Zotefoams plc (LON:ZTF) Chief Executive Officer David Stirling caught up with DirectorsTalk for an exclusive interview to discuss their high performance products, MuCell returning to growth, the new opportunity with ReZorce, the launch of AZOTE Adapt and the outlook for the company.
Q1: First off, congratulations on your preliminary results today, can you talk us through the main financial highlights?
A1: 2019 saw a year where our high performance products performed well in line with our strategy and we saw growth in most products, up 20%.
Our MuCell business also returned to growth, a 59% growth, and unfortunately our core polyolefin business, although it started the year extremely well, we hit a difficult patch in the market in the second half and that really impacted our growth so the polyolefin business ended the year 10% down.
So, overall revenue was broadly neutral, our growth businesses performed very well, our high performance products in particular ended up at 33% of revenue, 53% of our group operational segment profit.
We maintained the gross margin throughout that period where we had invested significantly in new assets to grow so that’s the story of 2019.
Q2: The HPP strategy is clearly delivering growth, can you just expand on that for us a little?
A2: Many years ago, Zotefoams decided to use our unique assets to make products which were higher margin, more technically demanding and unique in the market and that’s where our high performance products business came from. It’s purely organic, we’re growing with the technical materials in the markets that other people cannot offer and really, to date, it’s a story of three or four different segments.
So, in 2017, we signed an exclusive deal with Nike to supply into the footwear market and that’s going very well, it’s approximately half of our high performance sales at the moment. We’re supplying to aircraft, space etc. and also into clean room installation using our T-FIT brand where we have opened a small factory in China, we’re opening up in India, both very big growth markets for clean rooms for biotech pharma.
So, it’s really looking at these unique areas where we can add value with our technology.
Q3: As you mentioned earlier, MuCell performed well, how have you made a return to growth for MuCell?
A3: MuCell really licences technology for people extruding polymers and the business revenue comes from selling the equipment upfront and then over the course of a 10-year contract, typically we would get a share of the savings that they make. In 2019, the growth has predominantly come from equipment sales which usually front-end loaded indicators of licence revenue growth in the future.
Q4: The announcement highlighted a new opportunity created with ReZorce mono-material barrier packaging, can you tell us more about that?
A4: There’s a lot of chat in the market, quite rightly, about environmental responsibility in particular single-use packaging and around plastic single-use packaging and a lot of our MuCell provides the ability of packaging producers to reduce the use of plastic. However, there are certain areas where what’s called barrier packaging where you need an oxygen or a moisture barrier to keep your product fresh. They augment the plastic with other materials so aluminium, metallised foil or cardboard etc. and those multi-materials are very good functionally, they keep the product dry and consumable for a long time but very difficult to recycle, in fact most people do not recycle them.
Re-Zorce’s answer to that is that it uses plastic but it’s a completely recyclable packaging that offers the benefits of the barrier packaging products in an easy to make, easy to use, recyclable product.
Q5: It’s also great to see the launch of AZOTE Adapt, could you talk us through that?
A5: So, this is really a completely new category of materials, of polyolefin foams, closely aligned to our AZOTE product range which is the biggest part of our business today. We saw an opportunity to develop our processes which use unique assets to offer something to the market which is using part of our autoclave process in the very latest technology in chemical blowing agents which are commonly used in our market and give a product that is very good performance, a low capital intensity than our existing product range and aim to that very specific couple of segments in the market where we have a low market share. So, that’s very encouraging, the initial feedback from that, and our Poland factory which is due on the second half of this year, depending on the market environment, is specifically designed to be able to cope with all our products including the Adapt product.
Q6: Just looking forward, how would you describe the outlook like for Zotefoams?
A6: I’m sure I’ll comment with everyone else, we’re seeing it’s very uncertain, we’re seeing subdued market demand right now, customers are looking for very rapid response times, it’s just really high uncertainty, some markets are really quite low.
We’re doing really quite well in China in our T-FIT installation business but that is, at the moment, a smaller part of our business.
A very uncertain outlook I would say at the moment but our focus is mainly to look at our cash position, to manage our cost base which I think we’re doing pretty successfully and seeing what the market brings really. As well as we’re aggressively targeting market share in a couple of areas where we’ve historically not had a high market share and that’s seeing already some benefit there so I’m pretty pleased about that as well.