Zotefoams (LSE:ZTF) — Preliminary Results

0:01 Good afternoon, and welcome to the ZOTEFOAMS PLC investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q and A tab situated on the right hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it received during the meeting itself. However, the company will review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, I'd like to split the following poll. I'd now like to hand you over to David Sterling, CEO. Good afternoon.

0:34 Good afternoon, Lily. Good afternoon, everyone else. I'm here presenting with Gary McGrath, our CFO. Gary and I will take you through the presentation. I will cover an introduction and drop into results with Gary and then close out with some detailed business unit commentary and outlook. If you have any questions, please submit them in the poll, in the q and a chat. Sorry. It may be if a question comes in that we get to answer it on time in the slide, but more likely we'll close the session with q and a at the end. So if I can start the presentation.

1:21 ZOTEFOAMS today, think about in three main divisions, polyolefins, which is about 54% of sales, HPP, which is about 44% of sales, and Mucel, which today is really a developmental business. We'll we'll talk about that in a bit more detail. Both the polyolefins and HPP businesses are based on our unique autoclave technology, with polyolefins being made from a premium form from a commodity polymer, and HPP foams looking to enhance the attributes that are already in those polymers with more premium materials, such as materials which don't burn or high energy return in the case of, for example, footwear with Nike.

2:15 Our business, strategy is that we are primarily focused on organic growth. We look at technology, we see where that can be pointed to develop a, you know, a portfolio of high value added products and that we focus our resources on certain areas. That strategy allows us to adapt and and move between markets. So we're not market specific, neither are we geographically weighted any particular area, particularly with our with our high performance products, which can ship anywhere around the world. Shipping is not really a barrier to those.

3:06 The results summary this year is that revenue's up 26% to a 124 7,400,000, which is a record for ZOTEFOAMS. Our operating profit, here you see adjusted numbers, but operating profit is up 70% to 12,200,000, 74%, actually 12,200,000. EPS up similarly high figures, adjusted in this case 21 o four, so up a 100 up a 126%. And because of very strong cash generation and paying down of debt, our leverage ratios dropped almost one whole turn of EBITDA to 1.2 times.

3:56 In a bit more detail, the 127,000,000 has come from strong performance across all the divisions. Polyolefin sales up 25%, high performance products up 29% and Nucell, although it's a smaller absolute number, still up 23%. We have, particularly in high performance products, a Nucell been aided by a stronger US dollar. And in polyolefin foams, the main reason for the growth was pricing and a little bit product mix. Because of those pricing improvements and because of our high performance products being high margin and growing faster than the rest of the business, our gross margins are up by 400 basis points, and that improved mix is the main reason for that.

4:55 We have absorbed about 1,900,000 of investment in our resource

5:02 technology, which is coming out of NewCell, and more about that later. But those record profit figures are after that amount of investment in that business. We're not just about sales, we have very strong operational and cost management, operational improvements and particularly around waste, energy, etcetera, as the cost of raw materials rise, as the cost of energy rises, while we've always focused on these things, it's more sensible to invest the money to get better improvement when the prices of those things are higher. So our PBT up 74%, as we said, a group record with EPS up to 20.6 p, and we are paying a 5% increase final dividend in the year.

5:59 Cash generation, up 80% to 23,000,000 with a very strong free cash flow of 14,000,000. And as I said, the debt down and because of strong cash flow, the leverage ratio has dropped significantly. So strong financial position and balance sheet.

6:22 If we in summary, our strategy, polyolefin foams, we've seen a rapid recovery in margin through the price increases. We have seen the input costs drop off in some cases from very high levels seen during the middle of the year, particularly in polymer, and Gary will cover that later. And a bit of a mixed bag across different markets there, but we do see that the polyolefin foams business does offer, structural growth in particular, where we are tagged into the megatrends of environmental, regulatory and demographics, and we have well invested global capacity in this regard.

7:15 High performance products, we have very close and exclusive relationship with Nike in footwear. So, you know, keeping that going, offering them new products, getting spec ed in in new footwear models, Part of the ranges is part of our what we do all day every day now, as well as try and improve the cost position for them so they can hit price points in the market. And that cost does not always price. Sometimes it's product design allowing better yield, material yield for Nike. The other two parts of our HPP business are in insulation and aviation, and very strong growth in those, we'll cover that later as as we will with resource.

8:06 Sustainability, would say is really embedded within ZOTEFOAMS now right through every decision we make. So whether that's new products, the markets we look at, how we manage operations,

8:20 how we spend our capital, all considering sustainability, energy, efficiency, etcetera, right through the business. And I'm very pleased that, you know, we'll come out with a whole load of metrics around water, energy per unit revenue, waste, etcetera, in an annual report. But a lot of this is captured by ratings agencies, and one of the bigger ones or better used ones is MSCI, where we've been given a double e, which is the second top rating. And even looking at the double e rating, you know, I can see that there are certain areas where we can improve the disclosure and that's gonna get us an improved result, not just improve the performance. So very pleased about that. Very, very few companies in our industry have double e ratings on the MSCI sustainability index.

