Zotefoams H1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 5, 2025

Key Takeaways

  • Positive Sentiment: Record H1 results with group revenue up 9%, operating profit up 26%, PBT up 37% and EPS up 55%.
  • Positive Sentiment: Strong cash generation drove net debt down ~40%, working capital to sales ratio reduced from ~40% to ~31%, and supported a 5% rise in interim dividend to 2.5p per share.
  • Neutral Sentiment: Vertical focus pays off as consumer & lifestyle sales rose 16% and transport & smart technologies were strong, while construction & other industrial saw anticipated H1 softness from lower Asian projects and a U.S. customer ERP installation.
  • Positive Sentiment: Strategic JV in Vietnam with Soohang—taking a 17.5% stake—and appointment of ex-Nike executive Brandon Thomas aim to accelerate growth in the high-growth footwear segment.
  • Positive Sentiment: Second large autoclave (LP2) installation in North America is under commissioning with full operation expected by end-Q3, boosting production capacity and efficiency.
AI Generated. May Contain Errors.
Earnings Conference Call
Zotefoams H1 2025
00:00 / 00:00

There are 3 speakers on the call.

Operator

Welcome to the ZotFunds PLC twenty twenty five Interim Results Investor Presentation. So at this recorded presentation, investors will be in listen only mode. The company may not be in a position to answer every question received during the meeting itself. However, the company can review your questions submitted today and publish responses, which is appropriate to do so. Before we begin, I would like to submit the following poll.

Operator

And I would now like to hand you over to CEO, Ronan Cox. Good afternoon to you.

Speaker 1

Thank you, Alex, and good afternoon to everyone joining the call this afternoon for the ZOPAFOAM's interim results update. If we go to the first slide, please, Alex. There we go. Okay. So quickly touching on some of the highlights for h one.

Speaker 1

Very strong revenue growth, up 9% across the group. And that's driven in the main by EMEA, up 11 coming from our a consumer and lifestyle sector, and then North America with very strong performance coming from transport and smart technologies. And we are very much along the course of our of our transition from a product to vertical focused business. So as we look at vertical revenues, that consumer lifestyle sales up 16%. As I said, that's really coming from from EMEA, and we can see that in the regional performance.

Speaker 1

And then transport and smart technology, strong across the group, particularly strong in in North America, as I mentioned. Construction and other industrial, which is our our third vertical, had a more challenging demand in in h one. Not entirely unexpected, principally coming from from lower projects in Asia in our in our TFIIP business. H one is is typically quite soft and and very project dependent. And then in The US where our primary customer in this sector was facing some headwinds from market demand, but also from an ERP installation that they're working on within their business.

Speaker 1

Overall, we still look at a good prospect within that construction and other industrial a a sector. So all of that is leading to to record earnings. So strong gross margin performance, strong operating margin performance, all flowing through to really good profits with operating profit up 26% to 12,200,000.0, and then PBT up 37% to 11.4. Again, that all flows through to to really solid earnings per share, up 55%, and a really, really strong balance sheet. So very cash generative.

Speaker 1

This business has always been cash generative. The c h one has been particularly strong. Thanks to to ongoing really good operational management, particularly around areas of networking capital. So we've seen the networking capital to sales ratio reduced significantly from the forties down to the low thirties. So it's a really good control there.

Speaker 1

And then that is flowing pleasingly through to an increase in dividends. So we're we're very pleased to announce a 5% increase in interim dividend to 2.5p per share. So moving on, just to recap, and and I think many of you on the call today will will have been on previous calls and have the update following our Capital Markets Day on the strategy refresh at Silk Foam. And today, you know, even on top of these very strong results, what I'd really like to to get across is the tremendous performance that we're making in that in that strategy refresh and that journey that we're on. So first of all, that pivot from from product to industry focus, a really, really great progress there as we continue to make investments in talent in particular.

Speaker 1

Also, in our product ranges for those three verticals, and then the the key industries within those verticals where we see the longest runway for growth. So so tremendous performance there. And closer to customer, expanding our capabilities, we we we talked earlier in the year about the investment in Vietnam, and that was specifically addressing the opportunities that we see in the footwear industry and today with with Nike. And a this morning, we announced that we're entering a joint venture agreement And Soohang are a large player in the footwear field.

Speaker 1

They've got revenues of about $260,000,000, and they service components and supply chain solutions across the footwear industry. They're they're South Korean based, but they've got a large presence in China, in Vietnam, and in Indonesia. They are also a sister company of the Changshin Group or Changshin Corporation. And Changshin are a very big player in the footwear world, one of the largest suppliers of athletic footwear, employing some 80,000 people. They've got 48,000 employees in in Vietnam, and they they're manufacturing over a 140,000,000 pairs of of athletic footwear shoes per year.

