Coats Group PLC on Thursday said it reached an agreement with the trustee of the Coats UK Pension Scheme to switch off pension deficit repair payments from the start of the new year.

The Bristol, England-based industrial thread and footwear component manufacturer said it agreed to pay the scheme a one-off lump sum payment of £10 million to move into an expected surplus position against the technical provisions funding basis.

This will enable the switch off threshold to be ‘comfortably met’, it said.

The agreement will result in a free cash flow benefit of £2 million per month while the payments remain switched off, Coats added. ‘The deficit repair payments will remain switched off so long as the scheme’s assets remain above 99% of its technical provisions,’ the company explained.

Chief Financial Officer Jackie Callaway said: ‘We have made significant progress on pensions in recent years, and 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. 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.’

Coats shares rose 7.7% to 72.59 pence each on Thursday morning in London.

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