Coats shares surge on pension surplus news

(Sharecast News) - Shares in thread manufacturing group Coats surged on Thursday after the company decided to switch off pension deficit repair payments from next month. After reaching an agreement with the trustee of its UK pension scheme, Coats will pay a one-off lump sum of £10m to move the scheme into a surplus.

The deal will result in a free cash flow benefit of £2m per month while the payments are switched off - which can continue so long as the scheme's assets remain above 99% of its technical provisions, Coats said.

The company, which serves the apparel and footwear industries along with other fabrics, yarns and software applications, has made "significant progress on pensions in recent years", according to chief financial officer Jackie Callaway.

"The news today is another major milestone that benefits all stakeholders. We remain focused on making further progress in order to maximise Coats' free cash flow generation.

Callaway continued: "We are continuing to work with the trustee of the scheme on a collaborative basis, with the medium-term aspiration of fully insuring the scheme, removing UK pension risk from the group balance sheet and optimising our capital allocation framework to enable additional growth opportunities."

The stock was up 10.7% at 74.6p by 1019 GMT.