Speaker 1

I see this as a as a tremendous step forward for us as we as we come into this high growth market. It's a it's a real sign of the of the success of our products in that market that we're able to attract such a strong, high quality joint venture partner in that region. And I'd also say I was really pleased as well to announce this morning the appointment of Brandon Thomas who is coming from from Nike across to to ZOLT phones, and he's going to help us lead that joint venture business in Vietnam. So super progress in this area, bringing expertise into the business and bringing know how and specific know how of both industry and region to help us really drive that expansion forward. We continue to invest in innovation in h one.

Speaker 1

We've we've we've mapped out the blueprint for the innovation center that we have in that we're building in The UK. And also in in Korea, we've just appointed the head of our Korean innovation hub. He's come on board in the last few weeks. And we've ordered some of the biggest ticket items for those facilities. Actually, they're the longest lead time pieces that we have in in the whole investment around innovation, and we're still narrowing down on where we're actually gonna look at those in The UK and also in Korea, but the longest lead time is is on the equipment itself.

Speaker 1

But we've been very purposeful and clear in terms of the investment in kit and capability that we're bringing in to bring that next generation of innovation in supercritical forms to the market. And moving up the value chain, m and a is and will be a important part of our refreshed strategy. So in h one, we've continued to build relationships across the market. We've continued to really look at the the potentials that are out there, and we're specifically looking at North America and Europe for really exciting acquisition opportunities. And, you know, this is an area that that absolutely excites me for the future of the business in in executing this beyond the core expanding beyond the core strategy.

Speaker 1

And then in terms of execution of the strategy, you know, we have been investing in talent. That's seen some new people come into the business. We've some seen people exiting the business. We've been really focusing on driving operational performance. So be they manufacturing performance KPIs to deliver better customer service, to deliver better productivity in our factories, but also to deliver better cash.

Speaker 1

And I think I touched on earlier, one real example for shareholders is is what we're doing around networking capital and that release of cash from from really honing in on disciplines around procurement terms, around credit terms with customers, and also around inventory management across the business, which is released a tremendous amount of cash. So quickly touching on on some of the performances in the regions. I I I touched on it in the first slide. I'm gonna really move through this quite quickly. The the sort of key messages here of the growth in EMEA is coming from that really strong consumer and lifestyle performance.

Speaker 1

So as we continue to develop this this really big business for us in footwear, we've been we've been diverting a lot of our attention to making sure that we keep our customer demand completely satisfied here. So so that's taken up a lot of capacity in Europe, and we see that then flowing through to more modest demand in in transport and smart technologies and construction and other industrial, but we see that as as momentary. And, you know, we we are continuing to really work in developing the pipeline of opportunities in transport smart tech and also in construction, other industrial, particularly as we prepare ourselves as as we start to shift volumes from Europe across Vietnam for that consumer lifestyle sector. So, you know, the investments that we're making around people and talent are coming in and really bolstering the pipeline of opportunities that that we have in these areas. As you said, revenue in in in EMEA, really, really strong.

Speaker 1

Segment profit up 2%. Segment margin, down. We have had some some headwinds to say as we've had movement around the the business. We've taken all of our reorganization costs above the line, so we're not planning any exceptionals as we go through our transformation in the business. We've been reinvesting and taking and bringing and hiring new talent into the business.

Speaker 1

And forex has certainly in q two been been a bit of a headwind for us. You know, we we we have got a pretty comprehensive hedging strategy, but the the weaker dollar in q two certainly was we we've seen some headwinds there. We see that moderating a bit in in recent weeks, actually. And then pay payroll inflation, we kinda get away from the impact of national insurance increases in The UK, which flowed straight to the bottom line. So not not without impact on us.

Speaker 1

That said, you know, we remain very confident in the way that we're controlling all of our costs as we as we transform ourselves within our new strategy of expanding from the core. North America, revenue very strongly up. I mentioned the headwind around construction and and other industrial, really concentrated on on one one customer. A real highlight from here is transport and smart technology. So demand very strongly up, really driven by the the demand in aerospace and aviation sectors.

Speaker 1

So our traditional customers, the likes of Boeing, but also new emerging demand from from the space sector, which has been super buoyant in in h one and and really positive as we see the margins from that growth flow well through into segment profit within the region with a profit of 1.2 where we were at breakeven this time last year. But also mentioned in North America, one of the biggest investments we've been making over the last eighteen months is in is in new capacity, what we call an LP two. It's a large autoclave that is just being installed in the facility, and we're starting commissioning trials. And we we anticipate that that will be really operating towards the end of q three this year. So I'm very bullish and have always been bullish about the opportunities for our products within those really, really attractive markets in the North American region.

