Thank you very much. It's really exciting to be here, and it's so good to see a really large turnout, so thank you very much for that. Today is a special day. My name is Rajiv Sharma. I have the privilege of leading this extraordinary company. Today, we are excited to share with you the story of our new growth engine called Coats Footwear. Last year, just as a data point, last year, the world produced about 16 billion pairs of shoes. For us, the relevant number is 6 billion because that's the premium and the performance end of the market. When you hear the team later on in the presentations, we are referring to the 6 billion pairs of shoes here. I myself am wearing an On running shoe, which is designed by Roger Federer. He's been wearing these shoes in, you know, at Wimbledon.
It's made from Coats threads, and it also has Texon and Rhenoflex structural components. This is a good example of how three parts are coming in to make one. Let's talk about the agenda. In total, we have seven sections taking just under three hours. The agenda includes presentations, product displays, and question and answers. Section one is an overview of Coats and an introduction of the new footwear business unit. Sections two, three, and four cover why footwear is an attractive market for Coats, and what are we doing to create a new footwear business, and more importantly, how are we gonna create customer and shareholder value? Section five covers the financial aspects of the two acquisitions and a directional view of the divisional growth rates. These presentations should take about 60 minutes. This will be followed by a 30-minute Q&A.
The last part involves smaller groups going through specialist presentations with our experts at the four booths at the four corners of this room. Speakers today are Jackie Callaway, CFO, Adrian Elliott, President of Apparel and Footwear, and Frank Böttcher, Managing Director of Texon and Rhenoflex. We're also joined by the entire footwear leadership team, and you'll have a chance to meet them as we go through the program. Before we get into the footwear markets, I thought it useful to talk about Coats Group. Coats is the world's largest producer of apparel thread and now has become the world's largest producer of footwear components. We are proud to be world leaders in two areas. Sustainability is core to our strategy, and we are proud of our leading position in this area. Reputable external agencies regularly assess and score our performance in this area.
On behalf of the entire Coats team, I'm thrilled to inform you that FTSE4Good places Coats in the 96th percentile of FTSE companies. Sustainalytics has Coats in the top 1% for textile companies, and MSCI has given us an A grade for the last four years. Coats has a decade-long track record of more than offsetting inflation through pricing and self-help actions. Our products are critical in manufacturing of garments and shoes and usually cost a fraction of the total cost. We serve 34,000 customers in 100 countries and have a big presence in Asia, where most of the world's garments and shoes are manufactured. Our supply chains are underpinned by technology and have proven to be agile and resilient during the past three years. We are accelerating profitable sales growth and transforming the business to improve margins.
So far this year, we have done the following. We have announced strategic projects that will deliver an incremental $50 million of EBIT in 2024. We have exited our loss-making businesses in Brazil and Argentina. We have successfully closed two footwear acquisitions and delivered a strong H1 result, which includes 19% sales growth and 35% EBIT growth. Sometimes it's good to look back at the group and see where we have come from. This gives context to better understanding where we're going. In the last 10 years, we have transformed the group. It started with exiting our Consumer Crafts business, which had sales of roughly $500 million and low profits. This allowed us to focus on being 100% industrial B2B business. Sales grew from $1.1 billion- $1.6 billion. We have diversified the portfolio beyond core apparel thread.
Through a combination of organic growth and acquisitions, performance materials and footwear each have now grown to account for 25% of the group. You know, apparel has grown too, but it now accounts for 50% of the group's sales. By leveraging our core competency in manufacturing and materials, we have diversified into new end markets like telecom, oil and gas, automotive, and personal protection. Diversification, specialization, scale, sustainability, and innovation are key parts of our strategy. We are leaner, more efficient, and more effective today. In short, we are doing more with less. All this gets reflected in the 500 basis points increase in EBIT margin. Coats already has a very successful threads, you know, footwear threads business. The acquisition of Texon and Rhenoflex are good strategic fits, adding further diversity by strengthening our position in the faster-growing footwear market.
I am confident the post-synergy EBIT margin of the footwear business will be more than 20%. On that note, let's start focusing on footwear. Since World Cup soccer is starting next month, let me start with an interesting data point here. In the last World Cup soccer, 88% of the players were wearing football shoes made with Coats threads. Footwear retail sales are around $488 billion and growing between 7% and 8% in value and 4% in volume terms. We expect to grow around 8% by focusing on the higher growth categories of sports and athleisure. Following the two acquisitions, our addressable market goes up from $600 million- $1.8 billion, and this creates new opportunities for growth. The footwear component market is fragmented.
Threads, structural components, and insoles are all complementary products, and combined, we have a 23% market share. If you look at the apparel threads business, we also have about 23% market share in that sector. This is a good foundation to grow organically in the future. We have three times more the addressable market, and we are three times bigger than the closest direct competitor. Texon, Rhenoflex, and Coats all focus on the premium and performance end of the market. The growth strategy is underpinned by world-class service, innovation, and sustainability. The product and customer portfolios are mostly complementary and give opportunities for cross-sell and upsell. Our team is confident of taking footwear margins above 20% over the medium term through a combination of sales growth, synergies, and better operational efficiency.
I am delighted to announce that effective January 2023, we are creating a new business unit called Coats Footwear. This will sit alongside the apparel business unit and the performance material business unit. On this slide, I think it's important to just pencil down four numbers. 8% sales growth, $1.8 billion, you know, addressable market, 23% market share, and greater than 20% EBIT margin. A very, very strong business to start with and playing in a fundamentally growing market. Macro trends and market dynamics make footwear an attractive market for Coats. Did you know that 88% of the world's shoes are made in Asia, and roughly 70% are made in three countries, which is China, Vietnam, and Indonesia? Manufacturing shoes at scale is a very complex and very technical undertaking.
Footwear components, including threads, are engineered products that need to meet very high performance and quality standards of the brands. Roughly 90% of all components are specified by the brands. Coats does well when products are specified based on quality, technical specifications, performance, and on-the-ground technical help. Favorable macro trends are driving increasing demand for athleisure and performance footwear. If you notice in 2020 and 2021 during the COVID period, athleisure and sporting goods really held up very well during those, you know, difficult years. We do see that athleisure and sporting goods over the medium term will continue to grow faster than the average footwear market growth here. Brands are looking to reduce number of suppliers to bring down costs and complexity.
