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 thread to the A&F industries, and is estimated to be over twice the size of the nearest thread competitor. The global thread market is estimated to be c.$4bn (pre-Covid) and whilst thread represents only 1-2% of the cost of a typical garment, it is a critical component in the performance and efficiency of the production process. We are one of the few global players of a key supply chain component in the $1.5tn global apparel and c.$350bn footwear industries which are projected to grow at low single digits in the medium term. Whilst Covid had a significant impact on the industry in 2020, we expect growth rates to normalise to previous levels medium term. We also provide software solutions to customers which help drive speed, productivity, efficiency, and savings in their operations.
We are global experts in the design and supply of highly engineered, high performance technical threads, yarns and composites used in a range of industries including personal protection, transportation, household and recreation, telecoms and energy, and other industrial end-uses. We estimate the addressable market (i.e. into which we currently or could realistically serve near term) is c.$2.9bn (pre-Covid), of which c.$2.3bn relates to highlyengineered end uses (e.g. personal protection, telecoms and energy, and transportation), and hence we estimate we have a market share of around 10%. We anticipate upper single digit medium-term organic percentage growth (post-Covid), with growth weighted towards higher technology end uses.
Trends that are impacting our businesses:
The onset of Covid during 2020 had a significant impact on our industry. During Q2 almost half our manufacturing footprint was subject to enforced mandatory government closures, alongside significant demand disruption to our customers. Our industries had to pivot quickly to respond with a heightened focus on speed and reliability alongside an ongoing focus on quality, innovation, responsibility and compliance. As a business we are in the process of identifying and adapting to any potential lasting structural effects on our industry, but as the largest, most adaptable and advanced player we are well positioned to respond to these potential changes and to be a net beneficiary.
Trend #1: Our response in the year
We quickly pivoted to focus on four key priorities: the health and safety of our employees, cash management, customer support and maintaining critical elements of our supply chain. We procured PPE for our global facilities, implemented protocols ensuring social distancing, enhanced hygiene and sanitation, invested in new touchless technology and enhanced medical care for affected individuals.
2. Speed to market
Changes in our industry mean speed to market is increasingly important, with dramatically reduced times between the catwalk and the high street. Consumers now demand more than just the traditional two season cycle, which has put tremendous pressure on the full garment supply chain. Not only do all participants need to act faster to respond to shorter lead times, they need to act smarter, focusing on productivity, whilst doing this in a way that does not compromise quality or compliance. Our unrivalled global footprint means we are uniquely placed, across the entire component supply chain, to manufacture and distribute consistently high-quality products to service retailers’ multi-location sourcing strategies. We also have industry-leading digital tools such as our web-based service Coats Colour Express, the fastest thread sampling service in the world. As detailed above, the impact of Covid during the year has further amplified the need for reliable and quick supply in our industry.
Trend #2: Our response in the year
Despite the Covid crisis, our global scale and flexibility allowed us to pivot our operations and to quickly and reliably deliver products and services to customers where they needed them.
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 smart thread and yarns to enhance the functionality or 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 threads used in protective wear, water swellable yarns that protect fibre optic cables, and composites that deliver high performance, lightweight solutions in industries such as oil and gas (e.g. deep water pipes) and automotive. In A&F, we continue to partner closely with global brands to support their ambitious innovation agendas. We listen to their requirements and work with them to develop 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. Despite Covid, the pace of innovation has not wavered and we launched 22 new products this year, delivering incremental sales of $13m. We also saw continued increased commercial interest from the automotive industry in our innovative carbon composite solution – this provides a lightweight, low waste, steel replacement solution. We now have our first commercial orders with this product and are looking to drive further scale.
4. Operating sustainably, increasing standards
The global A&F market is under increased pressure to be more sustainable, which requires improvements from their supply chains. We continue to maintain our leadership position as a major component supplier by pursuing ambitious targets related to Environmental, Social and Governance (ESG) issues. Industry momentum has been relatively unaffected by Covid as supply chain compliance and reliability remain critical. As a result, a growing share of stakeholders are demanding more sustainable products and becoming increasingly focused on operating in a compliant and ethical way. Entire supply chains are under pressure not just to conform to local requirements but also to higher international standards.
Increasingly, ESG standards are being used by investors as a critical part of their assessment criteria. These challenges present a need to drive change at scale and also an opportunity for long-term value creation. This goes to the heart of Coats’ values and standards. Our sustainability programme gives us competitive advantage and helps us build our reputation and our relationships with key stakeholders. Specifically regarding climate change, we treat this as a principal risk which means it is considered at Board level and we developed our mitigation approach during 2020. For details refer to pages 28–33 in our Sustainability Report.
Trend #4: Our response in the year
Our 100% recycled thread, EcoVerde, saw significant traction, especially with brands aligned to our ambitious sustainability targets. Our sales of recycled thread increased 6x year-on-year, despite Covid headwinds.
5. Growth of the urban middle class in Asia
Globally, the A&F thread market is expected to grow by low single digits percentage over the medium term, but this is projected to be higher in Asia. Not only will Asian consumers demand more garments, but more affluent consumers will demand higher-end garments, so we expect regional sales from our factories in Asia to increase over time. Demand for PM threads and yarns is increasing due to the pace of urbanisation (e.g. the rollout of fibre optic cable networks) and economic growth, which means consumers purchase more products needing high performance materials (e.g. leisure goods and automotive). In automotive, demand is driven by the need to conserve energy with lightweight materials. 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 #5: Our response in the year
Our China domestic strategy was reviewed by the Board during the year and we have approved plans for capital and operational expenditure in order to drive forward our strategic growth ambitions from 2021.
6. Increasing adoption of digital services
Digital solutions and services play an ever-increasing role in everyday life and this is replicated in our industry. We have been at the forefront of digital innovation by component suppliers to the global garment industry for several years now. We have a marketleading online proposition and apply digital technology and services proactively to benefit both our internal operations and as a service offering for our customers. Our Coats Colour Express service is the fastest thread sampling service in the world and Opti Express is a revolutionary zip sampling service. Our Online Business teams provide high levels of service and technical support to customers, as well as enabling customers to place, monitor and pay for their orders using our market-leading eCommerce platform.
Trend #6: Our response in the year
In 2020 we launched Coats Fast Start, a digitally enabled initiative which supports manufacturers switching parts of their production facilities and supply chains to PPE production. We also launched a strategic collaboration with Res.Q and Serai, providing access to a range of interconnected digital solutions over a single digital platform, reducing inefficiencies by connecting multiple standalone systems. This drives real-time data and end-to-end transparency across the supply chain, increasing efficiency, and reducing cost and the need for face-to-face contact. Our customer-facing eCommerce platform saw adoption reach 85% (proportion of thread orders) This allows us to engage with our customers online to deliver speed, convenience, transparency and efficiency. Our foundation in the digital space was a significant differentiator in our offering during 2020 when Covid forced many interactions to be performed virtually.