Speaker 1

Asia, it's a really small segment for us today, but it's gonna be a really big segment for us in the future as we as we make, as we progress with the investment in Vietnam. And today, revenues are largely generated by the T FIT business. As I said, it's usually a a first half of year is usually quite soft. We expect to have a to have a better hitch to here, but the the real area in in in Asia is is about the growth. It's about the growth in Asia that's gonna come from the investment that we're making in in Vietnam and that investment that we've made with with with SoiHong, which I would say is is a real endorsement of the of the strategy that we have there that we can attract such a an incredibly strong partner to come and and partner up with us in Vietnam.

Speaker 1

So, you know, excited for for the future growth in Asia, excited for what that does in terms of allowing capacity to be freed up, particularly in EMEA as we then address the other really interesting markets that we operate in. So I've I touched on that joint venture with with Soo Hung. Why is it important? It derisks it derisks our investment in Vietnam. We are partnering with a with a business that has got a long track track record in not only the industry, so in footwear, in athletic footwear, closely knows our big customer Nike, but also has got a long history in Vietnam as well.

Speaker 1

So significantly risking. They're also bringing a lot of a lot of skills in the area of three d preforms. So as we move from sheet manufacture to three d preforms, they bring tremendous knowledge in this area, which is really gonna help us as we as we ramp up our production there. They're taking on 17.5% stake in the business, and that is in the business, I should clarify, in the joint venture, so in the Vietnamese entity. So their investment is in the Vietnam manufacturing entity, okay, to be to be really clear.

Speaker 1

The joint venture is in the Vietnamese manufacturing business. Innovation happens outside of this area. Innovation is is wholly 100 owned and will continue to be owned by by ZOLFOAM. So those innovations that we apply for all of the industries that we operate in, including footwear. I genuinely excited by by this JV.

Speaker 1

I think that the fact that Weasel phones are have been able to have been able to secure this with one of the biggest players in the market is is absolutely tremendous, and and it speaks volumes for the opportunities that we have in this particular area. And then I gotta hand over to Gary who's gonna take some of the results highlights. Gary? Thanks, Ronan.

Speaker 2

As Ronan said, group revenue is ups up to up 9% to 77,400,000.0. That includes well, that excludes 1,000,000 of headwinds from currency. So on a constant currency basis, the revenue was up to 78,400,000.0. Gross margins, up a 140 bps to 34.6%. That includes a Mucil.

Speaker 2

If you remember, we had the Mucil last year. We included within revenue was £600,000 included within within costs in total total operating costs, 2,200,000.0, and some of that cost was in gross margin. If you take the MEL cost out, we were we were kind of roughly around the same percentage margin. So what's happened within gross margin? We've got some benefits.

Speaker 2

We've got the improved mix, sales mix. We've got improvements in efficiency at The US plant. But offsetting that, we've got labor costs inflation, as as Ronan mentioned, NI costs, and the like. EMEA EMEA, which is our largest facility, there we saw energy costs pretty stable, raw materials pretty stable. That gross margin then translates into a gross profit up 3,200,000.0 to 26,800,000.0 for the first half.

Speaker 2

Operating profit up 26% to 12.2. That's after 14,500,000.0 of SG and A costs. You can see the boxes down the bottom for some of the lower profile KPIs. That 14.5% is 5% up on the equivalent period last year. There are two big movements in there actually before you get to the underlying SG and A.

Speaker 2

First of all, this year, we've got an FX headwind of about 800,000, but offsetting that is the removal of the new cell costs for last year's period, which were about a million pounds and related to the technical team, over 20 people in in Newsel. If you if you strip that out, we're we're up about a million million a 0.2, and that very much is driven by our strategy, by the investment in our new leadership team, in senior leaders in EMEA, who are all there to help drive the refreshed strategy forward. Operating profit of 12,200,000.0 translates into PBT of $11,400,000 which is up 37% on the previous period. Within now, you can see there's a reduced interest charge down to 800,000 versus 1,400,000.0 in the previous period, that's 40% down. And that really reflects two simple factors.

Speaker 2

Firstly, a lower average, debt level through the period, as well as lower interest rates, this year. PBT then translates into a basic EPS of 19.99p, which is 55% up on last year's 12.89, and that additional benefit is driven by tax where our tax charge, is 1,600,000.0. That's down 18% from the 2,000,000 last year. That's on an on an expected tax rate for the year of 14.5% versus 24% last year, and that's driven by a couple of factors. Firstly, we are make we expect to be making more profits in our US and Polish businesses, both which benefit from from favorable tax positions.

