Coats Group Stock

Hello, everyone, and thank you for joining Coats 2026 Half Year Results. My name is Claire, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to David Paja, Chief Executive Officer, to begin. Please go ahead.

Good morning, everybody. I'm delighted to welcome you to today's presentation covering our first half results. I have with me today our Group CFO, Hannah Nichols. Let's move to the first slide.

We'll start with the first half business highlights. Hannah will then share our financial results. And following this, I will give an update on our strategic progress and address the outlook. After the presentation, we will take questions. So let's look at the highlights for H1. We have delivered 1% organic revenue growth in the period where markets declined by mid-single digits, demonstrating again that we can consistently outperform our end markets. We have maintained a strong group margin of just below 20%, even after making significant investments in technology and growth initiatives. I am particularly pleased with the substantial share gains in apparel, which proved the strength of our value proposition and differentiators.

Our footwear division is picking up momentum, and we saw good organic growth improvements in Q2. We continue to execute on our strategy to become the leading multiproduct Tier 2 partner of our footwear customers with an enviable technology portfolio and global scale. Finally, we remain very excited with the scale and capability that OrthoLite has added to the group and our confidence in the value creation from this acquisition has increased. We are on track to deliver the planned cost synergies and our work post acquisition has identified $40 million of annual sales synergies, which were not included in our acquisition case.

With that, I will hand over to Hannah to take you through our financial performance.

Good morning, everyone. Before I start, it's worth noting that we are now reporting under the new 2 divisional structure as previously announced. The group has delivered another period of market outperformance in the first half set against a challenging macroeconomic backdrop with continued tariff uncertainty and the stop-start Middle East conflict since the end of February.

Revenue was $837 million, up 1% on an organic constant exchange rate basis, outperforming our apparel and footwear end markets, which were impacted by customers managing inventory levels tightly in response to the uncertain macro outlook.

EBIT was $166 million, 2% lower on an organic basis, reflecting planned strategic investments made in growth and technology initiatives. EBIT margin was maintained at 19.8%, including a 40-basis point margin accretion benefit from OrthoLite. From February, we promptly enacted our tried and tested operational and commercial playbook in response to the Middle East conflict. This has enabled us to successfully manage the associated inflationary cost pressures, contain our costs and agree price adjustments with our customers while supporting them with agility.

Earnings per share was in line with expectations at $0.044, 6% lower than the same period last year, with higher EBIT offset by higher interest charges and the timing of the share placing in July 2025. The group continues to be cash generative and delivered $30 million of free cash flow pre-dividends in the first half, reflecting our normal seasonality. As expected, net debt ended the period at $842 million with leverage of 2.3x, and we remain fully on track to deliver leverage to 2x or below by the end of the year.

If we now turn to the divisional performance, starting with the Apparel division. At $486 million, revenue was up 1% on an organic CER basis. This was a very strong performance with the division continuing to gain significant market share across the portfolio, outperforming the apparel thread market, which we estimate were down mid-single digits, impacted by customer caution leading to low inventory levels. In particular, we delivered strong growth in the China domestic market where agility is important and in automotive threads with a number of new customer wins.

This was achieved through a focus on delivery and service and supported by our global manufacturing and technology capabilities. In addition, our position as the clear market leader in the supply of 100% recycled thread products has continued to drive growth. The division delivered an EBIT margin of 18.9%, 50 basis points lower than H1 2025. The lower margin reflects targeted investment in technology and growth initiatives, including our Coats digital business. This result was achieved through excellent procurement and cost management against the backdrop of significant cost volatility as a result of the Middle East conflict. Our customer pricing continues to be disciplined with price increases implemented during the period.

If we now turn to footwear. Footwear revenue was flat on an organic basis, increasing on a reported basis to $351 million as a result of the acquisition of OrthoLite at the end of October 2025. The step-up in growth in the second quarter was driven by an acceleration in growth initiatives alongside softer prior period comparators. The division gained market share in both footwear thread and structural components against the market, which we estimate was down mid-single digits. In addition, we saw continued strong growth in composite energy tapes, one of our target adjacencies with increased customer traction and new products coming to market.

OrthoLite revenue was below H1 2025 level on a pro forma basis due to strong prior period comparators, the challenging market backdrop and some temporary capacity challenges in Indonesia, which we have taken action to address and are confident will be successful. Secured new platform wins and product launches, combined with customer price increases supports a return to growth in the second half. EBIT decreased by 2% on an organic basis to $74 million, with EBIT margin increasing by 30 basis points to 21.1%. The margin increase is attributable to a 70-basis points accretion benefit from OrthoLite and operational efficiency and cost actions, partly offset by investment in people and capabilities to support medium-term accelerated growth.

We now turn to the income statement with certain areas worth highlighting. Exceptional items totaled $3 million, comprising $7 million to support the delivery of OrthoLite acquisition synergies and divisional structure change, partly offset by net income for property sales relating to prior year strategic projects. Acquisition-related items of $28 million related solely to acquisition intangibles, the increase attributable to the acquisition of OrthoLite.

Finance costs were $32 million, $14 million higher than the same period last year, mainly due to the incremental interest costs associated with the purchase of OrthoLite. And at 29%, the half year effective tax rate remained well controlled and in line with expectations. And we continue to expect the ETR to reduce a little over the next 3 years. As a result, earnings per share was $0.044, 6% lower than the same period last year.

The increased H1 2026 EBIT was offset by higher interest charges related to acquisition funding and the increased number of shares in issuance following the capital raise that took place in July 2025 to part fund the OrthoLite acquisition. And finally, given the robust half year performance and our confidence in the full year and medium-term outlook, we are pleased to announce an interim dividend of $1.05, up 5% compared to H1 2025.

If we now turn to look at cash flow and leverage. As expected, the group delivered a good cash performance in the first half with an overall free cash flow prior to shareholder distributions and M&A of $30 million, including a positive net contribution from OrthoLite. As you can see from the chart, the working capital outflow was $35 million, reflecting expected seasonality. And during the period, working capital was carefully managed with a particular focus on tight inventory management without compromising service levels during a period of market uncertainty and inflationary pressures.

Capital expenditure was $16 million as we maintained a disciplined approach to investing in growth opportunities. As expected, interest paid was higher than the same period last year, mainly due to higher interest costs associated with the OrthoLite acquisition. And the $43 million of tax outflows included a $6 million one-off settlement payment relating to the successful negotiation of an advanced pricing agreement.

Net debt was $842 million, representing a pro forma leverage of 2.3x, in line with our expectations. Given the cash-generative characteristics and the expected working capital unwind in the second half, we remain fully on track to deliver leverage of 2x or below by the end of 2026. Our balance sheet remains in a strong position. During the period, we successfully refinanced our $300 million bridge and our $150 million term facilities at competitive rates. Both were put in place last year to fund the OrthoLite acquisition.

And finally, moving on to modeling guidance. Now as a reminder, the main focus of this guidance is to provide you with the key building blocks for the group cash flow in 2026 and the medium term. The full year and medium-term guidance remains unchanged and can be found in the appendix of this presentation. On this slide, I provided some additional color around 2026 and in particular, the H1 to H2 profit and cash bridge.

In terms of [Technical Difficulty] as you can see from the chart on the left, we have a high level of confidence in delivering an improvement in EBIT in the second half. This assumes modest end market declines and is based on our ability to deliver ongoing share gains and clear visibility on new products and program launches. We've already taken pricing actions, which will benefit the second half, offsetting raw material inflation with supply now largely secured. In addition, we've taken incremental cost actions, which we expect will deliver around $15 million of benefit in the second half, including synergies from OrthoLite. As a result, we expect to deliver profit in line with market expectations and good year-on-year earnings growth.

In terms of cash, alongside an increase in EBITDA, we expect to see working capital significantly unwind in the second half, in line with typical seasonality and our continued focus on efficient working capital management, with working capital as a percentage of sales running at around 12% for the full year, in line with historic levels. Our guidance for FY 2026 capital expenditure remains unchanged at $40 million to $45 million, plus $5 million relating to the authorized capacity expansion in our Coats site, which will start production in Q1 next year. In terms of OrthoLite cost synergies and integration costs, we are maintaining the guidance that we provided at the time of the acquisition announcement, and David will cover a wider update on progress shortly.

So in summary, we've delivered a resilient performance in the first half and have confidence in our ability to deliver a strong cash and profit performance in 2026, in line with market expectations. I'll now pass back to David to provide a strategic update.

Thank you, Hannah. The first half result has demonstrated again our ability to significantly outgrow our markets. We delivered 1% organic growth in a market that we estimate declined by mid-single-digit percentage. This outperformance has been driven by our many competitive advantages, including our global scale and footprint, our operational excellence and agility, our leadership in sustainability and our increased focus on innovation.

We continue to build a world-class growth-oriented footwear division. With the transition from 3 to 2 divisions in the second half of 2025, we further strengthened the footwear division in terms of talent, structure and capabilities. These changes have increased the division's focus on growth, and we saw the first results in Q2. Our target adjacencies have continued to grow in the half, delivering 1% of group revenue growth, in line with our expectations. Within this, there was a particularly strong performance from our composite tapes for energy markets.

