Coats Group plc (LSE:COA) increased its medium-term operating margin target to 21–23% from the previous 19–21% on Thursday and lifted its five-year free cash flow objective to around $1bn. The update followed the release of 2025 results that broadly matched market expectations, with the shares rising more than 3% in London trading.
The company reported adjusted operating profit of $290m on revenue of $1.465bn. Organic sales were broadly flat compared with markets that Coats estimated declined by low- to mid-single digits. Operating margin improved by 80 basis points to 19.8%.
“2025 was a transformational year for Coats. We achieved record profit and cash generation, reshaped the portfolio for accelerated growth and reorganised the Group for simplicity. As a result, we have upgraded our medium-term financial targets, including c.$1bn of free cash, and look at 2026 with confidence,” said David Paja.
Adjusted earnings per share reached 9.3 cents, slightly ahead of the 9 cents consensus forecast. However, earnings were partly weighed down by higher interest costs following a pension settlement in 2024 and a $322m equity raise used in part to finance the October acquisition of OrthoLite for an enterprise value of $770m.
Analysts at RBC Capital Markets, which rates the stock “outperform” with a price target of 115 pence, said they viewed Coats as “a high-quality business with structural growth potential that is not reflected in a P/E of 11.5x26E with an FCF yield of 9% and rising from 2026E also supportive.”
The group generated record free cash flow of $160m, surpassing its own forecast of $132m. Net debt increased to $815m from $449m, while pro forma leverage stood at 2.2 times, comfortably below the covenant limit of three times. The company expects leverage to fall below two times by the end of 2026.
Within the business segments, footwear revenue declined 2% organically, as U.S. tariff disruptions prompted customer destocking that continued through the end of the year. Apparel revenue increased 1% organically despite an estimated 3% contraction in the overall market. Coats said it captured roughly 100 basis points of market share in both divisions.
OrthoLite contributed $42.6m in revenue and $10.5m in operating profit during its first two months under Coats ownership. The company aims to achieve $20m in annualised cost synergies from the acquisition by 2028. Meanwhile, revenue from fully recycled thread products climbed 43% to $554m.
Looking ahead, the company expects organic growth in 2026 despite uncertain market conditions and warned that geopolitical tensions in the Middle East could pose risks to demand.
Consensus forecasts for the full year currently point to revenue of $1.76bn and adjusted operating profit of $371m, which management said are consistent with its expectations.
The board proposed a final dividend of 2.28 cents per share, an increase of 4%. The company maintained its medium-term targets of annual earnings per share growth above 10% and revenue growth exceeding 5%.
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