Zotefoams (LSE:ZTF) — 2024 Preliminary Results

0:01 Good afternoon, ladies and gentlemen, and welcome to the ZOTEFOAMS Investor Presentation. Throughout today's meeting, attendees will be in listen only mode. Questions are encouraged and can be submitted at any time using the Q and A tab situated on the right hand corner of your screen. Please simply type in your question at any time and press send. The company may not be in a position to answer every question received during the meeting. However, the company can review your questions submitted today, and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit the following poll, and I'm sure the company would be most grateful for your participation. I'd now like to hand over to CEO,

0:32 Ronan Cox. Good afternoon. Good afternoon, Mark, and good afternoon, everyone. Thank you for joining us for our presentation this afternoon where we will go through our 2024 preliminary results, and we'll also take an opportunity to delve into our refreshed strategy for the business. If we just move on, quickly pass the disclaimer. And first, we'll touch on business performance. So 2024, a incredibly strong year for ZOTEFOAMS with record sales performance. Revenue is up 16% to just under £148,000,000. A big driver of that was high performance products and up 37% to £79,600,000 with footwear within that being the real the real driver of that growth.

1:26 In terms of earnings, record earnings before the exceptional item. So record earnings of a operating profit up 20% to 18,100,000, and that drove an earnings per share before exceptionals, to 25.95%. And the exceptionals were all driven by the decision to pause the investment in the resource technology, and I'll come on to that in in a few slides. Incredibly strong balance sheet. Net debt is down 20% to 24,100,000. That excludes leases. Gary will go into a little bit more detail on on the structure of that later. But really key is our leverage moving from 1.2 down to 0.9.

2:12 So a really, really strong performance in 2024. If we look at the two traditional segments, so high performance products and polyolefin foams, and the high performance product sector for us hit they are are are constituted the largest part of our sales for the first time in the in the history of ZOTEFOAMS, so with those sales of 79,600,000. So I said the real driver around this is the strong footwear sales performance, and that footwear sales performance is all driven by the partnership that we have with Nike. ZOTEFOAMS, which is our flame retardant grade product, and saw pretty strong sales, up nine or, sorry, up 7%, and that was despite quite a lot of headwinds still in the aviation sector. Very healthy order books in aviation, but really build rates still not getting back to pre COVID levels.

3:07 And so we still see some some good opportunities there looking forward. They weren't materialized in fall in 2024. We have taken the decision to make an investment in a manufacturing facility in Vietnam, and that is very much centered around the footwear business. And I'll take a a chance to delve into a bit more detail on that later in the presentation this afternoon. The Shinsel agreement that we entered into 2024 is in some way allowing us to make that investment in Vietnam. But, again, I'll I'll touch on that in more detail when we come in to review that later in the presentation this afternoon. Very strong margins in HPP

3:48 products and up to 28.5%, and that was before we took some inventory provisions. Those inventory provisions were taken just to be quite prudent in some of the inventory that we have in the business, but a very, very strong operating margins and high performance products. If we look at the traditional polyolefoam foam business, as I said, first time that this has become the smaller element of the business, we saw pretty muted demand in Europe, actually, with sales down 8% and headwinds there particularly around automotive and particularly in Central Europe. The UK, on the other hand, was pretty resilient with demand and sales up 4%. And then we saw US sales up 3%, and that was despite some quite challenging mix changes that we see reversing over the course of 2025.

4:43 We had lower demand in military grade products in our polyolefin foams for The US. We're also seeing some market consolidation around industrial, which saw inventories being removed, and we see that actually turning around again in in 2025. Key point in in The US and the polyolefin foam business is the investment in the second low pressure vessel. The US is a is a tremendous market opportunity for us. That vessel, a the the groundwork, etcetera, were all completed in '24. Actually, the vessel itself is now in situ insight and is really standing us in great stead as we look forward from there. Again, I'll touch more on that as we come in and look at some of the strategy sections later in the presentation this afternoon.

5:30 If we go to the next slide, Mel, We took the decision at the end of the year to pause the investment in Mel, and and that was, you know, clearly a great disappointment for us as a business. We had a review of the opportunities around the business and determined quite some time ago, over a year ago, that to bring this to commercialization that we needed to get a strategic partner in place for this really revolutionary technology. And this is a a model material, fully recyclable, challenger to the LPB market, so the liquid paperboard market.

6:15 And we we we carried out extensive development and testing through the course of 2024. And our belief is that we've taken this product right to to as far as we can take it on our own. And we engaged in the markets with a right across the entire supply chain and value chain for for this whole industry from resin suppliers, the whole way to retailers to try try and bring a strategic investor on board for us to take this development from where we have brought it to market. Now the reality was is that we were not able to do that, and our view was that there was no more that we could do on our own to actually change the outcome for this product at this moment in time.

7:03 Now what's key is that we've taken the development. It it hasn't gone away. We have taken the IP. We have carefully boxed it. We are protecting it. We still have some residual revenues from the MEL machine business, and we're using those revenues to maintain the IP until such time as we find the right opportunity to take this out and unlock value from this. But I would stress that it is not the intention for this to do this on our own. We continue to have discussions around this with potential interested parties. We don't believe that that there's anything that we can do on our own at this point that will realize that value. However, as I said, this has not gone away, and we are maintaining that IP.