Finally, since we completed the OrthoLite acquisition 8 months ago, we have made substantial progress in integrating the business, and we have strengthened our confidence in creating strong shareholder value. We are firmly on track to deliver the expected cost synergies of $5 million this year and at least $20 million by 2028. And we have identified sales synergies not included in the acquisition case that will generate $40 million plus of additional annual revenue by 2030.

This slide shows our formula to deliver 5% or more sales growth per annum on average through the cycle. While 5% is above our historical growth rate, our portfolio is now structurally more growth-oriented following OrthoLite acquisition and the divestiture of our North America Yarns business. Our share gain momentum is accelerating with record performance in H1. And our expansion into adjacencies represents a new and additional engine for growth.

While market growth has been challenging in the first half, our share gains have been very strong with mid-single-digit percentage points of outperformance compared to our 1 to 2 percentage points ambition, a very pleasing result. And our target adjacencies have delivered again 1% of group growth in the first half with substantial additional potential ahead of us.

This slide provides more detail on the apparel and footwear industry environment, which declined mid-single-digit percentage in the first half. The top of the chart shows historical demand trends represented here as the volume imports of apparel and footwear products into key developed markets. As you can see, macro performance has been very volatile since COVID, but both apparel and footwear volumes are below the historical average for the decade before COVID and approximately 10% below the 2019 levels, pointing to the industry's recovery potential in the medium term.

Additionally, as you can see in the lower graph, industry-wide inventory has been managed very tightly by the brands, and it has declined in the last 3 consecutive quarters. Despite the historically low demand and inventory levels, we're not assuming any market improvement in our H2 outlook. We anticipate a modest market decline. And in case that the destocking cycle comes to an end during the period, it could represent an upside opportunity for us.

In the first half, we have achieved significant outperformance in share gains, continuing to build momentum on our competitive differentiators as the industry continues to consolidate its supply chain. The acceleration of fashion cycles and the increased focus from brands and Tier 1s on productivity, inventory control, production flexibility and sustainability is playing to our strengths. With our market-leading systems, global footprint and capability and our leadership in sustainability, we're perfectly positioned to provide to our customers anywhere in the world, the quality and consistency that they need in increasingly smaller batches and increasingly shorter lead times than anybody else.

Additionally, our leadership in sustainability and our increased investments in innovation and digital systems align well with our customer's priorities, making us a trusted partner. This is why we have significantly outperformed our markets in H1, and we are confident that we can continue to outperform in H2 and beyond.

In the second half of last year, the group structure changed from 3 to 2 divisions, apparel and footwear. This change reduced internal complexity and aligned the divisions more closely to their underlying textile engineering and polymer science technologies, but it also served as a catalyst to further strengthen the footwear division for accelerated growth. Under the leadership of Pasquale Abruzzese as new footwear CEO, we reorganized the division along 4 product P&Ls: footwear thread, structural components, OrthoLite and composites with dedicated leadership and dedicated sales teams for each of them. And since then, we have been further enhancing the division's commercial, operational and innovation capabilities to create a world-class delivery organization.

These changes have started to show their benefits in terms of growth. In Q2, the division grew 6% organically, and we expect growth to continue in H2. Our target adjacencies represent a new addressable market of around $2 billion, growing at more than 5% per year with customers that we already serve today. Going from left to right of the chart, in Safety Fabrics, we're bringing innovative new materials to workers in hazardous jobs, combining premium protection with comfort. In Energy Tapes, we are expanding our range of highly engineered tape products that protect critical on and offshore pipeline applications. This was a key growth driver in the first half.

In Coats Digital, our Software-as-a-Service business, we provide AI-powered solutions to our apparel customers to enhance their cost visibility and manufacturing efficiency. We expect market demand to expand in the coming years, and we have increased our investments during H1 to accelerate our product road map. In ProWeave, our woven [ upper ] technology, we're working with a leading global brand to launch the technology in 2027. In Lifestyle, we are launching a specific portfolio of structural components for our premium handbag customers. These 5 adjacencies together added 1% to group growth in the first half, and we continue to invest in them to deliver on their growth potential, which we are excited about.

In our 2025 results presentation, we provided a case study on our Safety Fabrics adjacency. Today, we provide more details on our Energy Tapes adjacency. This is a growing market driven by 2 trends: sustained investments in deepwater oil exploration and the technology shift from steel to composite materials in some of the layers of these pipes. These are highly engineered products in a highly concentrated market in terms of customers, and it represents an addressable market of $220 million, growing at more than 5% per annum.

Building on our expertise in polymer science and textile engineering, we have ramped up the production of composite tapes over the past 12 months with a strong reputation for innovation and manufacturing excellence. We're now progressively expanding our product portfolio. In the first half, our new anti-wear tape was adopted by the first global customer with others to follow. We see an opportunity to grow our revenue from $11 million in 2025 to over $40 million by 2030.

With this, let me move on to OrthoLite now. We have owned OrthoLite for 8 months, and our confidence in the acquisition has strengthened since then despite recent trading weakness. OrthoLite sales declined in the first half on a pro forma basis due to the subdued market conditions and a temporary capacity issue at the OrthoLite facility in Indonesia that resulted in a sales shortfall with one customer at the end of last year and into 2026. OrthoLite was not able to accommodate the sudden demand increase in Indonesia following the implementation of U.S. tariffs that accelerated the production shifts to this country. We're addressing the issue by adding capacity in the current OrthoLite site in Indonesia in the second half, ahead of installing additional capacity in our Coats site in 2027.

We are confident that the OrthoLite global business will return to growth in the second half, supported by several global business wins and product launches. The OrthoLite integration plan is firmly on track, and we are very confident to deliver the $5 million of joint cost synergies this year and at least $20 million by 2028. The first of 3 significant site optimizations is well underway, and we will commence production of OrthoLite insoles at Coats existing facility in Pleret, Indonesia early next year. The site optimizations in China and Vietnam will follow starting next year. We have also made good headway with procurement savings. The first wave has been completed and the second wave is in the planning stage. Finally, we will implement Coats SAP system in OrthoLite Indonesia early next year, followed by China and Vietnam.

Let me talk now about OrthoLite's exciting new growth opportunities. We acquired OrthoLite for its growth potential as open cell-foam technology displaces alternative chemistries in premium insoles. OrthoLite's core addressable market is expected to grow from $700 million in 2024 to around $1 billion by 2030. Post acquisition, we have identified and quantified a number of additional sales adjacencies, including Cirql, which were not included in our original acquisition case. These amount to an additional addressable market of around $600 million by 2030, which we estimate is growing at circa 10% CAGR.

These are not distant growth prospects. We have already progressed them to advanced stages of commercialization, and we expect to generate first sales in the second half of this year and ramp up to $40 million plus of annual sales by 2030. For 3 of the 4 new sales areas shown here, safety insoles, supercritical foam insoles and Cirql midsoles, we expect the first customer launches in H2 this year. And for the fourth product area, integrated carbon plates, by next year. These synergies will support OrthoLite's high single-digit compounded annual growth up to 2030.

Let me now give more details on Cirql. Cirql is the first sustainable midsole product in the market. New EU regulation will come into effect from 2027 to 2030, establishing mandatory sustainability and circular economy requirements for most products sold in the EU, including footwear. This is expected to drive demand for recycled or biodegradable footwear products. The midsole represents 25% to 30% of the total carbon footprint of a shoe. So it is a strategic part to decarbonize. Cirql is a high-performance foam with a high percentage of recycled content, reducing the midsole carbon footprint by up to 39%.

Our efforts post acquisition are focused on assessing the technology readiness, defining our commercial strategy and improving the economics. We're very pleased that the leading European brands has selected Cirql for launch and is moving to industrialization phase in H2. In this particular program, we will be providing the polymer compound to a Tier 1 who will make the midsole. We estimate a total addressable market for Cirql of $140 million by 2030, and we are excited by the commercial progress so far.

So to conclude, we are maintaining our full year guidance, and we are doing this with the assumption of modest market decline in H2 despite low levels of inventory in the channel. We expect good full year growth in earnings compared to 2025. This will be driven by continued market outperformance, increased customer pricing, which we have already secured and incremental revenue from new product launches. In addition, we expect an additional of circa $15 million of benefits in H2 from cost actions taken, including the OrthoLite cost synergies.

We also expect strong free cash flow during the year with leverage reduced to 2x or below despite the unfavorable market conditions. This free cash flow will be consistent with our target to deliver $1 billion of cumulative free cash flow over the next 5 years, proving the resilience of our cash generation to lower growth rates. In the medium term, we remain confident that our continued investments in sustainability, innovation and commercial and operational excellence capabilities will deliver accelerated growth, consistent with our financial framework.

Thank you very much for listening today, and we can now take your questions.