Speaker 2

And in addition, we also are benefiting from various from the from credits coming from r and d tax taxation and the patent box programs. So all that reduced, leading us to a 14.5% expected tax rate for the year. We move on to the balance sheet cash flow. We are, I say this every time, it feels like, but I'll I'll say it again, cash from operations, we are cash generative. And indeed, if you look, this year versus last year, we're up 86%, and that's driven by a very, as Ronan mentioned, a strong focus on working capital.

Speaker 2

Last year, we had a net outflow of $5,900,000 very much driven by inventory build. This year, we have a cash net cash inflow of $05,000,000 which has resulted in that $15,800,000 of cash from operations. Net capital expenditure is at $7,800,000 kind of similar to last year, obviously, different factors within that. It's very much driven in the first half by our focus on completing S, which, as Ronan mentioned, is commissioning in H3 in Q3.

Speaker 2

And there is also some of the investments in down payments in Vietnam. Guidance from our brokers is indicating that that $8,000,000 will double in the second half, but that will be a swing away from the LP vessel and more towards Vietnam in the second half. The consequences of our cash generated is a net debt reduction to 21,100,000.0. This is net debt on our banking definition, importantly, ignores finance leases, and more importantly, it's what drives our, leverage and covenant, calculations. That's down 39.9%.

Speaker 2

I've got a brief slide coming up, on net debt. Leverage therefore down at point seven x, down from point nine x at the year end, and from 1.4 x this time last year. And an interim dividend up 5% to 2p 50. In the small boxes, though, I've just got a couple of the, balance sheet items that that maybe represent the larger movers, from the period to last year. Intangible assets, that was 11,000,000 last year, very much driven by Mucil.

Speaker 2

The decision to pause that investment led to a reduction in that at the end of last year down to 0.4. So now it's moving down as we amortize further. So intangible assets currently very material to the group's balance sheet. I also mentioned working capital, the great work there with the net working capital inflow in the six month period. But that translates into a fourteen eight forty eight point five million working capital balance, which is 11,000,000 down on or 10,000,000 down, sorry, on this time last year.

Speaker 2

And and in terms of a percentage of working capital against sales, that's a reduction from around the 40% mark down to 31%. So we're very proud of that. A lot of work going on by a lot of the people within the organization, and there's still pathway for further reductions in our views. And then finally, pension deficit. It it is not a significant concern or risk to the organization.

Speaker 2

It's gradually reducing. It was 1,600,000.0 last last period, equivalent period last year. It is now down to £600,000. So strong cash generation summary, strong working capital focus, and the interim dividend up 5%. Moving to just a final slide on the debt.

Speaker 2

As you can see, we started if you look at the IFRS debt, we started the period of '33, that's down to 29.1. Our net debt after leases or excluding leases is down 3,000,000 from '24 to '21. A lot of cash generated reinvested in CapEx, mostly completing our low pressure vessel in The U. S. And starting our investment in Vietnam.

Speaker 2

And then dividends, tax and lease payments takes that 21,000,000. Fundamentally, and then maybe the last comment, this is a strong balance sheet, and this balance sheet provides us with flexibility for inorganic growth opportunities, which are part of our strategy. With that, I'll pass back to Rohan.

Speaker 1

Brilliant. Thank you, Gary. Okay. So summary for the half. Record performance, very strong revenue flowing through to to really strong profits.

Speaker 1

Across the the verticals, the real drivers coming from consumer lifestyle and also transport and smart technologies. And within that, we're talking footwear, gray, aviation, aerospace have been really where we've seen the the strongest growth. Construction, some more headwinds in here, but we we expect part of that is is to do with The US wider environment, also to do with operational challenges at a customer, and also is the is the weighting in terms of demand h one versus h two. Overall, I would say that the realignment of the business continues to really take pace, and that focus from product to market verticals is starting to to yield dividends for us. So progress on the strategy is really good.

Speaker 1

You know, I I talk about the sort of five pillars. We are we are making progress on on all five areas, which is tremendous, and that can be seen with things like the strategic investment in Asia. So that investment in Vietnam that we announced and and the fact that we've now been able to secure an incredible partner to come along with us to invest in this journey. And then partner that doesn't just bring capital, but brings tremendous credibility and expertise in in in the in the market and in the region. And in the North America, as I say, I I remain ever bullish about about the North American business and bringing that new capacity on stream in q three will propel us again for further growth opportunities in some of those really exciting markets that we have in The US.