7:50 And we're certainly not forgotten about this and are looking at at how we might unlock future potential from this. That said, given the decision to pause the investment in this, given the decision to pause any further attempt to commercialize this on our own, that was the reason that we took the decision to to, to take these exceptional charges in 2024 and to essentially reduce almost all of the cost related to the business, as I say, only really retaining cost around IP protection, and that IP protection is being funded by the royalties that we have from the from the machine business within MEL.

8:30 So our focus really is is is is to take you know, to move away from this particular, development, to try and bring strategic partners on board, but not deploying any more resources specifically to develop this ourselves so that we can take those resources and focus entirely on the development of the supercritical fluid foam business that generates the vast majority of the revenues for ZOTEFOAMS today and indeed, previously in the past. So if we go to the next slide, Gary is going to jump in and take us through some of the key financials. Gary, over to you. Thank you, Vernon. So, first of all, these financials are as reported.

9:19 For those that look at analyst reports, these these do not include the, amortization acquired intangibles For the simple reason that it's so small that it just confuses, it's £250,000 of adjustment I would have made this year and the exact number last year. So these are the reported numbers you will see in the annual report you would have seen on our prelims. Looking at group revenue, that number of $1.04 7.8, a record for ZOTEFOAMS, is actually 4,000,000 impacted by by currency headwinds. So on a constant currency basis, that was a 151,800,000. But the reported number up 16% on last year. And as Ronen mentioned, the first year that HPP actually surpassed polyolefin foams for for in terms of revenues.

10:07 The if you look at gross margin, 31.2%, that's down 110 bps on last year. If you actually adjust for two items, as as Ronan mentioned, you actually get to a margin very much in line with last year. Those two items being a quite thorough review of our inventory, particularly inventory that is aging and HPP, the high performance product stuff. Our product doesn't really when it ages, it doesn't really lose its quality. But when you get to a when you've been at two, three, four years and and your and your salespeople aren't moving it, you begin to sort of really start to challenge people. We challenge them a little bit more than we have in the past. We identified a million pounds of of additional provision, which we added to the existing provision.

10:54 On top of that, the the Shinsel agreement is a five year agreement. It's quite a complicated accounting approach. You have to and what you have to capitalize it. In the balance sheet, we write that down over ten years, but you also have to recognize the liability in the in the bottom part of the balance sheet, and and that's over five years line with the quarterly payments over five years we're making. That was an 80,000,000 RMB investment, about between 8,000,000 and £9,000,000. We took an amortization charge of £500,000 in the year, sort of full year. We signed up to that agreement back in April, May, but the £05,000,000 had an impact. Those two together, those items would have taken us to pretty much 32.3% as last year.

11:45 We had SG and A up 8%, mainly actually, not a lot of movement in, generally, in in in in costs outside of people. I didn't mention for the growth to get to gross margin. Energy costs, pretty stable. Raw material costs, pretty stable. Roundabout the the historical average if you take away the COVID, years. And s g and a, up 8%, really, very much driven by people. The full year impact of 23 additions, people in '24, we had, seven months of two CEOs, and, and we started to build the, the new executive team, which Ronan will talk about, shortly. That led to a record operating profit of 18,100,000, up 20%, on the fifteen point one of the previous year and also includes a currency headwind of £1,000,000, so constant currency 19,100,000 operating profit.

12:38 Interest slightly up for much for the first three quarters of the year. Our net our our average debt was slightly higher than the previous year. We also took cost related to financing cost related to to in line with the I IFRS 16 treatment of this investment. But that still left us with a record PBT, 15,300,000, up 19.19%. I haven't mentioned until now that's excluding exceptional item. I trust you'll know that, that was mentioned by Ronen, and you will see shortly the impacts of the exceptional item on the P and L. EPS, again, before the exceptional item, up 37% to 25.95. Ron has talked about the exceptional item, 15.2. That was 13,800,000 of asset impairment.

13:25 Some assets relating to the original Mucil acquisition back in pre 2010, so goodwill and so on, but the majority of it being intangible assets as a result of capitalizing the development costs through the period since 2019 when we first launched the the initiative. Taking account of that, PBT drops to 200,000. Don't know why. Oh, yes. To 200,000, and LP and lust per share was 5.66p. So in summary, record revenue, record underlying profits, and the, and the MEL impairment. Let summarize the the p and l for 2024. We look on to, to kind of the key cash and balance sheet items, cash generated from operations. We are a cash generative business, and we proved it very much so in 2024 with 30,400,000 of of cash generated. That is a very high cash conversion rate over 90%, and up two and a half x that the operate the cash generated in 12 in 2023.

14:32 We did invest, and I've got a I've got a slide next on capital expenditure. That that was 13,600,000. Working capital a net inflow this year. Last year, it was an outflow of 11.1 with investments being made in in inventory particularly. We we've we've settled down. We've we've managed. We're starting to manage that much more tightly. We dropped the actual percentage of the actual working capital as a percentage of revenue. It was 40% plus in 2023. That drops to 33% in 2024, and we have a a target of reducing that by a further 5% through the coming five years as we as we grow business. A lot of our a lot of our receivables longer terms are with customers that we've been with for twenty plus years. But as we grow the business and and and capture new

15:19 customers, we expect to see that average reduce. We will be managing our inventory more more closely, and we are also taking quite proactive actions around our suppliers and trying to get a better balance between our payables and our receivables. Return on capital employed is up a 140 bps, 11.7%. If you exclude our investment in Museo, that was 16%, up from 14.2% in the previous year. Of course, going forward, those losses won't be won't be repeated. Ronen mentioned strong balance sheet net debt. A lot of this cash inflow, the net cash impact resulted in net debt falling by 20% to 24.1 from 30.2.