We have been in discussions with many brands over the past year, and clearly the focus from their boards is how do you bring down the cost of managing your suppliers? It's not just a cost issue, it's also a compliance issue. We are really thrilled with the acquisitions of Texon and Rhenoflex. When the announcements went out, the feedback from our customers was very positive, and they are really rooting for us to make it a grand success. Footwear is a large and growing market. As mentioned earlier, it's about $488 billion at retail prices and growing at 7%-8% in value terms, at 4% in volume terms. Coats Footwear is focused on the performance and premium end of the market, like sports, athleisure, and luxury.
These segments have proven to be more resilient in the past three years and are expected to outperform the broader footwear market. As mentioned earlier, the total addressable market for threads is $0.6 billion. With the acquisition of Texon and Rhenoflex, we are adding $0.6 billion to structural components and another $0.6 billion for insoles, taking the total addressable market to $1.8 billion. All these components play a critical part in shoe performance, durability, comfort, and feel. The Coats Footwear business is expected to grow at 8% CAGR over the medium term. There is no change to the apparel growth rates of 3%-4% and the performance materials growth rates of 6%-9%.
From a historical CAGR of 4%-5% growth for the group, we now anticipate the sales CAGR to be higher at 6% over the medium term. We are combining three successful businesses to become the world's leading footwear component supplier, and in doing so, are creating a platform for growth and value creation. These three businesses share common attributes such as a focus on premium and performance brands, sustainability and innovation at the core, and manufacturing excellence and technical expertise. Each of these three businesses brings complementary products and capability, each adding to the other. Coats is an established global thread leader with decades of experience with the 300 footwear brands and roughly 2,600 footwear factories across the world. Texon is a market leader in structural components and has roughly 33% of its revenues coming from insoles.
They also have an exciting innovation pipeline and a European distribution network that Coats can leverage. Rhenoflex is a structural component specialist with a proprietary Rhenoprint manufacturing process that delivers complex designs with zero waste. Rhenoflex opens up access to new customers and luxury brands through the fast-growing lifestyle and accessories market. Apart from the terrific products, strong market positioning, deep industry expertise, and world-class manufacturing, I am most excited about the talent that's coming along with the two acquisitions. You will have an opportunity to meet all of them in the next couple of hours. I'm sanguine that Coats Footwear will grow faster than market, and I'm confident that we will take footwear margins to above 20% in the medium term. Now, with that, let me hand over to Adrian and Frank to present details on the market, product, and value creation.
My name is Adrian Elliott, and I have been the president of what we call our apparel and footwear segment since 2014. I am very proud and delighted, actually, to be able to talk to you today about the new footwear division that Rajiv just mentioned. I'm with you with Frank. Frank will introduce himself a little bit later, but Frank is the Managing Director of Texon and Rhenoflex, the two businesses that we have acquired. Frank and I, over the next 35 minutes, we're gonna take you through the market opportunity, the footwear opportunity, how we are creating that global champion that Rajiv just spoke about, and how we then deliver the value. Value for our customers, value for our investors, value for all of us.
I guess in strategy terms, that's kind of where you play, how you play, and how you deliver value. That's what we're gonna take you through. Let us start with footwear. Footwear is a large dynamic, and it's a financially attractive market. We characterize footwear with three things. It has very passionate consumers, has very strong brands and manufacturers, and it has very healthy margin pools. That's what we want to demonstrate to you today. Remember those three things, passionate consumers, strong brands and manufacturers, and the margin pools. Why are consumers so passionate?
A few weeks ago, I had the opportunity to sit with an industry veteran who comes from one of the world's largest footwear brands, and he gave me some insights I hadn't really thought about before. Footwear is an affordable item that allows us as individuals to express our personality and to express who we are, or as he said, more likely, who we think we are or who we'd like to be. This consumer psychology transcends cultures and nations and demographics. Adidas talks about clothing the person or the consumer from the feet up. Nike, as you well know, started as a footwear company. Vans, $4.2 billion footwear company. There are other, in case we think this is a bit of a crowded market, such is the attraction of the market, you'll now see people entering.
Down here on the bottom left, that is lululemon going the other way. They're going from the body down. Why? Because of the attraction of the footwear market. You also see here another entrant in 2010. Rajiv's wearing some On Running. Launched in 2010. Sales last year of $700 million. Roger Federer took a shareholding in 2019. Again, it shows the attraction of the market and the ability of brands, strong brands and manufacturers, to exploit that consumer passion. It's also a market of iconic brands. The one in the middle is the Air Force 1. Hugely powerful brand. Tens of millions of pairs a year. Again, been around for a long time. You can also see on this slide, I hope you get the feel, it goes.
Footwear takes you from the field of sport to the street to your place of work. Hugely dynamic and attractive market. Not only is it footwear, though. We also have in our footwear division portfolio products that go into products with a very similar psychology and a very similar dynamics. So whether it be handbags or outdoor backpacks or the return of travel and everybody buying suitcases, again, very strong consumer passion. You'll see later on products that consumers pay over EUR 8,000 for. Hugely passionate consumers and again, very strong brands, tremendous supply chains, and those margin pools that are so important. Why is this important? Why is this important for us? Why is this important for us here?
The more passionate your consumers, the more powerful the brands and the manufacturers, the better volume, the more engineered product that you will get, more business for us. I think the key takeaway for me on this slide is this is an attractive market that plays to our strengths. Again, strategy talk. Where do we play and how do we play? Getting the where is really important. This is a market that not only is attractive, but plays to our strengths. Rajiv's already spoken about the growth. Let's look at that one on the right-hand side. Countless surveys have shown that over 65% of consumers prefer to buy from purpose-driven brands who give great importance to sustainability. I can assure you, we work with 300+ brands in the footwear space, and I can assure you the vast majority are extremely serious about sustainability.
They have their sustainability goals, their ESG, their SRI, their Higg Index, and they demand from their suppliers and their partners that we support them on their journeys. As a partner and a supplier, that is extremely important. It plays to our strength. Rajiv's already spoken about the sustainability ratings of Coats, and you'll see later on with Frank, and this was one of the great attractions for us, Texon and Rhenoflex, absolutely the same. You're playing in a fantastic market that plays to our strengths. On a similar theme, I think here I'll just take a minute out to kind of give an idea how this industry works for a global champion component supplier. You'll hear a little bit more about this and probably better than I will explain on the booth afterwards.