Charles Hall From Peel Hunt. Hannah, could you just give a bit more color on the step-up in H2 profits compared to H1? Obviously, you've got the $15 million of cost, you need some price improvement and volume growth to deliver that.

Yes. So if we maybe go back to Slide 10 because I think that just supports, we'll just talk through each of the components in a little bit more detail. The first thing, just to repeat what I said during the presentation is that this does not assume a market recovery in the second half. We are actually assuming a modest market decline in the second half. Then if you look at each component by turn, so you'll see there's a modest level of share gains in new products assumed. That's a combination of platform wins in OrthoLite, but also some modest market share gains in our organic business as well. Our level of confidence in that is sort of underpinned by good visibility around those actions.

Pricing, as I said in the presentation, is largely secured. So it's based on actions we've taken in Q2 and our confidence in being able to sustain that pricing through the second half is good. Inflation, similarly, I have to say our procurement teams have been doing a great job in both containing inflation in the second quarter, but also in being able to sort of mitigate inflationary pressures as we go into the second half. But again, we have now a good line of sight to that for the next 4 or 5 months. So I would say the second half is largely secured around inflation.

And then the cost actions, the $15 million, well, $5 million of those are related to the cost synergies. And then the balance of that is the $10 million is a mix of sort of discretionary spend savings and then there are some actions around sort of reorganization that will flow through into 2027 and beyond. But again, those are actions we've already taken, so a good level of confidence in the cost actions as well. It doesn't require anything heroic to deliver the step-up in EBIT in the second half.

And just a second question, David, on OrthoLite and those adjacencies aiming for $40 million by 2030. What's the buildup to that? And also what incremental margins do you expect on those sales?

Yes. So the buildup is obviously depending on the specific platform ramp-up, but we don't expect that to be back-end loaded. We expect that to be relatively progressive as we start first revenues in the second half of this year, which is another proof, I think, of the feasibility of those numbers. And in terms of margins, we would expect that to operate at similar margin levels as the rest of. . .

Kevin Fogarty from Deutsche Numis. Two if I could, please. Just one in terms of market share gains, apparel probably benefited from a more favorable competitive environment perhaps. Could you sort of talk to that, just how that might have changed? And I guess sort of the uptick in footwear, obviously, the comp was easier, but how much is sort of a sharper commercial focus, bigger platform or portfolio helping. Perhaps what landed well, I guess, in footwear.

Yes. So starting with apparel, really, the share gains are driven by 2 things. One is what I would call the structural industry trends that favor our capabilities. That's what I described in the presentation, the fact that industry moving to tighter inventory controls, faster fashion cycles, all that is driving smaller sized orders requires much higher agility and this plays to our strengths. And that is proven, for example, in our growth in China, which is probably the most agile and fast market around the world right now. But it's also been helped by some competitor weakness with our 2 main large global competitors going through some problems. And obviously, this is an industry where trust matters. And if you cannot deliver, you quickly lose business. So we've been able to benefit from that. And particularly areas, for example, automotive is a good area of good example.

And with regards to footwear, as I mentioned in the presentation, we -- as we moved to 2 divisions, we basically increased the focus on product and go-to-market, and that was investments in capabilities, but also in resources with dedicated sales forces. And the -- as you think of the second quarter, obviously, we benefited from easier comps compared to last year. But about -- I would say, about half of the growth is driven by easier comps and half is a result of actions that we've taken in terms of share gains, much sharper commercial go-to-market, yes, going back to very dedicated and focused commercial kind of excellence playbook.

And we -- yes, so we see kind of these structural improvements helping us going forward as we are trying to build division that was built by a combination of multiple acquisitions. If you think of Texon, Rhenoflex, OrthoLite and our original Coats footwear business, and we continue to kind of turn it into a homogeneous high-performance organization. So we are well along that path, and we're happy with the progress and more to come.

Can I ask a follow-up just on the pricing point. Is there any risk you might have to give some of that back if we saw kind of easier input cost energy environment? And is the [ direct ] offset just inflation comes back?

I think we're pretty confident in terms of our ability to hold price. We've got a strong track record of that. It's all around the value that we create. Clearly, it's not to say that we haven't got customers trying to put pressure on us. But I think, again, it comes down to our commercial excellence. So confidence in that pricing in the second half is good.

Mark Fielding from RBC. A couple of questions, please. Firstly, in terms of that new product pipeline, I'm just curious about the sort of further out visibility. I mean, obviously, the presentation talked to the carbon plates in 2027. But do you have further incremental new products that you can see coming through OrthoLite and maybe a wider footwear question as well? And then secondly, just can we talk a little bit more about, I mean, the growth investments? I mean, the implication is that margins are down around 40 basis points organic. Do you feel like that's now the right level of investment? Do you need incrementally a bit more? And in the future, do we think about that inverting to a positive benefit at some point from those investments as well?

Yes. So I'll start with the footwear question and then maybe will answer the investment question between Hannah and myself. So footwear is a space that is ripe for innovation. There's been a lot of innovation in footwear in the last 10 years, and there's more to come. And you see huge focus on improved performance, improved comfort now with new regulation, new materials for sustainability. So it's a space where we see a lot of opportunity for, call it, new product growth acceleration. Obviously, the 4 platforms that I mentioned there for OrthoLite are exciting platforms. And to be honest, they are large addressable markets. So I think we have enough there to kind of really try to develop.

In the broader footwear division, we continue to invest in different areas. I mean, I've mentioned woven uppers, so our ProWeave technology, we're making good progress there. Rhenoprint, which is probably the most sustainable structural component technology out there, we're into a Gen 2 development right now. So there's a lot of focus in general on innovation in the footwear division because it's a market where brands are trying to differentiate through new products, new capabilities. You see it every day, lighter shoes, lower density midsoles, high rebound nicer designs, personalization. So that's the space where we really want to play with kind of an innovation-led capability.

And on investments, maybe. . .

Should I start and then you can talk about sort of the link to growth. So when we look at the investments that we've made, I'd sort of categorize them, they're predominantly technology focused, but there are some that are group-wide across all of our platforms. So we are investing -- continuing to invest in our ERP system in SAP, and we've talked about a key differentiator for Coats is our ability -- our production planning systems, our ability to serve the customer. We're also investing in our color technology systems as well, again, a key differentiator for Coats will continue to drive growth.

And the third one is something that all companies are grappling with at the moment is around just continued investment in our cyber capabilities to protect the company, but also to underpin the growth going forward. So they are group-wide investments from a technology perspective. Then within the apparel division, there is specific investments that we're making in Coats Digital. Really, we talked about new product launches and AI acceleration. In order to do that, we've brought in expertise to be able to engineer the products to support that.

And maybe with that, maybe I'll hand over to David, if there's anything else you want to add?

Yes. I mean I would say digital is a big trend as well in the industry. Everything I mentioned, faster fashion cycles, better inventory control, even efficiency, it all has to be driven by technology. And we are, in relative terms, much stronger than our competitors are doing this. But in my view, there's much more that can be done, and we're trying to advance all our core platforms that Hannah mentioned into the future. And one of the big efforts we're doing is integrating AI in pretty much all our platforms. It applies to investments in Coats Digital. We're rolling out AI capabilities as part of our products.

To give you an example, our costing solution introduced GSDQuest early in the year, which is -- which enables costing to go from hours to seconds literally, and that's done through AI capabilities and our 20-plus years of data libraries. And that product, in particular, we've seen bookings jump 57% in the first half as an example. So there's a lot of opportunity to modernize our core platforms and some of our software products, and we think it's the moment to invest because the industry is pivoting -- under external pressures is pivoting towards a much more digital future.

Quick follow-up on the growth area. Just for the Cirql product, is the ongoing thought always that you will just sell the polymer rather than make the actual?

Yes. So right now, as I mentioned in the first -- in my remarks, the first launch will be selling the polymer, so the polymer compound. And it doesn't mean that in the future, we will discuss the possibility of making the midsole, but we're happy selling the kind of the polymer compound because that's where the core of our IP is. So we are, I would say, flexible to that. And the figures I've given on addressable market are based on just selling the polymer compound.

Dan Cowan From BNP Paribas.

Can we talk a bit about OrthoLite, please, H1 performance? How much did the Indonesian bottleneck impact? And how might that unwind in the second half?

So just to get everybody a little bit grounded. So we walked into the year expecting OrthoLite to perform in line with market in the first half. And that's because the new platform launches and new product launches, we knew they were second half weighted. So our expectations were to perform in line with market. We didn't know what the market was going to do, but our expectation was no particular share gains in that first half. And with the market down 5%, so that would account for roughly half of the decline in OrthoLite in the period.

The other half is just linked to this one customer in Indonesia. I explained earlier the reasons for that shortfall in sales. We're building up capacity in Indonesia to accelerate and try to recover that program. That program won't come back to us in the second half. The second half growth is not assuming that, that program comes because capacity will ramp up progressively second half and into next year. But we have other global platform wins and product launches that are -- that we knew of in the second half, and that underpins our confidence in the return to growth.