16:06 That in turn, as Rowan also said, has left us in a very strong balance sheet with 0.9 x of leverage down 0.3 x. The final dividend, up 4% to 5.1 p. Full dividend for the year, 7.48 p, reflecting our progressive dividend policy. Couple of items I wanna dig into in a little bit more detail just to just to to show you. Here's the invest here's our capital expenditure breakdown. And you can see that when you take resource and you take LP two, the the the low pressure vessel that we're putting into The US, that represents 69% of our capital expenditure growth capital. So without that, the 5.2 is significantly below our depreciation charge.

16:54 Resource is on pause, as mentioned. The LP vessel is due actually arrived last week. We had very nice pictures of that of that arriving. It's quite a big thing to drive through the streets of The USA.

17:08 It's there, and it will now be hooked up and connected, and we expect a commission early in h two. And we probably and we're looking at another 6,000,000 to complete that, leading to a, like, a total of around £10,000,000 investment. Shinseo is not included in here. And then fight then my final chart before passing back to Robin is is really the debt. Previously, it's pretty straightforward. Our net debt that we that many people consider to be real debt, I. E, the natural cash number was pretty similar to the IFRS 16 representation of debt, which includes the finance leases. Different this year with that Shinsel investment. So whereas on a full IFRS basis, our net debt rose 31.6 last year to 33.0.

17:58 When you take out those leases, it fell, as I said before, from 30.2 to 24.1. You can see that represented on this on this chart. You can see the impact of of our cash inflow, a free cash inflow of 13,900,000, then funding dividends and finance charges that lead to a a significant reduction in in total debt. And really putting ourselves with that strong balance sheet in a really firm position upon which to be able to build, our refresh strategy. And with that, I'll be passing back to Roman. Brilliant. Thank you. Thank you, Gary. Just to repeat that point, you know, as we look at a refreshed strategy, we are refreshing the strategy from a position of of tremendous strength.

18:46 So that sets us in in in an incredibly strong position. We've we've spent the last nineteen minutes looking backwards. So so now I wanna spend much of the rest of the, the presentation today looking forwards at what we can deliver through that strategy refresh. In this slide, we've got essentially the strategy on a page. Okay? And I think what's really key here is that our purpose as a business does not change. Our purpose is around making material solutions for the benefit of society, and that does not change at all. At the core of our business is a is a technology, which is called supercritical fluid foaming. It's a particular way of of taking gases and then expanding foams.

19:37 We are world leaders in that. We've got a hundred and four years experience of doing it. We've been on our biggest site for for ninety years in The UK, and we've been expanding from there over the last few decades. So we have got incredible strength in our core business, and it's that core business that I see will continue to propel the future of this great business.

19:59 And as we look out five years, we're setting ourselves revenue targets that will grow revenue by up to 70,000,000 or indeed more. And this business is able to generate great operating profits. I certainly believe that 18%, operating profit, within our strategy period is is absolutely continues to be achievable. And then the bottom point on return on capital employed, I can see opportunities to really turbocharge return on capital employed in the business. So growing by over eight points from the 2024 position to take return on capital employed in twenty percent. And that's that's about doing things slightly differently, but we're not talking about absolutely moving away from from our core, from our core competencies in supercritical fluid foaming.

20:49 There are essentially five real strands to the strategy. The first is the pivot from product to industry focus, and I'm gonna gonna go into a bit more detail on that over the next few slides. The second is about expanding our capabilities.

21:03 So technology capabilities that will get us closer to our customer in the format of what we produce, but also physically closer to customers. The the third is around sustainable innovation. Innovation has been at the core of what we've been doing for the last one hundred and four years. It will be absolutely key to the next growth phase of this company. So we will invest more in innovation as a business. And I'll delve into that later in the slides. The two other areas. So so m and a has not been a feature for ZOTEFOAMS in the past. Okay? And this is a this is a muscle that we are developing as a business. We are preparing ourselves and making sure that we're that we're in a fit state to actually season any of the m and a opportunities that may be out there.

21:53 We're not in a rush, and we're not gonna bet the farm. We have created great discipline in terms of the perimeter that we set for ourselves in terms of m and a. You know, we can see that there are multiple opportunities, but what we are doing is making sure that the word is on the street, that that people understand that we are in the market, and we're ensuring that we've got the right ability in house to be able to execute in transactions when the right transaction comes along. But I would stress we are not going to bet the farm. We we are humble enough to understand that we have to develop this muscle and develop it over time. But what we are ensuring is that as there are opportunities that come along and we can see opportunities and and indeed, we're looking at opportunities that we are properly equipped to execute on those on those opportunities.

22:45 The fifth part is around executing the strategy, and this is about creating high performing teams. As as Gary mentioned earlier, we've been investing and I've been investing and bringing new talent into the business to supplement the already incredible talent that we have in this great business. And as we do that and as we bring the skills in that allow us to actually execute the strategy, we're also really, really, really clear that we have to be disciplined around our cost structure. So part of executing the strategy will see us addressing cost opportunities in both manufacturing overheads and in s g and a, where we are looking to actually remove existing costs from the business, both a combination of people and non people costs, and then reinvest roughly half of the cost that we take out to back into this strategy, into a strategy that will really be focused on the commercial strength within the business and also within innovation.