Essentially, this is a specification game at brand level and a conversion of that into sales, invoicing, collections, cash at manufacturing level. There are some brands that have their own manufacturing, and I was delighted to go into ECCO's new factory in Vietnam recently with tremendous Rhenoflex products, by the way. Beautiful factory, beautiful product factory they've built in Vietnam. That's the exception. Nearly all of the brands outsource the manufacturing to very strong manufacturing groups. Maybe a little less known. I'm sure everybody's heard of Nike and Adidas and New Balance, but if you're looking at Pou Chen or Stella, Evervan, Taekwang, these guys, these huge and impressive manufacturing partners. That's how it works. You take a specification, you get your component into the product, and you deliver at the manufacturing. Again, that's why this market is so favorable to us.
It plays to the global footprint, it plays to the specification game, and. As I said before, the more engineered the product, the better for us. You will see and you will feel, I hope later, how this market works to that, both in footwear and in other products. It is clearly, in Coats we talk about win with the winners, okay? This is clearly a winning category. We've got a few winning brands on the slide here. The slide is not big enough to get them all on, but this is a really, really attractive market. Again, why is that important? It means that we, with our market share and our position with these brands using our strengths, we are able to expand our market, expand our sales and our revenue and our margin opportunities. Rajiv spoke about this.
You're taking a $600 million thread market, and we've basically tripled that addressable market opportunity through the acquisition of Texon and Rhenoflex. Even better than that, or on top of that, the two acquisitions have opened up new avenues of growth. They've opened up new avenues of growth in terms of adjacencies, and you will see that, I think, over here when you go around the booths, some tremendous stuff. You will see over here things like. Well, you'll see the luxury handbag market, but you'll also see things like our products Vogue and Verde. Over here, you will see a product called Vertex. It also opens up the uppers market for us. Okay. Now over here, you're gonna see with Paul a bit later on the booth number three, something called ProWeave, which was developed by Texon.
ProWeave is very exciting. It's a unique jacquard weaving technology that allows. It's almost reimagining fabrics for the uppers of footwear. It's really cool. One piece delayering, multi-zone, multi-direction. Paul will tell you better than I. The proof of the pudding is in over there you will see that Umbro has just launched its Velocita Alchemist. I don't know who their branding manager is, but that's what it's called. You'll see it over there. It's called the Velocita Alchemist. Have a look, they've just launched that for the World Cup. It's the yellow boot over there. When you're on the booth, please have a look at the back of it because you'll see that they've branded it ProWeave. They've branded it ProWeave. In other words, taking our brands to consumers.
Not only have we tripled the core market from six to 1.8, but the acquisitions have opened up these new avenues of growth. Tremendously exciting. Right here, Rajiv is wearing his On running shoes. Again, launched in 2010, 10% of the German running market, $700 million last year, millions of pairs a year. Other classic iconic brands here. I'm wearing my Dr. Martens, you can see here. 1460s. Named such because they were launched in April 1960 with the high one. Again, classic models. Dr. Martens has gone from GBP 200 million, I think that was in '07 or GBP 300 million in 2017, to nearly a billion. How have they done that? They've been really smart.
They've taken the Dr. Martens, which you probably remember had a certain kind of history, and they've taken it to the female market, and they've absolutely driven passion through this brand. GBP 180, my shoes cost, by the way. The margin pools in footwear, pretty cool. Right. We also have Air Force 1s modeled by Frank here. Air Force 1s, tremendous iconic brand from Nike. I bet you nearly everybody in their house, at one point or another, has had some white Air Force 1s. Either you wear them, own them, or your children or somebody, everybody. Finally, we have the Adidas Samba. Adidas has got two great iconic brands, the Stan Smith, Adidas Samba. Adidas Samba was launched in 1949. Launched as a football boot.
It went from the field to the street to the film. I made a joke yesterday, I won't make it today. It's gone from a soccer boot to a street fashion, and it's gone into cultural icon. Again, millions of pairs a year. The thing that all four of these pieces of footwear have got in common is that they all have product from Coats, from Texon, and from Rhenoflex. Again, you win with the winners, and we are pretty good at this. Later on, as you go around the booth, you'll see how that process works and what that means in terms of stickiness and pricing power and all those good things. Right.
Let's talk about that global footwear component champion, the thing that Rajiv talked about, bringing together the three tremendous businesses, the Coats, Texon, and the Rhenoflex. I'm gonna start with the thread part because I know an awful lot about thread. Not a usual boast you might hear, but it's true. Thread. I think the key thing here is last twelve months, June 2022, sales of over $205 million. That's 9,200 tons of thread, which apparently is 80% of the weight of the Eiffel Tower. That is a lot of thread. The important thing here is that makes us number one. It gives us the scale of market leadership. What it means is Coats knows this industry. We know the brands, we know the people, we know the manufacturers, we know how to manage the networks.
It is upon that rock that we wish to build the global footwear champion. We are doing that by adding Texon and Rhenoflex. With that, let me hand over to you, Frank.
Thank you very much, Adrian. Because I'm new to the Coats family, I'd like to introduce myself a little more in details. My name is Frank Böttcher. I'm more than 30 years in the business, 25 years of this in C-level functions. I started as a trainee for marketing and sales for a major chemical company and left the company as the CEO. After that, I was with the Green Dot system in Germany, and I was responsible for the implementation of plastics recycling. I have a lot of experience about sustainability and the implementation of plastics recycling plants. I was asked to join Rhenoflex in 2017, and I took over the transformation of this company from a local player to really a champion in a specific field.
During all my career, I have a lot of experience with transformation cases, restructuring cases, especially in the chemicals industry. I was responsible for all the M&A projects at the chemical company, and I have good experience about PMI projects. We learned from Adrian about Coats, that they are the leading, or we are the global leader for threads, and this already for decades. We are combining now two leading players, Texon and Rhenoflex, and both companies has experience in the market for more than 70 years. Texon is really an expert for insoles, reinforcements. Rhenoflex is a innovation pioneer for reinforcement solutions. The common strategy pillars for us are sustainability, innovation, and global footprint for all the three companies, and that's not new for us. We take advantage from each other.
Especially from Coats, they are already strong in the Vietnamese and Indonesian market, and this is very important for this midcap companies, Rhenoflex and Texon, to grow in these regions in the future as well. We are building the world's leading footwear component supplier, and we have 23% market share. The next follower is 6%-7%. The key message at this point is three leading companies, a footwear champions, size of the segment, and economies of scale. I come to this a little bit later. I'd like to give you a feedback about my talks two months ago with Nike at the campus in Portland about the intention idea to create a footwear champion. They want this. They want a consolidation in the market. The major brands want to have this fragmented supplier base consolidated. They really appreciate.
