Coats has announced agreement with its Trustee to switch off deficit repair payments Coats has announced that it has reached an agreement with the trustee of the Coats UK Pension Scheme to switch off pension deficit repair payments from 1 January 2024. To do so the company has agreed to pay a lump sum payment of GBP10m ($12.6m) to move it into an expected surplus position against the technical provisions funding basis and enable the switch off threshold to be ''comfortably'' met. What does it do the FCF profile of the Group? Coat''s pension has acted as a material drag on FCF over the last decade. As we show overleaf the cash costs associated with the pension has diluted FCF margin by c250bps on average of the last five years. The agreement results in a GBP2m cash saving a month and the deficit repair payments will remain switched off so long as the schemes assets remain above 99% of its technical provisions. The move by Coats equates to a c150bps uplift to our FCF margin forecasts in FY24-25 and on our new forecasts we show how Coats would generate a FCF margin that is slightly richer than that of the Cap Goods sector by 2025. An attractive proposition for a company that trades at a 45% 12m fwd E/EBITA discount. A step in the right direction, even if the pension issue is not fully resolved just yet As Coats have not announced a full buy-in some investors may question whether there is a risk that deficit falls back to a 99% funding level (inflation risk, interest rate risk, longevity risk). However, Coats has been able to improve its hedging rate to over 90% (from 70% in 2017) which partially mitigates interest rate and inflation risk. Coats'' annual report notes that the UK scheme policy also requires low leverage to maintain strong liquidity, partially mitigating risk five. Updating our numbers for the announcement; TP tweaked higher to 100p While not a full resolution, this is a step in the right direction that yields a real FCF margin benefit in...