23:48 And then underlying all of this is is our focus on health and safety. You know? As we expand this business, we've got big manufacturing facilities. Everything that we do, we ensure that we do it in a safe and responsible way. We have always done that. We will continue to do that as we take this business into its next growth phase. So just delving into into some detail on those first three points, product to industry, expanding capabilities by getting closer to customer, and innovation leadership.

24:23 And, ah, sorry. Before I go there, what I would like to underline is that as a business, our our strategy period, we see organic growth to 220,000,000, but our ambition is way beyond that. And and in the next slide, I'll be able to describe why we think that our ambition can be way beyond that in terms of the addressable market. Now our roots of of adding 70,000,000 of of organic sales can be augmented by other activities,

24:51 whether that is through m and a that I mentioned or opportunities for other joint ventures or joint agreements that could see us propel well past that 300,000,000 mark. And that 20% operating profit is something that is very much within our gift as an organization. And what's really key about the growth that we can deliver as a business, it will it will be in IP rich areas. This will be sticky sales growth. We think that the multiple we know that the multiple that can come from this business as it grows, you know, it will be really, really strong. So touching on on the first point in terms of a product to, to market focus. First of all, over the last few months, we've engaged in in in very detailed market analysis. We've worked with with an external consultancy who's helped us map the entire global phone market, and then specifically look at the markets where we where we operate today and then look at the opportunities

25:52 beyond that market. And the first thing I would say is that the overall phone market globally, and this is for phone, this is prefabrication, is around £106,000,000,000. The the addressable market for us within that is is £15,000,000,000. But traditionally, we have focused on a real small subsegment of that, a £800,000,000 market. Now what what extends this out? Within the 15,000,000,000, there are there are two rough components. One is the polyolefin foam business, and the other is the 11,000,000,000 of high performance engineered polymers. What I would stress is all the products that we make within ZOTEFOAMS are high performing products.

26:39 If you remember what I said is $1.00 6,000,000,000 is the total phone market. We discount roughly 91,000,000,000 of that $1.00 6,000,000,000 market that we don't participate in because they are not high performing phones. The phones we make, the supercritical fluid phones are super high performing products. We create this natural difference between polyolefin foams and the high performance engineered polymers. The only difference really there is around temperature and temperature ranges that they operate. So engineered polymers typically have higher heat operating ranges, so a 120 degrees and above. We can see a real opportunity to be confident about increasing our addressable market from that 800,000,000 out towards the 15,000,000,000 addressable market, and that's what we set our sights on when we look at the business and the business opportunities going forward. This is what is driving our focus in terms of where we innovate and where we operate and the markets of what what we opt that we operate in. Just to build on that a little bit, you will have previously probably heard, for those of you that have followed the company, that our product goes into well over 20 different industries.

27:59 You can broadly categorize those into into three segments, and they are consumer and lifestyle, transport and smart technologies, and then construction and and other industrial. We are most successful when we sell to brand owners. We are most successful when we work with OEMs to get our products specified. We see that in examples across all of these sectors. So examples like Nike who don't buy any foam directly, but specify our foam for the shoes that they have manufactured in the tier ones. Exactly the same with the likes of Boeing, who do not buy our foam, but specify the foam and the products that their tier ones manufacture for for them. And then in the likes of construction projects where it is where the big owners of facilities that are specifying the type of materials that are used in the installations that they're that they are getting developed.

28:53 So three broad categories. And our business will not look at products because our our our customers are generally product agnostic. And and our products are not always competing against foam. Very often, we will compete against hard plastics, against aramids, against metals. And what we want to do is to offer product solutions to the industries and customers within these verticals where we see the greatest opportunity for growth. So within that, then our commercial team is being reoriented. We are bringing in business development experts who understand those industries with the very longest runway for growth for us. So, for example, whether it's automotive or EV batteries or whether it's footwear or whether it's medical packaging or whether it's in in construction. And this orientation is allowing us to be really focused also about where we spend our innovation pounds.

29:46 And and as I say, where we bring the talent in that know how to navigate the way through these industries to get our really high performing products onto the brand's products. I can see by the end of our strategy period by 2029 that at least 80% of our sales will come from specified sales. What does that mean? That means that the brand owners will specify our products in their products and that the people that make things for them will use our raw material as opposed to inferior raw materials that may have been substituted in the past. Now we have got a a whole host of really great, fabricators that work within our within our business, and we're gonna work with those to ensure that we've got an organized fabricator network.