They see us in a position to partner with them, especially within the supply chain, but also in innovation and sustainability. This footwear champion is more than the sum of its parts. Our combined product portfolio provides now highly effective footwear components, which are complementary to each other. We have products with a strong quality profile. The product portfolio from Texon or Rhenoflex overlaps only by 50%. The major part of the combined business is really complementary to each other. It's in a high attractiveness for our customer and for customer context, we have a much better efficiency for each meeting. We are able to cover a lot of products within the shoe in one meeting.
The enhanced customer base, the overlapping part is to a certain extent given, and we have a chance to increase our share of wallet, and we can offer package deals. It's also very important. Yes. On the other hand, we can provide the products from Texon or Rhenoflex's Coats customers, and we can do the same, Coats products at Rhenoflex and Texon customers. The key message here is cross-sell and up-sell. This is a tremendous opportunity, for us, and I show this on the next page. Adrian talked about the winners. Here are some more major brands. The key message here is we have 300 leading brands and 2,600 vendors. This has been available for Rhenoflex and for Texon for many, many years. Being a mid-cap company, we have limited capabilities to develop the market.
Under the roof of Coats, we have now a very professional marketing and sales organization in all relevant regions, and this gives us a big opportunity, great opportunity to work with our customers. This is advantage for both for the brands and our vendors. In addition, with all the context, we have much better market intelligence. We understand much better where the trends are, which gives us the opportunity to develop better products in the future. What are the key benefits for our customers and at the end of the day, of course, for our investors? An enhanced product portfolio, better products, faster design and the development process. A typical process at Nike or Adidas, for example, takes 18 months. Speed to market is an issue, and they want to reduce this to nine months.
With this approach, providing this attractive product portfolio, we have less contacts necessary. One face to the customer really supports this speed to the market. Second, acceleration of sustainability and innovation, the key differentiation pillars, we mentioned this earlier. Faster delivery of ESG goals, stronger innovation and customer satisfaction. We have the critical size to really provide impact and accelerate the processes. Third, a global footprint. Speed to market, higher vendor satisfaction. This capability to have really sites at all the relevant markets in Asia, we learned 88% is Asia. Key markets: China, Indonesia, Vietnam and India. As a mid-cap company, we have limited capabilities to provide this footprint. Together with all the three, this is a great asset. Remember, our followers are 6%-7%, so this is really a big advantage. Four, improve technical service.
Products are specified by the brands. Vendors are forced to take the component. They need to support that the product works properly. Our products drives also production speed. One key KPI is PPH, pairs per person per hour. With our products, we are able to reduce seconds in the production process, which is very important for the total performance of a production site. Higher productivity, lower cost will help us to create a better position. Deep customer relationships, trust and reliability is the outcome. This drives the top-line growth, better margin, and at the end of the day, for us, better profitability. Let's talk about our premium products. On this page, you see all the different product categories, groups, what we are offering to our customers. We have a high number of key components, the thread, the reinforcement, heel counters, toe puffs, eyelets, the insoles.
You will learn about this at our booth in more details. This is very excited to learn what quality level is able to provide by the Coats, Rhenoflex and Texon team. These products have the same relevance in the addressable market for us like wheels on a car. You need this to create the performance. I'd like to give you some examples. One is this construction. Means if you are at the retailer, at the shop, if you buy shoes, it is said, and shoe doc from Nike told me once: "A customer needs three seconds to decide whether he likes the shoe or not." Three seconds. You need to have a good shape. With our products, we provide this good shape.
You have the wear tester try to slip in the shoe, and they have a good feeling, or you do not have a good feeling. This comes from the design of the product, of course, but also from our material. We help to get a good fit. At the end of the day, you need a shoe which is properly built when it is worn. This good shape, the good performance that it keeps the shape is driven also by our materials. Our components defines the performance of a shoe. Prices, very important. We selected two segments. One is casual, one is performance. The casual part is definitely the winner during the pandemic. The casual trend itself and then home office situation helps them to show a very strong growth rate.
Working in this field, you have a certain attitude of a certain period of time. You look everywhere which shoes are worn. You find out sneaker. The prices for this casual segment is for heel counter $0.10, the thread $0.09 and the toe puff $0.06 per pair. This shoe, the Air Force 1, is about $120 million+ a year. Do the calculation what it means to have this little component with this price level. Several tens of millions revenue with a single model. The key message here is once you are in and specified in the shoe, you are almost under the life cycle in and will not be substituted by competitive material. The performance part, running shoes, soccer, golf, basketball, as some examples. We provide there. We get higher prices because we deliver performance.
There are different requirements for purpose and at the end, better margin prices $0.18, heel counter thread $0.20 and $2.09 . Accelerated sustainability and innovation. Again, two major pillars for us in our strategy, key differentiators. All companies define clear targets for sustainability. From my perspective, Coats could profit from a more advanced profile from Texon and Rhenoflex. The definition zero waste is available everywhere. For Rhenoflex, Texon, 25%. Two-thirds of our input material are already recyclables or renewables. You will learn about products which are much higher recycled content today, but average is 25, this two-thirds. There's another example from Coats. The Coats EcoVerde, 100% recycled polyester. I'm really impressed about this achievement. I was many, many years in the plastics recycling business.
Being able to provide a product with 100% content, this is really this means something. If you take Adidas, that they ask the supplier to get 100% recycled polyester by 2024, Coats is ahead. This really impresses me. Innovation, you will see much more at the boost presentation later. We have a very highly attractive innovation pipeline everywhere at Coats, at Texon and Rhenoflex. Many of the new developments are driven by increased recycled or renewable content. For example, the nylon thread, recycled nylon thread-fiber reinforcement composites, the ProWeave, the Reform 2.0 from Texon. At Rhenoflex, there are 15 new innovations. Most of them are already ready for the market with go-to-market concepts.
We have a very solid technology available called Rhenoprint, 100% waste-free, already in the market for quite a long time, and we developed a second generation of this product group, which is commended by Nike and other key brands. This is a game changer. An engineer said to me, "I get goosebumps if I see the opportunity we get." This is done by Coats, Texon, Rhenoflex. They all spend a lot of work for new innovation, has a very attractive pipeline. You will be excited to learn what the teams have achieved. I was. Remark at the end of my part of the presentation, Texon and Rhenoflex has been competitors for decades. They've fought against each other, very professional.
