Coats Group plc (COA) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining Coats 2026 Half Year Results. My name is Claire, and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to David Paja, Chief Executive Officer, to begin. Please go ahead.

Good morning, everybody. I'm delighted to welcome you to today's presentation covering our first half results. I have with me today our Group CFO, Hannah Nichols. Let's move to the first slide. We'll start with the first half business highlights. Hannah will then share our financial results. And following this, I will give an update on our strategic progress and address the outlook. After the presentation, we will take questions. So let's look at the highlights for H1. We have delivered 1% organic revenue growth in the period where markets declined by mid-single digits, demonstrating again that we can consistently outperform our end markets. We have maintained a strong group margin of just below 20%, even after making significant investments in technology and growth initiatives. I am particularly pleased with the substantial share gains in apparel, which proved the strength of our value proposition and differentiators. Our footwear division is picking up momentum, and we saw good organic growth improvements in Q2. We continue to execute on our strategy to become the leading multiproduct Tier 2 partner of our footwear customers with an enviable technology portfolio and global scale. Finally, we remain very excited with the scale and capability that OrthoLite has added to the group and our confidence in the value creation from this acquisition has increased. We are on track to deliver the planned cost synergies and our work post acquisition has identified $40 million of annual sales synergies, which were not included in our acquisition case. With that, I will hand over to Hannah to take you through our financial performance.