30:37 So approved fabricators that really know how to get the best out of our products that can work with us in the industries where they go narrow and deep. So we can see that with this focus and this application selling focus that we can also broaden that addressable market that we've typically been looking at in the past. So a huge, very significant part of the strategic shift, that shift from from a product focus to an industry focus. I think the the last thing I would say on this slide is is what are these three broad categories have in common? The selling cycle to a to a Nike or Decathlon is not entirely dissimilar. So there's a lot of fast moving products, a lot of attention to to color seasonality, lots of changes, and the sales cycle can can be really, really fast. You need people to know how to know net navigate the sales cycle, whether it's in in Portland or in Neil for those customers. When it comes to transport and smart technologies, the the business developers that understand how to get accreditation and get over regulatory requirements in aviation or or automotive not get over, but to to pass them, that takes a different type of person. It's similar for for medical requirements and high end application. People need to understand that long sales cycle, the the level of work that goes into it. And when you when you get specified that you're stuck on a product for a very long time and can navigate through that and have the resilience to that. Different

32:07 sort of people in this area than necessarily selling in the consumer and lifestyle area. And then likewise then when we come to to construction, very much project oriented, understanding what are the projects that are out there, getting in with the architects and the designers, and making sure that our products are actually specified into new buildings as they come along or for those refurbishments. Again, very different selling techniques. You know, in the past, we have sold foam. Tomorrow, we're selling solutions with knowledge of the industries that that we operate in. So really key pivot. The second area that that I wanted to touch on was in expanding our our capabilities. So today, our our primary manufacturing locations are are in the in The UK, so in our Croydon facility where we have been for for ninety years, where we have all of our manufacturing techniques are deployed there. We have a facility in The US, in Kentucky, which is, which is a smaller version of of what we have in Croydon.

33:10 That's been in place since since 2021. And then we have sorry. Twenty o one. And then in Poland, we have a facility that's been in place since 2021. Now the the yellow dots are are new investments that that we're making to expand our capabilities. The first to note is the investment in an innovation center of excellence in The UK. And why The UK? It's because this is where a lot of our talent is today, and it's also where we we see a lot of the plastics industry. We can attract the talent that we that we need for this business to create the next generation of industry solutions. We can also protect our IP by having this core innovation x center of excellence in The UK. This will be located off the Croydon facility, and it will be independent. It will be servicing the rest of the of the ZOTEFOAMS business.

34:09 If we go across to the West, in our Kentucky facility that I mentioned, which has been in place since 2021, we've got that additional capacity that's going in right now. That's the l p two that we've referred to in previous presentations. It's a £10,000,000, $13,000,000 investment. It's getting not only additional capacity for the current ranges in The US, but it's also gonna give us the ability to produce all of those engineered polymers in The US. You know, that capacity is gonna come on stream over the next few months, should be up and running properly in h two. And then as we go into next year, they'll be able to take that extended range of high value, high performance polymers in there. In the Midwest, we are going downstream with a with manufacturer of components for for the construction industry.

35:01 So this is a big foray into fabrication specifically for for the for the construction market. We've already invested there. We've been doing something some of this over the last few years. Over the last few months, we've been investing in automated gluing lines to get us closer to the customer with that component production. And then I jump across to the yeast, the the this this very significant investment in Vietnam. It's £24,000,000 invested specifically to make three d parts for the footwear industry. Really important footwear industry. You see, you know, a fantastic runway for growth there. We currently supply this out of The UK. We will, we will continue to supply some block phones from The UK, but we're moving three d parts to give a greater array of products that we can satisfy to our to our key customer there, Nike, in in Vietnam.

35:53 And then in South Korea, we're investing in in innovation specifically to support that footwear industry. Why South Korea? Well, a lot of the footwear industry and the the the owners of the footwear industry in terms of the big footwear manufacturers are based out of South Korea. We've also got our partner. Nike has got a development center there. Mindful of time. Talking about the Nike investment, we started this business with Nike in 2016. In 2024, our foam is now at 18,000,000 pairs of Nike shoes. So from zero to 18,000,000 over the course of roughly a nine year period. So so a tremendous growth.

36:38 As we move to, as we move to Asia, what we wanna do is to get on even more platforms. So today, we are on the premium platforms. We started at the very, very premium. You know, we've evolved down the down the the the pyramids in terms of product ranges for for Nike. Still at that at that high end running as we move to Asia, we can see the opportunity will grow for us to move into even more shoe platforms. We're also gonna be reducing a huge amount of waste for the customer when we do that. So this is a transitionary period moving from block phones to three d solution parts for for our customer. And moving on, we're gonna just quickly play a video on innovation. If you look at our history, it's really a story of firsts.

37:40 First, to create supercritical fluid foam. First, to produce closed cell materials. First, to manufacture cross linked polyethylene foams. And we didn't stop there. Our foams have literally transformed industries, like making planes lighter so they burn less fuel, or helping athletes push performance further with insane energy return. And all of this comes from a surprisingly simple process. We take a polymer and shape it either into a block or a three d shape, then we put those into a high pressure autoclave, dissolve nitrogen borrowed from the atmosphere into them, then under controlled conditions, we expand it into foam.

38:33 Sounds simple, but not even close. It takes serious expertise, technical know how, and decades of research to make it work like this. And we don't just stick to what we know. We always experimenting. New polymers. New applications. New markets. Because great innovation happens through collaboration. We work with our customers. Understand their challenges. Engineer solutions. And that's how we keep pushing the boundaries of material performance.

39:19 But it's not just about performance. It's about doing it better. Smarter. More sustainably. We're constantly reengineering our products to be greener. More efficient. That's innovation. That's ZOTEFOAMS. And we're expanding beyond the core. Fantastic. So, we're expanding, and the innovation is at the core of of of our past success. It is absolutely gonna be vital for for the future success of the business. Mentioned earlier, we're investing in an innovation center of excellence in The UK. We will have a hub and spoke approach.

