Coats Group H1 Earnings Call Highlights

Key Points

• Coats outperformed subdued markets: First-half organic revenue rose 1% to $837 million despite an estimated mid-single-digit decline in apparel and footwear markets. EBIT fell 2% organically to $166 million, while the margin held at 19.8%, supported by market-share gains, pricing and cost control.
• OrthoLite integration is progressing: Coats remains on track for $5 million in cost synergies in 2026 and at least $20 million by 2028, with more than $40 million in potential annual sales synergies identified by 2030. Capacity expansion is planned in Indonesia, and management expects OrthoLite to return to growth in the second half.
• Outlook and deleveraging targets were maintained: Management expects second-half EBIT improvement and earnings in line with market expectations, despite assuming continued market weakness. Net debt stood at £842 million, or 2.3 times leverage, with a goal of reducing leverage to two times or below by the end of 2026.

Coats Group LON: COA reported first-half organic revenue growth of 1% despite what management estimated was a mid-single-digit decline in its apparel and footwear end markets, as the company cited market-share gains, pricing actions and continued investment in technology and growth initiatives.

Revenue totaled $837 million in the first half, while EBIT was $166 million, down 2% on an organic basis. EBIT margin was maintained at 19.8%, including a 40-basis-point benefit from the acquisition of OrthoLite. Chief Executive Officer David Paja said the result demonstrated Coats’ ability to outperform its markets, with share gains supported by its global manufacturing footprint, service capabilities, sustainability offerings and innovation investments.

Earnings per share were GBP 0.044, down 6% from the prior-year period. Group CFO Hannah Nicholls said higher EBIT was offset by increased interest costs associated with the OrthoLite acquisition and by the higher number of shares following the July 2025 capital raise. The company increased its interim dividend by 5% to $0.0105.

Apparel gains share as markets remain subdued

The apparel division generated revenue of GBP 486 million, up 1% organically at constant exchange rates. Coats estimated that apparel thread markets declined by a mid-single-digit percentage during the period as customers kept inventories low amid macroeconomic uncertainty.

Coats said it gained significant share across the apparel portfolio, led by growth in China’s domestic market, automotive threads and recycled thread products. Paja said faster fashion cycles, smaller order sizes, shorter lead times and tighter inventory management are benefiting the company’s operating model and global reach.

Apparel EBIT margin was 18.9%, down 50 basis points from the first half of 2025. The company attributed the decrease to targeted investments in technology and growth initiatives, including its Coats Digital software business. Nicholls said procurement and cost management helped offset significant cost volatility associated with the Middle East conflict, while customer price increases were implemented during the period.

During the question-and-answer session, Paja said competitor weakness also contributed to apparel share gains, particularly where customers prioritize reliable supply. He highlighted automotive threads as one area where Coats had won new business.

Footwear growth accelerated in second quarter

Footwear revenue was flat organically but rose on a reported basis to GBP 351 million following the acquisition of OrthoLite in late October 2025. Footwear EBIT declined 2% organically to GBP 74 million, while EBIT margin increased 30 basis points to 21.1%.

The margin improvement reflected a 70-basis-point contribution from OrthoLite and operational efficiency actions, partly offset by investment in people and capabilities intended to support medium-term growth.

Paja said the footwear division grew 6% organically in the second quarter, helped by easier comparatives and a sharper commercial focus following the group’s shift to a two-division structure. Coats reorganized footwear around four product profit-and-loss units: footwear thread, structural components, OrthoLite and composites.

Management said footwear gained share in both thread and structural components, while composite tapes for energy markets delivered strong growth. The company’s energy-tape business, which serves offshore and onshore pipeline applications, generated $11 million in revenue in 2025 and is targeted to exceed $40 million by 2030, according to Paja.

OrthoLite integration and growth initiatives

Coats said its confidence in the value of OrthoLite has increased after eight months of ownership. It remains on track to deliver $5 million of cost synergies in 2026 and at least $20 million by 2028. Management has also identified more than $40 million in additional annual sales synergies by 2030 that were not included in the original acquisition case.

OrthoLite revenue fell year over year on a pro forma basis in the first half, reflecting difficult market conditions, strong prior-year comparisons and temporary capacity constraints at its Indonesian facility. Paja said the issue emerged after U.S. tariffs accelerated production shifts to Indonesia, creating demand that OrthoLite could not accommodate.

Coats is adding capacity at the existing Indonesian OrthoLite operation in the second half and plans to begin producing OrthoLite insoles at its Purwakarta, Indonesia, site early next year. Site optimization initiatives in China and Vietnam are expected to follow.

Management expects OrthoLite to return to growth in the second half, supported by new platform wins, product launches and pricing actions. New product areas include safety insoles, supercritical foam insoles, Cirql midsoles and integrated carbon plates. Paja said Cirql, a sustainable midsole material, has been selected by a European brand for launch and will move into industrialization during the second half.

Cash flow, leverage and outlook maintained

Coats generated GBP 30 million of free cash flow before dividends in the first half. Working capital outflow totaled $35 million, reflecting normal seasonal patterns, while capital expenditure was $16 million. Net debt ended the period at GBP 842 million, equivalent to leverage of 2.3 times.

The company said it remains on track to reduce leverage to two times or below by the end of 2026, aided by anticipated second-half earnings growth and a seasonal working-capital unwind. It also refinanced its $300 million bridge facility and $150 million term facilities during the period.

Full-year and medium-term guidance was unchanged. Coats continues to assume a modest decline in end markets during the second half, rather than a market recovery. However, it expects improved second-half EBIT from share gains, new product launches, pricing already secured and approximately $15 million in cost benefits, including OrthoLite synergies.

Nicholls said the company expects profit in line with market expectations and good year-on-year earnings growth, while Paja said Coats remains focused on its target of generating 5% or more annual sales growth through the cycle and $1 billion of cumulative free cash flow over the next five years.

About Coats Group (LON:COA)

Coats is a world-leading Tier 2 manufacturer and trusted partner for the apparel and footwear industries, delivering the essential materials, components, and software solutions that help our customers grow, compete and win. We help the apparel and footwear industry perform at its best through impactful sustainability solutions, insight-led innovation and industry-leading technology platforms. Headquartered in the UK, Coats is a FTSE 250 company and a constituent of the FTSE4Good Index. In 2025, we generated $1.5 billion in revenue and employed 19,000 people worldwide — all united by a spirit of innovation, quality and service.

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