Zotefoams (LSE:ZTF) — Annual General Meeting

0:02 Good morning, ladies and gentlemen, and welcome to the ZOTEFOAMS PLC Annual General Meeting. The company may not be in a position to answer every question submitted today. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. I'd now like to hand over to my executive chairman, Steve Good. Good morning.

0:32 Thank you, Mark. Ladies and gentlemen, I am Steve Good, the chair of your company, ZOTEFOAMS PLC, and I would like to welcome you to the company's AGM. It's a particular pleasure for me to chair the meeting for the first time after a gap of two years for reasons which we're all aware, and invite shareholders to join us. So thank you for coming. As it's just after ten, I declare this meeting open. A couple of housekeeping points. If the fire alarm sounds, please make your way out of the building using the fire exits clearly marked and assemble outside. We do not expect there to be any fire alarm test during the meeting. Would you also please make sure your phones are switched off or switched to silent mode? That includes me. I'm joined today by most of my fellow directors.

1:19 Unfortunately, Doug Robertson, the chair of our audit committee and our senior independent director, has been unable to join for personal reasons. Doug will be happy to answer any questions put to him via email after the meeting, and I invite you to leave those with the company secretary once we have concluded the proceedings. May I now introduce you to your board? Starting on my right, Gary McGrath, group CFO. David Sterling, group CEO. On my left, Alison Fielding, non executive director, chair of the REM committee and member of audit and norm committees. Catherine Wall, non executive director, member of audit, norm and rem. And on the end, Jonathan Carlin, non executive director and member of the audit norm and rem committees.

2:06 I'd also like to introduce you to Lydia Hara, our company secretary, our registrar registrar's CompuServe are also in attendance. In a moment, I will be pleased to deal with any questions you may have. And I would like to give you a trading update on the business current performance, which was released to the market this morning, which is quite long, so bear with me.

2:34 In line with the outlook statement of our 2021 preliminary results announcement, we have experienced good demand in the first four months of 2022, resulting in group revenue for the period being approximately 13% ahead of the comparative period. The highlights in the period are: Polyolefin phone sales were increased by 20% volumes increased by 5% with the majority of the sales uplift being driven by increased prices High performance product sales increased by 6%. Footwear sales at the similar levels to prior period as expected at this point in the demand cycle. Aviation sales improving strongly from a low base and T for insulation product sales increased by 18%. New cell extrusion focuses on the technical and commercial development of resource monomaterial packaging solutions with good progress in the period.

3:28 The macroeconomic environment remains difficult with input cost inflation both significant and unpredictable and supply chains prone to disruption. We have been reacting to input price movements by increasing our selling prices as well as focusing on internal efficiencies and controllable costs, while proactively implementing actions to mitigate supply chain risks. There has been no material disruption to the footwear supply chain or to our major facilities in The UK, US, and Poland, although there was a fire weekend for such shutdown of our China TFEIT facility due to COVID-nineteen. Outlook, we have delivered good sales growth in the first four months of the year and anticipate this sales momentum to continue, supported by price increases and a strong order book with excellent visibility to the end of June.

4:14 However, we do not anticipate the challenging macroeconomic environment to ease and remain mindful of some specific risks around COVID-nineteen. While it is still early in the year, we anticipate group revenue to be ahead of market expectations for the full year with demand in line and higher prices recovering cost inflation. Current foreign exchange rates, net of hedging, may also provide some additional benefit. Consequently, we are comfortable with expectations for growth in profit and remain confident about the long term prospects of the business. So commenting on the update, David Sterling, our group CEO's quote, ZOTEFOAMS products are well positioned to deliver benefits to society by saving energy, protecting people, and and helping our customer make their products using less material.

5:02 We have invested significantly in recycling initiatives with resource barrier packaging and our core foams business, and we are well placed for future growth. The current macroeconomic climate is extremely challenging, and I'm proud of our team for balancing customer expectations with the cost inflation and supply chain pressures we face as a business. And that concludes the trading statement we made this morning. We will now take questions from the room regarding the business. If you have a question, please state your name and the capacity in which you're speaking so I look up for any questions. Hi. Tony Taylor, an ordinary shareholder. There is we can't be the resource business. Recently, there's been a little fuss made about wine being sold in recyclable paper bottles.

5:53 Do you see that as a threat to that business?

