike Clasper joined that board on 1 September as Chairman and Ruth Anderson joined with effect from 2 January 2014.

I have stated previously the Board's unchanged intention to treat the Group's ongoing pension schemes fairly while ensuring that this is done so in the light of our obligations to all stakeholders. We have openly disclosed our acceptance of the need for the Group to retain a portion of the investment portfolio realisation proceeds to support the Staveley and Brunel schemes and the precise nature and quantum required will be determined through the process in which we are involved with tPR and the respective trustees.

We have now received from tPR formal notices ('Warning Notices') which state that in its opinion it is reasonable to require the Group to provide further financial support to both the Brunel and Staveley schemes and we are working with our advisers to develop responses. The Board is exploring all options with the aim of resolving these matters as efficiently as possible without unnecessarily compromising shareholder interests. It is still too early to advise shareholders as to the likely outcome and, if the matter is not settled through negotiation, any hearing before tPR's Determinations Panel (the 'Panel') will not take place earlier than the second half of this year.

TPR notified the Board on 29 November 2013 that it would not be in a position to conclude its initial investigation and determine whether or not to issue a Warning Notice in respect of the Coats UK Pension Plan by the year end. TPR has still to reach a decision on this.

Any decision on the future capital structure of Coats and further cash distributions to shareholders continues to be deferred while these matters are being resolved.

The Board fully shares the natural frustration of shareholders about this process and its prevention of further surplus distributions to shareholders.

Conclusion of the capital management realisation initiatives and transition has been delayed while the regulatory process continues. We continue to work on this aspect with legal advice. The main principle being applied is that we will do nothing to impact the regulatory process adversely, while also ensuring that the Coats business has the right strategic direction and corporate governance in place.

Reported (Consolidated) Financial Results

Movements in shareholders' funds

Shareholders' funds, despite a share buyback of £45 million (NZ$91 million), have increased during the year by £10 million (NZ$20 million) to £444 million (NZ$896 million):

The major components of the change in shareholders' funds are the improved IAS19 funding position of the Group's employee benefit obligations and Coats' trading results (£19 million) offset by net foreign exchange losses caused by the general strengthening of GBP (£36 million), the share buyback (£45 million), and GPG's Parent Group overheads, including costs of responding to tPR's investigation into the GPG UK defined benefit pension schemes.

The net asset backing per share has, as a consequence of the events arising in the year, increased from 27.7p (NZ$0.56) to 31.5p (NZ$0.64).

Consolidated Income Statement

Simplified Balance Sheet

GPG's financial position on a non-statutory basis is shown in the Simplified Balance Sheet below:

Overview of GPG's Key Net Asset Value Components

Investment Portfolio (excluding Coats)

The Group announced on 3 October 2013 the completion of the value realisation programme. Total cash generated since 1 January 2011 was £698 million (NZ$1,408 million) of which £240 million (NZ$484 million) arose in 2013. The proceeds generated, including dividends and other forms of distribution, should be compared with the approximate portfolio market value shortly before the announcement of the realisation strategy of £677 million (NZ$1,366 million). A schedule showing the proceeds generated in 2013 from disposals is included as an appendix to this report.

Cash at bank

At 31 December 2013 the GPG Parent Group had cash of £383 million (NZ$773 million) (2012: £243 million (NZ$490 million)). The increase in cash during the year is primarily as a result of the proceeds of the portfolio realisation programme partially offset by share buybacks (£45 million (NZ$91 million)), operating expenses and the impact of the general strengthening of GBP.

Pensions

The carrying values of the Coats UK Pension Plan and the two GPG pension schemes, Brunel and Staveley, (together the 'UK Pension Schemes') on an IAS19 financial reporting basis have significantly improved from the position at 31 December 2012. This improvement is mainly due to strong investment performance during the year.