David Farrell from Jefferies. Two questions, please. If I look at the contribution from acquisitions, it equates to a 22.7% margin. When you bought OrthoLite, it was 26%. I know [indiscernible] in there as well. But how much of that margin deterioration is driven by OrthoLite volumes versus is there a longer delay of getting price increases through OrthoLite relative to other parts of your business?

So maybe I'll answer the last point. The pricing dynamics in OrthoLite are fairly similar to the pricing dynamics in the rest of our footwear business. In the sense that with the small brands, it's an easier negotiation with the bigger brands, the likes of Nike and Adidas takes a little bit longer and you need to adjust to their seasonal kind of period. So there's a bit of a lag, but it's not different from the rest of the footwear business. Does that makes sense?

Yes. So there is an element of the margin reduction due to that lag and we called that out in the main trading update. And then there is a bit of an impact from the low volumes as well.

Okay. My second question, thank you very much for providing the detail in terms of the overall market trends and how that's evolved. What makes 2019 the right reference point for people to dictate on? If you think about kind of footwear demand back then has been driven by these, there was an investment element rather than you said, I guess, the rise of things like [ Vinted ] and recycling of apparel products has maybe impacted demand. How should we think about that underlying market demand?

Yes. So I mean that's the reason we've come back to 2010, right, to provide a perspective because at the end of the day, depending on which point you take, you will draw different conclusions. We picked 2019 as a particular point because since COVID, the market has been really a roller coaster, as you see in the graph. And we think 2019 is the last year that was relatively stable, but it's probably better to look at kind of the average of the last decade, which we think is more relevant and was called out as well.

James Bayliss, Berenberg. Two, if I may. Just on OrthoLite and that $40 million guide, I appreciate some of that on the revenue synergies is about the trajectory you see the markets on. But you must have quite a degree of comfort given we're in slightly weakened markets at the moment. Should we be thinking about that guide perhaps evolving as a percentage of revenues as OrthoLite travels through the remainder of the down cycle?

The $40 million synergies you referred to those, right, they are more linked to new products, kind of entering adjacent markets. So they are really -- we look at them as quite decoupled from the overall market dynamics, to be honest, because it's more of a platform win and kind of ramp-up gain as opposed to kind of correlation to an underlying market.

And then my second question, just thinking about free cash flow guidance for FY '26 and your base case is that the market still remains slightly tough in half 2. If we were to see customer inventories pick back up, how do we think about the phasing of having to start to invest free cash flow into that working capital build? Is that something that will play out more towards kind of over the year-end or into next year?

I think it will probably play out into next year. I don't think it will impact our ability to generate the sort of level of free cash flow in line with market expectations for the second half of the year. It is actually with the strong demand that will offset through higher EBITDA and if there is any further working capital investments. So I don't have concerns around change in dynamics and our ability to generate the cash flow in the second half of the year.

Can I -- a little follow-up. In terms of the growth in footwear, I'm right to think that the composites business has the energy tapes and that's all in footwear. I just -- did that have any skewing effect on those growth numbers that we saw in Q1, Q2? Or is the underlying footwear growth pretty similar as well?

No. I mean composite tapes with the energy in it have been strong kind of a growth element within the footwear division in Q1 and Q2. So not particularly one or the other in really the growth in the second quarter. There's 2 elements to it. One is an acceleration of our structural component revenue, which is more linked to our organic initiatives. And the other bit is easier comps in thread -- in footwear thread, even though footwear thread has been doing exceptionally well in Q1 and Q2 in both periods, but they work into Q2 with much easier comps.

So well, thank you, everybody, for joining today. And like I said, we're pleased with our first half performance and excited about and confident about our second half outlook. Thank you.

Okay. Good morning, everybody. I'm delighted to welcome you to today's presentation covering our financial year 2025. Let's move to the first slide. This is today's agenda.

First, I'm going to take you through the highlights of the year. Hannah will then present our financial performance. And after that, I will give a strategic update, including our new divisional structure, our growth drivers and our updated medium-term targets. After the summary and outlook, we'll take your questions.

So let's start with the highlights of the year. 2025 has been my first full year as Chief Executive of the group, and it has been a year of significant evolution for the business with 2 significant M&A transactions, resilient trading in a challenging market and great progress in our growth initiatives. As a result, today, we announced renewed and more ambitious medium-term targets.

In 2025, we have acquired OrthoLite and divested our U.S. Yarns business. We have demonstrated once more our ability to gain market share, reflecting the benefits of differentiators that our competitors cannot match. And our new target, organic adjacencies have added 1 percentage point to growth at group level.

Finally, we have delivered a record level of free cash flow of $160 million. For reference, this is more than the free cash flow that we have delivered in the past 10 years combined, and it reflects the new and improved cash generation profile of the group following the end of U.K. pension contributions and the end of large restructuring activities.

With that, I will hand over to Hannah to take you through our financial performance.

Thank you, David, and good morning, everyone. Now before I start, it's worth noting that the Americas Yarns business has been treated as a discontinued operation and is therefore excluded from the numbers presented here.

I'm pleased to report that the group has delivered a resilient performance in 2025 set against a backdrop of macroeconomic and tariff uncertainty from the second quarter onwards.

Revenue was $1.46 billion, flat on an organic constant exchange rate basis, comfortably outperforming our core apparel and footwear end markets, which we estimate were down low to mid-single digit for the full year. EBIT was $290 million, in line with expectations, and up 3% on an organic CER basis.

Pleasingly, group operating margin increased by 80 basis points to 19.8%. And in the second half, we matched our strong first half performance organically despite challenging markets, showcasing the resilience of the group.

Earnings per share was in line with expectations at $0.093 with higher EBIT offset by higher pension-related interest charges and the timing of the share placing in July 2025. The group generated $160 million of free cash flow pre-dividends, reflecting the powerful dynamics of high margins and low capital intensity and timing benefits from the OrthoLite acquisition.

In line with our guidance, year-end leverage increased to 2.2x following the OrthoLite acquisition, and we expect leverage to fall below 2x by the end of 2026, underpinned by the cash-generative characteristics of the enlarged group.

So turning to our margin performance. The group delivered strong margin expansion in 2025 with EBIT margin increasing by 80 basis points to 19.8%. As you can see from the chart on this slide, the margin improvement reflects pricing discipline as we successfully managed pricing pressures during the year and mix benefits with a focus on premium and sustainable product lines.

In addition, our teams continue to focus on driving productivity, including procurement savings and operational improvement actions. Margins also benefited from strategic project savings, including the footwear division manufacturing site consolidation and the move of operations to Indonesia. In line with expectations, OrthoLite contributed to $11 million of operating profit in the last 2 months of the year.

If we now turn to the divisional performance, starting with the Apparel division. At $769 million, revenue was up 1% on a CER basis. This was a strong performance in a year that started with market growth momentum but softened following the U.S. tariff changes in April with market conditions remaining challenging through the rest of the year.

The division continued to gain market share, outperforming the core apparel threads markets, which we estimate were down around 3% in the year. This was achieved through a focus on delivery and service and supported by our flexible global manufacturing capabilities.

The division benefited from favorable mix with year-on-year growth in premium thread sales and recycled thread products. In addition, there was good growth in the China domestic market, which requires high levels of operational agility to meet demanding customer lead times.

EBIT increased by 4% on a CER basis to $156 million and EBIT margin increased by 60 basis points to 20.2%. The margin expansion reflects the benefits of the favorable product mix and pricing discipline alongside prudent cost control and an ongoing focus on productivity gains.

If we turn to Footwear, at $440 million, revenue was 2% lower than 2025 on an organic CER basis. This reflected a period of growth until the end of April, followed by customers taking a cautious approach to ordering. And in the last few months of the year, we saw brands managing down inventory further in response to the uncertain 2026 outlook. As such, we estimate our core footwear end markets were down around 4% to 5% for the full year.

Despite this challenging backdrop, the division outperformed with estimated organic market share growing to around 30%. The division also successfully maintained pricing despite downward pressures.

EBIT was $105 million, flat on an organic CER basis compared to the prior year. The division delivered a strong EBIT margin of 23.9%, an increase of 40 basis points, reflecting pricing strategy and prudent cost control measures alongside operational actions taken in the past year, including footprint consolidation in Europe and the rebalancing of the division's manufacturing towards Indonesia.

The acquisition of OrthoLite was completed at the end of October 2025, and 2 months trading are included in the 2025 divisional results. The 2025 full year profit performance for OrthoLite was in line with our expectations with above-market revenue growth and high levels of cash generation.

Turning to Performance Materials. Now this is the last time that we will talk about Performance Materials in this format given the move to the 2 divisional structure. However, we are pleased with the improvements made in 2025.

Revenue in the year was $256 million, flat on an organic CER basis, reflecting a return to growth in the second half of the year of 2%. Industrial revenue was 1% lower than prior year, with share gains in automotive thread, partly offsetting softness in other industrial end markets.