5:57 Do you want to take that? Yes. So, I mean, the packaging of, let's call it, wet goods, whether that's drinks or soups or anything that's got water in it is, you know, you you need both barrier function for oxygen and moisture. The specific example of of people giving so called paper bottles are are not in fact paper. They are substantially paper, but all of them include, as far as I'm aware, include other materials because we all know what happens when you put wine in a on a bit of paper. And and so what they are what they're looking for is ultimately a more environmentally friendly solution to packaging.

6:53 We've taken the view that a product which can be used and completely recycled and made back into the same product, that circular economy is a better solution than merely lowering the carbon footprint of, for example, glass wine bottle to a multi material or hybrid solution. And that would apply to a lot of packaging out there. Almost all of the packaging that requires barrier functionality for oxygen or moisture to protect the the goods in inside or to stop the goods inside getting out, if you like,

7:38 is packaged in solutions which use more than one different material. And because they're more than one different material, they're very difficult to recycle. We we our solution is a single material. So no. The simple answer, Tony, is no. I I I don't think that's a threat to us. I think it's very interesting to show the direction of travel that people are going and that the consumers are looking at different solutions, and it's important to the industries to find solutions to these challenges. Okay. So we can see sort of that nice every morning. You still. It's probably not the first one, but there's no reason why it couldn't be.

8:25 Because I think, if I may just explain a bit, if you buy wine in boxes, which is a way of reducing carbon footprint, it doesn't taste the same as it comes from a bottle.

8:40 But with resource, with a bit of luck, it'd be a much better barrier, and it would then compete very strongly with bottles.

8:51 Yep. Well, we're we're we're looking at a large number of different applications, whether those are, you know, drinks or or or food or whatever. And I think, you know, what we have to do is start with the ones which give us the the biggest benefit and the most obvious. So I don't think wine is the most obvious, and alcohol actually, it's interesting. Al alcohol, depending on the different concentrations of alcohol, you need different barrier functions. Oh. Because I I do know quite a bit about this from from the business perspective. So I'm quite happy I'm quite happy to talk about that later on, but the the generality I I know what you're saying.

9:41 Good. Thank you, John. Sattis, private investor. Question for CFO. You mentioned that the currency move would be beneficial. Assuming the price of the currency exchange rates remain the same, are you able to quantify what sort of benefit it will be? I'm not sure whether we did in the statement. So probably not probably probably wouldn't want to. Is it significant? Really material? No. It's a benefit. You know, the the key point for this year is that we actually we actually do use hedging techniques to sort of dampen any upside or downside, which obviously then has an impact the other way around.

10:27 The objective really is to have more predictability. We're not a money trader. So for this year, it's the top line may benefit, but there will be a hedging offset through the activities we perform to reduce it. But it will certainly be if it were to stay at 1.25, it will certainly be of some benefit the group. But But of course, it stays that way is anyone's. Okay.

10:57 Thank you. I'd now like to take questions submitted on the Investor Meet company platform, And I'll hand over to David who will read them out and provide a response to any that have been submitted. Okay. Thanks, Steve. We have a few questions from people online. So the first one is from someone identifying as Andrew r. What level of commitment and contribution does ZOTEFOAMS potential new customers for resource provide to trials currently in progress? Obviously, in developing any new technology, you have to look at both the commercial demand and and potential as well as the technical aspects. And we're doing these in parallel.

11:44 So as we develop the technology and and make it exactly right or for the market or this initial stage, we are talking to potential customers. But the balance has got to be right. There's no point in talking to, you know, every potential customer in the world who then asks you the same questions about your technology that you unless you're ready to answer those questions. So what we have done is we've we've really focused on a selected group of customers to go and promote the technology to. The response has been very favorable. And just with that group of customers, we have, let's say, expressions of interest, I e, if this technology works and it does what you say and the price is right, you know, those are normal buying conditions.

12:36 We would be very interested in using this technology. Those expressions of interest are in excess of 1,000,000,000 cartons a year. Doesn't mean that any of those people would necessarily buy, but they are just it tells you just in a limited market exploration, we've got a very large potential business. At this point, that is sufficient for us to know that there is a real commercial tool here. There's no point in us going out and getting another billion or, you know, 10,000,000,000. It wouldn't tell us anything different, and all it will do is distract the team from delivering what's needed to to hit market requirements. So that's kind of where we are at the moment.