The period end positions are set out below:

The UK Pensions Regulator's investigations

As announced on 23 December 2013, GPG has received Warning Notices from the Executive of tPR in respect of the Brunel and Staveley schemes. These detail the Executive's arguments as to why it believes it would be reasonable for the Panel to impose a regulatory direction (Financial Support Direction ('FSD')) on one or more GPG group companies requiring them to put in place further financial support for each of the schemes. The Company and its advisors are in the process of developing a formal response to each Warning Notice. Once these responses are complete and submitted, tPR's case team will decide whether to submit the Warning Notices in final form, together with the recipients' defence, to the Panel for it to determine if FSD's should be imposed or to withdraw them. The form of any such further financial support required would not be specified by the Panel. The recipients would need to put a proposal to tPR which would have to be approved as reasonable. In practice such arrangements would first be agreed with the trustee of the relevant scheme. If one or more FSD is issued by the Panel the recipients would have right of appeal to the Upper Tribunal. Such an appeal process, if pursued, would be unlikely to complete before the end of 2015.

No Warning Notice dealing with the Coats UK Pension Plan has been received to date. The three Coats sponsor companies have been requested to submit calculations to tPR of their respective resources as at 31 December 2012. Any Warning Notice can only be issued if these calculations show one or more of the companies to have been 'insufficiently resourced' and tPR considers it 'reasonable' to issue the Warning Notice. TPR has stated it is seeking to conclude its investigation into whether or not to issue a Warning Notice in relation to the Coats UK Pension Plan as soon as practicable.

Coats' triennial funding valuation

Notwithstanding the pensions investigations, agreement was reached during the year with the trustee of the Coats UK Pension Plan on the April 2012 funding valuation. The agreed funding deficit was £215 million (NZ$434 million) compared with £101 million (NZ$204 million) at the time of the April 2009 valuation. Deficit reduction payments of £14 million (NZ$28 million) per annum (previously £7 million (NZ$14 million) per annum) commenced in November 2013 for a period of approximately 14 years. In order to ensure the trustee of the scheme felt able to take full account of the support provided by the Coats Group in assessing the covenant supporting the scheme, Coats plc agreed as part of the 2012 funding valuation to provide the trustee with a Parent Company Guarantee. The deficit reduction payments will be subject to review at the next triennial valuation, which is due with effect from 1 April 2015.

Brunel triennial funding valuation

The Brunel scheme is due by 30 June 2014 to complete a funding valuation with an effective date of 31 March 2013. This valuation process has commenced, but understandably has been impacted by tPR's investigation process.

Staveley funding valuation

The next triennial valuation for the Staveley scheme was scheduled to be as at 5 April 2014. However, the trustee of that scheme has decided, in the light of tPR's investigation, to accelerate the timetable and has called instead for a funding valuation as at 31 December 2013.

Overhead costs

Net operating costs in 2013 for the Parent Group have been significantly impacted by the work of advisors relating to tPR's investigation into the UK Pension Schemes. Total net operating costs of £44 million (NZ$89 million) compare with £23 million (NZ$46 million) for 2012. The figure for 2013 includes costs associated with responding to tPR's investigations of £10 million for the period to 31 December 2013 and £8 million for work the Group is already committed to in 2014. Also included within overheads are advisory costs relating to the value realisation programme of £2 million (NZ$4 million) and staff related costs of £13 million (NZ$26 million) (2012: £11 million (NZ$22 million)). The staff costs reflect the acceleration of investment team terminations and associated incentives following completion of the asset realisation programme.

Downsizing and migration of support services to Coats has been a focus of 2013. As at 31 December 2013 the permanent headcount, excluding Directors, of GPG had reduced to seven (2012:15), six dealing with finance, company secretarial and administration and one support staff member.

Capital Management

The share buyback programme announced during 2012 was completed during the first quarter of 2013 and the Board took the decision in July 2013 that no further returns of capital would be progressed during the period of uncertainty relating to tPR's investigation. There are also no current intentions for the Board to announce a dividend.

