Coats is a global leader in growing markets and well positioned to take advantage of global socio-economic trends and specific factors affecting the environment in which we operate.
What markets do we serve?
Apparel and Footwear (A&F)
Coats is the global market leader in supplying premium sewing thread to the A&F industries, and is estimated to be over twice the size of the nearest thread competitor with a c.23% thread market share. The global thread market is estimated to be c.$4bn and whilst thread only represents 1-2% of the cost of a typical garment, it is a critical component in the manufacturing process and for the quality and performance of the finished product. We are one of the few global players of a key supply chain component in the $1.4tn global apparel and c.$350bn footwear industries which are projected to grow at low single digits in the medium term. We also supply selected zip and trim products, and our fashion tech business provides software solutions for speed, productivity and transparency in customers’ operations. Whilst Covid and supply chain constraints continued to impact our industry in 2021, we expect industry growth rates to return to previous levels medium term. In A&F we are growing faster than the market because of our excellent reputation for quality, our value proposition, our global footprint and our strong sustainability agenda.
We are global experts in the design and supply of highly engineered, performance threads, yarns and lightweight composites used in a range of industries including thermal and cut protective wear, telecom infrastructure, automotive and feminine hygiene. We estimate the addressable market (ie into which we currently or could realistically serve near term) is c.$3bn, of which c.$2.4bn relates to highly-engineered end uses, and hence we estimate we have a market share of around 14%. In PM, we anticipate mid-high single digit organic growth medium-term, with higher growth opportunities in both Composites and Personal Protection. In Personal Protection we expect medium term growth of high single digits, in Composites we expect doubledigit growth, and in Performance Thread we expect growth to be at or around global GDP.
Trends that are impacting our businesses:
1. Supply chain flexibility
Across the industries we serve, speed to market is increasingly a critical differentiator, accelerating processes through design, development, manufacturing, sourcing and retail. Our customers are increasingly looking at their own supply chain resilience, including reviews of their supply base and sourcing geographies. During 2021 specifically, we saw significant industry supply chain disruption with reduced availability of raw materials, labour constraints and disruption of sea freight operations, all contributing to increased inflationary pressures. We expect these challenges to continue into 2022, increasing the importance of speed, agility and supply resilience across the industries we serve.
Trend #1: Our response in the year
We have continued to pivot quickly, responding to and supporting our customers’ needs in a highly volatile environment. Our unrivalled global footprint, our scale and agility proved invaluable as we delivered high levels of customer service and supply through multiple external challenges. In response to increasing inflationary pressures we reacted by successfully implementing pricing and self-help programmes. In China, we progressed in meeting changing customer needs leading to higher share of the growing domestic market. Beyond Asia, we were able to respond to higher demand in EMEA and the Americas as customers sought out more balanced and resilient supply chains.
2. Living sustainably
Sustainability continues to increase in importance across the industries we serve, driven by consumer pressures, customer strategies and legislative changes. COP26 delivered further global progress across the environmental agenda. This significant shift in sentiment and behaviours is manifested in areas such as materials innovation, energy renewables, water management, waste reduction and social justice and compliance. Many of our customers are developing partner programmes that put sustainability at the heart of ongoing collaboration. Our expectation is that this trend is irreversible and will only increase in importance over time.
Trend #2: Our response in the year
When we launched our Sustainability strategy, ‘Pioneering a sustainable future’, in 2019, we laid out ambitious targets for 2022 and 2024. We remain committed to those targets and have significantly increased our ambitions in order to evolve our Sustainability strategy and increase momentum, as well as to further enhance our competitive advantage. We will reduce emissions by 46% in this decade and reach net zero by 2050. By 2030, 70% of our global energy consumption will come from renewables. Our other new targets are:
- Eco materials: By 2030, all Coats products will be made completely independently of new oil-extraction materials such as polyester and nylon
- Circularity: We will shift to circularity, creating products and packaging solutions that enable recycling and reuse, both within our own operations and across the wider garment industry
We will continue to invest in our Sustainability strategy and have earmarked $10m to fund the scaling up of green technologies and materials that are relevant to our industry supply chain. Our Asia Innovation Hub in Shenzhen, China is being re-purposed to focus on the application of biomaterials.