The division also saw strong demand in 2 organic adjacency target areas: Safety Fabrics, which delivered 40% revenue growth in the year; and composite tapes for the energy market, which grew 21% in the full year after a particularly strong performance in the second half.

As expected, EBIT was $29 million, an increase of 10% on an organic basis, with margin increasing to 11.3%. The organic margin improvement reflects the benefits of operational actions and the stronger second half trading with Q4 exit rate margins at 11.8%, approaching the bottom end of the medium-term targets set out in March 2025.

In the second quarter, we exited from the noncore U.S. Yarns business, improving the quality of the portfolio with the divisional margin increasing 390 basis points, including Americas Yarns results in the 2024 comparator. In addition, the small acquisition of VizLite was completed in October 2025, accelerating our Safety Fabrics growth strategy.

If we turn to the income statement, there are certain areas worth highlighting. At $2 million, exceptional items significantly reduced from 2024 with previous strategic projects now complete. Acquisition-related items included $27 million for the amortization of acquisition intangibles and $20 million for acquisition transaction costs, mainly relating to the OrthoLite acquisition.

Finance costs were $41 million, higher year-on-year due to the impact of the 2024 U.K. pension buy-in payment and including $3 million of exceptional charges associated with acquisition loan financing. At 29%, the full year effective tax rate remains well controlled and in line with expectations.

As a result, 2025 adjusted earnings per share was $0.093. The higher EBIT was offset by higher finance costs given the 2024 pension buy-in and the increased number of shares in issuance following the successful capital raise that took place in July 2025 to part fund the OrthoLite acquisition.

And finally, given the full year performance and our confidence in the group outlook, we're pleased to propose a final dividend of $0.0228, resulting in a full year dividend of $0.0328, up 5% year-on-year.

If we now turn to look at cash flow and leverage. The group delivered strong cash performance in 2025, generating $160 million of free cash flow. This reflects the low capital intensity of the group, a lower level of exceptional cash flows and the positive contribution from OrthoLite.

As you can see from the chart, the working capital inflow in the year was $13 million, reflecting disciplined working capital management and a timing benefit from OrthoLite. Working capital as a percentage of sales was 11% in 2025. In 2026, we expect this ratio to return to a more typical level of around 12%.

Capital expenditure was $32 million as we maintained a disciplined approach to investing in growth opportunities. We expect capital expenditure to increase to the $40 million to $45 million range, including the OrthoLite business, as we continue to allocate cash in support of our organic growth strategy.

The exceptionals cash flow of $24 million included cash outflows related to strategic projects, which are now complete, and was significantly lower than 2024, which included $128 million of cash outflow associated with the U.K. pension scheme. Acquisition-related cash flows of $793 million, mainly relate to the completion of OrthoLite transaction at the end of October 2025.

And as a result, net debt, excluding lease liabilities, was $815 million at the end of the year, representing a pro forma leverage of 2.2x, in line with our previous guidance. And given the cash generative characteristics of the enlarged group, we continue to expect leverage to fall below 2x by the end of 2026.

And finally, moving on to modeling guidance for 2026 and beyond. Now I won't run through all the details on this slide. However, the main focus is to provide you with more color around the building blocks for the group cash flow in 2026 and the medium term.

I've already touched on some of the guidance areas, including working capital and capital expenditure. In terms of the other areas to draw your attention to, it's worth calling out that we expect the effective tax rate to reduce slightly over the medium term given the benefits of the OrthoLite acquisition.

In terms of OrthoLite cost synergies and integration costs, we're maintaining the guidance we provided at the time of the acquisition announcement, and we will provide you with progress updates as the integration progresses. In addition, in the appendices to this deck, we set out some indicative 2025 numbers under the new 2 divisional structure to assist you with your modeling going forward.

So in summary, we've delivered a resilient performance in 2025 with strong cash generation, which sets us up well for 2026. I will now pass back to David to provide a strategic update. Thank you.

Thank you, Hannah. As I said earlier, I cannot understate the strategic progress that we've made during the year with substantial improvements and positive momentum. The reshaping of our portfolio has included the divestment of our U.S. Yarns business in June 2025, following the closure of the Toluca, Mexico facility in December 2024.

These actions have removed slower growth and lower margin business from the portfolio. Notably, this action has enhanced group margins by 100 basis points, and it has enabled us to focus our investment on other businesses in the portfolio.

In October, we completed the acquisition of OrthoLite for an enterprise value of $770 million, which has accelerated our strategy to create a leading Tier 2 supplier in footwear components by adding an exciting, high-growth and high-margin business to our portfolio. OrthoLite brings with it compelling revenue and cost synergy opportunities. I will share more on OrthoLite later.

These significant changes have facilitated the streamlining of the group into 2 divisions, Apparel and Footwear, enabling us to reduce internal complexity and better align our underlying technologies. We have continued to take share.

We delivered flat organic revenue during 2025, a year in which we estimate our markets declined by a low to mid-single-digit percentage. This proves again the resilience of our business model and our ability to grow faster than the market in all conditions. Our target adjacencies have delivered quickly, contributing 1 percentage point to group revenue growth overall, in line with our guidance.

Especially pleasing this year was the growth from our Safety Fabrics, which I will come back to later, and energy tapes. We expect our revenue in these target adjacencies to continue to scale up over time as we expand the customer base and introduce new products.

We have consolidated our divisional structure into 2 divisions. The former Performance Materials businesses of Personal Protection and Industrials, which accounted for 80% of PM sales, have been incorporated under Apparel. And the Telecom & Energy business, 20% of PM sales, under Footwear. We now have 2 divisions with technology cohesion, scale and strong operating margins.

The Apparel division is predominantly focused on textile engineering with thread as the main product category and 2 exciting growth opportunities in Safety Fabrics and Coats Digital. The Footwear division is predominantly focused on polymer science with a more diverse product portfolio and OrthoLite as its largest business. This change provides increased focus and operational simplicity.

Coats has a number of levers to generate organic growth in excess of 5% per annum on average through the cycle. We estimate that our underlying markets can grow on average 3% through the cycle. We will continue to outpace our markets by 100 to 200 basis points as the industry consolidates around fewer, stronger players. We have consistently gained share over the past few years. And in 2025, we have done it again in a difficult market context.

Last year, we launched the initiative to grow in target organic adjacencies, and this strategy has already delivered 1% of group growth in 2025, which will continue as we scale up. Set together, this is how we will deliver more than 5% growth, 200 basis points ahead of the underlying market on average through the cycle over the medium term.

Additionally, our strong cash generation provides us as we deliver with optionality to enter attractive inorganic adjacent markets as we did with OrthoLite. We continue to monitor companies with differentiated positions, a sustainability focus, cross-selling and cost synergy opportunities.

This slide summarizes our key differentiators on one page. These differentiators are the drivers of our share gains. The Apparel and Footwear supply chains are very fragmented, but they are consolidating to cope with increase in product complexity, the increase in sustainability requirements and the changes in sourcing countries.

Coats is in an enviable position to gain market share because we have the scale and capabilities to support our customers where it matters to them. At the bottom of this chart, you will see that the strength of our customer relationships is underpinned by our people and our culture of customer centricity. We have built deep trust with our customers through a track record of delivery over the years in any market conditions.

Service is king for our customers, and this translates into the operational and commercial excellence focus at Coats. Customers value our high product quality and our ability to deliver it consistently from all our manufacturing sites, including accurate color matching, which is a key differentiator.

And our investments in operational agility are paying off as orders are becoming more fragmented. Our service is also reflected in the way that our commercial and technical teams support our brand customers and manufacturers every day around the world to make the right product choices and improve their manufacturing productivity.

At the top of the house, you can see our 3 key growth enablers. Our scale and financial strength allow us to invest more than other companies in sustainability in both products and operations, innovative new solutions and digital systems that make customer interactions more efficient and enhance supply chain transparency. This is how we win in the marketplace.

Sustainability is at the heart of both Coats' and OrthoLite's strategies. Our sustainable thread portfolio grew 43% in 2025 and contributed to our share gains in the year. But we also drive sustainability in how we run our operations.

In 2022, we set ambitious 2026 targets, and we are well advanced in many areas. Since 2022, we have achieved a 30% reduction in our Scope 1 and 2 emissions, ahead of our 2026 target of 22%. We have also achieved zero waste to landfill a year early. And women now occupy 33% of our top 150 leadership roles, ahead of our 30% target for 2026, a significant improvement as we continue to ensure equality for all employees.

OrthoLite shares the same sustainability DNA with a similar focus on increasing recycled material content, developing breakthrough innovations like Cirql or making operations more sustainable.

Our target organic adjacencies represent an addressable market of approximately $2 billion, growing at more than 5% per annum. We have increased the size of this addressable market from $1.3 billion to $2 billion since last year because we have added a new product category, high-visibility trims within Safety Fabrics.

All these initiatives represent opportunities to offer new differentiated product categories to our existing customers, building on our expertise in textile, engineering and polymer science.