At the period end the Parent Group cash was held in the following currencies:

The GBP and AUD balances are for known short and long term obligations of the Group. The remainder is held in either NZD or USD and the Board has no plans at present to change this allocation.

Board Changes and Structure

On 6 March 2013 Waldemar Szlezak was appointed as a Non-Executive Director of the Company. Following his appointment, the Board comprised six Directors, including the independent Chairman and two independent directors. On 20 February 2014 Mike Clasper was appointed as an independent Non-Executive Director of the Company.

The composition of the Board is in line with the UK Corporate Governance Code issued by the UK Financial Reporting Council and provides a Board of appropriate calibre and experience to pursue the current strategy, while at the same time providing a suitable corporate governance framework. In addition, the Board has the appropriate committee structures and procedures, including a board performance review.

Annual General Meeting

The Annual General Meeting is intended to be held on Thursday, 22 May 2014 in London. Further details of the exact location and timing will be provided in the Notice of Meeting which GPG plans to send to shareholders in April 2014.

Rob Campbell

Chairman

Guinness Peat Group plc

25 February 2014

Note: All NZ$ comparatives to £ amounts are for illustrative purposes only, based on the NZ$ : GBP exchange rate on 31 December 2013, NZ$2.0175: £1.00.

Appendix

Net proceeds from portfolio divestments from 1 January 2011 to 31 December 2013

Coats Group

Unaudited results for the year ended 31 December 2013

All figures reported in the Coats Group section are in US dollars (US$) unless otherwise stated

Highlights

· Robust trading results despite muted market conditions

· Revenue of $1,704 million, up 5% like-for-likei with both Divisions showing growth

· Operating profit up 12% like-for-like before exceptional items

· Attributable profit before exceptional items up $20 million to $37 million

· Full year free cash flow of $45 million ($54 million before reorganisation, property sales and US antitrust litigation)

· Reorganisation activity substantially completed

· New Chairman appointed to Coats' Board

Commenting on Coats' Full Year 2013 results Paul Forman, Group Chief Executive, said

'I am pleased to report that despite muted market conditions, Coats' results for the year show growth in sales and profit across both Divisions. This illustrates the underlying resilience of our core markets and our strong global market positions. We have continued to generate a good level of free cash flow and growth in returns on capital. Furthermore we have increasingly robust foundations for future growth through accelerating product innovation, exciting new service offerings and greater capability in key areas like consumer crafts marketing and market leading digital propositions.'

Coats Chief Executive's review

Operating summary

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

Group

Coats' trading over the year has been robust despite mixed market conditions. Consolidated sales for the year increased by 5% year-on-year, as a result of growth across both operating Divisions, continuing the positive sales trend experienced in the first half of the year. Sales growth at 3% on a reported currency basis reflects the like-for-like performance, offset by the translation impact of a strengthening US Dollar, primarily in the second half, against currencies such as the Brazilian Real and the Indian Rupee.

Coats' operating profit was $132.7 million, an increase of 12%. Both Divisions continue to offset inflationary cost rises (energy, labour, raw materials and finished goods) with procurement and productivity improvements coupled with pricing initiatives.

Industrial Division

Industrial Division sales are largely driven by demand for clothing and footwear in developed economies. Demand over the last year has continued to be impacted by the slow economic recovery; nonetheless many of our businesses, especially in Asia and Europe, displayed good growth. Sales growth in the Americas was affected by soft Latin American demand and, as previously reported, a major ERP system implementation in the region. Despite these challenges and tougher comparators, second half sales were up 7%, driven by a good performance in Asia and EMEA. This builds on growth seen in the first half. Operating profit growth of 5% year-on-year was primarily driven by volume improvements, as cost inflation and investments in new business were successfully offset by pricing and productivity.

Crafts Division

Crafts' second half sales were up 3% as a result of the first half expansion in shelf space with large retail customers and the ongoing strong growth in handknittings, particularly in North America and Europe. Operating profit for the full year was up 69% on 2012. Profitability for the second half was up 76% year-on-year, mainly driven by the benefits of reorganisation activity.