9:21 And then we talked about the spread of the business. We can see actually top left by geography, bottom left by industry. Although the business has grown 27%, the spread is roughly the same as it was in 2021, you know, both geographically and by industry with footwear being clearly the biggest customer with Nike being around about a third of sales today, and and those sales going into Asia, which skews the the geographical revenue towards rest of the world. So the key point here is that we are well balanced both geographically and industrial and pretty stable growing business in all areas.

10:09 So given that, I hand over to Gary to talk about the the numbers, and I'll come up back and cover business units in more detail later. Thanks, David. I'll start off just by by reminding everybody this this this is we have adjusted numbers in here. David was referred to that earlier. That's often how we present to the analysts. And the there's not a lot of adjustment at ZOTEFOAMS. We're really talking when when you look at adjusted, what I'm effectively doing is removing for 2022 some £260,000 worth of amortization costs, and for 2021, around 230,000 all related to acquisition of Newsell back about ten years ago. That's that's the that's fundamentally the difference. So if we do get a bit confused between the two, it's not big it's not big difference.

11:02 So where are we? As David said, group revenue up 26% or up £26,000,000 at $1.27.4. That includes 7,600,000 of of currency, which is, as David said, related mostly to our HPP business, which is invoiced in in dollars. That we generated a gross profit 400 bps up at at at $3,038,700,000 or 38 30.4 percent gross margin. And the key drivers of that, as we've already touched upon, were really the price increases in in, the faster growth in the higher margin business unit of HPP, and the strength of the dollar. The dollar on average moved about 10% during the year.

11:53 In comparison, the euro actually dropped weakened against the pound by 1%. But the euro is fundamentally hedged by the by way of the fact that we sell into Europe by largest market in in euros, and a vast majority of all of our raw materials covering HPP and and azo are sourced out of Europe. The distribution admin, line are pulled out separately. You can see below, because it's a little bit confusing. On the on the face of it, it looks like a 35% increase. And if I actually break it down, it's not quite that. The the distribution cost themselves have gone up 10% in line with sales growth and some investment in in sales, staff, and marketing.

12:41 We're very much out of COVID now, we feel, and and so we've started to to return as much as grow certain costs behind behind sales. But more importantly is that is that admin line, which we report including our hedging movements. And the hedging movements had quite a quite a big movement in the year, a a swing of £3,000,000 with a with a benefit hedge last year and a and a and a charge this year. If you actually remove that hedging, you're left with a 22% increase in admin cost, which is about 2,700,000. And that two two thirds of of the movement is explained by the variable pay impacts of 2022 based off a very of of a record year, record revenues, record PBT, record EPS versus last year, which was a disappointing year at 7,000,000 profit, 7.2 adjusted.

13:39 When you then move down, look at that that gives us operated adjusted operating profit of 14.2, as David said, which is about seven which is 70% up on last year. And then we have interest charges. I don't normally present the interest charge, but it's starting to get more relevant this year, and and you can see there's a 50% increase. Within that 1.7 is £300,000 worth of amortization costs related to the the closeout of our previous refinancing facility. And so if you actually look at a like for like, you're looking at 1.3 against 1.1, which is about 25% increase. That reflects the, obviously, the increase in interest rates. We are not we don't we have a multi currency debt facility. We do not draw it down in pounds.

14:29 So our debt is is almost 50% dollar, 50% euro. That number has gone up, but offsetting that, of course, is the fact that our net debt, as you would have seen, has gone down by by 6,500,000 during the year. All in all, gives us $25.30

14:55 Gary, we just lost your audio momentarily. Let me just bring you back in if I may. Just let you know just to better this way. Gary just comes back in. Thank you.

15:21 David, we've just lost Gary. He's gonna be coming back in. Yep. He's been disconnected. So I'm just waiting for Gary to come back in. Don't know if you just wanna pick things up, and I'll jump back in when Gary comes back in. Yeah. I can do that. So let me just the income statement. So what I will do is I will I think, Gary, pretty much finished on the income statement. If you have any questions, let's hold those and move on to the balance sheet. So not much movement in the balance sheet other than currency here and increasing the the tangible assets with a bit of capitalization of intangibles for the resource.

16:13 And obviously, the payment of the debt, reduction in debt, increasing our net assets. ROCE up to 10.1% in the year. And just to remind you, we refinanced in March. Our banks are Handelsbanken in NatWest, so not in the news currently. And we've slightly better terms with, you know, four plus one years on our our debt facilities. So nothing that's being renewed at any point in the future. So a stable financial position and also, know, a a clear position with the banks there.

17:03 Looking at the cash flow statement, you can see that the record generated cash generated from operations 23,000,000. Not much movement in working capital at all. So the profitability with an 8,200,000 depreciation coming right through to the cash generation. We we can see here that we haven't invested hugely in in capital expenditure in the year. It's been about 7,000,000, which is slightly below depreciation, of which around about 2 is the resource.

17:49 So not a significant amount of of money going into the business for new capacity that's been well invested over the past few years. And here here comes Gary back. So No. Think I'm speaking Sorry. They've me speaking for Oh, it's gone again. Yeah. Sorry, David. Please carry on. I'll carry on. So if we look at some of the main, know, influencers on our profit and loss account outside the sales numbers, you know, major raw materials, low density polyethylene within our h our polyolefin business.