I am excited about the collaboration between the teams, which are very constructive, and I did not expect this when I jumped in this new family. You could have expected that it's more reserved, reluctance, but it's not. It's definitely not. Why? The answer is respect. They respect each other, what they have achieved in the past. The second part is they are really excited to make it happen under the roof of Coats in a bigger size with all the go-to-market concepts now. This really impresses me and how we want to make it happen will be shown by Adrian with the global footprint.
Thank you. Well, thank you very much, Rene. That was very nice. Global footprint. Three things I'd like to just pull out on this one, I think. If you remember how I tried to explain how this industry works, it means that the global footprint is critical. Because you have to talk to the brands, you have to talk to the sourcing houses, and you must deliver an invoice and collect the cash with the manufacturers. So the footprint becomes critical in terms of delivering that service that Frank was just talking about. Three things to pull out from here. The acquisition of Texon and Rhenoflex has actually given us a bigger European business than we had before, which is good.
Believe it or not, there is still a really attractive market in Europe for footwear and bags and all of the things you're looking at. That's great. The second thing is that strength of. Well, you talked about it. The strength of Coats across the big sourcing markets is incredibly important. Today, the brands are asking their strategic vendors to double the production of footwear in Indonesia over the next three years. That's taking it from 330 million pairs to around about 650. As you can imagine, when asked, the strategic vendors do that. They are investing today in new factories, new facilities in Central Java and Western Java.
The strength of Coats and the power and the footprint of Coats will allow Texon and Rhenoflex and this combined business to support the customers when they do that. The brands are also asking the vendors to develop in India, something that hasn't happened really before, but it's happening now, mainly around the Chennai area of India. Again, same message. Coats has been in India for decades, a century perhaps. Tremendous operations there. It allows us to exploit that for the Texon and Rhenoflex businesses so that we can keep up and make sure we satisfy the manufacturers and the brands. The global footprint part is extremely critical. That's where when we talked, and you talked about market share, that is almost impossible. Well, I better not say impossible. It's very difficult for competitors to do that.
The other thing here around the footprint is not only factories and service, but also technical support. Frank talked about PPH, the pairs per person per hour. If you talk to any footwear customer, that's really important for them. How do they get more and more volume from a sourcing supply base where labor is in shorter supply? It's all through productivity. What we bring, and we've done it for years as Coats and as have you guys, we bring the technical support where it matters, whether that be South Vietnam or Dongguan or Chennai or Central Java. Again, it is extremely difficult for competitors to replicate that, and that is what drives the trust and reliability of the brands and the manufacturers to us. There we are. That's around the market share.
Again, it's really important, the capabilities that we've just talked about and Frank talked about. This is a highly fragmented market. I like to talk about premium differentiation at scale. Premium, we're very proud of our price levels, okay? Differentiation, if people are gonna pay those prices, there's gotta be a reason. We have to be differentiated from our competitors. Everything we've talked about in terms of sustainability and innovation and engineering and product and all the things that Frank talked about give us the differentiation. You need scale. Scale is the thing that drives the profitability behind it. It's premium differentiation at scale. By bringing these three businesses together, that is what we are creating. Do not just listen to me and Frank.
Let us hear what customers have to say about things.
Texon has been a strong partner to Timberland over the years as they have consistently brought innovation around performance, but also sustainability. They make a high quality product that is integral to how we build our shoes. Texon also has a strong team to help support our business globally. They were great partners as we all worked together during the past couple of years, and we look forward to working with them as we continue to grow. At Timberland, we are excited about the acquisition of Texon by Coats and the new addition of Rhenoflex. We are eager to see the outcome of these three industry leaders coming together.
Wow, what a move. Expertise. What a great partnership. Look forward to this. Very excited about working with you guys. That is what customers are telling us. I can tell you, Frank and I and the rest of Coats and Rhenoflex and Texon people are extremely proud that that is what customers think of us, and we're extremely proud to be able to enjoy the ongoing business that we have with them. A last slide from me you'll be glad to hear. On the left-hand side, this is about customer value, superior customer value that they have already told us that they expect and want to get from us. It is about that product portfolio. It is about sustainability and innovation. It is about that global footprint and support and deep customer relationships. Why do customers enjoy working with us so much?
Because we live in a volatile, uncertain, complex, and ambiguous world. Trust and reliability are key. That is why the scale of the combined business gives us that opportunity. Through superior customer value, I would argue, you get superior investor value. It's not only on the customer side that we'll take actions. We will connect and combine our sales teams, integrate our G&A activities, leveraging procurement between Texon and Rhenoflex and the operational excellence side. We will deliver value for customers, and we will deliver value for investors. This is a market with passionate consumers, with strong brands, strong manufacturers, and very healthy margin pools. That is why we are able to leverage and deliver outstanding financial results. With that, I'll pass over to Jackie who is wearing her Adidas Samba. Thank you very much.
Thank you, Frank and Adrian. Now before focusing on the exciting new footwear division, I'd really like to take this opportunity to remind you of the very strong performance and key financial highlights of the business in the first half of 2022. We saw accelerated sales growth with 19% constant currency sales growth versus last year, and approximately two-thirds of this growth was due to our pricing actions and better mix, and the other third was volume related. Now, as you know, Coats is a company that operates very well in an inflationary market and has a well-defined and tested playbook. During 2022, we continued to see heightened inflationary pressures in the area of raw materials, labor, energy, and freight. As with previous years, we've moved quickly to mitigate these inflationary challenges by successfully implementing pricing actions and self-help programs.
Our early actions leave us well placed to continue to mitigate these cost pressures as we have successfully done in the past. Our adjusted operating profit of $125 million and margins of 15.6% were both well up on last year and well ahead of pre-COVID levels, largely driven by the volumes we saw in the first half, as well as ongoing tight cost management and the initial delivery of our strategic projects. Now, we've always guided that 2022 will be a year of two halves. The first half benefiting from higher than normal volumes, with volumes normalizing in the second half of the year, but against very strong 2021 comparatives. We remain on track to deliver operating profits in line with 2022 expectations.
On cash, we delivered a robust free cash flow of $30 million in the first half, which maintained a strong balance sheet position with leverage at the end of June of 0.8x . This strong balance sheet allowed us to fully debt fund the acquisition of Texon, and we took the decision to equity fund the acquisition of Rhenoflex. Post both acquisitions, we remain comfortably within our 1-2 target leverage range on a pro forma basis. We've seen strong momentum on our strategic bolt-on projects during the period, and we are ahead of schedule in terms of delivering the benefits. We now expect to deliver $15 million incremental EBIT benefits during 2022 versus the initial expectation of between $5 million and $10 million. Let's now recap on the acquisition metrics for both the Texon and Rhenoflex acquisitions.
