Coats Group plc reported revenue at its OrthoLite insole business declined in the first half ended June 30 on a pro forma basis due to challenging year-ago comparisons and temporary capacity issues at its manufacturing facility in Indonesia. OrthoLite projects a return to growth in the second half.  

Companywide, the London-based Coats Group sales grew 19 percent on a reported basis (+18 percent at constant exchange rates (CER)) to $837 million from $705 million a year ago. Organic sales were up 1 percent, with growth impacted by broader marketplace destocking.  

On an adjusted basis, EBIT (earnings before interest and taxes) grew 19 percent on a reported basis (+18 percent CER), to $166 million. EBIT was up 2 percent on an organic CER basis. EBIT margin on an adjusted basis improved 10 basis points to 19.8 percent.  

Basic earnings per share on an adjusted basis declined 6 percent to 4.4 cents from 4.7 cents a year ago.  

On a reported basis, EBIT in the half grew to 135 million from $128 million. Basic EPS declined to 3.2 cents from 4.1 cents

Financial Highlights

  • Coats Group’s Apparel segment delivered 1 percent organic growth, “driven by portfolio-wide share gains and strong growth in China domestic and automotive thread markets.”
  • Footwear saw “flat organic revenue, with significant acceleration in Q2 despite soft market, and strong growth from composite tapes for energy markets.”
  • Ortholite sales were down on a pro-forma basis “against very strong prior year comparator, with temporary capacity challenges in Indonesia being resolved.” Sales are expected to return to growth in the second half.
  • Group adjusted EBIT margin was maintained at 19.8 percent with “OrthoLite accretion, cost and procurement discipline enabling continued investment in growth initiatives.”
  • Free cash flow improved to $30 million from $38 million a year ago, with leverage on track to reach 2.0x or below by the end of 2026.
  • Interim dividend amounted to 1.05 cents per share, an increase of 5 percent, “highlighting Board confidence in the Group’s medium-term prospects.”

Strategic Highlights In The Half

  • Coats Group said it saw “continued significant outperformance with share gains against markets we estimate were down mid-single digit in aggregate.”
  • Strengthened market leadership in 100 percent recycled thread, generating $297 million of revenue.
  • Target market adjacencies continue to enhance growth profile, contributing 1 percent to revenue growth.
  • 2025 organizational change to two divisions and talent investment in Footwear delivering benefits, positioning the division for accelerated growth.
  • OrthoLite sales synergies expected to deliver at least $40 million of annual incremental revenue by 2030.
  • OrthoLite integration “progressing well,” and is n track to deliver $5 million cost synergies in 2026 and at least $20 million annualized by 2028.

Full-Year And Medium-Term Outlook

  • Full-year expectations unchanged.
  • Assumes modest market declines in the second half, despite low inventory levels.
  • Coats Group expects to “continue to outperform market and deliver growth through share gains, secured pricing, target adjacencies and new product launche.”
  • Incremental cost actions are projected to deliver c.$15 million benefits in the second half, including OrthoLite cost synergies
  • Expect “good year-on-year earnings growth” in full year.
  • Expect “strong free cash flow” for full year, in line with c.$1 billion cumulative target over next five years.
  • Continued investments in innovation and capabilities are expected to “set up the Group for accelerated growth in medium-term, supported by ongoing market outperformance.”

Executive Commentary
Commenting on the results David Paja, Coat Group’s chief executive, said: “We are pleased with our first-half outperformance relative to the market and confident in our second half outlook, despite the prolonged period of industry de-stocking. We continue to prove the resilience of our business model by maintaining margins and generating good free cash flow during periods of adverse market conditions. Our increased focus on operational excellence and product innovation is delivering significant share gains and accelerating our growth in adjacencies, increasing the Group’s structural growth potential. We remain very excited by the enhanced capabilities and deeper customer relationships that OrthoLite has brought to the Group and we see substantial incremental value creation potential from sales synergies. Against this backdrop, we reaffirm our confidence to deliver FY results in line with market expectations.”

Image courtesy Coats Group