Financial Summary

Full year sales of $1,703.7 million (2012 - $1,653.4 million reported) and an operating profit of $132.7 million (2012 - $120.6 million reported) were achieved in 2013 despite the slow economic recovery. At like-for-like exchange rates, which gives the best view of underlying performance, full year sales increased by 5%, with the encouraging performance during the first half of 2013 continuing into the second half. Second half operating profit showed an improvement on 2012, with an increase of 11% while operating margins rose from 7.6% to 8.0%. Productivity, procurement and reorganisation activity drove the improved profitability. Post exceptional items, the operating profit for the year was $124.2 million (2012 - $11.1 million reported loss).

Net profit attributable to shareholders was $29.2 million (2012 - $146.4 million reported loss). Excluding exceptional items and their associated tax effect, Coats generated attributable profit of $37.3 million (2012 - $17.2 million reported).

Continued strong cash generation was reflected in the adjusted free cash flowi of $54.1 million, although this was lower than 2012 ($64.9 million) due to the timing of tax payments. Reflecting the strong cash generation, year end net debt fell to $329.2 million (2012 - $367.6 million).

Return on capital employedii increased to 22% (2012 - 18%), primarily driven by improved operating profit.

Investment continued to be made to support the growth of the business and to improve its operational performance. Investment in new plant and systems amounted to $37.8 million (2012 - $38.8 million).

Board Changes

During 2013 we announced two important non-executive appointments to the Coats Board. Mike Clasper joined as Chairman on 1 September 2013 and Ruth Anderson joined on 2 January 2014.

Prospects 

Many of our markets closely reflect trends in GDP and consumer spend in their underlying demand pattern. Therefore we expect a broadly positive picture in Asia, moderate growth in demand in North America and Europe, and a relatively flat situation in Latin America, especially Brazil. It is expected that raw material costs will trend marginally upwards, and payroll and other inflationary pressures will continue to feature in many of the countries in which Coats operates.

Year-on-year improvement in Industrial Division sales is expected during 2014, with contributions from both volume and price. Inflationary cost rises in the business will continue to be offset by procurement and productivity improvements, while pricing initiatives will remain important in achieving profitable sales growth.

In the Crafts Division, while 2013 saw 4% like-for-like sales growth, it is expected that a reduction in fashion handknitting yarn sales will contribute to a sales decline in both EMEA and North America, limiting year-on-year growth.

Conclusion

Coats' underlying results for the year show sound growth across both Divisions illustrating the resilience and strength of our core footwear, apparel, Speciality thread and Crafts businesses. A good cash flow has again been generated and there are sound foundations for future sales and profit growth through ongoing product innovation, market leading use of digital channels together with procurement, productivity and pricing initiatives.

Paul FormanGroup Chief Executive

Coats plc

25 February 2014

Coats Group Operating Review

Industrial Division

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

Industrial Division sales rose 5% year-on-year, primarily due to increased growth in apparel, footwear, Speciality and zips in Asia and Australasia and in Speciality and zips in EMEA.

Asia and Australasia sales increased by 8% year-on-year as a result of strong growth across the region, with the key driver being apparel and footwear sales in Vietnam, India and Bangladesh driven by local, US and Western European demand.

The Americas sales decline of 1% reflects performance within Latin America where softer demand in Brazil and supply chain pressures due to a major ERP implementation adversely impacted performance during the first half. North American manufacturing and defence sector weakness, primarily in the first half, also had an impact on Speciality product sales. However performance improved in the second half of 2013, with a 3% increase in sales.

EMEA sales increased by 6% driven by strong growth in both Speciality and zips products.

Industrial Division operating profit increased 5% to $110.7 million (2012 - $105.4 million), with volume growth, productivity, procurement and pricing initiatives more than offsetting raw material, payroll and energy inflation. Operating margins of 9.1% (2012 - 9.2%) declined slightly as growth and efficiency improvement activity was offset by investment in key strategic growth areas, in addition to facing tougher comparators in the second half.