18:34 And you can see a chart here that just to explain it, if you've not seen it before, what it gives us is from 2018 onwards, the top line on the left hand side in in the shaded area is the price of low density polyethylene, which is euros per ton, and that's made up of two components. It's made up of ethylene, which is the old derivative, which is the blue sheeting segment, and then the additional cost of turning or the price of turning that ethylene into polyethylene. And you can see on the left hand side, and it's a different scale, but still euros per ton, the blue line showing a fairly muted cost of turning that ethylene into polyethylene, and then suddenly it became very, expensive in mid twenty one onwards to to get the ethylene into polyethylene. And that was mainly as a result of the market stopping functioning well. So our raw material cost really shot up at that point

19:47 and has been well above the long term average from sort of for first, second quarter two thousand twenty one right through to the sort of half year 2022, at which point this cost started to come down again. So what does that mean? Well, partly that was the, you know, the the impetus for us to put up our prices. That plus energy will cover come in a minute.

20:19 But the volatility can be quite difficult to deal with because you've got the prices to customers, and then your costs quite clearly go down. So we're keeping an eye on the pricing of polyethylene and our pricing to our customers as result. And that's something that's very active process with our customers. Not quite on a on a weekly basis, but it is something we're well aware of. Just one thing I will say is the spread on polymer price over ethylene is a more normal level, you know, back down at the the €300 a ton, which is probably given energy prices right now about right. So it feels like the polymer price today is is about right. And certainly, most of last year, it was very high.

21:13 Energy, lot of talk about energy.

21:17 Our 2022 energy costs increased by over 50% to 7,300,000 from 4.8 as a group. Most of that energy is used at Croydon, which is the biggest site and and actually consistent with the the sales coming out of Croydon. And obviously, at 4,800,000 in 2021, it was about 5% of sales. And although it's gone up 50%, it's it's now about, you know, 6% or six and a bit percent of sales because our sales have increased, our prices have gone up. And right now, energy costs are starting to come down from the peaks, but we normally would hedge forward and have a good idea, but the forward energy costs compared to the current costs are so high that we're not hedging at all. And again, the market seems a bit of disarray. Nobody wants to take the risk, so we're we're dealing with that in a slightly different way in the past.

22:25 And then foreign exchange, think Gary covered quite quite well, but, you know, significant impact on the dollar in particular in the year, and that's, you know, inflated our sales numbers positively, fairly in HPP. Didn't have much of an impact on on polyolefin and group wide net of hedging increased the profits. If I go on and start to talk about the various business units, polyolefin foams, as I said, about 55%. I think this is slight slightly may may be a wrong number in this, but 55% of of group sales, up 25%.

23:16 Most of that has been pricing with a little bit of FX and a little bit of product mix. Volumes were very similar to previous years, down a little bit in Continental Europe where our customers were affected by high energy prices and labor shortages and just uncertainty in the demand side and and and not very strong automotive businesses. Whereas in The UK, North America, Asia, actually we saw growth. And North America in particular, which has been a more stable market, not as impacted by energy prices, we grew very well. The the the energy costs, the polymer costs, etcetera, I've talked about, but one of the key things is that as our business grows is the the ability to manage the sustainability.

24:13 And we have actually launched a product with 30% recycled content, a couple of products actually, and using internal scrap. So it improves our waste numbers, it improves our cost numbers, it improves our sustainability argument for our customers that our product can be recycled and is being recycled by doing this, and starting to gain traction in the European markets, not yet launched in America. And then manufacturing inefficiencies that we had referenced in 2021, beginning to be addressed, is still a bit of way to go. So still some benefit to be had there, particularly in North America again.

24:59 So it's it's a good performance, good turnaround by the business, but can I think still be improved with a bit more self help? If we look move on to high performance products business, that business is 43% of group sales, grew by 29% in the year with the profit in segment up 75, as I said, benefiting from the the currency, but we actually saw growth in in all areas in footwear, up 25% in PVDF, ZOTEFOAMS, which is mainly in aviation, up 48 and insulation business up 48% as well. So good underlying growth in installation, it's it's market share growth.

25:53 In in aviation, it's a return to higher build levels mainly of Boeing, where we are the biggest customer there. And it fit we had its own Nike, and we've been very successful working with Nike to integrate what we do with their needs and that we're getting, you know, higher share

26:15 of the running business there. They're launching more products. They've launched trail running shoes and things like that, which is a material, but before it was just, you know, road and and track. And now you're looking at other categories for using our materials. That's something that probably come in back end of this year. Nike usually work on a two year cycle for the running group. This is the end, the second year of a two year cycle now, and 2024 is the start of a new cycle where we anticipate further growth opportunities. So I think this year, the back end

27:01 of the year, might see a bit of a sell through. We should see the launch of some other models perhaps outside the running business and maybe smooth a little bit of that tail end second year volatility that we would normally expect at this this time.

27:21 And then moving on to Mucil, it's smaller part of our business, only 2,800,000 sales. We did grow, but majority of the the effort and focus this year and last actually is to support the resource development. And resource is all about, you know, sustainable packaging, Particularly, we have decided to focus on cartons for juice and and milks. If you go down to supermarket, you'll find on the not on the chilled aisle, on the ambient aisle, all kinds of juices, packaged waters, UHT milk, all that.