In Safety Fabrics, we are bringing innovative protective materials to workers in hazardous jobs, combining premium protection with comfort and lightweight. In energy, we're expanding our range of highly engineered tape products that protects critical on and offshore pipeline applications.

In Coats Digital, we provide to our apparel customers software products that optimize their production planning and costs. In Footwear, our woven upper technology, ProWeave, delivers increased performance and more design freedom with lighter weight.

In lifestyle, we are extending our structural components offering from luxury to premium handbag customers. These 5 adjacencies, combined accounted for $45 million sales in 2025 with great momentum going into 2026.

Let me give you more color on our Safety Fabrics initiative, which grew strongly in 2025. Safety regulation continues to tighten globally, and customers are demanding products that are not only protective, but also comfortable to wear.

We already sell thread for safety applications, and we are now using those existing customer relationships to offer highly engineered fabrics and high visibility trims, leveraging our core know-how in textile engineering and polymer science and our cost-competitive supply chain in Asia.

In the second half of 2025, we brought to market our latest innovation in protective clothing, FlamePro ARC, which offers superior protection against electric arc hazards. What sets this technology apart is that protection comes together with extreme lightweight and comfort, allowing workers the enhanced mobility and comfort needed to perform their roles.

We also have a portfolio of high visibility trims, which can be paired with our safety fabrics, bringing life-saving identification characteristics in all types of ambient light, including no light.

In the second half of 2025, we acquired VizLite, a small company with a lot of potential, whose glow-in-the-dark technology is already enhancing our portfolio. We combine it with our existing retro-reflective, fluorescent trims to create 3 layers of visibility in environments with reduced or no light. This technology has been specified for U.K. firefighters and has significant potential for growth in other parts of the world and other applications.

The acquisition of OrthoLite is an excellent example of our strategy of making inorganic investments into adjacent markets. This high-quality business improves the quality of the group in terms of growth and profitability potential.

OrthoLite is highly complementary to our existing Footwear business, creating a leading Tier 2 supplier of footwear components. In 2025, OrthoLite delivered full year profit in line with our expectations. So a good start. The complementary nature of these footwear businesses gives us the opportunity to create additional value from the acquisition in 2 significant ways.

Firstly, we have identified $20 million of joint cost synergies, which we expect to deliver by 2028 through savings in joint footprint optimization with significant overlap in operational footprint and from strategic procurement initiatives, operational excellence and systems implementation. In 2026, we expect to deliver $5 million of these savings.

In addition, there is significant overlap in our respective customer portfolios, route to market and leadership in sustainability. These commonalities present opportunities to accelerate growth through cross-selling as well as the development of joint innovation initiatives. This builds on our recent track record from the multiyear integration of the Texon and Rhenoflex footwear acquisitions in 2022.

Innovation is at the core of OrthoLite. The adoption of open-cell foam technology will continue to increase in the core footwear market as well as positive mix given the shift towards molded insoles. But new OrthoLite products will also create additional opportunities in 3 adjacencies not served by OrthoLite until now, expanding our addressable market in insoles.

In 2026, we plan to launch the first insoles made of open-cell foam technology with electrostatic discharge protection targeted at safety shoes. OrthoLite's technology will provide both comfort and protection in one insole. A leading European brand is currently testing the product with positive results.

Within the core premium footwear market, we are also entering 2 new product categories. Using the Cirql technology, we have developed our first supercritical foam insoles, a solution that addresses requests from brands for a lower density, high rebound insole. These are aimed at the trail and road running markets and are also currently being tested by 2 leading brands. In parallel, we continue to assess the commercial potential and go-to-market strategy for the Cirql technology in midsoles, which we expect to complete in the first half.

The third adjacency is very exciting as it perfectly shows how we can leverage the combined technology capabilities of Coats and OrthoLite to make technological breakthroughs. We have integrated in one product the comfort of OrthoLite's insoles with the performance of Coats' carbon plates, and we are aiming to launch this product starting in the aftermarket. This is just the beginning of the collaboration between our innovation teams, and we are excited at the many opportunities this may create.

With the significant changes to the portfolio in 2025, we have looked again at our medium-term targets to ensure they remain appropriate. Based on this exercise, we have upgraded and simplified parts of our medium-term framework.

We have maintained our above 5% revenue CAGR target through the cycle, expecting that the portfolio quality we have now will support a more consistent delivery ahead of the market. Our growth will be a combination of market growth of 3%, and our ability to continue to deliver growth ahead of the market through market share gains and target organic adjacencies.

With the acquisition of the margin-accretive OrthoLite business and the associated synergies and with increased confidence in our business potential following the 2025 margin performance of 19.8%, we have increased our group margin target range by 200 basis points to 21% to 23%.

Reflecting the contribution of OrthoLite, we have also increased our cumulative free cash flow target over the next 5 years from $750 million to $1 billion. This major step-up reflects the highly cash-generative nature of the group, including OrthoLite.

We have also improved the quality of our measure of free cash flow, which is now defined as after exceptionals. This underlines how determined we are as a management team to drive cash generation for the benefit of shareholders. Finally, we have maintained our target of a strong double-digit EPS CAGR post M&A or share buybacks over a medium-term time frame.

Our capital allocation strategy remains consistent. Our target debt leverage range is 1 to 2x EBITDA. We intend to allocate capital to support our organic growth, continue to deliver a progressive dividend and pursue disciplined M&A or share buybacks. With circa $1 billion of free cash flow generation over the next 5 years, we're excited about our future prospects, and committed to delivering EPS growth in excess of 10%.

So to conclude, 2025 was a year of strong strategic progress with a resilient operating performance and where we outgrew our markets. While we expect our Apparel and Footwear markets to remain uncertain in 2026, we anticipate delivering organic revenue growth with easier comparatives as we move through the year. Our growth will be underpinned by our ability to outgrow the market.

That said, we are mindful of the potential impact on demand and supply chains as a result of the conflict in the Middle East, which we are assessing. However, it is too early to provide an update. If conditions do prove more challenging, then the example of the past few years highlights our ability to adapt and the resilience of the group's trading.

Importantly, we also expect OrthoLite to significantly outperform the underlying footwear market as its technology differentiation enables it to win new customers and share. We expect to deliver further adjusted EBIT margin expansion in the year from a full year OrthoLite contribution as well as from the modest organic margin improvement.

Consistent with our enhanced ability to generate cash, we will have another year of strong free cash flow generation. We go into 2026 with upgraded medium-term targets, reflecting our enhanced portfolio of businesses and optimism about the future of the business.

Thank you very much for listening. We're happy to take your questions now.

Charles Hall from Peel Hunt. David, could you just talk a little bit more about the adjacencies, that $2 billion total addressable market. What do you see as a realistic share of that, say, on a 5-year view? How much of that would be organic? How much of that would be M&A? And how do you see the margin profile of sales in that area?

Thank you, Charles, for the question. So we're pretty excited about the opportunity of growing into that $2 billion market. Obviously, our starting revenue last year was $45 million, with a good growth from the year before. But we see this driving at least 1% of organic growth at the group level going forward.

This is based on just organic moves. I mean most of those efforts are organic. They are obviously built into our framework. And we believe that those adjacencies can deliver margin rates in line with our group medium-term targets. So obviously, there's going to be a scaling-up effect over maybe the first few years, but we see the margin potential there to reach that group level ambition.

So look, overall, probably we always look at -- also check M&A opportunities. And obviously, we're exploring these spaces, but most of our focus is on organic work right now.

Got it. And then on the tariff situation. Obviously, we're in a year in now to tariffs. Has everything settled down in terms of supply chains? And do you see any changes as a result of the sort of recent tariff changes?

I think the direction of travel is quite clear. It was already kind of clear at the mid of last year. And it's fairly settled right now. So we don't think there's going to be a huge change in terms of where things are going relative to where they stand now.

Obviously, we are monitoring the situation in the Middle East, but that's going to create probably more disruption in the near term. That disruption will require operational agility, which is one of our strengths. So we're ready to handle that as we've done in the past few years.

And there might be a little bit of, again, shift of volumes temporarily maybe away from the Middle East as well, going back maybe into other locations. But strategically, in terms of overall market direction, we think it's quite settled and the near term, it will just require agility, which we are ready for.

Mark Fielding from RBC. I've got 3 questions, but I'm going to ask the first 2 together and then I'll come to the other one because they're sort of linked.

Firstly, can we talk a little bit more about OrthoLite's performance so far? I mean, obviously, you said it was performing ahead of the market. But I mean, the implication of your sort of 5% decline in Footwear in the second half as the market is down high single digits. So I'm just -- a bit more clarity on whether OrthoLite is stable, growing or still actually down a bit with the market, just better than that market and how we think about that evolving this year?

And the reason that ties to my second one was, I mean, quite sensibly, your medium-term targets, you've sort of dropped the divisional part. But historically, you were targeting 3% to 4% growth in Apparel and 7% to 8% in Footwear. So do we still think about that as the sort of medium-term split? Or is there any changes because you've slightly rejigged the divisions, et cetera?

