Zotefoams plc (LON:ZTF) Chief Executive Officer Ronan Cox caught up with DirectorsTalk for an exclusive interview to discuss a strong H1 performance, settling into his new position as CEO, footwear performance, agreement with Shincell, ReZorce progress, and what investors can expect going forward.
Q1: Ronan, first off, congratulations on a strong set of results, could you just talk us through the financial highlights?
A1: So, first half of 2024, a very strong performance, in fact, a record-breaking performance for Zotefoams, with group revenue up 10% to £71.1 million. That saw gross margins also increase 40 bps, up to 33.2%, and delivered a profit before tax to a record level of £8.3 million, which is 12%. And excluding our investment in MEL, that was also up 12% to a record of £10.5 million.
One of the key drivers in that really was the super strong performance of high-performance products, where we saw revenues up 37% to 36.1 million.
Q2: Now, you were recently appointed the new Group CEO. How has the first few months been settling in?
A2: It’s been really good, thank you. I’ve obviously spent a lot of time getting to know the people, getting to visit a lot of our customers, and also meeting some of our suppliers.
I think really the first thing that strikes me, as I began working with the group, is really about that Zotefoams DNA, and this is really what I would say characterises as a great British manufacturing success story.
A hugely resilient business, it’s been around over 100 years and managed through many different historical events through that 100 years. So, incredibly strong foundations, very talented people, lots of scientists, lots of engineers, a fundamental technology that’s been sustainable for many, many years, and a business that’s very much focused on innovation.
So, it’s been really good, very enjoyable, and I’ve started to lay some of the foundations for the next growth curve, and I’m very excited about the future for the business.
Q3: Just getting back to the results, I see that footwear has performed particularly well. Could you tell us more about that?
A3: Yes, footwear, a tremendous performance in H1. Our footwear business is 100% dedicated to Nike, and that’s by way of our exclusivity agreement where we supply supercritical foams for their performance shoes.
There were a number, I would say, of particularly strong tailwinds in H1 that gave rise to some exceptional demand, and they are centred around i) the Olympics, which is always a bump in this sector, ii) a certain supply chain realignment for Nike that’s seen quite a bit of movement of manufacturing from China, particularly to Vietnam, and new Tier 1
building up inventories so that gave a real jolt to demand as well, iii) we had the Red Sea crisis, which has some artificial lengthening of supply chains that saw a supply chain managers in the Tier 1s building up additional inventory.
That said, demand remains very robust in that area and indeed, as we look forward, we also look forward to a pretty strong H2. I would repeat, very strong tailwinds that’s seen H1 versus H1 2023 growing around about 40%.
Q4: Now, the group signed a global alliance agreement with Shincell New Materials, what does that mean for the group?
A4: There are a couple of components to that.
First, we signed the alliance because of the interest in technology that Shincell has been developing over the last five years so this is a mixed gas technology, and we see that as very much complementing the nitrogen autoclave technology that we have developed over the last 100 years. So, the alliance is really leaning into some of the developments that they have been making.
We had started to develop around this area and essentially, this really allows us to jump along that development curve. The technology in itself, as I say, is complementary, it allows us to actually foam different plastics and it comes with a different footprint, which gives us some optionality in terms of how and where we manufacture products in the future.
The other side of the alliance is a commercial alliance and that will see us taking to market in Europe and North America, some products that Shincell have been developing, particularly or exclusively for the Chinese market.
So I’m very excited about the potential about that development and we’ll see a lot more of that to come in the coming months, and indeed, as we go through H2 and into next year.
Q5: ReZorce is making significant progress. Could you talk us through that side of the business and how it’s progressing?
A5: ReZorce is our disruptive startup within the group, focused on creating a mono-material packaging for the beverage industry. Indeed, this packaging can be extended beyond that but for the moment, we’re concentrating on bringing this to market in a 1.5 litre juice carton format.
The business has been developing this for more than five years, and actually its history can pre-date that if you look at the MuCell Extrusion business that we started almost 10 years ago. But over the last five years, we’ve been developing this solution. The team have registered a number of patents around this mono-material 100% circular carton solution. We started a cooperation, with Refresco in 2023, and they give us access to their sites. Refresco are one of the largest juice carton fillers in the world, and they’ve been very excited about this, the opportunity of bringing this product to market for its recyclability credentials.
In May of this year, they broke cover with us, and we assembled a whole contingent of people from the plastics and packaging industry to launch the ReZorce package in Amsterdam. Refresco, I would say, are significantly confident about the progress to break cover and continue to help us with developing that product.
So, H2 is going to be a super busy time for that as well, as we look to conduct sterility testing, some durability testing, and then market trials. In parallel, and with that, we are also looking to bring on board strategic partners to help us bring this product en masse to market.
Q6: What can investors expect from Zotefoams in H2?
A6: Well, we are looking to have a very good H2 and we are maintaining consensus forecast. As I mentioned at the beginning, footwear was particularly strong in H1, I did talk about the tailwinds, but that said, we still expect a pretty robust H2 and we can also expect a lot of progress on the strategic projects or projects around capacity improvement and enhancement in North America, ReZorce, further critical development around that in H2, and the ongoing development of the Shincell alliance.
Also, we will see a lot of activity around the core business as we continue to improve performance across both the AZOTE, so polyolefin business, and in general across the high performance products division.