Good morning, everyone. Before I start, it's worth noting that we are now reporting under the new 2 divisional structure as previously announced. The group has delivered another period of market outperformance in the first half set against a challenging macroeconomic backdrop with continued tariff uncertainty and the stop-start Middle East conflict since the end of February. Revenue was $837 million, up 1% on an organic constant exchange rate basis, outperforming our apparel and footwear end markets, which were impacted by customers managing inventory levels tightly in response to the uncertain macro outlook. EBIT was $166 million, 2% lower on an organic basis, reflecting planned strategic investments made in growth and technology initiatives. EBIT margin was maintained at 19.8%, including a 40-basis point margin accretion benefit from OrthoLite. From February, we promptly enacted our tried and tested operational and commercial playbook in response to the Middle East conflict. This has enabled us to successfully manage the associated inflationary cost pressures, contain our costs and agree price adjustments with our customers while supporting them with agility. Earnings per share was in line with expectations at $0.044, 6% lower than the same period last year, with higher EBIT offset by higher interest charges and the timing of the share placing in July 2025. The group continues to be cash generative and delivered $30 million of free cash flow pre-dividends in the first half, reflecting our normal seasonality. As expected, net debt ended the period at $842 million with leverage of 2.3x, and we remain fully on track to deliver leverage to 2x or below by the end of the year. If we now turn to the divisional performance, starting with the Apparel division. At $486 million, revenue was up 1% on an organic CER basis. This was a very strong performance with the division continuing to gain significant market share across the portfolio, outperforming the apparel thread market, which we estimate were down mid-single digits, impacted by customer caution leading to low inventory levels. In particular, we delivered strong growth in the China domestic market where agility is important and in automotive threads with a number of new customer wins. This was achieved through a focus on delivery and service and supported by our global manufacturing and technology capabilities. In addition, our position as the clear market leader in the supply of 100% recycled thread products has continued to drive growth. The division delivered an EBIT margin of 18.9%, 50 basis points lower than H1 2025. The lower margin reflects targeted investment in technology and growth initiatives, including our Coats digital business. This result was achieved through excellent procurement and cost management against the backdrop of significant cost volatility as a result of the Middle East conflict. Our customer pricing continues to be disciplined with price increases implemented during the period. If we now turn to footwear. Footwear revenue was flat on an organic basis, increasing on a reported basis to $351 million as a result of the acquisition of OrthoLite at the end of October 2025. The step-up in growth in the second quarter was driven by an acceleration in growth initiatives alongside softer prior period comparators. The division gained market share in both footwear thread and structural components against the market, which we estimate was down mid-single digits. In addition, we saw continued strong growth in composite energy tapes, one of our target adjacencies with increased customer traction and new products coming to market. OrthoLite revenue was below H1 2025 level on a pro forma basis due to strong prior period comparators, the challenging market backdrop and some temporary capacity challenges in Indonesia, which we have taken action to address and are confident will be successful. Secured new platform wins and product launches, combined with customer price increases supports a return to growth in the second half. EBIT decreased by 2% on an organic basis to $74 million, with EBIT margin increasing by 30 basis points to 21.1%. The margin increase is attributable to a 70-basis points accretion benefit from OrthoLite and operational efficiency and cost actions, partly offset by investment in people and capabilities to support medium-term accelerated growth. We now turn to the income statement with certain areas worth highlighting. Exceptional items totaled $3 million, comprising $7 million to support the delivery of OrthoLite acquisition synergies and divisional structure change, partly offset by net income for property sales relating to prior year strategic projects. Acquisition-related items of $28 million related solely to acquisition intangibles, the increase attributable to the acquisition of OrthoLite. Finance costs were $32 million, $14 million higher than the same period last year, mainly due to the incremental interest costs associated with the purchase of OrthoLite. And at 29%, the half year effective tax rate remained well controlled and in line with expectations. And we continue to expect the ETR to reduce a little over the next 3 years. As a result, earnings per share was $0.044, 6% lower than the same period last year. The increased H1 2026 EBIT was offset by higher interest charges related to acquisition funding and the increased number of shares in issuance following the capital raise that took place in July 2025 to part fund the OrthoLite acquisition. And finally, given the robust half year performance and our confidence in the full year and medium-term outlook, we are pleased to announce an interim dividend of $1.05, up 5% compared to H1 2025. If we now turn to look at cash flow and leverage. As expected, the group delivered a good cash performance in the first half with an overall free cash flow prior to shareholder distributions and M&A of $30 million, including a positive net contribution from OrthoLite. As you can see from the chart, the working capital outflow was $35 million, reflecting expected seasonality. And during the period, working capital was carefully managed with a particular focus on tight inventory management without compromising service levels during a period of market uncertainty and inflationary pressures. Capital expenditure was $16 million as we maintained a disciplined approach to investing in growth opportunities. As expected, interest paid was higher than the same period last year, mainly due to higher interest costs associated with the OrthoLite acquisition. And the $43 million of tax outflows included a $6 million one-off settlement payment relating to the successful negotiation of an advanced pricing agreement. Net debt was $842 million, representing a pro forma leverage of 2.3x, in line with our expectations. Given the cash-generative characteristics and the expected working capital unwind in the second half, we remain fully on track to deliver leverage of 2x or below by the end of 2026. Our balance sheet remains in a strong position. During the period, we successfully refinanced our $300 million bridge and our $150 million term facilities at competitive rates. Both were put in place last year to fund the OrthoLite acquisition. And finally, moving on to modeling guidance. Now as a reminder, the main focus of this guidance is to provide you with the key building blocks for the group cash flow in 2026 and the medium term. The full year and medium-term guidance remains unchanged and can be found in the appendix of this presentation. On this slide, I provided some additional color around 2026 and in particular, the H1 to H2 profit and cash bridge. In terms of [Technical Difficulty] as you can see from the chart on the left, we have a high level of confidence in delivering an improvement in EBIT in the second half. This assumes modest end market declines and is based on our ability to deliver ongoing share gains and clear visibility on new products and program launches. We've already taken pricing actions, which will benefit the second half, offsetting raw material inflation with supply now largely secured. In addition, we've taken incremental cost actions, which we expect will deliver around $15 million of benefit in the second half, including synergies from OrthoLite. As a result, we expect to deliver profit in line with market expectations and good year-on-year earnings growth. In terms of cash, alongside an increase in EBITDA, we expect to see working capital significantly unwind in the second half, in line with typical seasonality and our continued focus on efficient working capital management, with working capital as a percentage of sales running at around 12% for the full year, in line with historic levels. Our guidance for FY 2026 capital expenditure remains unchanged at $40 million to $45 million, plus $5 million relating to the authorized capacity expansion in our Coats site, which will start production in Q1 next year. In terms of OrthoLite cost synergies and integration costs, we are maintaining the guidance that we provided at the time of the acquisition announcement, and David will cover a wider update on progress shortly. So in summary, we've delivered a resilient performance in the first half and have confidence in our ability to deliver a strong cash and profit performance in 2026, in line with market expectations. I'll now pass back to David to provide a strategic update.

