Coats Group plc (COA) Earnings Call Transcript & Summary

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.