28:12 And that's where we're aiming. Our products, we believe, are significantly lower carbon footprint, and this has been verified by external benchmarking by experts. We can use recycled content. The product can be recycled itself, and we're at the point now where we have developed what we believe is is a good product for trialing. We have done internal trials and made those products into cartons through

28:44 an internal, you know, packaging machine that that's representative of what's out in the market with some success. There's still a bit to work to do, but we are at the point now where we are signing up supply chain for a new market trial and looking to get up to that. And that's something which will take, if I'm optimistic, nine months and with a bit bit of realism, probably twelve months from today to have that in market trial validation, so on on supermarket shelves. That's not really a revenue generation. It's more a full scale validation. And at that point,

29:31 you know, we have a we have a business. So it is something that's slightly unusual for ZOTEFOAMS, but we have developed the technology within the mu cell business. It does rely, believe it or not, on forming.

29:45 And that's something which is we we have filed a number of patents on, and the first patent has been granted in The US and which is which is very, very encouraging. So we are,

30:02 at this point, looking for a strategic investing partner for the new sales resource business, not for ZOTEFOAMS, as we believe that that would allow us to bring in external know how, financing, derisk, and perhaps accelerate the development of that within a defined risk appetite for the board, and that's something that's progressing right now. That market is huge. So a 1% market share would be equivalent about the size of ZOTEFOAMS today, just in cartons. So it's something that potentially is very, very attractive, but there's still some way to go on that.

30:51 If we look at the sustainability angle or right across the business, You know, we believe and very confidently, I think believe that we have four key aspects of business which demonstrate sustainability. One is the fact that we use nitrogen based forming, which just borrows nitrogen from the atmosphere. We are very efficient user of raw materials. Our foams are lighter than everyone else's that uses less raw materials. That then plays into downstream, you know, lighter cars, lighter planes, better insulation, and in particular in in in some industries like industrial protection, a lot less damage and less frequently replaced. If we look at our TFE installation, not only does it save a lot of energy, but it needs to be replaced far less frequently than alternative solutions.

31:58 And in new product development, we are really focused on, you know, the use and the sustainability argument for the new products we are bringing out. And that includes recycled products, as I said earlier, with 30% recycled content, a resource barrier packaging, etcetera. And even today, 85% of our revenues come from products which are considered green according to an external evaluation criteria. Now I don't know why they won't let us use the name of the criteria anywhere, but I can assure you it is external.

32:44 And as I said, we we've been rated double a by MSCI, and we do subscribe to the financial reporting and climate change reporting standards. So an awful lot of information going out there about what we do and how we do it and target setting, etcetera, and making pretty good pretty good progress there. And I absolutely assure you everything we do is all from sustainability is there as one of the criteria that we look at to make sure that we are thinking about future proofing our business. Okay. So couple more slides just quickly on resource.

33:33 It is the first fully recyclable beverage carton using mono material, much less water, much less energy and much lower carbon footprint, expresses global warming potential. It's completely recyclable. We use recycled material. And, you know, as far as I can say this, because legislation is global and and actually local differences, but we comply with upcoming legislation in in the places that we're interested in in IP backed and scalable. And that's particularly important that we are scalable using the existing packaging infrastructure.

34:19 If we had to put a whole new infrastructure in for either packaging or recycling, it would be, you know, much, much more of a a long slog here. We believe we can use the existing infrastructure we are we are proving that as we speak. So moving to these pre market trials, focusing on carton, as I said, we we we're not an acquisitive company, but we did buy some assets and some know hows of people from a business in Denmark. We're trying to do the same thing and that had probably not managed the cash very well. So we've got a a really complimentary deal there for not much money at all. And as I said, we have appointed an adviser to seek that strategic investor.

35:12 And then finally, just that we you know, if you've been asleep or you've dozed off or or you just want a succinct view, record revenue, 74% increase in profit. We've done that after investing in this this wonderful new technology that could have great future, really good cash generation and reduction of debt. We have increased the dividend, and we are a well diversified business growing in a whole lot of areas with a good sustainability position. And the outlook right now is that, you know, the markets out there are are still difficult. I think they're better than they were in 2022.

36:00 So where we cut the results you saw, but, you know, still some challenges, but we're the team have done a really good job in getting us where we are. High performance products, we we have, you know, solid expectations of underlying growth there. And the input costs in energy, raw materials, nitrogen, etcetera, are all beating. Certainly, the inflation's gone out of that and and coming seeing deflation in some of those. We are seeing wage inflation, which lags everything else as you'd expect, but I will say just a couple of things. One is that we got a program of support in for our lower paid workers in The US and UK and Poland last year. In The UK, we actually accelerated that wage settlements. We we paid 4% in April and another 4% in October to lower paid staff.

37:05 We paid 4%, an additional 2% in October to people earning between 32 and 50,000, and we are looking to, you know, settle a decent amount this year for wage inflation. So it is in numbers, but we are being, you know, responsible citizens as well as trying to make sure we can attract and retain skilled workers in in today's challenging environment. So that's something which is which is positive. So overall, we are confident about the the future of the business, and I think we're in question time. So That that that's great, David. Thank you very much indeed, and we have Gary back. Gary, I'll bring back up your camera as well, if I may. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab just situated on the right hand corner of your screen. I just want David and Gary take just a couple of moments to review your questions submitted already. I'd like to remind you the recording of this presentation, along with a copy of the slides and the published Q and A, can be accessed via your Investor Meet company dashboard.