For both businesses, we paid a combined purchase price of $354 million. As I mentioned, the acquisition of Texon was financed via debt, and the acquisition of Rhenoflex was financed via equity. On a post-synergy basis, this results in an EV/EBITDA multiple of 8x, a five year estimated ROIC of 16%, a payback period of circa seven years, and an IRR of circa 19%. The acquisitions are highly synergistic and expected to generate annual cost synergies of at least $11 million through the following areas. SG&A savings through headcount optimization, efficiencies in procurement and operational improvements. These synergies are expected to be realized on a run rate basis by the end of 2023. In addition, we are working through additional synergies in the areas, in areas such as commercial opportunities and footprint optimization.
We will share these opportunities with you as these plans are formally signed off in 2023. Now on the next slide, we set out our pro forma financial statements for the footwear division in 2021. As we've already noted today, we expect the footwear division to grow by at least 8% and the EBIT margins post synergies to be greater than 20%. Both Texon and Rhenoflex businesses are trading in line with the acquisition business cases and integration work is well advanced with the single management team now reporting to Frank. I would like now like to focus on our medium-term revenue and margin ambitions, which we are increasing. Let me walk you through that detail.
In the past, we've always guided group growth of between 4% and 5%, with the apparel and footwear division growing at 3%-4% and the performance materials division growing at between 6% and 9%. Going forward, we raise our group ambition to 6% revenue growth, with the apparel division growing at 3%-4%, performance materials growing at 6%-9%, and our new footwear division growing at least 8%. In terms of group EBIT margins, we've always guided that as a first step, we want to get back to pre-COVID levels of 14.3%. Our ambition is to make a step change in our EBIT margins of at least 300 basis points by 2024. This equates to an EBIT margin of circa 17%.
We'll deliver this margin by successfully implementing our $50 million of strategic projects, which are already well advanced, and delivering on the $11 million synergies from the Texon-Rhenoflex business case. Now on my final slide, I would like to reiterate our capital allocation policy, which remains unchanged. We are focused on maintaining a strong balance sheet with leverage of between one and two times, and we prioritize four key areas, reinvesting in organic growth, supporting pensions, paying a progressive dividend, and acquisitions in line with disciplined strategy. Now I'd like to make a couple of further comments on both pensions and acquisitions. Now, firstly, on pensions, in recent weeks, there has been a lot of discussion around the strength of pension schemes and the use of LDIs.
Earlier this year, we set up a joint working group with the trustees of the Coats UK Pension Scheme to consider the longer term de-risking of the scheme. I can confirm that our pension collateral position was very strong as a result of that de-risking strategy. There's been no need to unwind any hedging positions, and the long-term funding position of the scheme has not been materially impacted. Overall, the pension scheme remains in a very good position. On acquisitions, I'd highlight that our focus over the next 12 months will be continuing to deliver on our strategic projects and the integration of Texon and Rhenoflex. We don't expect any further material acquisition activity in the next 12 months.
Now I'd like to conclude by reiterating the excellent performance of the group in the first six months of this year, the raising of our group revenue growth ambitions to 6% as a result of the exciting creation of the new footwear business, and the step change in group margins to circa 17% by 2024. Now I'd like to hand back to Rajiv.
All right. Thank you very much, Jackie. I guess we get into Q&A at this stage here. You're asking me to do something incredibly difficult, which is to forecast what's gonna happen in 2023. All right? If you talk to 10 people, you'll get sort of 10 different views here. Before I answer your question, I think it's important to say that in Coats, we have diversified and resilient end markets. Price and productivity more than offset inflation in most, you know, in sort of, you know, every year. The focus on sustainability and innovation to drive new growth opportunities has been well established. We have a playbook in Coats which focuses on share gains, so it's not dependent on what's happening in the market. We have very deep customer relationships.
If you put all that together, there is reason to be confident about 2023, irrespective of what's happening. I personally believe, this is my personal view, that 2023 is not gonna be as bad as what you hear on television or in the FT or Bloomberg, et cetera. You know, I think there was a survey done at 2 months back or 6 weeks back with, you know, where there were a bunch of CEOs and they were asked, "What do you think about 2023?" Most of them, 80% of them said, "It's not gonna be as bad as what the papers are making it to believe." That's my view. Coming back to Coats, if there's no recession in the U.S. next year, I expect, you know, sort of in a performance materials to be doing well.
They should be growing in line with the numbers that we have suggested. Footwear, very confident that they'll be doing at least 8%. Apparel should also have a strong year, but it's gonna be a year of two halves for them. There will be intra-year sort of, you know, volatility next year. I think if you look at it over a full year, if there is no US recession, we should be delivering the numbers that we just showed here. Okay?
Just on the footwear segment itself, can you just talk a little bit more about the sales and the margins? Because I think there was a slide that said your f ootwear business that the existing threads business have grown at 3%-4%, and you're expecting it to now grow at 8%. Is that just the advantages of scale you've got and you're expecting to take more market share?
Absolutely. When I joined Coats, you know, a few years back, our market share was less than 16%, and today it's about 23%. When you look at the track record over the last decade, in kind of normal years, we have taken between 50 and 70 basis points of market share, and that should continue going forward. The footwear, I think driven by innovation, sustainability and the synergies between the three divisions, they should be delivering 8%+ sales, you know, sales growth. You know, that business has got very healthy margins.
The second point was on the margins. You put up a slide saying it was 16% pro forma. You've got over 250 basis points coming through from the initial synergies, so that gets you a long way to your 20%. How much beyond 20% is it possible to go? You talked about further optimization of footprint.
Yeah.
There's operating leverage. You've presumably got some sourcing savings to come. Is that a staging post or is that just a target?
I think at this stage I'm just comfortable saying it's gonna be more than 20%. All right. The reason why I'm not giving you a definitive answer is we still need to work on the footprint optimization, and that's gonna take some time. We are reasonably confident to say that it will be 20%+ in the medium term.
When we think about the footprint optimization, not to put words in your mouth, but one of the things that you mentioned was that the footwear brands are asking you or their customers to have the lead time from 18 months to nine months. Most of the structural components are manufactured in a few locations. Could you envisage a proportion of the rest of your footprint having dedicated lines for structural components, first of all? Then the other aspect, and maybe an unfair question, but Rhenoprint, one of the benefits of it is speed. Can we see that overlaid on the composites side? What benefit do you think that technology could bring to the rest of the group?