40:06 Right? So our first spoke will be innovation spoke center in in Asia, which is specifically looking at the footwear innovation right beside right in the middle of the ecosystem of of footwear innovation for for the footwear for the whole footwear industry, but aligned very closely with with Nike and their tier one partners. So innovation is gonna be key to to continuing to drive our success for the future. Okay. So very quickly, I don't wanna talk about the '24 too much. Gary's talked about it. I've talked about it. It's It's been a record year. HBP really strong. Polyolefin foams, you know, strong with some headwinds in in Europe, but we see some developments around there.

40:56 The real big thing is is is the is the reorientation towards our industry focus and future. The alliance, by the way, has helped us evolve the technology that means the ticket size for entering Vietnam is significantly lower than what it would have been previously. We are not using the Shinsel technology, but we've been able to learn from their processes to accelerate our own innovation, to accelerate what we do to to to allow us to make that that ticket size for getting into Vietnam at least a third well, sorry, at least two thirds lower than what it would have been, had we tried this to replicating technology that we have in in The UK or in The US. It's a one way agreement.

41:45 What we've learned, we keep it. We integrate it into our our existing know how. We actually believe is that it's going to create an even better solution for us for the future, and we keep all that know how to ourselves and resource we touched on. Looking forward to to 2025 performance, consumer lifestyle, transport and start technologies have have had a have had a pretty robust start to the year. And so we've we've got a really, you know, a a very good order book there. Construction and other industrial has been slower. We kind of anticipated that, and we see that we see that coming around in the coming months. So the trading landscape is is is is, you know, pretty good for us. We feel good with the diversity of our of our footprint.

42:34 We also think that is gonna help us in terms of the the headwinds that are around the the macroeconomic situation with with tariffs. We feel pretty well positioned, versus many of our competitors. I'm really excited about the refresh strategy, really excited about the reorientation to the to the commercial verticals, to the investment in people that are gonna help us expand that runway for growth for us. US capacity is is well on plan. That move up the value chain and forward integration in The US with parts manufacturer is is going well. And then there's innovation in r and d. R and d has been at the heart of what we've done. It's been at the heart of the success that we've had over the last hundred and four years. It's it's super important that that we really ratchet up on this. And we're going to self fund this. So this is about disciplined cost savings and reinvesting those back into the business.

43:33 And then all of the the partnerships that we have, we you know, it is it is this is extremely important that we continue to work on those partnerships across the verticals to to drive the growth in the business. So with that, mindful of time, we're gonna jump into q and a. That's great. Ronan, Gary, thank you very much indeed for updating Investor Relations. Please do continue just to submit your questions using the q and a tab situated on the right hand corner of the screen. But while Ronan and Gary, just take a couple of moments to review your questions submitted already. I'd just like to remind you, the recording of this presentation will be available later on for your review. Ronan, Gary, you have received a number of questions from investors. So thank you to everybody for engagement. If I may, Ronan, just hand back to you, if you would be so kind just to moderate us through that q and a, and I'll pick up from you at the end. Yeah. Okay. Perfect. Thank you, Mark. So, first one is when do you expect the first revenues from the Vietnam facility?

44:26 So 2027 is is when we when we plan to have first revenues coming through there. And then how does the initial capacity of 10,000,000 midsole from the factory compare to your current capacity? We were at 18,000,018 pairs of shoes this year. So so it's a component of that. I would describe the Vietnam investment as a as a beachhead for our entry into the center of the athletic footwear market. Vietnam is where all well, the vast majority of high end running shoes are. This is this is just the phase one. It's an it's an incredibly important entry point there for us. Oh, sorry.

45:14 Let's go through and have a look at some of the other questions. Given that ZOTEFOAMS is not in a position to redevelop resorts further, is there an option instead to sell or license the IP to a big player? Yes. There is that option. You know, as I said, resorts has not gone away, and they we will see how we can monetize it in future. All that's happened is that we're not going to invest anymore because we don't think we can add any more value in it. But they we're looking at the best ways that we could return value from the investment that we've made in that. Absolutely. Next one is a does the Nike deal procure ZOTEFOAMS in selling materials to any other footwear companies?

46:05 Our agreement with Nike is to exclusively sell, to them up to the end of of twenty twenty nine. What plans do you have to utilize the freed up capacity at Croydon and Poland once the new Vietnam is operational? Will they require further capital and pen expenditure to bring technology up to the level of the plan? Hey. No. Sorry. Have to hey. Let me just repeat that. Will they require further capital to bring them up to the level of Vietnam? No. You know, I think those facilities are very well invested. We absolutely see opportunities to to bring that capacity into into other markets, that is other other industries.

46:53 I think that we're well it's it's we'll be able to use that capacity for future growth in other areas. So so I'm pretty confident around that. There'll always be a need for some CapEx, but not, I would say, not really of the sort of CapEx that we've seen in the past. So not for high pressure autoclaves or large pressure autoclave. So so of a completely different scale. One of the things I would underline is is my commitment to to drive up the return on on capital employed and the return on invested cash. I think that we can drive those returns up significantly, over the coming years. Do you intend to develop the further four, five Nike customer relationships that you aspire to create?

