Coats Group plc CEO and Executive Director David Paja shared significant shifts in the company’s structure and forward reporting framework following a key divestment and a major boost to its footwear business.
“We have consolidated our divisional structure into two divisions,” Paia told participants on a Thursday conference call to discuss Q4 results. The former Performance Materials (PM) businesses of Personal Protection and Industrials, which accounted for 80 percent of PM sales, have been incorporated under Apparel, and the Telecom & Energy business, 20 percent of PM sales, under Footwear. We now have two divisions with technology cohesion, scale and strong operating margins.
The reshaping of the Coats portfolio included the divestment of its 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,” the CEO commented. “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, Coats completed the acquisition of OrthoLite for an enterprise value of $770 million, which Paia said has “accelerated the company’s 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.”
Paia reported that the company delivered flat organic revenue during 2025, a year in which they estimate their 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,” he said.
He continued, saying that “especially pleasing this year” was the growth from Safety Fabrics 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,” Paia commented.
Full-Year Summary
Total revenue was $1.46 billion in 2025, flat on an organic constant exchange rate (CER) basis, and was said to be “comfortably outperforming” the core apparel and footwear end markets, which the company estimates were down in low- to mid-single-digits for the full year.
EBIT was $290 million, in line with expectations, and up 3 percent on an organic CER basis.
Group operating margin increased by 80 basis points to 19.8 percent of revenue.
“In the second half, we matched our strong first half performance organically despite challenging markets, showcasing the resilience of the group,” noted company CFO Hannah Nichols.
Earnings per share were said to be 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,” Nichols added.
Nichols said the Group delivered strong margin expansion in 2025, with EBIT margin increasing by 80 basis points year-over-year to 19.8 percent of revenue. She said the margin improvement reflects pricing discipline, as Coats successfully managed pricing pressures during the year and benefited from mix improvements, with a focus on premium and sustainable product lines.
Margins also reportedly 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 two months of the year.
Division Summary
Apparel division revenues rose 1 percent y/y to $769 million on a CER basis. Nichols said 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 percent in the year,” she continued. “This was achieved through a focus on delivery and service and supported by our flexible global manufacturing capabilities.”
The division reportedly benefited from a favorable mix with year-over-year growth in premium thread sales and recycled thread products. In addition, there was said to be good growth in the China domestic market, which requires high levels of operational agility to meet demanding customer lead times.
Apparel division EBIT increased 4 percent y/y on a CER basis to $156 million and EBIT margin increased by 60 basis points to 20.2 percent of division revenue. The margin expansion reportedly reflects the benefits of a favorable product mix, pricing discipline, prudent cost control, and an ongoing focus on productivity gains.
Footwear division revenues declined 2 percent y/y on an organic CER basis to $440 million.
“This reflected a period of growth until the end of April, followed by customers taking a cautious approach to ordering,” Nichols explained. “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 percent to 5 percent for the full year.”
Despite the challenging backdrop, the division reportedly outperformed with an estimated organic market share growing to around 30 percent. The division also successfully maintained pricing despite downward pressures.
Footwear division EBIT was $105 million, flat y/y on an organic CER basis. The division reportedly delivered an EBIT margin of 23.9 percent on division revenue, an increase of 40 basis points y/y. This was said to reflect the 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 two months of trading are included in the 2025 divisional results,” the CFO noted. “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.”
Performance Materials Division, which will cease to exist in the new divisional structure, saw improvements in 2025. Revenue in the year was reported at $256 million, flat y/y on an organic CER basis, reflecting a return to 2 percent growth in the second half of the year. Industrial revenue was 1 percent lower than the prior year, with share gains in automotive thread, partly offsetting softness in other industrial end markets.
Nichols said the division also saw strong demand in two organic adjacency target areas: Safety Fabrics, which delivered 40 percent revenue growth in the year; and composite tapes for the energy market, which grew 21 percent in the full year after a particularly strong second-half performance.