Thank you, Hannah. The first half result has demonstrated again our ability to significantly outgrow our markets. We delivered 1% organic growth in a market that we estimate declined by mid-single-digit percentage. This outperformance has been driven by our many competitive advantages, including our global scale and footprint, our operational excellence and agility, our leadership in sustainability and our increased focus on innovation. We continue to build a world-class growth-oriented footwear division. With the transition from 3 to 2 divisions in the second half of 2025, we further strengthened the footwear division in terms of talent, structure and capabilities. These changes have increased the division's focus on growth, and we saw the first results in Q2. Our target adjacencies have continued to grow in the half, delivering 1% of group revenue growth, in line with our expectations. Within this, there was a particularly strong performance from our composite tapes for energy markets. Finally, since we completed the OrthoLite acquisition 8 months ago, we have made substantial progress in integrating the business, and we have strengthened our confidence in creating strong shareholder value. We are firmly on track to deliver the expected cost synergies of $5 million this year and at least $20 million by 2028. And we have identified sales synergies not included in the acquisition case that will generate $40 million plus of additional annual revenue by 2030. This slide shows our formula to deliver 5% or more sales growth per annum on average through the cycle. While 5% is above our historical growth rate, our portfolio is now structurally more growth-oriented following OrthoLite acquisition and the divestiture of our North America Yarns business. Our share gain momentum is accelerating with record performance in H1. And our expansion into adjacencies represents a new and additional engine for growth. While market growth has been challenging in the first half, our share gains have been very strong with mid-single-digit percentage points of outperformance compared to our 1 to 2 percentage points ambition, a very pleasing result. And our target adjacencies have delivered again 1% of group growth in the first half with substantial additional potential ahead of us. This slide provides more detail on the apparel and footwear industry environment, which declined mid-single-digit percentage in the first half. The top of the chart shows historical demand trends represented here as the volume imports of apparel and footwear products into key developed markets. As you can see, macro performance has been very volatile since COVID, but both apparel and footwear volumes are below the historical average for the decade before COVID and approximately 10% below the 2019 levels, pointing to the industry's recovery potential in the medium term. Additionally, as you can see in the lower graph, industry-wide inventory has been managed very tightly by the brands, and it has declined in the last 3 consecutive quarters. Despite the historically low demand and inventory levels, we're not assuming any market improvement in our H2 outlook. We anticipate a modest market decline. And in case that the destocking cycle comes to an end during the period, it could represent an upside opportunity for us. In the first half, we have achieved significant outperformance in share gains, continuing to build momentum on our competitive differentiators as the industry continues to consolidate its supply chain. The acceleration of fashion cycles and the increased focus from brands and Tier 1s on productivity, inventory control, production flexibility and sustainability is playing to our strengths. With our market-leading systems, global footprint and capability and our leadership in sustainability, we're perfectly positioned to provide to our customers anywhere in the world, the quality and consistency that they need in increasingly smaller batches and increasingly shorter lead times than anybody else. Additionally, our leadership in sustainability and our increased investments in innovation and digital systems align well with our customer's priorities, making us a trusted partner. This is why we have significantly outperformed our markets in H1, and we are confident that we can continue to outperform in H2 and beyond. In the second half of last year, the group structure changed from 3 to 2 divisions, apparel and footwear. This change reduced internal complexity and aligned the divisions more closely to their underlying textile engineering and polymer science technologies, but it also served as a catalyst to further strengthen the footwear division for accelerated growth. Under the leadership of Pasquale Abruzzese as new footwear CEO, we reorganized the division along 4 product P&Ls: footwear thread, structural components, OrthoLite and composites with dedicated leadership and dedicated sales teams for each of them. And since then, we have been further enhancing the division's commercial, operational and innovation capabilities to create a world-class delivery organization. These changes have started to show their benefits in terms of growth. In Q2, the division grew 6% organically, and we expect growth to continue in H2. Our target adjacencies represent a new addressable market of around $2 billion, growing at more than 5% per year with customers that we already serve today. Going from left to right of the chart, in Safety Fabrics, we're bringing innovative new materials to workers in hazardous jobs, combining premium protection with comfort. In Energy Tapes, we are expanding our range of highly engineered tape products that protect critical on and offshore pipeline applications. This was a key growth driver in the first half. In Coats Digital, our Software-as-a-Service business, we provide AI-powered solutions to our apparel customers to enhance their cost visibility and manufacturing efficiency. We expect market demand to expand in the coming years, and we have increased our investments during H1 to accelerate our product road map. In ProWeave, our woven [ upper ] technology, we're working with a leading global brand to launch the technology in 2027. In Lifestyle, we are launching a specific portfolio of structural components for our premium