Okay, excellent question. I'm gonna ask Frank to answer the Rhenoprint™ one here. Just on your first question, yes, there will be separate dedicated production lines. As a matter of fact, the factories for the structural components are, you know, independent, standalone factories. You know, we have about 11 of them through, you know, through the two acquisitions. They will continue remaining, you know, standalone factories. The footwear threads, which is about 50% of the new footwear division, the production will continue to happen in the existing Coats factories as it's been done for the last, you know, two decades. So we need to make sure that we are leveraging, you know, economies of scale in that place. Rhenoprint™ is all about zero waste and you know, manufacturing, you know, complex designs. I'll let Frank answer the rest of the question.
Okay. I don't know whether I get the question right. Would you mind to repeat it again for me?
Yes. One of the clear things about Rhenoprint™ was that, the speed with which it can actually operate, which is very advantageous perhaps to overlay into composites within the performance materials division or in other areas of the group. If you could just go into a little bit more about the benefits of that technology being used across the wider group.
Yeah. It's a proven technology. It's in the market for more than 20 years, and we produce today with about 70 production lines in Asia, more than 250-300 million pairs. It's a proven technology, and we have developed a new technology where we have this multi-zone concept. You will learn this during the presentation in the booth. This is an option to work with different products, and this brings you to the question composites. We can add other material on different layers as a kind of 3D 2D printing. The question how to bring it to other technologies and products at Coats is something we do currently with our technical teams. We expect that there is an overlapping path.
If I can just build on that. You know, Rhenoprint™ and the composites are two different technologies.
Yeah.
Two very different manufacturing processes. In Rhenoprint, the input material is actually a powder. In the case of, you know, composites, it's a yarn. Right? It's completely different.
One last odd question. This, the structural components, when they're put into the shoe, are they held in place with a tight fit or with glue?
Frank?
It's gonna be-
It's both. Both, yeah.
It's both. Okay.
It's both. Yeah.
That was just the reason why I asked the question was.
Right.
for recyclability.
Yeah.
Okay. Thank you.
Well, I had the opportunity of visiting, you know, Adidas footwear factory in Indonesia a couple of months back. It's a very technical and engineering manufacturing process. The way they insert the structural components into the shoe is, you know, a lot of science and some art there. That's the reason why they need technical and engineering capability in this area.
I think there might have been another question down here if we could.
Yeah. All right.
The microphone.
If we could get the mic here, please.
A couple of questions. Just looking at the testimonials, a couple of them called out access to new factories. I see that Rhenoflex and Texon have actually got facilities in China and Vietnam. Is that talking more about Indonesia and the trend that's happening there? My second question is, clearly this is a very exciting market for you. Just wondering whether it's caused you to reassess some of the other markets you're operating in, some of the maybe kind of legacy Coats businesses in terms of kind of strategic reviews or anything that might be outgoing.
I guess as far as the first part of your question is the new factories is essentially referring to, you know, Indonesia and India.
That's where the de-risking is happening. You know, brands are looking at de-risking from China, and a lot of the volume is moving into Indonesia, and then in the future, into India. $ Billions are being invested right now to build these new, you know, large-scale factories. That's the reference to the new factories here. Your second part of the question?
Yeah, just in terms of actual potential disposals out of the business now that you've got footwear in.
Yeah. We have said in the past that, you know, we sort of continuously look at the portfolio. We keep on, you know, looking at the performance of the portfolio. We have exited Brazil and, you know, Argentina. We have closed our Russian operations. We closed our South African business in the first half of the year, and we continue to look at that. You know, Zips is one area where we have a strategic review going on, and if there's anything to announce at some point in the future, we'll be sort of happy to announce that.
Just on the performance materials margin, is the 13%-14% representative of longer term level, or are there things still holding back in 2024 to start with?
The answer is no, that's not the end state margins. That's sort of a staging gate for the next sort of, you know, three years. The margins for, you know, performance materials should be in the 16%-18% long term, and that's driven through, you know, innovation and, you know, using a lot of the new exotic materials.
Basically, it's not efficiency getting you there, it's innovation and.
Innovation.
Mix changing.
Absolutely. Yeah.
The second one is, previously you described within your existing business, there are different types of specification. You know, there's sole source, there's short lists, there's long lists. Could you maybe elaborate a bit more of that within footwear? You know, that 90%, how much is sole source versus those other categories?
Go ahead. Yeah, absolutely.
Yeah, that's right. Very good. Specification programs, we talk about having three layers of specifications. Brands have to talk about mandates, thou shalt use that and only that. Nomination, where they will say that, you can kind of choose two or three. Approvals, where they say, "Right, we've approved five or six suppliers." Okay? That's the specification program. In footwear, the dynamic is it's at the stronger end of specifications. Why? Because it's so critical to the performance and the quality and the comfort of the shoe. You get a much higher percentage of mandates and very strong nominations in footwear. You'll see later on one of the booths actually, Marco will talk about it, how long they last.
In fact, I think Frank talked about it as well, with the life of the model. Specifications in footwear, much stronger end of the spectrum.
All right. Thank you very much. I guess the key part about footwear is once you're in, you're in. It's a very sticky business. Okay, there you go.
Thank you.
James Peters from HSBC. Just on the specifications, when you say, once you're in, you're in. I mean, how many of the models that you work on kind of repeat year to year? Is that quite an annuity business? Can you look at, say, I don't know, 80% of the revenues and be fairly confident that repeats next year?
I think that's a very good question here.
Okay. I don't know the math, to be honest, but in footwear, you get iconic brands that roll on. We looked at this.
Mm-hmm.
The Dr. Martens, the Samba, the Stan Smith, the Air Force 1. It's a great question. I'd have to go away and do my homework on the percentage, but it's high. It's high. Then on top of that, you get the innovation and new models that you're going to see here. It's quite a dynamic industry in that sense, which is very good. The stickiness is high.
Just while I have the microphone. You talked about the opportunity to cross-sell and upsell between the three different brands. What work needs to go on in the background in order to achieve that? Is there a significant amount of integration between the sales teams that needs to be worked through? How do you actually deliver on that opportunity?