Speaker 1

So as we look to the full year, you know, I think we we can say we're we're we're looking at really solid progress on on the commercial transformation. We've we've started. It's a journey. We'll continue to to to to move along in that journey in in h two. Operational excellence is is is super important for us, so it's not all the shiny things that that we're looking at.

Speaker 1

Stuff like networking capital is really important to us, and I think we've demonstrated an ability to to bring some basic best practice in these areas and unlock real significant chunks of cash for the business. Our strategy of expanding beyond the core is is really gathering PS, whether that's the investment we're making in in in in Asia, in our innovation centers, our in our investment in commercial talent that are coming into the business to develop a pipeline of opportunities in those in those verticals. And also the other stuff that we haven't seen yet, but where where the hopper is really filling in in things like inorganic growth strategy. So all of this good momentum gives us the confidence that our full year profit will be ahead of expectations as we concerned this morning in our interim statement. So with that, I'm going to come out of presentation mode, and we're gonna switch over to q and a.

Operator

Fantastic. Yes, Ronan, Gary. Thank you very much indeed for your presentation. If I may, I will now turn your cameras back on. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the top right corner of your screen.

Operator

While the company take a few moments to view those questions submitted today, I would like to remind you that a recording of this presentation along with a copy of the slides and the published q and a can be accessed via your investor dashboard. Ronan, Gary, as you can see, we have received a number of questions throughout today's presentation. And if I may now hand back to you and kindly ask you to read out the questions where appropriate, and I'll pick up from you both at the end. Thank you.

Speaker 1

Okay. Alright. We'll start with a with a tremendous one. So if you could fast forward twenty years, what seemingly unrelated or unconventional industries do you believe will be using Zofoan's materials in a way that no one currently imagining? Well, I guess, it's probably gonna be used in industries that don't even exist today.

Speaker 1

So I think it's a it's a really, really tricky one to to to answer. We will continue to innovate. We will continue to make performance materials, and what we do is our our focus is on using the very best polymers that are available in the market and then applying our technology and our techniques to make them lightweight, to make them to give them physical attributes that one may not imagine, whether that's, you know, strength, whether it's a heat resistance, whether it is conductivity. And so there's a multitude of applications for for engineered polymers, indeed, all sort of polymers. So I guess we don't know what those industries will be that will be super exciting in twenty years' time, but but, you know, everything's you know, all of the trends are going to be about sustainability, about light weighting, about durability, about just added performance and that true value creation.

Speaker 1

And I think that, you know, the products that we create do that and and will continue to do that for for many years. So we'll we will keep innovating, and we'll keep staying ahead of ahead of trends. Okay. Let's go to the next one. Sorry.

Speaker 1

I'm just struggling with navigation. Bear with me. How do you plan to measure the long term nonfinancial value of the new strategic partnership, particularly it relates to getting access to operational best practice and deep market relationships? I think it's gotta be measured. This is gonna be measured really by our ability to increase the addressable market within the within the footwear business that that we operate.

Speaker 1

What I mean by that? Today, we operate very much at the pinnacle at the at the very highest end. And what we wanna do is is to bring super critical fluid phones and that technology that has helped set world records to to set more and more personal bests for people doing park runs. So it's about democratizing the technology that we've that we've created for elite runners. Bottom line, get on many more pairs of shoes.

Speaker 1

That's that's really what we what we plan to do. So today, supercritical foams is the preserve of of largely the highest end, the most expensive. Not terribly a a very often used shoes so as to get on to many more of those. How is the partnership with Shimself progressing through May 2024? Are there any notable products due to be released?

Speaker 1

So we continue to to really work closely with Shinsel. Remember that this is a one way partnership, so we bought access to their knowledge knowledge and know how. We're we're using quite a well, we're using and and we're able to use data from the way that they operate to help form the way that we set ourselves up in our in our Asia expansion. So so that's super, super useful. We're not necessarily using their technology.

Speaker 1

Actually, we're not, but but we're able to eliminate some ways of doing things and refine what we do and improve what we do ourselves. So so that's that's super helpful for us. In terms of other any notable products to to be released, well, we're working on on some really interesting products to bring to market. I think it's it's it's early days. Whether or not we actually choose to co release them or whether we wanna bring those through our facilities, you know, we'll we'll fine tune that.

Speaker 1

It depends on the markets that that we're addressing. K? Is there any update on how the partnership with Nike is going? Could you give more detail on your head of expectations? What now is your guide?

Speaker 1

What waiting what waiting revenue do you expect? So the partnership with with Nike is you know, continues to go from from strength to strength, I I would say. Yeah. We are focused on innovating and bringing next generation solutions to Nike, and we are we collaborate with them closely. They're very interested and and obviously very keen for us to deploy our investment in in Asia.