handbag customers. These 5 adjacencies together added 1% to group growth in the first half, and we continue to invest in them to deliver on their growth potential, which we are excited about. In our 2025 results presentation, we provided a case study on our Safety Fabrics adjacency. Today, we provide more details on our Energy Tapes adjacency. This is a growing market driven by 2 trends: sustained investments in deepwater oil exploration and the technology shift from steel to composite materials in some of the layers of these pipes. These are highly engineered products in a highly concentrated market in terms of customers, and it represents an addressable market of $220 million, growing at more than 5% per annum. Building on our expertise in polymer science and textile engineering, we have ramped up the production of composite tapes over the past 12 months with a strong reputation for innovation and manufacturing excellence. We're now progressively expanding our product portfolio. In the first half, our new anti-wear tape was adopted by the first global customer with others to follow. We see an opportunity to grow our revenue from $11 million in 2025 to over $40 million by 2030. With this, let me move on to OrthoLite now. We have owned OrthoLite for 8 months, and our confidence in the acquisition has strengthened since then despite recent trading weakness. OrthoLite sales declined in the first half on a pro forma basis due to the subdued market conditions and a temporary capacity issue at the OrthoLite facility in Indonesia that resulted in a sales shortfall with one customer at the end of last year and into 2026. OrthoLite was not able to accommodate the sudden demand increase in Indonesia following the implementation of U.S. tariffs that accelerated the production shifts to this country. We're addressing the issue by adding capacity in the current OrthoLite site in Indonesia in the second half, ahead of installing additional capacity in our Coats site in 2027. We are confident that the OrthoLite global business will return to growth in the second half, supported by several global business wins and product launches. The OrthoLite integration plan is firmly on track, and we are very confident to deliver the $5 million of joint cost synergies this year and at least $20 million by 2028. The first of 3 significant site optimizations is well underway, and we will commence production of OrthoLite insoles at Coats existing facility in Pleret, Indonesia early next year. The site optimizations in China and Vietnam will follow starting next year. We have also made good headway with procurement savings. The first wave has been completed and the second wave is in the planning stage. Finally, we will implement Coats SAP system in OrthoLite Indonesia early next year, followed by China and Vietnam. Let me talk now about OrthoLite's exciting new growth opportunities. We acquired OrthoLite for its growth potential as open cell-foam technology displaces alternative chemistries in premium insoles. OrthoLite's core addressable market is expected to grow from $700 million in 2024 to around $1 billion by 2030. Post acquisition, we have identified and quantified a number of additional sales adjacencies, including Cirql, which were not included in our original acquisition case. These amount to an additional addressable market of around $600 million by 2030, which we estimate is growing at circa 10% CAGR. These are not distant growth prospects. We have already progressed them to advanced stages of commercialization, and we expect to generate first sales in the second half of this year and ramp up to $40 million plus of annual sales by 2030. For 3 of the 4 new sales areas shown here, safety insoles, supercritical foam insoles and Cirql midsoles, we expect the first customer launches in H2 this year. And for the fourth product area, integrated carbon plates, by next year. These synergies will support OrthoLite's high single-digit compounded annual growth up to 2030. Let me now give more details on Cirql. Cirql is the first sustainable midsole product in the market. New EU regulation will come into effect from 2027 to 2030, establishing mandatory sustainability and circular economy requirements for most products sold in the EU, including footwear. This is expected to drive demand for recycled or biodegradable footwear products. The midsole represents 25% to 30% of the total carbon footprint of a shoe. So it is a strategic part to decarbonize. Cirql is a high-performance foam with a high percentage of recycled content, reducing the midsole carbon footprint by up to 39%. Our efforts post acquisition are focused on assessing the technology readiness, defining our commercial strategy and improving the economics. We're very pleased that the leading European brands has selected Cirql for launch and is moving to industrialization phase in H2. In this particular program, we will be providing the polymer compound to a Tier 1 who will make the midsole. We estimate a total addressable market for Cirql of $140 million by 2030, and we are excited by the commercial progress so far. So to conclude, we are maintaining our full year guidance, and we are doing this with the assumption of modest market decline in H2 despite low levels of inventory in the channel. We expect good full year growth in earnings compared to 2025. This will be driven by continued market outperformance, increased customer pricing, which we have already secured and incremental revenue from new product launches. In addition, we expect an additional of circa $15 million of benefits in H2 from cost actions taken, including the OrthoLite cost synergies. We also expect strong free cash flow during the year with leverage reduced to 2x or below despite the unfavorable market conditions. This free cash flow will be consistent with our target to deliver $1 billion of cumulative free cash flow over the next 5 years, proving the resilience of our cash generation to lower growth rates. In the medium term, we remain confident that our continued investments in sustainability, innovation and commercial and operational excellence capabilities will deliver accelerated growth, consistent with our financial framework. Thank you very much for listening today, and we can now take your questions.