PM division EBIT was $29 million in 2025, an increase of 10 percent y/y on an organic basis, with margin increasing to 11.3 percent of division revenue. The organic margin improvement reportedly reflects the benefits of operational actions and the stronger second-half trading, with Q4 exit rate margins at 11.8 percent, 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,” Nichols explained. “In addition, the small acquisition of VizLite was completed in October 2025, accelerating our Safety Fabrics growth strategy.”
The Ortholite Impact
Nichols highlighted several line items on the income statement and balance sheet that were affected by the Ortholite.
Exceptional Items: At $2 million, the line item was significantly reduced from 2024, with previous strategic projects now complete. Acquisition-related items included $27 million for amortization of acquisition intangibles and $20 million for acquisition transaction costs, primarily related to the OrthoLite acquisition.
Finance Costs were $41 million, higher year-over-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 percent, the full-year effective tax rate was said to remain “well controlled and in line with expectations.”
Adjusted EPS: 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 partly fund the OrthoLite acquisition.
Free Cash Flow: The Group said it delivered strong cash performance in 2025, generating $160 million of free cash flow. This reflects the group’s low capital intensity, lower exceptional cash flows, and the positive contribution from OrthoLite.
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 percent in 2025. In 2026, we expect this ratio to return to a more typical level of around 12 percent.
Capital Expenditure (CapEx) was $32 million in 2025 as the Group maintained a disciplined approach to investing in growth opportunities. Coats expects CapEx to increase to the $40 million to $45 million range, including the OrthoLite business, as the company continues to allocate cash to support its organic growth strategy.
Exceptional Cash Flow of $24 million, which included cash outflows related to strategic projects that are now complete, 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 the OrthoLite transaction at the end of October 2025.
Net Debt, excluding lease liabilities, was $815 million at the end of the year, representing pro forma leverage of 2.2x, in line with previous guidance.
“Given the cash generative characteristics of the enlarged group, we continue to expect leverage to fall below 2x by the end of 2026,” Nichols said.
The CFO also called out the effective tax rate, which she expects 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,” she stated.
Jumping back into the prepared remarks, CEO Paia said the acquisition of OrthoLite is an excellent example of the company’s 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,” he stated.
“OrthoLite is highly complementary to our existing Footwear business, creating a leading Tier 2 supplier of footwear components,” Paia continued. “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 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 multiyear integration of the Texon and Rhenoflex footwear acquisitions in 2022.”
The CEO noted that 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 a positive mix given the shift towards molded insoles,” Paia said. “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, Ortholite plans to launch the first insoles made with open-cell foam technology and 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,” Paia shared.
“Within the core premium footwear market, we are also entering two new product categories,” the CEO continued. “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 two 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.”
He said the third adjacency is “very exciting” as it perfectly shows how the Group 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,” he explained.
The Look Ahead Impact
With the significant changes to the portfolio in 2025, Paia said the Group has looked again at its 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 percent revenue CAGR target through the cycle, expecting that the portfolio quality we have now will support a more consistent delivery ahead of the market,” Paia shared. “Our growth will be a combination of market growth of 3 percent and our ability to continue to deliver growth ahead of the market through market share gains and target organic adjacencies.”
He suggested that, with the acquisition of the margin-accretive OrthoLite business, the associated synergies, and with increased confidence in our business potential following the 2025 margin performance of 19.8 percent, the Group has increased the Group margin target range by 200 basis points to 21 percent to 23 percent.
“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,” he added. “This major step-up reflects the highly cash-generative nature of the group, including OrthoLite.”
He said they have also improved the quality of their free cash flow measure, 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,” Paia said.
The Group has maintained its target of a strong double-digit EPS CAGR post-M&A or share buybacks over a medium-term time frame.
The CEO continued, “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 five years, we’re excited about our future prospects and committed to delivering EPS growth in excess of 10 percent.”
Paia concluded by saying that 2025 was a year of strong strategic progress, with resilient operating performance and outperformance in their 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,” he cautioned.
“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,” he said.
“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,” the CEO concluded.
Image courtesy Ortholite/Coats Group plc