Speaker 1

So, you know, we we we work really, really close with them. We we've got a saying about winning with the winners and winning where it matters, and and, you know, Nike are back to winning ways, particularly in athletic footwear, and and they we plan on helping them to to win even more. Could you give more detail on head of expectations, Gary? That's what we

Speaker 2

those two, can't I? Yeah. So new con consensus was our our collated consensus prior to today was a 149,000,000 revenue and 19,500,000.0 profit. Remember, adjusted profit reported profit now the same, given that we don't have any amortization of acquired intangibles, which is very much a very minor, but very much a a new sell matter. We are now consensus has now moved up from both brokers up to a 155,000,000 revenue and 20,500,000.0 profit.

Speaker 2

So it's 1,000,000 up on profit, 5,000,000 up on on sales, various things happening in between there. There's another one, but it's not.

Speaker 1

There's two questions. Yeah. That's just the United Okay. Next one's an interesting one. How's the search for the new CEO progressing?

Speaker 1

I was. It's news to you. That's news to me, but I'm hoping that the search for a new CEO isn't going well. I guess it is news. I I'm I'm I'm suspecting that that meant CFO.

Speaker 1

We we we announced that Nick Wright will be joining the business as Gary's successor in October. So we've got a very orderly handover as as Gary moves off to to retire to retirement and enjoys retirement. And so the search is is is complete. Nick has signed up. He's coming into us in October.

Speaker 1

We're really excited about that. And Gary is here as ever to to support in his integration and and the need to handle. I think

Speaker 2

we released we we released the RNS on that back in April. It should be on our April. I can't remember which date it was, and it's on our website. Yeah.

Speaker 1

Indeed. Okay. And can you explain the revenue and cost model of the announced JV? Also, what the JV and the appointment of Brandon Thomas driven by conversations with Nike are coincidental. I'll come to the second part of that.

Speaker 1

A no. The the appointment of of of Brandon and a and the JV, you know, these were independent choices that we at Zope phones have made. A you know, we we've been we've been incredibly lucky that we've been able to attract such talent and brand and to come from Nike to join Zold Phones. I think that his joining us endorses in many respects the vision that he sees for for supercritical roles in the future. So so that was that was that's that's absolutely tremendous.

Speaker 1

And in terms of the the JV, though, this is something that that we have determined and, you know, I I and we as a leadership team recognize, you know, the opportunity that we have ahead of us and and the the importance for for execution and and really, really, you know, really executing fast because the opportunity is is is really, really significant here. And and partnering with someone in region that knows not only Vietnam, but but is inside in the in the industry, has got forty years of experience in that industry, can can only help drive our success in in this area. And then can you explain the revenue and cost model of the of the announced JV? I'm not quite sure what what that means, but, you know, revenues the the business that we have in Vietnam will be a joint venture partnership. It will create its own revenues from products that it manufactures in Vietnam and sells to our sells to our customers, to all of our tier one customers in Vietnam.

Speaker 1

So so so all of our tier one group of customers will will be serviced. We will continue to have some revenues out of The UK for our sheet phones that will go direct to those facilities. They will not be part of will will not be part of the of the of the joint venture.

Speaker 2

I think one of points one of the points we made there previously was the was the we've done extremely well to go from effectively zero to to to 65 plus million Yeah. From The UK. Yeah. And and The UK going forward, we want to grow further, The UK is not the place to be manufacturing footwear. Yeah.

Speaker 2

The entire industry is in is in Asia. So the the, you know, the supply chain is long, the ability to to react quickly is is long, is slow, and the and the costs are high. So, you know, the the the rationale part of the rationale to move to Asia is that's where everybody else is. Yeah. And that allows us to provide to offer a lower cost solution Yeah.

Speaker 2

Which will then, you know, I mean, we have certain agreements with Nike which would bring the price down. The idea is we're in the right place, and consequently, the volumes will will more than replace the revenues and the profits that we make at the moment. So not a huge amount of change in terms of the model, just a positioning to a region where we can accelerate vastly more, maintain what we've achieved, and take that forwards in coming years.

Speaker 1

Perfect. Okay. Next, I'm seeing is are you are you still going ahead with your Vietnam technical center? The technical center in Asia is always planned to be in South Korea, and and, yes, we are still going ahead So I I think I mentioned in the presentation, we've actually the longest lead time for our technical centers or innovation hubs, it's it's auto lab equipment.