Well, I think actually that's probably Frank, you might be able to answer better, but that's actually already started in a very fast process over the past few weeks, particularly between Rhenoflex and Texon, and looking at the whole portfolio and actually picking out the products that will allow us to get a better upsell to certain brands. I don't know if you wanna comment on that, Frank, but that's.
Yeah.
We're already seeing that happening, actually.
We started this PMI process immediately after the completion of Rhenoflex. Remark on that and I answer the question. This has been organized highly professional. The day one was very good professional communication. The first month was very clear to get the structure and the processes about the synergies and how to make it happen. Now we started to work with all the different work streams about the question you asked. This new marketing and sales team is underway to get a new set up, new construction, and we will have this new teams available in the next period of time. Then we do the mapping about the customers, the products. Where is the opportunity to bring something else in the sales funnel? Where are the priorities?
This is probably done for the time being, and I'm very proud to be part of this PMI team.
Great. If I were to give you a directional answer to your first question, you know, I'd say it's more than 50% in terms of the, you know, annuity business. All right. We'll get you the right answer, but it's most likely more than, you know, 50%. That's a good place to start with where you know half your next year's sales are secured. There you go, 60%. Okay. There's a question here.
Couple of questions, please. One, a sort of or related follow-up in terms of. You've talked a lot about the retention of business there and things, but you also talked earlier about the high level of component specification within shoes. How easy is it to produce all the slightly different specifications off the same manufacturing? Does that require, you know, investment or evolution at different points on that side of things? Secondly, again, the presentation touched on sort of the sustainability, the recycled threads. I'm just curious in terms of the footwear side. Has it been, you know, as significant a driver as it has in the apparel side, where you've obviously very specifically won new customers that weren't really customers before and maybe are moving up the value chain a bit by that-
Right.
Process or is it, you know, more something that's still coming into play in the footwear side?
Okay. I guess the first part of the question in terms of, you know, machines and manufacturing processes, there is not much a difference in terms of the different products. You could use the same machines, the same processes. Rhenoprint is slightly different because that's a completely new sort of technology there. Broadly, the legacy manufacturing processes are quite inter-compatible with different products. The sustainability part is very interesting. The footwear brands are driving a very high level of, you know, sustainable materials. The challenge that's coming up is if you have products where the recycled material is more than 75% of the product, it starts to impact the performance of that product.
There is a sweet spot here where you can increase your recycled materials and still not have any kind of, you know, deterioration in the performance of the shoe. But that's. You know, if you look at the targets of Rhenoflex and Texon, they have some very aggressive targets of having recycled materials in their products by 2025. Yeah.
Thank you.
You know, unlike thread where you can have 100%, kind of in a recycled polyester, in structural components, I think it's 75%.
Just following up on the sustainability side. Is the way forward all recycled nylons, or is it moving into more sustainable materials? I see Texon does some cellulose insoles, for example, and you've got some non-woven materials in there which could, again, come from non-petrochemicals. Is there much push in the brands for that, or is it still just looking at how they can build in more recycled?
Well, I guess the end game is biomaterials.
Yeah.
All right? Everyone is focused on that. Recycled is essentially a transitory material between where we are and where we need to end up by the end of the decade. You know, there's a lot of investment going into biomaterials, eco materials, plant-based stuff. I think we will. You know, that is the end state. I would say recycled is just kind of an intermediate product that is essentially reducing the dependence on new oil extraction till we get to the plant-based products at the end.
At the moment, no specifications are looking at.
No.
Biomaterials?
No.
Cool. Thank you.
As a matter of fact, we. You know, we announced a few months back that our you know innovation hub in Asia is gonna be repurposed primarily at looking at you know new materials. You know, for Coats to achieve its 2030 target of 50% reduction in emissions, material transition is very, very important. We need to get off recycled polyester and recycled nylon and get into more of you know cellulosic or biomaterials in the future.
Rajiv, you put a bit of a teaser in about the uppers market being potentially worth $2 billion.
Yeah.
Do you wanna just give a little feel for how advanced you are in addressing that market, what sort of scale of opportunity you see, and what you need to do to have a proper presence in it?
If you look at the Umbro shoe there, that's a complete upper. It's a brand-new football shoe. It's been launched for the World Cup Soccer next month. This is an area where we're going sort of prudently in terms of looking at the brands, looking at the models, et cetera. The advantage of actually having an upper is you can integrate the structural components into it directly. From a manufacturer standpoint, rather than putting five, six pieces in at one time, they just have to put one piece in. It is a big market. We are in discussions with several big brands. I would expect in the next 24 months, there would be a lot more brands coming out with the uppers.
The good thing about the ProWeave is, as you know, Adrian had mentioned, it is multizonal, multidirectional. It's got different, sort of, you know, extents of stretch and strength. You can actually customize the shoe for, you know, for a particular model. It just sort of, you know, goes into the design and the knitting that happens.
Can you do that from the existing footprint?
Yes. Yes. At least for the first, you know, few brands. If this thing becomes a really big, you know, product, then we might have to extend our factories.
That woven uppers comment you were making. I just I'm no specialist in making shoes, but it just strikes me from your picture that if you were actually making the woven uppers, you're now making the majority of the shoe. I mean, ex the sole pretty much.
Pretty much. You're right.
Just how does that sit with the wider shoe manufacturing supply chain, those outsourced manufacturers you talked about, et cetera? Does it not, you know?
Frank?
cause any friction?
Frank?
The manufacturers assemble and they don't usually make their own uppers anyway. Other people do that for them. This is just another way of getting the upper for them. The manufacturers are the big assemblers. They're the guys that put it all together. For them, actually, this is in terms of productivity, fantastic. I can. I've been in a lot of shoe factories, footwear factories, and the amount of processes there are from having a single process where you have to stamp the logo on a shoe, that all disappears. That all disappears with this, which is an inline one process. No problem for the manufacturers and actually better for them in terms of their own productivity.
There's one question there.
Microphones everywhere. Sorry, just on that. How does that impact your pricing power arguments then? 'Cause at the moment you have a lot of pricing power because you're a small component of the shoe. Once you're producing virtually the whole shoe, does that make you more susceptible to a future inflationary environment?
That's a very good question. That's a very deep and thoughtful question. I don't have the answer to that, but you know, if we can continue to innovate in that space, and if we can save the manufacturers five minutes per shoe in terms of manufacturing time, that's gonna be significant dollars there. I think once you get into the upper and the structural components, the trick is gonna be how do you make the manufacturers far more productive? If you can do that, then you can price accordingly. I completely get your point. It's an interesting thought, yeah. Thank you.