13:27 The pricing depends on, you know, a number of things. It depends on what size carton you're doing or where it is or the exact performance conditions. But, you know, that sort of level is about 50 of ZOTEFOAMS current business size, something something around there. So it's it's it's potentially very material for us. The other side of that question really, which is unasked is how big is the market? Just for cartons, the market is about 300,000,000,000. So it's it's effectively a massive market.

14:21 We're not saying we would get 300,000,000,000. We're just saying that even if we have a very small market share for ZOTEFOAMS, it could be a quite considerable opportunity. So the next question is from Paul B. Could we please expand on the progress being made with resource? When do we feel this will be adopted by the wider market?

14:45 And when do we feel it will make a meaningful contribution? At this point, we haven't given specific detail on the progress. I will say that we're, as I said before, looking at both technical and commercial aspects. I think the technical progress is is very good. You know, we are confident that we can get a product which works. But at this point, we are we prefer to come back in in a few months time and give really a more fulsome update of actually the the entire progress rather than drip feeding out things as at this point. So I think we're we're pleased with it.

15:37 Progress is continuing, and I think we're we're hitting the milestones that we expected. Next question is from Richard e. I noticed on the Nike website that they seem to be selling basketball shoes with ZOTEFOAMS technology. Is this correct? And if so, what kind of revenue contribution are we expecting over the next twelve months?

16:02 And then I think it means HPP, the high performance products, seem to have got off to a slow start from a volume perspective. And are you expecting significant prove improvements in the second half? We let let me let me deal with the second part first. The HPP division is really at the moment dominated by footwear, which is exclusively with Nike. And we basically guided that that would be we would see maybe a little bit of growth

16:41 in this year, but it wouldn't be the very big growth that we saw last year. And that's because of the the shoe models that were on with Nike and how those shoe models sell through. So there's basically a two year cycle, and we're at the second half of that two year cycle this year. So, no. We're not expecting, you know, the the the kind of very rapid step up that we saw last year. That's that's clearly, what we thought. Other parts of HPP such as aviation, TIFF, etcetera, we are seeing very good improvement from a but it's from a low base. You know, aviation a few years ago was was 10,000,000.

17:30 It's nothing like that now. So when it's in low numbers and you see the high high say high percentage sales, it still doesn't move the dial very much, but, you know, there there is good potential there. And as to the basketball, you know, we are not commenting, you know, really about what specific things we're on, but our product is called Zoom x by Nike. I think some people often see the Zoom and forget about the x. If it says Zoom, it's probably not ours. If it says Zoom x, it's it's ours. So and at at this point, we are entirely in the running category and not in other categories, but we are obviously working with Nike to expand the offering that we have across a number of categories. So that's something that keep keep your eye on that, but I don't think it's the basketball at the moment.

18:34 Next question from Mike l. What's current capacity availability? And when do you expect the need for further capacity investment? So in our main business, we have three main processes. We have extrusion, we have gassing, we have foaming. And if we think about capacity, you need to think about what is the bottleneck process on each of, you know, there's no point in having a lot of forming capacity and not much gas in capacity. The other relevant factor is that we are geographically spread. So for example, having forming capacity in North America isn't really that helpful when you've got demand in Europe and and vice versa.

19:26 Although with extrusion, high pressure gassing, we can move things around the world, but it's not as easy as it used to be, and it's more expensive. So I think we we are operating reasonably full at the moment on against some of those capacity bottlenecks regionally, and we would look with relatively minimal investment to potentially debottleneck those. That wouldn't necessarily be through new equipment. Sometimes, you know, we've got initiatives here on this site to improve capacity through operational improvement as we do in America. The Poland site is currently operating around about half to something like that.

20:17 And that's that's as planned. Our strategy is also mix enrichment. Yeah. So, you know, the objective is to grow more of our HPP. In our A Zone business, there's a long there's a range of products and the objective is always to mix and mix through from the bottom price upwards. So that effectively means we do have capacity available. It's just how we use it. Yeah. That's that's right. So there there there are growth options through selling different products at higher prices, higher margins. Mike has asked another question on resource, which I think you've covered earlier. Question from Ian, Andrew. Okay. I think that's a presentational question. Why only on one slide?