38:09 David, Gary, you received a considerable number of questions from investors today. So thank you to everybody on the call for your engagement this afternoon. And if I may, David, Gary, if I can can hand back to you, if I could just ask you to read out the questions and then give a response where it's appropriate to do so, and then we'll pick up from you at the end. Okay. So I think we just take them as they come, which will mean diving in and out of subjects. First one is from Kevin r, and I'll I'll pass this one to Gary actually because I've done a lot of the heavy lifting with him dodging off. So the the question is, what is the target on return on capital employed? Should the company not have near 15%? Yeah. I first apologize. I I trust trust me. You missed five minutes of excellent presentation of the balance sheet and cash flow, but I'm convinced David did a very good job too. I didn't realize I wasn't talking to anybody until a bit late.

39:04 The the question on the Roke. We actually have added a added a slide. For those that have the deck, it's the last slide. We added a little bit of a five year performance chart. And that shows that back in 2018, we we we had a return on capital employed of 16.5%. And and the reason we we were you know, we we're not there now is because of the investment cycle we're in. We've invested quite significantly in the last six years, and indeed, that is also in in the prelims, in in the CFO review. You can find the the the the annual the annual investment there. And if you thought if you think that now we're at about 8,000,000 of depreciation and back and and a good few years ago, it's about 6 5 or six. We actually invested you know, one year was 24,000,000. The year before was '18 as we put the capacity into The US, into Poland, and and into The UK. So so we're we're carrying a capital employed level that is that that allows us to be able to grow and expand in the coming years, but we're not there yet. And and, of course, the impacts of of COVID effectively slowed us down from our original original intentions on on growth. We're probably, you know, a few years, a couple years behind.

40:14 So, yes, we you know, you you're seeing an increase from the from the low of six of 6% to 10.1 this year. And going forward, as we as we utilize our our plant better and as we mix enrich in line with our strategy, you will see that return on capital employed increase. Alright. Next question from Andrew are excellent results. Thank you. The decision to seek a strategic investment partner to fund resource development costs suggest that the material further expenditure is being planned to bring the product to market. What sort of expenditure is envisaged and over what period? So there are there are really three main stages here, Andrew, and and everyone else. The first stage is what I'd say is that in market validation test.

41:09 So, you know, if it's 50, a 100,000 units going out to, you know, a couple of specific markets for, you know, about consumer feedback, about of, you know, making sure that the the recycling gets done properly, making sure it gets shipped from a to b. You know, there's no unexpected problems. To do that, we need to make food safe sheet and control that down the process. And it's you know, in terms of production output, it's, you know, it's half a day on our machine and probably half a day on a packing machine. But there's a lot of work to to be done in compliance and product validation to get there.

42:02 At that point, if we get a tick in that box, we can we can scale up from that half day production to, you know, many times that. Now that's that's still only gonna give between ten and twenty million units, something like that in the market, which is a is a pretty small number given that the market's, you know, over a 100,000,000,000 units. The cost of getting there are mainly manageable internal overhead costs and and investment in clean processing, etcetera.

42:52 At that point, then there is a decision made on whether or to scale up. So when we look at strategic partner, we're looking for for two things. One is, you know, knowing that if we start the journey that we can finish it. You know, there's no point getting to stage one and stage two and then going, we have no money to scale up. And and the other one is that with the right strategic partner, we believe we will get there with less risk and more quickly, and therefore save money and and get to market more quickly. So and the amount of scale up money at the end really depends on how how aggressive the customers are, how aggressive the the bottlers or or packing companies are to move this product into the market.

43:46 But that's something that we will make decisions each stage. We're not deciding now how much money we're gonna spend in in, you know, twelve or eighteen months time. So but it's about risk and execution as as much as capital expenditure. And and that really answers your next question about how we eventually intend to fund resources such a massive market. You know, we we we believe that that we can make profit pretty quickly. So if at that point, you know, I think if we have a strategic partner, then we would have a share in a business and that business would be, you know, able to fund itself in a variety of ways, the usual capital debt, you know, scale up model.

44:42 Next question also about resource. What's the can we expand please on the potential for resource? What's the addressable market, revenue, why we sell can't be ignored by the industry compared to the incumbent? So the the addressable market is, you know, is in excess of a 100,000,000,000 cartons a year. That's in excess of $10,000,000,000. It's actually, you know, I'd say relatively homogenous in the you know, if I go to Japan or I go to Germany, I I see the same technology. Slight differences in pack design, but it's essentially the same. And so our technology can be used for for all of that.

45:37 And I I think, you know, the incumbents are all banging the drum of being, you know, paper based. The reality is they are 70% paper and 30% or 20% something else, plastic, aluminium, plastic cap. And so there isn't an alternative today, and that's one of the problems. The packaging has been so successful. It's ubiquitous, and there isn't an alternative. And because of the amount of investment in infrastructure, packaging infrastructure, it can't be switched quickly. Now if we can prove success, then potentially people can switch quite quickly using existing infrastructure.

