Coats Group plc

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 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 two significant M&A transactions, resilient trading in a challenging market, and great progress in our growth initiatives. As a result, today we announce 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 one 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 UK 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 9.3 cents, 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 2.2 times following the Ortholite acquisition, and we expect leverage to fall below two times 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 mixed 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 profits in the last two months of the year. If we now turn to the divisional performance, starting with the apparel division. At £769 million, revenue was at 1% on a CER basis. This was a strong performance in a year that started with market growth momentum, but softened following the US 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 favourable 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 favourable 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 4-5% 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 a rebalancing of the division's manufacturing towards Indonesia. The acquisition of Ortholite was completed at the end of October 2025 and two 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 two 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 two 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 non-core U.S. yarns business, improving the quality of the portfolio, with the divisional margin increasing 390 basis points, including America's yarns results in the 2024 comparator. In addition, the small acquisition of Vislite 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 authorised acquisition. Finance costs were £41 million, higher year on year due to the impact of the 2024 UK 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 and issuance following the successful capital raise that took place in July 2025 to part-fund the Auckland Light acquisition. And finally, given the full year performance and our confidence in the group outlook, we're pleased to propose a final dividend of 2.28 cents, resulting in a full year dividend of 3.28 cents, 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 to 45 million range, including the author-like 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 were significantly lower than 2024, which included a 128 million of cash outflow associated with the UK pension scheme. Acquisition-related cash flows of £793 million mainly relate to the completion of author-like 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 2.2 times, in line with our previous guidance. And given the cash generative characteristics of the enlarged group, we continue to expect leverage to fall below two times by the end of 2026. And finally, moving on to modelling 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 colour 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 authorised acquisition. In terms of authorised 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 two divisional structure to assist you with your modelling 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 US 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 two supplier in footwear components by adding an exciting high growth and high margin business to our portfolio. Orpholite brings with it compelling revenue and cost synergy opportunities. I will share more on Orpholite later. These significant changes have facilitated the streamlining of the group into two 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 one 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 two 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 and energy business, 20% of PM sales under footwear. We now have two 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 two 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 Orfolite as its largest business. This change provides increased focus and operational simplicity. Coach 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. So 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 cross-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 when 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 three 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 codes and ortho-life strategies. Our sustainable trade 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 one and two emissions ahead of our 2026 target of 22%. We have also achieved zero waste to landfill a year early. And we 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 Circle, 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're 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 protect critical on and offshore pipeline applications. In Coach 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're extending our structural components offering from luxury to premium handbag customers. These five 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 this light, 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 and fluorescent trims to create three layers of visibility in environments with reduced or no light. This technology has been specified for UK firefighters and has significant potential for growth in other parts of the world and other applications. The acquisition of Orfolite 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. Orfolite is highly complementary to our existing footwear business, creating a leading tier two supplier of footwear components. In 2025, Orfolite 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 two 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 multi-year integration of Detection and Renoflex footwear acquisitions in 2022. Innovation is at the core of Ortholite. The adoption of open cell phone 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 three 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 phone technology with electrostatic discharge protection, targeted at safety issues. 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 two new product categories. Using the Circle 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 two leading brands. In parallel, we continue to assess the commercial potential and go-to-market strategy for the circle technology in mid-soles, 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 codes and ortholite to make technological breakthroughs. We have integrated in one product the comfort of ortholite insoles with the performance of coached 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 five 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 timeframe. Our capital allocation strategy remains consistent. Our target debt leverage range is one to two times 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 five 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 grew 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're 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.