21:06 It helped to see figures whether they're being talked about. I guess the comment is that we haven't put the trading update on this platform so they can see it virtually. But if you go to the ZOTEFOAMS website or if you go to the London Stock Exchange RNS announcement, you will see all of the figures that Steve read out, and those were published at 07:30 this morning. Question from Mohammed. The trading statement makes mention of proactively mitigating supply chain risks. Could you expand on what actions the company has taken? Well, supply chain risk is a big is a a big thing. So, for example, looking at multiple sources of pretty much everything we do, whether that's raw materials we buy, service providers, freight providers, looking at where our inventory is and how it, you know, how how it's matched to potential customer demands, etcetera.

22:16 So those are typical examples, but I think to get what we're trying to to to do is the things that we can control and manage, we have to control and manage as best we can, and there are things outside our control. So what happens, we specifically refer to some COVID, you know, risks remaining and people talking a lot about China right now. If China's locked down, there's not too much we can do about that. So how do we and our customers manage that? Talking to our customers and suppliers about what their plans are, what they'd like us to do in these circumstances. So it's a fairly general answer, but it's a fairly quick and complicated question. So I'll I'll leave it there. Finally, a question from Richard.

23:04 Is the Poland site receiving satisfactory gas supplies in the light of Ukraine conflict? Yes. That's yes. Yes. It is. Okay. Thank you for those questions, and thank you, David and Gary, for for answering them. I'll now proceed to the formal business of the meeting, and I declare that a quorum represent being a being a minimum of two members present in person or by proxy and entitled to vote. I would like with your approval to take the notice of the meeting as read. I hope this is agreeable. Thank you. So before formally proposing the resolution set out in the notice of the AGM, I would invite questions on the resolution from the shareholders and proxies present in the room. Again, if you have a question, please state your name and capacity in which you are speaking.

23:55 Does anyone have any questions on the resolutions? Okay. Thank you. As chairman of the meeting, I declare that all resolutions today will be decided by way of polling accordance with article one zero seven of the Articles of Association of the Company. This is considered to be best practice as it results in a more accurate reflection of the votes cast and gives all shareholders the opportunity to participate in the decision making of the company and have their votes recorded in proportion to the number of the shares they hold. The directors, pardon me, are unanimously in favor of each resolution and are and recommend that you vote in favor too. The company secretary, Lydia, will now explain the polling procedure. Zoe. Shareholders are asked to complete the polling card, which is a brought with you, which was handed over to you when you arrived by putting across the appropriate column next to each resolution in one of the box marked for, against, or vote without, then print your name and address, sign and date it, place in the call box. If you've already submitted your vote by proxy prior to the meeting and do not wish to change the way you voted, you do not need to complete a call card.

25:13 If you're attending as a proxy or corporate representative, you can include the name and address of the shareholder you are representing. Our shareholders' travel will act as twenty years and countable costs and answer any queries you may have in relation to the completion PLC of the polling card. If there is anyone present with entitled to or who does not have a polling card, please come up to Carla, who will be able to assist you with this. Thank you. Thank you, Lydia. So that leaves me to now formally propose that each of the resolutions set out in the notice of meeting and on the poll card is put to the meeting as a separate resolution. Resolutions one to 13 are proposed as ordinary resolutions and require a simple majority to be passed.

25:59 Resolutions 14 to 17 are proposed as special resolutions to be passed. Requires fifty fifty 75% to vote in favor. The purpose for purposes of such accounts, abstentions are not included. A good many proxies have already been lodged prior to the meeting, and slide displayed now shows the numbers on the screen to my left. As you can see, all resolutions are supported and with your votes today will all be passed. And that, ladies and gentlemen, concludes the business of the AGM, and I declare the meeting closed. The final results of the meeting will be announced to the service to the market through our regulatory information service and posted on our website as soon as practical. After you've lodged your polling card, I'll remind you that more tea and coffee is available the desk at the back of the room, and my colleagues and I would be happy to discuss with you any company matters which you wish to raise with us individually.

26:52 I thank you for your entrance in interest and attendance. Nice to see you all here. That's great. David, Steve, Gary, and to the board of ZOTEFOAMS, thank you very much for your update this morning. Could I please ask those attendees online not to close the sessions? We'll now automatically redirect you so you can provide your feedback directly to the company. On behalf of the management team of ZOTEFOAMS PLC, we'd like to thank you for attending today's annual general meeting. That now concludes the meeting, and I wish you all a very pleasant morning. Thank you.