46:25 And I think, you know, people are watching us and waiting, but, you know, I think we have got people interested in in this technology. And for us, it's about, you know, how how do we manage the scale up? How do we manage the risk? And, you know, we are not packaging experts. We are technology development experts. We've developed the technology. So we have brought people in from outside. You know, I have a a sterilization specialist, got an ex ex Tetra Pak commercial director. I've got other people from the the industry come in to to help us and advise us.

47:12 And, you know, this is something which is, you know, big big potential, but also, you know, we we we need to face the possibility that, you know, we get out invaded or or something else happens. We see no sign of that nor do the people we are talking to, but that doesn't mean that it's we are the only solution out there. So I think we need to be, you know, sensible about this for the size of the opportunity investment and also the size of ZOTEFOAMS. So and, you know, I don't think and and maybe a broker I've talked to a broker about this, but I don't think there's any value for ZOTEFOAMS shareholders today in our share price for this.

48:02 It feels to me that, you know, we got we get judged on a on a business that's, you know, generating 12,200,000, not a business that's generating 14,200,000 profit plus this development option. But, you know, we just gotta keep doing what we do and communicating and, you know, hopefully, we turn it. Another question from Kevin. Any new contracts for electric car battery installation? Well, we have some things going in China that were going quite well last year. And, actually, our customer this is the you know, has has been told not to use us because we're affiliated with America with operations in America, which is quite surprising.

48:56 That wasn't big, but we have we we have alerted, let's say, people to the technology and the way it was being done and trying to push that in North America and Western Europe. We are working on a number of different technologies for battery installation. One of the difficulties is all the all the battery systems are different. So all their requirements are different. So, you know, for a company our size, we need to spread our bets a little bit, and we are working on it. But if we get something big, then we'll know about it. Okay. Next question from Andrew are, will reefer focus on pouch packaging as distinct from cartons or as it's been integrated into resource.

49:50 Reef the the Reefor acquisition in Denmark, we are taking the people there and the know how and focusing using those to augment our carton team. A lot of the action's happening in Europe. They've got good knowledge of how to do that in Europe. At the moment, we have decided that pouch or flexibles is being is being put on the back burner in in terms of development so we can focus on the carton. We are continuing to file IP on the pouch so that preserves our position, but carton is the priority. Okay. Next question. Why do you feel the market has not responded to these excellent results?

50:40 What's the view from institutional holders? Would you consider listing in The US? So and that's from Sam. The market, I think, is always always a bit of a strange place. And right now, what we're seeing, and this is my interpretation, is that some of the institutions are are having to sell and and rebalance the portfolios, and they end up selling quality companies because that's who will buy. And the feedback we've got is that we're a quality company and therefore transactions, you know, people are are transacting their shares with liquidity, whereas there isn't in other places. But I think also if you look, there's a lot of companies coming out with, you know, slightly negative results or flat results, and they're getting hammered.

51:32 So I just think sometimes it takes a little while to digest the results. We've got no current plans to to to move to The US as a sort of conversation topic that's been raised given the apparent valuation disparities between the markets. But at the moment, no. Not for us. It doesn't mean that it's not a no. It just means we're not discussing it as yet. So alright. A question from James. You use ethylene and polyethylene, which are oil industry derivatives. As we transition away from hydrocarbon fuels, how do you see this impact from ZOTEFOAMS over the medium and long term? And what alternatives are there from the production of foam? And are you looking at transitioning?

52:17 Transitioning? So two things. One is I would contend that the world today has all the plastic it needs. And if we recycle it either mechanically or chemically, and there's a lot of work going on in chemical recycling, then we don't need to transform any more oil into into plastic. It just goes round and round. You take your old, you know, full packaging or whatever. You throw it in the the right place and it comes back as brand new plastic to be reused. What what's the problem with that? If I'm wrong there and we do need more than, you know, bioplastics, we need to distinguish between biodegradable and bioderived.

53:03 They're not the same thing. So bio based or bioderived plastics which are coming from, you know, sugarcane or something like that have exactly the same performance as oil based. They they won't degrade in the environment. We could use those if we needed things for longevity. If we want to make products that biodegrade, we can do that, but those tend to be throw away. People worry you know, biodegradation is really more suitable for throw away thing, single use where, you know, somebody throws in the the hedge row or in the ocean by mistake. Our products are not in that market, and therefore, they they're more used for permanent solutions. So you don't you don't want your trainers to be made from biodegradable plastic because you're out there running and and they start to break up. That's that's not really intent.

53:59 So, yeah, we we've we've looked to this. It's not really an issue, and I think there are many, many people who would be in trouble if if this was happening before us. So I think we are very sensible use of of these types of resources. Okay. Next question from Andrew. Where's the anticipated large scale commercial transfer resource carton? I think small scale is is twelve months off and large scale is after that if we if we're successful. So that sort of timeline. Next one from James e.

54:45 Gary, this one's for you. Are you able to share year on year performance numbers on a constant currency basis? Yeah. And in terms of the detailed breakdown, that is in my review and the prelims where we break it down by revenues by business units and the and the sub business units, high level total sales, as we mentioned as I mentioned in the when you were listening to me, able to listen, 7,600,000 of the of the top line was currency. That was split 3,000,000 polyolefin foams and 4,300,000 HPP with a little bit of mucel. When you look at the profit, we disclosed that as well. That was 2,500,000 after hedging.