Charles Hall From Peel Hunt. Hannah, could you just give a bit more color on the step-up in H2 profits compared to H1? Obviously, you've got the $15 million of cost, you need some price improvement and volume growth to deliver that.

Yes. So if we maybe go back to Slide 10 because I think that just supports, we'll just talk through each of the components in a little bit more detail. The first thing, just to repeat what I said during the presentation is that this does not assume a market recovery in the second half. We are actually assuming a modest market decline in the second half. Then if you look at each component by turn, so you'll see there's a modest level of share gains in new products assumed. That's a combination of platform wins in OrthoLite, but also some modest market share gains in our organic business as well. Our level of confidence in that is sort of underpinned by good visibility around those actions. Pricing, as I said in the presentation, is largely secured. So it's based on actions we've taken in Q2 and our confidence in being able to sustain that pricing through the second half is good. Inflation, similarly, I have to say our procurement teams have been doing a great job in both containing inflation in the second quarter, but also in being able to sort of mitigate inflationary pressures as we go into the second half. But again, we have now a good line of sight to that for the next 4 or 5 months. So I would say the second half is largely secured around inflation. And then the cost actions, the $15 million, well, $5 million of those are related to the cost synergies. And then the balance of that is the $10 million is a mix of sort of discretionary spend savings and then there are some actions around sort of reorganization that will flow through into 2027 and beyond. But again, those are actions we've already taken, so a good level of confidence in the cost actions as well. It doesn't require anything heroic to deliver the step-up in EBIT in the second half.

And just a second question, David, on OrthoLite and those adjacencies aiming for $40 million by 2030. What's the buildup to that? And also what incremental margins do you expect on those sales?

Yes. So the buildup is obviously depending on the specific platform ramp-up, but we don't expect that to be back-end loaded. We expect that to be relatively progressive as we start first revenues in the second half of this year, which is another proof, I think, of the feasibility of those numbers. And in terms of margins, we would expect that to operate at similar margin levels as the rest of. . .

Kevin Fogarty from Deutsche Numis. Two if I could, please. Just one in terms of market share gains, apparel probably benefited from a more favorable competitive environment perhaps. Could you sort of talk to that, just how that might have changed? And I guess sort of the uptick in footwear, obviously, the comp was easier, but how much is sort of a sharper commercial focus, bigger platform or portfolio helping. Perhaps what landed well, I guess, in footwear.

Yes. So starting with apparel, really, the share gains are driven by 2 things. One is what I would call the structural industry trends that favor our capabilities. That's what I described in the presentation, the fact that industry moving to tighter inventory controls, faster fashion cycles, all that is driving smaller sized orders requires much higher agility and this plays to our strengths. And that is proven, for example, in our growth in China, which is probably the most agile and fast market around the world right now. But it's also been helped by some competitor weakness with our 2 main large global competitors going through some problems. And obviously, this is an industry where trust matters. And if you cannot deliver, you quickly lose business. So we've been able to benefit from that. And particularly areas, for example, automotive is a good area of good example. And with regards to footwear, as I mentioned in the presentation, we -- as we moved to 2 divisions, we basically increased the focus on product and go-to-market, and that was investments in capabilities, but also in resources with dedicated sales forces. And the -- as you think of the second quarter, obviously, we benefited from easier comps compared to last year. But about -- I would say, about half of the growth is driven by easier comps and half is a result of actions that we've taken in terms of share gains, much sharper commercial go-to-market, yes, going back to very dedicated and focused commercial kind of excellence playbook. And we -- yes, so we see kind of these structural improvements helping us going forward as we are trying to build division that was built by a combination of multiple acquisitions. If you think of Texon, Rhenoflex, OrthoLite and our original Coats footwear business, and we continue to kind of turn it into a homogeneous high-performance organization. So we are well along that path, and we're happy with the progress and more to come.