47:40 On the face of it, the new Vietnamese investment appears to increase the Nike concentration risk. Listen. Our our approach to to this is win with the winners and and win where it matters. You know, Nike is a leader in running shoes. You know, they've published their results over the last week. And if you read through the detail of it, you'll see that where they're winning is in is in a running category. For as long as our relationship with Nike on an exclusive basis sees that we grow and that we continue to add benefit to them, then then they're one of the best partners that you could have in in that industry. You know, if that were ever to change and and, you know, we don't want that to change, but if it ever were to change, then then we're in the right place.

48:29 Yeah. We're in the right place for the footwear industry. Should we should we ever need to change that direction? But, you know, we're really committed to Nike. That's been a great partnership. But if it were to change, then our facility in Vietnam will be in the center of the footwear industry. But but, honestly, I see this this relationship with Nike just continuing to go from strength to strength. We where our phone is on 18,000,000 shoes. They produce over 16,000,060 pairs of shoes. There's a lot of runway for growth in in Nike itself. I'm gonna have to give Gary one here. Let's have a look. Let's see. Just going through. There's a lot on Nike, which I think I've I've answered a lot.

49:21 You know, another few years. Okay. So okay. New strategy. Could the new strategy could make it very attractive to a Solvi or a Sabik perhaps. Do you see ZOTEFOAMS being independent in five years' time? There you go, Gary. That's one for you. I've got I've my answer is pretty clear, but, you you have a go at that. Which one? Hang on. Could could you just get us back to where that is? Oh, sorry. This one. New strategy comes from you. Alright. New strategy can make this attractive to solve. Do I do we see ZOTEFOAMS being independent in five years' time? Yes. We do. We're laying out a strategy with a you know, it's about having ideas and and being able to persuade and excite our own shareholders that are sticking with us and and doing what and believing that this management team is the right management team to drive the ambition forward. I think we're laying out today a pretty clear and have done you know, did last Tuesday, a pretty clear path, extremely rational, building on our core capabilities, not going off off in all sorts of directions, being very prudent with our approach to to to inorganic growth, which is which is something new to us.

50:42 And so anyone coming in would need to be able to demonstrate they can do a better job than we do. We being people that that are that are deeply involved in the organization, a leadership team that includes very, very, you know, exciting new talent, but combined with people that have been in the business a long time and know in this organization a long time, which is quite a unique organization. So we absolutely believe we we are savvy and so on. Not overly sure why they would be interested in this in this particular business. But, no, I think we're pretty confident that we that, you know, we I mean, we do need, know, you we do need British PLC to get a bit of a boost. Right? We do need the the the two to three years of net monthly cash outflows to change. Maybe mister Trump will be helping us there, start getting inflows back in, start getting interest in in in UK PLC, and and and start seeing our share price reflect the the the existing PBT and earnings, let alone the future.

51:44 Very good. And I think there there's a similar question, which which I'll come to as well, which is which is how do we make sure that they hey. We protect ourselves from unwanted acquisition, which that would be On the same website. Yeah. Exactly. We we can just we we've just got to execute. We gotta leave nothing on the table, and we dry we drive this this growth plan. Yeah. We we just can't leave any low hanging fruit, and that's why we're gonna execute at at PS. Absolutely. Question here is is it practical to warehouse the resource assets? Okay. I think just on on resource, it sits on a shelf.

52:30 We're not going to resurrect it ourselves. We we see you know, there are various options for the resurrection of this by by potential investors, and it we're we're confident that, you know, for the right people coming along that that that you could realize value out of. But we have written the value of this down to zero. It now occupies less than probably one to 2% of management time, which is exactly the right thing as we focus all of our growth on on the supercritical fluid films business. Okay. There's a few questions here. Could you elaborate on the specific market segments you're prioritizing for strategic partnerships?

53:21 Not necessarily strategic partnerships, but it's it's it's where we see the greatest opportunity for avenues or or runways for growth. If you're talking about specifications, then then that can that can be certainly be be a partnership. The three verticals are are well laid out. There are, say, 20 industries within those. Footwear is is obviously very key to us. We see automotive in general. We see EV. We see aviation. We see opportunities across medical packaging, and we see construction construction as sort of the key verticals. You know, our product, as I say, goes into over 20 different industries. But within those, we see there are are the biggest opportunities. And, actually, where we've got some already some traction, And so they're probably the most attractive to us at this point. And when we look at talent, that's really where we're looking to bring talent into the business is is from is from those industries.

54:21 What key learning from Nike partnership are being incorporated into the strategy? Know the industry. Yeah. Sell to the brands. Work with them in getting your product specified. The people that are tend to be have the most influence is if you can get your product specified into their products and they understand the inherent values. We make the best foam in the world. It is super lightweight. It's super sustainable. It's super durable. It's super clean. It's got no VOCs. There's a multitude of attributes to the stuff that we make that sometimes gets lost across the value chain when you can go straight to the brand owners who understand it and what it means to their brand values. You're you are most successful. Okay? And that's why we will get that we will target to have at least 80% of our revenues coming from specified sales in in the future.

55:11 Okay. Let's delete that. How does ZOTEFOAMS foam compare with other recent competitor products in terms of performance and durability, and what is your strongest advantage? We've been developing a product for for a hundred years. There's other stuff that's there's other foam that's out there. Yeah. They we are materially better than chemically blown foams. There's no question about that in terms of performance, in terms of the the zero VOCs. But we must not rest on our laurels. We cannot sit here and think that, you know, there's company x y zed that we've never heard of that isn't going out there developing products. I think there's a massive future for supercritical fluid phones, and people are waking up to that. So that's why we're investing in innovation is to create the next generation of those supercritical fluid phones.