Speaker 1

We've placed the orders for it. So, yes, 100%. Innovation is a core component of our future strategy. It it it is vital for ongoing growth. So, yes, we are still going ahead with an innovation hub.

Speaker 1

It's in Korea as it has always and had to be in in Korea. So, yes, we are continuing to do that. Has there been any further progress on your arrangement with Shimsel? I think we mentioned or or touched on that. Oh, things are moving around.

Speaker 1

Sorry. Okay. Can you can you update on the M and A activity around a around foam fabricators? You know, we we can't go into any detail on on M and A as we as we've, you know all all I would just highlight is that there are you know, we can see quite a few interesting opportunities whether they are a along the value chain, so it's up the value chain or whether they are in a technologies or geographies that can complement the business. So we're we're not limiting ourselves to any one technology, any one place in the value chain.

Speaker 1

A but all I can say is that that we're very active in in in the market in terms of building relationships and looking at the opportunities and developing those relationships so that we can proceed with with m and a because it is a really core component of of our strategy. Roughly, how much extra revenue does the second low pressure vessel support? The I don't know the number specifically, but but we've got we've got one low pressure vessel, and now we're gonna have two. So so quite a lot. Yeah.

Speaker 1

You know, it it's not the only it's not the only bottleneck in in in the man in in the capacity that we have there, but we've got there are three big stages in our manufacturing process in The US. There's extrusion. There's low pressure vessel. Sorry. There's extrusion.

Speaker 1

There's high pressure vessel, and then there's the low pressure expansion. And we've got oodles of capacity. That's a real technical term in in our high pressure vessels. The the the LP will will then sort of allow a lot of capacity in the other end of that. The next stage is is around extrusion.

Speaker 1

We've got plenty of capacity, but but needless to say, without putting a number on it, it it gives us a real opportunity for for growth.

Speaker 2

Yeah. Balance balances capacity. The primary cost elements are the low pressure and the high pressure. So it balances capacity. It also it it's also a new a new machine.

Speaker 2

The the existing one's twenty plus years old. It it there is inefficiency there, so there are cost opportunities through the efficient running of it, through the certainty of running of it, that putting two the two together using both, but really driving the new one harder gives us efficiency opportunities and and upside on on volumes.

Speaker 1

Okay. What flexibility do you have in dealing with Trump tariffs? Well, you know, we've we've got a we've got a US facility that that can that can satisfy the demand in The US. We will increasingly make The US for The US. So so that's that's that's tremendous.

Speaker 1

When it comes to the the the impact or the the the the sort of secondary impact, so impact on on consumer confidence in The US on things like footwear demand, which will always come from Asia, by the way, just to be really clear, and I think I've said this in every every presentation. You know, any tariffs are not going to shift the manufacture of athletic footwear away from Asia. If anything, what we're gonna see is an acceleration of of manufacture out of China towards Vietnam and Indonesia. So within our direct operations, America for America, which which is which is which is great, and the investment there helps us lean further into that. But The US market has got such tremendous growth opportunities with or without tariffs.

Speaker 1

It doesn't really matter. So that's you know, we've made that decision a long time ago. The tariffs just seem to help that that decision around around that. And then the the consequence on on maybe consumer demand or the wider economic impact of Trump's tariffs, there's there's nothing we can do about that. But, you know, I sort of say it's some phones.

Speaker 1

We've been around for a hundred and four years. We've we've seen crazier moments than this. Probably, we've been able to to navigate our way through them, and and we'll navigate our way through this. But our supply chain leads us pretty well, pretty well established. So, you know, we've got that that American footprint.

Speaker 1

We've got the European footprint. We're moving footwear into into Vietnam, is probably the area that's attracting the most investment in footwear manufacturing in the world at the moment. So I think that I think that we feel pretty pretty good about that. Is there any movement with regards to supplying Airbus? Well, we we supply Airbus contractors already at the moment, and we continue to see that as an opportunity to get on more of their on more of their aircraft.

Speaker 1

So it's always an opportunity. And, you know, our teams are are focused on on building the pipeline with with what is, you know, a super important customer. Can you can you give details of cash flow of the JV setup, timescale, and implementation? Okay. So I'm not going to cash flow, but in terms of the setup, we we we signed the agreement officially yesterday evening.

Speaker 1

We are we are in the process of securing a property, which which which we've been to, and that is the property from which the JV will will operate. We're gonna start receiving equipment at the in q one, q two next year. We're gonna start trialing that equipment and having manufacturing products coming out of that towards the end of of twenty twenty six. You know, the JV will be established from from from day one. We're going through the legalities of setting up the entity in the country, etcetera.