55:33 And that is not very much at all. Polyolefin is about point three of a million. We met David David mentioned HPP at that is more 4.3 because a lot of the revenue is almost all the revenue from HPP is in USD, whereas the costs are a decent amount are are euro based, some dollar, but a decent amount is euro based, and then a tad on mell as well. So then that's primary, Fundamentally, top line, 7.6, bottom line, 2.5 impact of currency on those results. Okay. Right. We need to just watch your time on some of these. So I'm I'm just our next meeting is at quarter two, Gary. Is that right? 03:00.

56:21 Oh, 03:00. Okay. So we can give a little bit more. Sorry. Next question from Steve K. Do you think you will engage in m and a to expand the business? Organic growth, amazing, by way. Thank you. But note your recent acquisition. Can you expand on the reasons for this acquisition? So, you know, I I think as we generate a lot of cash, we have, as Gary explained, been through a few years ago, a capital investment program to expand capacity. And and so as we we we grow, we generate cash, we're not spending the money in capacity, the debt should fall, and that opens up possibilities for acquisitions. We are we have a unique technology. It's quite difficult to go upstream. We're not gonna be, you know, buying polymer companies.

57:13 And going downstream, we need to be careful because you end up competing with your your competitors sometimes. And going across, you end up perhaps buying technologies that are, you know, more me too. So but there are always you know, it's a big world out there. There's always a lot of opportunity. We have not ruled out acquisitions, and and the the one we did in Denmark was was really about accelerating a technology play and giving us more resources to do that. So if we find certain industries or certain applications that we feel that are, you know, really valuable users of our material or technology, then I wouldn't rule that out.

58:04 So but we haven't announced anything yet. So that's that covers that, I think. Next question. What interest do you see from ESG funds given the strength of your compelling ESG standards? At the moment, it's it's very little. It's you know, you're standing on the hill waving the flag. I think there's been a perception over the last few years that ZOTEFOAMS is a, you know, recorded in the chemical sector. We've looked at that, and we've been told actually, you're in special specialty materials. That's where you belong. We have, you know, a certain size. We process plastics.

58:51 There's a kind of perception that perhaps we're not right for the ESG fund. So that's something that, you know, we're we're nudging now with the latest reports come out. And I think to get our brokers and to get an audience with some of these shareholders. I think, to be honest, it's it's been it's getting easier because there's bit more standardization over how people look at this. But two, three years ago, it wasn't standardized. And I remember getting a really, really low ESG score and, you know, looking at it and going, why is this? And we were getting marked down for uses of polluting chemicals. We were getting marked down for using a private jet.

59:44 Right? Like, we don't use a private jet, but we didn't disclose that we didn't have any polluting chemicals. We didn't disclose that we didn't have a private jet. And so the rating agencies were saying, well, I'm not giving them any marks for that, but I'm marking them down for that. And so we started from a position of going, do we really have to disclose all the things we don't do? And the answer is yes. We do. And so we are going through a process and being a technology company stuffed with scientists and stem people and engineers and whatever, you know, they if you if they're saying you don't do something, it's almost prove prove that we don't do it. Prove we've got no none of these emissions.

1:00:30 So we've had sensors and all kinds of things put in to prove that we don't do things, And we're now at the point where we can disclose all this. It's cost us a bit of money, but it's put us in position where we can do it. It's been frustrating, and I think it will take a little bit more time for the message to get fully to get through. But, you know, that's the story of the journey so far. Okay. I've got a couple of questions. One on dividend and capital allocation, one on dividend and buybacks. I'll take those together. The first one is with big capacity increases complete and improved profitability, what are your thoughts on capital allocation priorities and dividend growth cover?

1:01:18 Gary, you're gonna answer this one. So I'm just getting this. And then the second one is you're not a acquisitive company, and so retained earnings for nonorganic growth makes a lot of sense. So in terms of capital allocation is a question of which option is most accretive to shareholder returns. In my opinion, repurchases are far more beneficial than dividends because of paid out tax, the earnings, etcetera. Why do you have such a rigid dividend policy? And please don't say you need to pay dividends because and there's a bunch of really, really big American companies named who pay dividends. So what what do we think about capital allocation, dividends, buybacks, Guy?

1:02:08 Yeah. The I mean, fundamentally, you know, we're we're we're growing we're growing a business with a focus on a number of areas, of course. Right? If you if you if you only look back at last year, we had we had a leverage ratio of over two, debt at 30 plus million, and and and the general feeling was, as we recognize, that we need to get our debt down. So the focus has been trying to get is more of a balance across, you know, growth, profit, return on capital employed, those sort of areas. So that's really a management a management focus at the moment. While, of course, we are we are we are a growth company with with ideas, and we're pursuing those. Resource is a great example of of capital being allocated to a a a high reward, but high risk opportunity.