Crafts Division

In the following commentary, all comparisons with 2012 are on a like-for-like constant currency basis and all references to operating profit are to pre-exceptional operating profit.

Sales in the Crafts Division rose 4% year-on-year. A significant increase in sales of handknitting products in North America and EMEA continued to drive growth.

Sales growth of 5% year-on-year in the Americas was again primarily due to very strong handknitting sales driven by the fashion yarn segment which includes Red Heart's Sashay product range. Performance in Latin America was adversely impacted by softer demand in Brazil and some supply chain pressures due to the major ERP implementation. Second half growth of 7% (first half 2%) reflected a short term spike in sales of Sashay and operational improvements in Brazil.

The EMEA Crafts business continued to build on the positive performance of the first half of 2013. Strong handknitting sales were partly offset by lower sales in sewing and embroidery. Overall growth in EMEA sales was 1% year-on-year, with the second half decline primarily reflecting a change in operating model in Scandinavia made at the end of the first half. The Scandinavian region has moved from a retail sales to a distribution model, with the intention of improving operating margins albeit at a reduced level of sales.

Operating profit for the Division for the full year was 69% higher than 2012. The improvement in profitability reflected the rationalisation of the business in EMEA. The continued operational efficiency focus drove the increase in Crafts' operating profit margin to 4.5% from 2.7% in the prior year.

Coats Group financial review

Exceptional items

Net exceptional costs charged to profit before taxation totalled $8.5 million (2012 - $167.5 million, of which $120.4 million related to the European Commission fine).

As previously reported, during 2013 settlement was reached in the US antitrust litigation which had been pending in the US District Court for the Eastern District of Pennsylvania. The lawsuit related to alleged activity in the period from 1991-2007. The settlement was approved by the Court on 24 January 2014. While Coats denies that it breached any US antitrust law and continued to believe it had good defences to the claims alleged, it decided to enter into the settlement to avoid further expense and the distraction of ongoing and protracted litigation in the US. During the second half of 2013, Coats paid a settlement amount of $9.9 million, which included plaintiffs' legal costs and expenses. The net exceptional charge in the year arising from this settlement was $2.7 million post US tax deductions of $4.5 million and existing provisions.

A further $21.4 million of operating exceptional items was incurred in 2013 (2012 - $45.3 million). This included reorganisation costs (including impairment) of $22.7 million (2012 - $39.9 million) and other exceptional costs of $5.7 million (2012 - $5.4 million), offset by the profit on sale of property of $20.1 million (2012 - $1.8 million loss) and a UK pension increase exchange offer of $7.0 million (2012 - $nil).

The reorganisation primarily related to the restructuring of operations in EMEA. This reorganisation is part of the accelerated programme announced in 2012 to bring forward projects planned for future years, with the aim of not incurring separately identifiable reorganisation expenditure from 2014 onwards. In 2013, the charge also included $5.0 million of specific projects in Latin America undertaken in response to the trading performance in the region. These were completed in the second half of 2013. Gains on property disposals in the year included sales in Peru ($18.4 million) and in Portugal ($1.9 million).

The $0.5 million (2012 - $8.0 million) US environmental exceptional charge is primarily connected with the remediation of one part of the Lower Passaic River and Coats & Clarke's latest estimated share of the remedial investigation, feasibility study and associated legal and consultancy costs (see note 12 to the GPG consolidated financial statements for further details).

Non-operating results

Investment income increased by $2.3 million to $4.9 million (2012 - $2.6 million) following the recovery of a long standing debt. Excluding IAS 19 pensions interest and exceptional items, finance costs reduced by $4.9 million to $29.4 million (2012 - $34.3 million) as a result of lower interest rates on borrowings fixed through swaps and gains on foreign exchange contracts.