Speaker 1

So so we're we're we're all systems go here. Yeah. It's a at least that's that's that's from the sort of operational execution base. There's nothing you know, we're we're we're we're we're cracking on and and and we're already starting to deliver on this. That you wanted

Speaker 2

to add on the cash flow? Just just in terms of cash flow, we've obviously got money going we've got capital going out this year, bulk of the capital going out this year, but we're receiving a a $10,000,000, £7,000,000 injection into the JV to support that from SoHang, as we've said. Next year is the is where the bulk of the capital gets spent. So by the end of next year, we would we're expecting to start to end of next year, beginning of of twenty seven, start to manufacture. The remaining capital will be spent in in 2027, which is generally assets are in final payments.

Speaker 2

That would lead therefore to a total build cost of £24,000,000 of which 7,000,000 has been co funded. And we would then you know, this is this is not about starting and looking for custom custom and building up a footprint. We we have the business. We will be transferring that business over from The UK slowly to to rip fairly quickly. And so but through '27, that that business becomes cash, know, quite cash generative.

Speaker 2

So, yeah, that's pretty much it. Would've thought.

Speaker 1

Yeah. Okay. What will the annualized cost savings from having a second LP in The US, I. E. Lower shipping costs, points of tariffs, lower inventory holding costs, etcetera.

Speaker 1

I think it's it's less about tariffs. That was never a motivation for this, just just just to be clear. And and it's not really shipping cost. It's just significantly more efficient. It's it's a it's it's a more more efficient it's it's a modern vessel.

Speaker 1

It will allow us to reduce cycle times, reduce consumption of of input, inputs in the form of of nitrogen and also energy. It's it's just an overall significantly more versatile and much more flexible. And and therefore, we believe well, not

Speaker 2

we believe, we know will be will be much more efficient and and and lead us to be to be more to to have better costs. And and in line with our capital markets down our strategy over the next five years, it's The US that we expect to grow faster Yeah. Anywhere else. So it's it's it's absorbing that capacity.

Speaker 1

Indeed. Okay. Just trying to keep up with the stuff that's coming in. Is Nike already pressing for the next new thing to better ZoomX performance? Absolutely.

Speaker 1

100%. They are. And they and so they should. And and so we should. And we're excited about creating the next generation of super shoe and also about taking super critical, following to many more shoes than just high performance running shoes.

Speaker 1

So, yes, they are pressing, and I think that's a great thing, and that's why we're investing so much in innovation. So innovation is the name of the game in in this particular in this particular vertical. And I would say innovation is the name of the game in in all of the industries in which we're operating. You know, we have got a sophisticated, highly engineered product, we need to keep innovating to keep it relevant. How approximately, how many people will be relocated hired for the Sohoong joint venture?

Speaker 1

We would envisage that the facility will employ in the region of 400 people. So how how many people will will relocate? Indeed. Very, very few. So, you know, we've we've made a you know, as as I mentioned earlier, I think a really stellar hire in Brandon.

Speaker 1

Securing Brandon to come and lead that business with his experience is is tremendous. He'd be able to he he scaled up the the Nike Air MI business from from nothing in in in 2019. So he's got a lot of experience in this. So there are many talented people in Vietnam. We will be able to hire those into the business.

Speaker 1

And we will be you know, there will be opportunities from our existing business who will be able to go over and and help with the establishment of of this JV. But there's not wholesale transfers of business, not from from from other facilities or indeed significant transfer of people from say homes facilities. Okay? And I think that's it.

Operator

That's great, Ronan. Gary, if I may just jump back in there, and thank you for addressing those questions for investors today. And of course, the company can review all questions submitted today. I will publish those responses on the investment company platform. But, Ronan, before I redirect investors to provide you with their feedback, which one is particularly important to the company, could I please ask you for a few closing comments?

Speaker 1

Yeah. Thank you, Alex. Yeah. You know, we're we're we're sitting here with a with a really strong h one looking to to continue that momentum into h two. So it's a record sales performance.

Speaker 1

The business is really starting to execute on its new strategy. So if we think of the of those five pillars, so that product to industry, expanding our capabilities with a JV in in Vietnam, investing in innovation, the work we're doing in m and a, and then all the the operational excellence that we're leaning in on. And, you know, it's it's we we feel we're in a we're in a really good place. So it's been a it's been a really solid h one, and we see that continuing in h two. And, you know, very much delighted with progress, and very much delighted that you're all able to join today and and look forward to keeping you all appraised of our future progress and events.

Speaker 1

K?

Operator

Fantastic. Ronan, Gary, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations? This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Zotaphomes plc, we would like to thank you for attending today's presentation, and good afternoon to you all.

Powered by Quartr