Yes. So I'll start with OrthoLite. OrthoLite substantially outperformed the market, the underlying footwear market and also outperformed our own Footwear business last year. And if you recall, that's because they have a couple of growth levers that we don't have in the rest of our business.

One is technology penetration. Open-cell foam insoles are increasing in adoption within the footwear market. And the other driver is their shift from flat insoles to molded insoles, which raises their average selling price. So these 2 drivers are helping them deliver substantial growth ahead of the underlying market.

Having said this, they also saw a sequential impact from the market decline that happened in the back end of the year. As Hannah mentioned, we saw some destocking in the footwear market in the last couple of months of the year. OrthoLite felt the same trend. But we see, as we are now obviously in Q1, we start to see kind of a sequential -- some level of sequential recovery from what happened at the end of Q4. And we expect OrthoLite to deliver strong growth ahead of market this year as well.

Maybe to your second question, over the medium term, we still expect Footwear to be a higher growth division than Apparel. We think the fundamentals in there support a higher underlying market plus with the addition of OrthoLite, we think that, that's going to act as another incremental, I would say, accelerator to our performance within that market. So we see that medium term still the trend.

Okay. And then just my third question, the high visibility trims business, just so I understand that a little bit. I'm assuming the market structure is relatively similar to others as in that you sell to a garment manufacturer who then includes it in the garments. And then I suppose I'm just checking, what does it mean that you are specified for U.K. firefighters? Does that mean they all have to have it? Or it's just something that could be used?

Yes. So the high visibility trims is a product that makes a lot of sense for us. And actually, for those who haven't noticed, [ Chris ] is wearing one of our products. So typically, you have -- in that particular product, that's our fabric. So it's a protective fabric. It has our thread and it has the high visibility trims.

So that shows how you can go for that particular application with very complementary offerings. And by the way, as I said in my remarks, it just builds on our capabilities in textile engineering and polymer science. So it's at the core of what we know how to do.

With regards to the question on VizLite, in particular, it's now specified on all U.K. firefighter applications. So that's a technology, a fluorescent technology that glows in the dark. So in a pitch dark room or when there's heavy smoke and you can see anything, this technology will glow by itself without the need for any light input. So it's a very interesting IP. That's what attracted -- what made it very attractive to us.

There's about -- even though we specified it as a technology, there's only about 30% of U.K. firefighters that have already started tendering it because the other specification for the other 70% is more recent. But we expect that other 70% to start tendering this technology relatively soon and then kind of ramp up progressively over the next 5 years.

So we're excited about that. We're also excited about the opportunity of this glow-in-the-dark technology to expand into other firefighter applications globally outside of the U.K. And as well as we see that as a technology that can be applied to other end markets even in the core Footwear and Apparel businesses.

So we look at it as an IP acquisition. It's a relatively small company now, but we think very complementary and differentiated and it helps us scale up in a direction that makes a lot of sense to us.

David Farrell from Jefferies. I've got a couple of questions. I'll take them one at a time. 2026 is a World Cup year in North America. If I remember back to the 2022 Capital Markets Day, there was some excitement about kind of ProWeave. Is there anything in your forecast for higher sales as a relation to the Soccer World Cup? And if so, would that come in '26 or at the back end of '25?

So I think there's a couple of questions there. I'll take it as one in general on the Olympics and then the other one is more about ProWeave in particular.

So on the Olympics, look, we have not planned for a bump or a significant one-off benefit of -- in our sales from the Olympics. So it's not something that we are accounting for. And there's a lot of discussion out there on how much of a bump these type of events generate in reality.

Yes, with regards to ProWeave, it's one of the adjacencies obviously, that we're doing. It's a relatively niche technology that basically applies only to kind of relatively high-end applications. We already deployed it across almost 10 different shoes. So it's already being sold on 10 different shoe models for different brands.

But we continue to drive with the help of OrthoLite, actually, that's one of the cross-selling areas we're working together to increase penetration in some of the major brands. But it will always be -- I mean, we know that is a little bit limited for its kind of high-end characteristics.

I think I mentioned last year, the interest of ProWeave goes a little bit beyond in terms of longer term, how we see the upper space as an interesting space. And we see this as kind of the entry point with a very kind of high-end type of technology.

One for Hannah. If I look at the capital allocation slide, there's nothing in there for net debt reduction. Obviously, you're coming at that from going into '26 for the next 5 years at 2.2x leverage. Should actually some of that capital allocation be thought about? Or is the reduction in the leverage coming just from the EBITDA?

No, absolutely. Our focus is, on '26 is on reducing the net debt. We see it in terms of capital allocation actually as an output of allocating capital to support organic growth. It's sort of a natural outcome, which is why it's not explicitly referenced on the slide.

But absolutely, our priority is on deleveraging. And we've talked about the cash generation of the group. You've seen that evidence in 2025. And with OrthoLite as well, that sort of clearly enhances the cash generation. So short answer is yes.

And final question, kind of EcoVerde. I guess over the last few years, the kind of higher selling point of that has been a real benefit of driving Apparel organic revenue growth above the market. How much is left to go from that as a tailwind as you look out over the next kind of 5 years? And can you just talk about kind of new customer bases versus kind of a replacement of existing customers?

Yes. So our 100% recycled thread product, EcoVerde, the EcoVerde brand is I think has been a phenomenal success for the group. I mean, literally 5 years ago, there was no sales. And last year, it was $550 million, which is about half of all the thread that we make.

So it's been an impressive ramp-up that has required a substantial effort to develop a new supply chain, adapt our manufacturing processes, requalify all our color recipes. So we see that as something that is very difficult to replicate.

Now from here, where do we go? We are at about 52% now with -- in terms of penetration. We think it can go -- it can keep going still. But obviously, as you increase towards 60% or beyond 60%, you're going to the very, very price sensitive pieces of the market. So we see that as a substantial differentiator, difficult to replicate with some room to grow.

But in terms of sustainability, what we're doing now is we are continuing to drive recycled penetration, so kind of continue to push that, but it will moderate in terms of growth rate. You won't see the 50% kind of ranges that we've seen this year.

And at the same time, we've launched a big initiative on supplier decarbonization, which will complement our efforts to get to our Scope 3 targets. So now when we go to brands, we have both the big push we have on recycled. And on top of that, supplier decarbonization as another big kind of driver for their sustainability -- to achieve their sustainability goals.

James Bayliss from Berenberg. Two, if I may. On Footwear customers, you noted they were managing down their inventory levels in the last few months of 2025. Can you just give us a sense of where that trend is for the first few months of 2026? Do you feel that levels are steady and in the right place now, absent any further shocks or Middle Eastern ramifications?

And then my second question on market share. Your ambition seems to be to continue to grow for 1% to 2% per year over the medium term, but you're coming from quite a high base already. Are there any regulatory considerations in local markets or any territories where growth will be naturally more limited than others that we should be aware of?

Yes. So I'll start with the latter question. So on market share, yes, we're at close to 30%, right, on both divisions. We still see this as a number that continues to increase and going to continue to increase.

The reason is, I mean, it may look like a big number, but when you look at manufacturer by manufacturer, in general, they like to concentrate thereby on fewer, stronger players, and it's not unusual to have manufacturers, so Tier 1s that buy 60%, 70% from us.

So at a manufacturer level, they don't have an issue. They actually typically want to have kind of a core supplier that is at that high level, and brands also are trying to consolidate the number of Tier 1s.

So we think those 2 trends, the fact that the Tier 1s are not necessarily trying to kind of limit the share they give to their largest supplier, and the fact that brands are trying to reduce the number of Tier 1s, I think, continue to play in our favor going forward.

And sorry, remind me the first question was on -- yes, the sequential for Footwear. So I mentioned a little bit earlier, we saw the last 2 months were a little bit tough. We're obviously focused on delivering our profit and cash commitments, which we did.

But we saw a substantial slowdown in the last 2 months of the year in Footwear in particular. But we've seen a sequential improvement in Q1. So it's not back to where it should be, but we've seen a sequential improvement that makes us think that, that kind of destocking that was done towards the back end of the year was already completed.

Quick question. Andrew from Peel Hunt. I wondered if within that sort of market data information that you provided, whether there was anything, more detail you could bring out of that because I could see that -- sorry, I've lost the train of thought. I'll move on to the next one.

So the other one is around competition on sustainability. Obviously, 5 years ago, EcoVerde, it was quite sort of a greenfield area for you. Just wondering where -- what the competition is currently within that area? I'll come back to the other one as I remember it.

So on sustainable threads, we see ourselves as by far the leading provider. As I mentioned before, it's actually not easy to transition to recycled polyester. It's a completely different supply chain. You need to develop suppliers that basically recycled PET bottles, so plastic bottles. And the quality requirements are very sensitive to our manufacturing process.

So you need to kind of make sure that you define very clear requirements. Otherwise, your productivity goes down quite substantially. And on top of that, you need to redo all your color recipes for all the -- I mean, on average, on a given year, we delivered 200,000 different sets of color.

