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Nike deal highlights Zotefoams' growth credentials

Published: 14:35 13 Dec 2017 GMT

picture of training shoes
On your marks for a growth spurt

Specialist foam maker Zotefoams PLC (LON:ZTF) is one of those companies whose products increasingly are becoming crucial to modern life.

It is also one of those businesses that you probably have never heard of, though with a share price hitting an all-time high and a deal just announced with sportswear giant Nike that may be set to change.

David Stirling, chief executive, quips the company is expert at blowing air into things but there is a lot more to it than that.

A process using pure nitrogen gas forced into plastic makes its foams and the amount of air that ends up in a final product is indeed a key component.

Making things lighter is more efficient, cheaper and better for the environment and a host of industries are realising this especially when combined with the latest high specification plastics.

Nike’s deal for example is for footwear. Foam is already used extensively to cushion the impact on the foot in running shoes and trainers, but Zotefoams will work exclusively on a high end range for athletes.

The foams can be formulated to specific customer needs and are superior in performance, consistency, quality and purity to foams produced by other methods.

Growing nicely at high end

The market too is waking up to the idea that rather than a highly quality but steady manufacturer of foams, Zotefoams is actually quite a nice little growth business.

A reason for the change of perception is that the high precision polymer (HPP) division has recently seen sales spurt ahead.

While the traditional foams (branded Azote) still account for 80% of the business, some of the  newer higher specification applications (Zotek and T-Fit)  are seeing growth of 30% plus.

Aircraft manufacturers, semiconductor manufacturers for clean rooms, Nike and biotech and pharmaceuticals group are all now using the high end foams.

For Zotefoams the basic process of making the foam is essentially the same whatever the application, with the type of plastic being manipulated the thing that determines whether it costs £200 per cubic metre or £3,000.

An aeroplane window seal, for example, requires a plastic that is heat and UV resistant, explains Stirling.

Half-year revenues rose by a quarter to £33mln but it was the 57% rise in HPP sales that caught the eye, although the established business still did well with an 18% increase on record volumes.

Another standout was the MuCell Extrusion arm, which licenses technology for an ultra-high spec foam that passes as a plastic and is being used in bottles for bodywash and other consumer packaging.

Many opportunities

An update in November repeated that sales of HPP ranges were ‘particularly strong’ with group sales overall up by 22%.

Profits will also be at the high end of expectations, said the statement.

Stirling appears confident that growth in sales at this rate can be maintained.

A new factory at Kentucky is due to come onstream anyday and will enable a 20% rise in capacity across the group, while also giving it a currency hedge in case sterling does rally, though forex movements have worked in its favour recently.

Stirling adds he has seen the pound at almost at all levels in his seventeen years running Zotefoams and can live with Brexit uncertainty, especially as the number of new applications for its high end foams is growing almost on a daily basis.

“We have lots of opportunities. Now it is all about organic growth and executing well.”

Shares in the foams group shot up 15% to 461p on the news.

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