56:07 These these are incredible materials that that's got their moment. I'm sure that there are other stuff that's being developed out there. We're just gonna keep charging ahead and keep creating the next generation of products to drive our growth. Okay. I what part of the 46% growth in footwear sales increase would you qualify as exceptional? Do you expect to improve on 66 in a full year '25? Can you provide some color on the Nike partnership? What is the potential to be integrated into more shoes as an exclusive? What does that mean? You can't do business with other brands. So working the way back, 2029 is when the partner at the end of '29 is when the partnership runs out. We're very happy with our partnership.

56:56 We only supply our phones to Nike, and they love that. They love the innovation that we bring, and they love the exclusivity. And we love them for loving that because that's really, really important. Okay? Can you provide some potential to be integrated more shoe ranges? Absolutely. We're on 18,000,000 pairs of shoes. I would say there's a natural limit supplying Asia because all of our foam goes from The UK to Asia at the moment. You'll hit a ceiling, which is quite low out of their out of their 600,000,000 shoes. Now about half of those will will require foams of one form or another, but let's say it's 300,000,000 shoes. The ceiling is quite low when you're supplying out of The UK. When you go into into Vietnam, then then, you know, that runway for growth with them will increase significantly I mean, significantly.

57:45 Okay? And so but you've gotta be there to develop that. We've got to supply full, not in block format, but but in three d formats for them. That's exactly why we're doing it because we can see the opportunity there. How much of this the the 2024 demand was was exceptional? You know, it's a it's amazing. Nike is is is they're they're refocusing stuff internally. They're deprioritizing and sort of taking a lot of the a lot of the athleisure stuff off the shelf, and they're putting a lot more. They're focusing on five key sports of which running is is one of them, and that's the category we where where we are most present. That's the category that sponsors us in Nike, and then after that is is basketball.

58:35 So we've seen tremendous demand from them. We've seen tremendous demand as they I think they've been really injecting that back into into into their focus on on those sports. If you read the results presentation or or listen to it from last week, you'll you'll hear whilst there are some headwinds, the bits that are really delivering. If you drill down into it, you see running is winning. So so I can say, you know, demand remaining pretty pretty robust from there. It's always difficult to get forecasts, in in this space, but it's it's '24 was was a robust year that that they that, I guess, took us a little bit. Yeah. We were very pleased with how strong it was. I don't know, Gary, if you can add anything more on that in terms of in terms of the numbers.

59:22 Yeah. No. I mean, it was strong. We we were predicting it towards the end of the year to slow down because, you know, we did reference, you know, the Olympics and so on. But as Ronan says, you know, there's a there's a new strategy. The the analysts have it have it down a bit from the 66 for 2025. But, you know, with the with the CEOs as as the question answer question that raises, you know, there's a new CEO in town. There's a new focus. There's a little bit of uncertainty. It started well. It's probably too early to be able to say whether or not what we were seeing last year is going to realize whether there's going or whether we're gonna have a little bit more momentum than we thought. We probably need a few more months to wear that out because Nike is still working themselves out. Yeah. I think there's a good point here because if you just look at the headlines of their results, it does talk about having excess inventory that needs to work through the last through a few quarters to work through.

1:00:14 Listen more to that. Yeah. And and that's some things like Air Force ones and and the nineteen ninety fives and the the sort of old, those ranges that are feeling feeling a little bit old now. That's what's working its way through the inventory. They don't have ZOTEFOAMS foam on them. Have a look at that where the positivity is coming, and that's from the sort of categories where our product is going. They've got a big focus back on sports. Yeah. I think they talk about about five five sports in five in in five cities and three countries or it's around this this real focus is is really important, and and running is a key category, and that's that's where we are. And that's what's that's actually been been offsetting some of the some of the headwinds that they've seen in other areas like their their leisure sort of ranges.

1:01:05 Good. I I'm very conscious of time. See if there's okay. A It does seem, Ronan, for every question you ask, there's another one or two coming your way. Oh my goodness. I'm never gonna keep up, Mike. Am I? We're gonna keep we're gonna keep you for the rest of the day, I think. But what what we'll do, Ronan, if there's any questions post today's meeting that you haven't had a chance to respond to, we can always add a response, and we'll publish those to investors further. So look. On on that note, perhaps, thank you everybody for your engagement, for your questions. And, Ronny and Gary, thank you for your time. I know in Festa feedback is important to you, particularly with the new strategy in place. So I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, Ronan, if I may, just ask you for a couple of closing comments.

1:01:51 Yeah. Well, first of all, thank you for the time this afternoon. As I said, you know, this is this is a fantastic company, an incredible heritage. We have had a tremendous 2024. And we are a driving this new strategy from a position of of incredible strength. I'm incredibly excited about about the future for ZOTEFOAMS, and, you know, we've we've set out the new strategy. It's fairly simple. I'm confident in our ability to execute. I'm excited for for the future. That's great. Ron and Gary, thank you once again for your time. If I could please ask investors not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the company can better understand your views and expectations. This will only take a couple of moments to complete, but I'm sure it'll be greatly valued to the company. On behalf of the management team of ZOTEFOAMS PLC, we'd like to thank you for attending today's presentation and wish