And doing that is a gigantic piece of work. We have systems that allow us to do that very, very efficiently. But we find it like a very substantial differentiator when you combine all those things for people to replicate to the scale that we've done.

And obviously, with scale comes also negotiation ability in terms of pricing and everything. So overall, we think we've built something that is very substantial in terms of scale and difficulty to replicate, and we don't see any competitor anywhere near that.

Great. I'll try again with the other one. So I was just wondering about whether that was a broad-based sort of market decline? Or was it sort of within more sort of specific niches that either hindered you more than the market or was actually helpful sort of your relative -- I guess, the granular detail of that market movement, if you like?

Yes. The bigger -- so at the back end of the year, the bigger drop was in Footwear. Footwear is always more volatile. If you go over time just because of the average price of one of these athletic shoes is typically higher than a typical apparel garment.

And for the second reason, there's fewer larger brands. So it's more concentrated around a few big brands like Nike, adidas, et cetera. So typically, you see a little bit of more kind of volatility when they decide to either destock or restock. So that's something we've seen in the past.

We don't -- we haven't seen it in a particular OEM or a particular part of the market is being quite broad-based, but that's also because we are -- in Footwear, in particular, we have a higher percentage of exposure to those brands relative to Apparel.

I was just going to say, I think if you look at Apparel and the markets decline there, we really play to our strengths in Apparel in terms of our global footprint, our agility. And actually, when we look at our sort of the trends within the market share gains, a lot of those came after the tariff announcements because of our ability to react to the shifts and the agility. So it's really played to our strength, I think, is what I'd say about the Apparel piece.

Sorry, Mark Fielding again. Just a couple of follow-ups on those questions. I mean, firstly, in terms of the recycled thread, I mean, there was conversation in the past about future sort of natural biodegradable threads, et cetera. I'm just curious how you think about the next generation in that?

And then also possibly linked but more immediate. In terms of in Hannah's presentation, you talked about the price mix benefit. And then in Apparel, you talked specifically about mix, whereas it was price strategy in Footwear. Maybe a bit more elaboration on that. And just a reminder, I mean, is my impression that EcoVerde is slightly higher revenues, not higher margins? So it's not a mix benefit, but I'm just double checking that.

So I'll let Hannah comment on the second one. With regards to the next step in terms of recycled product, the big focus is going from PET bottle recycling to textile recycling, what is called textile to textile. So instead of just taking plastic bottles and recycling them into polyester, you would recycle garments.

And starting with waste from manufacturing processes, there's a lot of waste generated by the Tier 1s in the manufacturing process. So we're very actively working in that space. This year, we've launched our first textile to textile recycled products.

Today, it's a more expensive technology than the PET bottle recycling. But like we did a few years ago, as we led in the industry PET bottle recycling, we are now leading as well in textile to textile, it's now in the market. So we're selling -- it's still small volumes because it's higher priced.

But we're doing a lot of work through our sustainability innovation center in India with all the supply chain that is developing the capabilities and the scale to make this happen. So we also have innovation in that same hub around all the type of products like you're saying, biodegradable or natural origin, not oil-based at all.

But those, we see them as more at this stage probably those would be a further step away. So I would say the next step will be going more to textile to textile. And there's quite a lot of, I would say, interest from the brands. The leading brands in sustainability, they are already starting to at least look at that textile to textile as the next step.

And I think your question was about Apparel mix and what's driving that. So it's actually a combination of both premium products, but with premium products, they are more likely demand recycled product offerings. So it's a combination of the 2, which is where Apparel have benefited. So the correlation with the margins of recycled thread because they're going into premium products that they are typically higher margin, if that makes sense.

Okay. So if there's no other question, well, you see, basically, we delivered strong 2025, and we entered '26 with good momentum. Thank you very much for joining us today. We wrap up the call here.

Thank you.

Good morning, everyone. Welcome to today's Completion of OrthoLite Acquisition and Announcement of New Group Structure Call. My name is Seb, and I'll be the operator for your call today. [Operator Instructions]

I will now hand over to David Paja, CEO, to begin the call. Please go ahead.

Thank you. Good morning, all. We are delighted to be here today to cover two important topics: first, the completion of OrthoLite and a reminder of the acquisition rationale; and second, our new division structure. We have also provided a brief confirmatory trading update, and we'll provide a fuller update when we have October's numbers on the 7th of November, which is consistent with prior years.

We are delighted to announce that we have completed the acquisition of OrthoLite after receiving regulatory approval from the U.S. and Vietnam. The timing is consistent with our expectations. This was an exceptional opportunity. There wasn't an alternative asset of this scale, quality and strategic fit available in the footwear universe. This creates a market-leading Tier 2 supplier of critical footwear components. And we won't rush with the integration, we will focus on preserving OrthoLite's growth, which is very exciting. We're expecting to achieve annualized joint cost synergies of $20 million by 2028.

Through this acquisition, we are combining the Global #1 in footwear threads and Global #1 in structural components, with the Global #1 in open-cell foam insoles. We serve the same customers, the same segments, and we have similar business models. So there is significant opportunity to improve customer penetration. OrthoLite has very high brand intimacy, whereas Coats historically has stronger relationships with Tier 1 customers. This makes us stronger.

The co-branding relationships that OrthoLite has shows how deeply entrenched they are with customers. They have 310 co-branding agreements. OrthoLite has 36% market share. And as we've explained before, open-cell technology is growing faster as part of the insole market in general, and we expect penetration to increase further through the end of the decade.

The market is very fragmented, and customers value scale and agility to meet their requirements, especially in such uncertain macroeconomic conditions. As with Coats, OrthoLite has the global manufacturing base to adapt to tariffs. 92% of their products are manufactured between China, Indonesia and Vietnam, which is very similar to Coats' footwear footprint in those localities. Consolidation of those -- of these footprints will be the biggest source of synergy.

We're also changing the group's divisional structure, streamlining it into two divisions: Apparel and Footwear. This reflects the transformation of the group's profile following the exit from the North America Yarns business earlier this year and the acquisition of OrthoLite now. This change reduces internal complexity and aligns the divisions more closely with the underlying technologies. The Apparel division led by Adrian Elliott, expands to include the Performance Threads and Personal Protection businesses, which accounted for roughly 80% of the old Performance Materials division. And it is worth remembering that performance threads are produced in the same sites as apparel threads.

The enhanced Footwear division will be led by Pasquale Abruzzese, which includes the old Footwear division, OrthoLite and our Telecom & Energy business, the other part of the old Performance Materials division. This change is possible now because of the significant operational improvements made in Performance Materials over the last 12 months. The division has returned to growth in H2 and has delivered a step-up in profit margin with more to come and a clear plan to execute.

Before we turn to Q&A, a short but reassuring update on trading. We can confirm that trading through the third quarter for both Coats and OrthoLite was in line with the expectations that we set out in July. We will release our usual trading update for the 4 months of H2 on Friday, 7th of November. We will now turn to Q&A. Please be mindful that we are limited in what we can say on trading at this stage. We will provide more detail, as we said, next week.

[Operator Instructions] So far, we have this question from Kevin Fogarty. Since the announcement of the OrthoLite deal in July, how have your thoughts on the potential -- value creation potential of the deal been influenced by what you know now rather than what you knew in July?

Thanks, Kevin. Great question. I would say that in general, we've reaffirmed our views on the potential of the combination, both in terms of cost and sales synergies. We've gained access to additional information to the management teams. We started the detailed planning process in terms of execution of cost synergies. And we also, I would say, worked much more closely on sales synergies opportunities that we have pre-identified, but now we're kind of moving ahead. So I would say on both fronts, more reassured.

And we have a couple of follow-ups also from Kevin. Can you comment on how OrthoLite has performed relative to Coats footwear during the period since July this year? And secondly, are there synergies that we should be thinking about that should result from the reorganization announced today? And will this reset the medium-term EBIT margin and growth targets for Footwear and Apparel?

Thanks, Kevin, for the question. So in terms of the OrthoLite trading, as we said in the statement, the trading in the last quarter has been in line with what we were expecting, bearing in mind that OrthoLite's growth rates are sort of above our core footwear divisional growth rates. And then in terms of the question around the divisional change and the financial targets, the real crisp around the divisional change is around sort of simplification of the business, but also alignment of technologies. And that in itself is not going to sort of prompt a change in the financial framework. But with the acquisition of OrthoLite, as we said in the statement, in terms of the growth rate of OrthoLite, the higher margins of OrthoLite and the cash generation there, that will lead to an update of our financial framework, and we'll tell you more about that in March.

[Operator Instructions] Thank you for your participation. We currently have no further questions on the call, and I will hand back for any closing comments.

Okay. So closing comments, thank you for joining today. This is a very exciting day for Coats. So we're really looking forward to what's next and to execute on our plan and our medium-term targets. Thank you.

Thank you. This concludes today's conference call, and you may now disconnect your lines.