3. Innovative uses of threads, yarns and fabrics
Consumers are demanding more innovative products in every area of their lives and so new thread-based application end uses continue to be identified. As a global market leader, we are at the forefront of innovating threads and yarns to enhance the functionality and performance of products in multiple end markets. This is a core competency in Performance Materials where we have developed and grown sales in many new products such as flame retardant yarns and fabrics used in protective wear and composites that deliver high performance, lightweight solutions in industries such as oil and gas (eg deep water pipes), telecom infrastructure and automotive. In A&F, we continue to partner closely with global brands to support their ambitious innovation agendas with a particular focus on sustainable and circular thread solutions.
Trend #3: Our response in the year
We have three Innovation Hubs around the world which reduce innovation lead times for customers. Our innovation ecosystem gives us dedicated capacity to develop new product solutions as well as products in collaboration with customers. We launched 21 new products in 2021, delivering revenues of $37 million. Examples within Composites include Lattice Lite Eco, a revolutionary fibre-laying technology using sustainable materials to create footwear composite materials for the next generation of high-performance supershoe. In Personal Protection, the largest selling innovation was a new FlamePro product called FlamPro Orbit with lighter weight, higher performance, improved strength and multi-protection qualities. We also developed Epic Patriot for US nonflame retardant military applications with a specially formulated lubricant.
4. Growth of Asian domestic markets and Asia brands
Domestic consumer demand in Asia is both significant and expected to grow faster than JUSE (Japan, USA, Europe) markets. Globally, as a derived demand component, sewing thread markets are expected to grow by low single digits percentage over the medium term, but with higher growth in Asia as demographics and consumer wealth expands. This is reflected in the growth of domestic fashion retail, most notably, but not only, in China and India. Demand for Composites is increasing due to the pace of urbanisation (eg the rollout of fibre optic cable networks) and economic growth, which means consumers purchase more products needing high performance materials (eg outdoor goods and passenger vehicles). In personal protection, demand is being driven by increasing levels of worker protection, industry regulation and the need for comfort with multi-hazard protection.
Trend #4: Our response in the year
We continued to develop and execute our domestic market growth strategies in China and India, building on our competitive advantages of product range, quality, technical application and brand strengths. In Apparel & Footwear, we delivered market share gains and significant growth in China and made strong progress coming out of Covid disruption. In Performance Materials we delivered significant share gains in China in Performance Threads with multiple new programme wins for automotive safety critical and trim applications as well as a very successful start to producing and selling FlamePro branded flame retardant fabrics in India mainly for use in garments destined for the middle eastern oil and gas market.
Industry adoption of digital technology has accelerated significantly during the Covid pandemic as companies look to drive faster speeds, increased productivity, lower waste and end-to-end supply and materials transparency. For example, in the apparel industry, adoption of 3D sampling technologies has increased rapidly, with several brands now developing 30% of samplings virtually. Customers have likewise adopted production planning, product lifecycle, quality systems and material usage software in far greater numbers. As a result of these trends, customers are demanding higher levels of digital integration with their strategic partners. We believe that this trend will only accelerate further during 2022 and beyond.
Trend #5: Our response in the year
Coats Digital, our Fashion Tech business, enables fashion brands, sourcing companies, and manufacturers to optimise, connect and accelerate business critical processes seamlessly, including: design and development; method-timecost optimisation; production planning and control; fabric optimisation and shop floor execution. In 2021 bookings saw high double-digit growth ahead of reported sales growth, indicating confidence for continued future growth. The order pipeline remains strong for 2022. We enhanced our digital customer ecosystem, ShopCoats, through which customers can, for example, use automated bulk and sample ordering and status management. We onboarded valuable key accounts through system integration, refreshed our front-end order system and used Microsoft Dynamics CRM to further professionalise our sales and customer service systems. These tools give us speed, agility, lower cost and more customer satisfaction.