Can I ask a follow-up just on the pricing point. Is there any risk you might have to give some of that back if we saw kind of easier input cost energy environment? And is the [ direct ] offset just inflation comes back?

I think we're pretty confident in terms of our ability to hold price. We've got a strong track record of that. It's all around the value that we create. Clearly, it's not to say that we haven't got customers trying to put pressure on us. But I think, again, it comes down to our commercial excellence. So confidence in that pricing in the second half is good.

Mark Fielding from RBC. A couple of questions, please. Firstly, in terms of that new product pipeline, I'm just curious about the sort of further out visibility. I mean, obviously, the presentation talked to the carbon plates in 2027. But do you have further incremental new products that you can see coming through OrthoLite and maybe a wider footwear question as well? And then secondly, just can we talk a little bit more about, I mean, the growth investments? I mean, the implication is that margins are down around 40 basis points organic. Do you feel like that's now the right level of investment? Do you need incrementally a bit more? And in the future, do we think about that inverting to a positive benefit at some point from those investments as well?

Yes. So I'll start with the footwear question and then maybe will answer the investment question between Hannah and myself. So footwear is a space that is ripe for innovation. There's been a lot of innovation in footwear in the last 10 years, and there's more to come. And you see huge focus on improved performance, improved comfort now with new regulation, new materials for sustainability. So it's a space where we see a lot of opportunity for, call it, new product growth acceleration. Obviously, the 4 platforms that I mentioned there for OrthoLite are exciting platforms. And to be honest, they are large addressable markets. So I think we have enough there to kind of really try to develop. In the broader footwear division, we continue to invest in different areas. I mean, I've mentioned woven uppers, so our ProWeave technology, we're making good progress there. Rhenoprint, which is probably the most sustainable structural component technology out there, we're into a Gen 2 development right now. So there's a lot of focus in general on innovation in the footwear division because it's a market where brands are trying to differentiate through new products, new capabilities. You see it every day, lighter shoes, lower density midsoles, high rebound nicer designs, personalization. So that's the space where we really want to play with kind of an innovation-led capability. And on investments, maybe. . .

Should I start and then you can talk about sort of the link to growth. So when we look at the investments that we've made, I'd sort of categorize them, they're predominantly technology focused, but there are some that are group-wide across all of our platforms. So we are investing -- continuing to invest in our ERP system in SAP, and we've talked about a key differentiator for Coats is our ability -- our production planning systems, our ability to serve the customer. We're also investing in our color technology systems as well, again, a key differentiator for Coats will continue to drive growth. And the third one is something that all companies are grappling with at the moment is around just continued investment in our cyber capabilities to protect the company, but also to underpin the growth going forward. So they are group-wide investments from a technology perspective. Then within the apparel division, there is specific investments that we're making in Coats Digital. Really, we talked about new product launches and AI acceleration. In order to do that, we've brought in expertise to be able to engineer the products to support that. And maybe with that, maybe I'll hand over to David, if there's anything else you want to add?

Yes. I mean I would say digital is a big trend as well in the industry. Everything I mentioned, faster fashion cycles, better inventory control, even efficiency, it all has to be driven by technology. And we are, in relative terms, much stronger than our competitors are doing this. But in my view, there's much more that can be done, and we're trying to advance all our core platforms that Hannah mentioned into the future. And one of the big efforts we're doing is integrating AI in pretty much all our platforms. It applies to investments in Coats Digital. We're rolling out AI capabilities as part of our products. To give you an example, our costing solution introduced GSDQuest early in the year, which is -- which enables costing to go from hours to seconds literally, and that's done through AI capabilities and our 20-plus years of data libraries. And that product, in particular, we've seen bookings jump 57% in the first half as an example. So there's a lot of opportunity to modernize our core platforms and some of our software products, and we think it's the moment to invest because the industry is pivoting -- under external pressures is pivoting towards a much more digital future.