The taxation charge for 2013 was $51.0 million (2012 - $44.9 million) resulting in a reported tax rate of 58%. Excluding all exceptional items plus any associated tax effect, prior year tax adjustments and the impact of IAS19 finance charges, the underlying effective rate on pre-tax profits of $108.9 million (2012 - $90.0 million) was 49% (2012 - 55%). The fall in the underlying effective tax rate primarily reflects reduced losses in EMEA. A global tax review will continue to identify specific actions to reduce the effective tax rate.

There was a $0.1 million loss from discontinued operations in 2013 (2012 - $2.7 million loss, primarily relating to provisioning for historical UK employer liability claims). Minority interests of $7.8 million (2012 - $7.5 million) mainly reflect the post-tax profits made by minority holdings in operations in Bangladesh, China, Hong Kong, Turkey and Vietnam.

The net profit attributable to shareholders was $29.2 million (2012 - $146.4 million loss).

Pre-exceptional attributable profit increased 117% to $37.3 million (2012 - $17.2 million). This excludes reorganisation costs of $22.7 million (2012 - $39.9 million), property profits of $20.1 million (2012 - $1.8 million loss), other exceptional items of $5.9 million (2012 - $5.4 million) and tax on exceptional items of $0.4 million (2012 - $3.9 million). The 2012 figure also excludes the EC fine.

Investment

Investment continued to be made to support the growth of the business and to further improve its operational performance.

Investment in new plant and systems amounted to $37.8 million (2012 - $38.8 million). This capital expenditure was primarily focussed on productivity improvements in the Industrial Division, especially in EMEA. Capital expenditure was 0.8 times depreciation (including computer software amortisation) (2012 - 0.7 times).

Cash flow

Adjusted free cash flow of $54.1 million (2012 - $64.9 million) excludes, all net of tax, reorganisation spend of $27.7 million (2012 - $21.1 million), US antitrust litigation of $8.2 million (2012 - $nil) and proceeds from property disposals of $26.6 million (2012 - $1.0 million). The free cash flow was $44.8 million (2012 - $130.0 million) outflow, which included the $174.8 million payment of the European Commission fine and associated interest.

EBITDA (defined as pre-exceptional operating profit before depreciation and amortisation) was $181.6 million (2012 - $173.4 million).

Net working capital as a percentage of sales fell to 14.8% (2012 - 17.1%) resulting in a cash inflow of $10.2 million. This improvement was driven by a continued focus on all aspects of working capital, with improvements being made primarily in inventory and creditors.

Interest and tax paid increased to $79.5 million (2012 - $62.6 million excluding the exceptional interest of $35.8 million), primarily reflecting the timing of tax payments on account which is now more aligned to the tax charge. Net debt decreased from $367.6 million at the end of 2012 to $329.2 million at the end of 2013.

Cash outflow for reorganisation activity of $28.2 million (2012 - $21.4 million) was primarily in relation to the restructuring of operations in EMEA, some of which was announced in 2012 as part of the accelerated programme to bring forward projects planned for future years. Coats expects a cash outflow from reorganisation, net of proceeds from related property disposals, over the duration of the programme (across the years 2013 and 2014) of c. $10-15 million, which excludes the associated benefits.

Balance sheet

An important metric for the Coats Group is the leverage ratio of net debt to EBITDA. Under the definitions of net debt and EBITDA prescribed in Coats' senior debt facility put in place in October 2011, net debt at 31 December 2013 was 1.8 times EBITDA of the preceding twelve months (2012 - 2.1 times). This fall in leverage will reduce the margin on funds borrowed in 2014 from 200 to 175 basis points.

Equity shareholders' funds increased from $77.9 million at December 2012 to $226.2 million at December 2013. This primarily reflects the $29.2 million attributable profit arising in the period and a $130.8 million actuarial gain taken directly to reserves in respect of all of the Coats Group's retirement benefit arrangements.