1:03:03 And, of course, there's only so many that we can we we can do with a company our size and and and management resource we have. So I think at the moment, we we're we're still we're we're we're still at that point where we are cognizant of our debt levels and of of the balancing act between growing the autoclave business, the HPP business, investing behind that, as well as pursuing the resource opportunity. When that, you know, when that comes to an end, whenever that might be, clearly, we then are faced with wider decisions around what you know, where is our debt profile going or or on we would expect that profile to to reduce because we're cash acquisitive, and that then become, you know, decision making around that as to whether it's time to expand our Poland plant to make it a plant that's similar to The UK and The US or whether it's time to to give something back to shareholders.

1:04:03 That is a you know, that that is something that the board has not debated at this point while it's been focusing on other on other priorities. In terms of rigid dividend policy, I don't believe we have one. We we our policy is progressive, but we have just invested quite a significant amount of cash in capacity and growing this business and taken on debt. And we therefore I I don't think it's rigid to say that we've we've maintained a fairly cautious dividend policy while we know, to help ensure that we're funding and drawing down, paying down our debt our debt levels to maintain a strong balance sheet. Anything missing, David? Anything you can think of? No. I think that's that's probably it. So do you want to pick up the next question from Tom h on tax rate?

1:04:57 Yeah. So I think you may have heard this bit from me, but, you know, we're generally around we don't we we don't have any any complex clever tax vehicles, neither would we would we seek them. So the our tax rate is generally, at the moment, driven very much by, to a large extent, by The UK tax rate. Our our our US business, as it grows, has tax losses, which would which would provide a benefit to us in the future. But fundamentally, it's about the PLC in The UK. When we're at 19%, you know, we we generally come in all things being equal around the 18. As we get to 25, I would expect that to be a digit you know, percentage or two below. Clearly, three, if that's the question, has a has a blended corporation tax period. So the first three months will be at the 19 and the and the and the final three quarters will be at the higher rate. So it will be a blended of that.

1:05:54 Okay. Next question is from David b. How many reportable accidents have the company had in the last year? This will come out with an annual report, but I'm quite happy to to do it now. We've got three main metrics that we run on health and safety. Two of those are benchmarked against other plastics and rubber processing companies. One is days away from work where someone got an instant they are they're not physically at work. And the other ones these are way restricted or transferred, so they're at work, but they can't do their main job. And then we measure what's called radar, which is a reportable incident in in under under UK law.

1:06:50 So on DFW, days away from work, our rate was point five one. I can give you the details on this, but the industry benchmark is two point sorry. It's 1.2. So we are less than half the industry benchmark. And DART was also point five one, and the industry benchmark for that is 2.3. So we're sort of a quarter of the industry benchmark in terms of instant rates on that measure. We did have two radar incidents which are reportables. One where an employee in The US cut his hand on a blade and required stitch or two stitches, I think.

1:07:44 And one where an employee in The UK misstep going down a step and put his hand out to to stop himself falling and unfortunately broke a bone this bone in his hand or fractured this bone in his hand. He was back at work the next day, but because it's a a fracture or a break outside the finger or toes describes a redor. So those are our two instance this year. We didn't have any last year '21. Sorry. Next question, Douglas g. How secure are sales to Nike? Obviously, the risks are in having such a large customer relative to group sales. Well, we're very, very close to Nike because as we depend on Nike, Nike depends on us.

1:08:35 And so we work with a sort of two year minimum, and and right now it's almost a three year depends what part of the cycle. We've got about three year visibility. So we have good visibility out to 2025 with Nike. And the reason for that is they have to go nap on the shoe designs and approximate volumes for those shoes now so they can organize a supply chain, and we're a key part of that supply chain. And we have to go back to our supply chain to get raw materials, etcetera. So I think the answer to that is we've probably got more visibility and more security over that period than with almost any other customer.

1:09:26 Next question. I think this is the last question. So, Scott, what is the current utilization rate in Poland? So easiest probably to give you this year's right now, we we anticipate about one third of our polyolefin sales business in Europe and The UK coming out of the Poland site, which would give us slightly higher than two thirds utilization on that site for the equipment there today. So that's That that's great, David. You've and Gary, you've taken every question from investors. So thank you once again to everybody on the call today for your your questions. And David, Gary, thank you for being so diligent in going through all of those and responding.

1:10:16 I know investor feedback is particularly important to you both, and I'll shortly redirect the investors on the call to give you their thoughts and expectations following these outstanding results. But perhaps, if I may, David, just hand back to you just for a few closing comments before I redirect investors for their feedback. Thanks, Mark. So, yeah, it's always a pleasure to engage directly with individual investors. We we really value we value your questions. We definitely value your feedback in the polls. You know, we we we've worked hard in as a team. We've got an experienced management team, good mix between understanding each other and challenging each other to deliver, you know, record group results this year.

1:11:05 I am aware the share price is probably half of what it was at its peak, but we will continue to communicate. We'll continue to engage investors in our story, and we will continue most particularly to work hard to deliver the the profitability and positioning for the future that I think we can. We've got so we've got a lot going on. Watch this space and many thanks. That's great. David, Gary, thank you once again for updating investors this afternoon. At HFM, please do not close this session as we'll now automatically redirect you to the opportunity to provide your feedback in order the management team can really better understand your views and expectations.

1:11:53 This may take a few moments to complete, but I'm sure it'll be highly valued by the company. On behalf of the management team of ZOTEFOAMS PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.