Pensions and other post-employment benefits

IAS19 (revised) has impacted the accounting for Coats' defined benefit schemes by replacing the interest cost and expected return on plan assets with a net interest amount on net defined benefit assets and liabilities. In addition, pension scheme administrative costs are recognised as administrative expenses. The impact of adopting this new standard is an increase in finance costs of $37.0 million (2012 - $28.7 million), an increase in administrative expenses of $7.0 million (2012 - $6.4 million) and a reduction in deferred tax of $1.5 million (2012 - $1.7 million), compared to what would have been recognised prior to the adoption of this standard. However, the adoption of this standard has had no impact on the Group's net defined benefit obligation nor cash flow.

The net obligation for the Group's retirement and other post-employment defined benefit liabilities improved from $336.9 million to $202.7 million at the end of 2013, for the reasons set out below.

UK pension plan

As at 31 December 2013, the deficit on an IAS 19 accounting basis in the Coats UK pension plan, which represents the Group's most significant funded defined benefit arrangement, reduced significantly from $261.8 million at the 2012 year end to $129.2 million. The reduction was primarily as a result of improved asset performance, with the impact from changes in bond yields and inflation largely offsetting each other.

As part of the long-term strategy to manage risks and uncertainties associated with the UK pension plan, during the year certain pensioners were offered the opportunity to uplift their pension with effect from March 2014 in return for surrendering their rights to future inflationary increases in annual pension payments ('UK pension increase exchange offer'). Acceptance of this offer resulted in an exceptional credit of $7.0 million, net of costs, reflecting the reduction in liabilities which has arisen. As a result, the ongoing funding deficit of the UK plan has reduced by approximately $12 million and the buy-out deficit has reduced by approximately $20 million.

Agreement with the Trustees on the triennial valuation for the UK pension plan was also reached. Annual recovery plan contributions have doubled to $23 million over 14 years and the first payment was made in November 2013. These contributions will be reviewed at the next triennial valuation date in 2015. Total UK employer contributions in 2014 are estimated to be around $27 million compared to actual contributions of $16.4 million in 2013.

Other pension and post-employment arrangements

The recognised surplus for the US funded defined benefit scheme increased from $37.3 million to $47.1 million primarily due to an increase in the expected utilisation for US post-retirement medical claims, partly reflecting a change in legislation in 2013.

The overall net deficit on other plans was $120.6 million (2012 - $112.4 million). The increase reflects higher expected claims for the US post-retirement medical plan, partly offset by increases in bond yields in respect of other plans.

Enquiry details

About Coats

With a rich heritage dating back to the 1750s, Coats is the world's leading industrial thread and consumer textile crafts business, at home in more than 70 countries, employing more than 20,000 people across six continents. Revenues in 2013 were US$1.7bn.

Our well-known brands and strong relationships with customers and consumers mean our products and services meet current and future needs. Our company-wide understanding of our business partners and consumers, coupled with the deep expertise of our people, builds trust and certainty.

Coats' pioneering history and innovative culture ensure the company continues leading the way around the world: providing complementary and value added products and services to the apparel and footwear industries; extending the crafts offer into new markets and online; and applying innovative techniques to develop products in new areas such as tracer threads, aramids and fibre optics.

· One in five garments on the planet is held together using Coats' thread

· 100 million car airbags are made using Coats' thread every year

· Coats produces enough yarn to knit 70 million scarves a year

· In three and a half hours, Coats makes enough thread to go to the moon and back

· 400 million pairs of shoes are made every year using Coats' thread

· One million teabags using Coats' thread are brewed every 10 minutes

· Thousands of surgical operations take place every day using Coats' thread

· Thomas Edison used Coats' thread in 1879 to invent the light bulb

· Coats produces enough thread to reach around the Equator every 11 minutes

· Coats is the second largest and fastest growing global zip manufacturer

To find out more about Coats visit www.coats.com

Guinness Peat Group plc financial information

Consolidated Income Statement

Guinness Peat Group plc