Zotefoams (LSE:ZTF) — Preliminary Results for the Year Ended 31 December 2020

0:02 Good afternoon, ladies and gentlemen, and welcome to the ZOTEFOAMS results for the year ending 12/31/2020. Throughout this presentation, investors will be in listen only mode. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. These will be available on your Investor Meet company dashboard, and

0:34 we will send you an e mail to notify you when they're ready for you to review. I'd also like to remind you that this presentation is being recorded. Before we begin, we would like to submit the following poll. And if you could give that your attention, we'd be very grateful. And I'd now like to hand over to David Sterling, CEO and Gary McGrath, CFO of ZOTEFOAMS. Good afternoon. Good afternoon, everyone. Hi, David. Hi. Gary and I are going to go on take our videos off for the duration of the presentation to allow us a bit more focus. Know we're distracting people with our handsome good looks and the use of bandwidth. So we'll do that and jump into the presentation.

1:24 So before we start, it would be just interesting to note that 2021 is the hundred year anniversary of ZOTEFOAMS. We haven't been called ZOTEFOAMS for a hundred years, but certainly the predecessor companies and the technology was first developed a hundred years ago by a chap called Marshall and and who who is worked alongside Thomas Edison, the famous inventor from from The USA. And I think we see here a picture of, I believe, mister Marshall with a tube of foam that he invented by putting nitrogen gas in a pressure vessel. Things have changed a lot since then. We'll give you the latest updates as we go through, but it's a pleasure being with ZOTEFOAMS in the centenary anniversary.

2:18 As we move through the presentation, we will cover a variety of subjects. But where I'd like to start is that just to remind our audience that we think about our business in really three separate divisions, polyolefins, high performance products, NBL. Polyolefins and high performance products both utilize our unique autoclave technology with polyolefins being made from common polymers such as low density polyethylene in a very wide variety of uses in markets worldwide. Our high performance products are made using the same technology, but start with higher priced and and and polymers with certain specific attributes often around energy return for footwear or fire performance for aviation, etcetera.

3:21 And these are typically designed around those key attributes for specific markets and offer higher margins and we believe higher growth opportunities ultimately. Our key fit installation products are made from some of our own high performance polymers and are disclosed under our HPP segment. And new cell technology is putting bubbles in a molten plastic stream and making extruded parts using higher gas content and lower polymer content than solid plastic. Fundamentally, it's used to reduce plastic content in common plastic articles such as mainly consumer packaging, signage, automotive docks, etcetera.

4:16 But we've also adapted the technology recently to make something called resource packaging technology and I'll come on and explain about that later in the presentation. Our basic strategy is to use this unique technology to create differentiated products, to focus our efforts in the areas where we think these differentiated products will offer the biggest benefit and allow us to be the the market leader. And it's primarily an organic growth strategy. Although we do occasionally think about acquisitions or bolt on technologies or partnerships, largely, we have made our own way in the world, and we see that as as core to our being.

5:05 The technology we have is pretty flexible. The product range is is is quite wide. The range of applications we operate are varied both in market types and geographically. And that variety, that flexibility allows us to put our resources into different markets where needed and and to to realign the business if one part of the markets are not going so well. So really, that's the story of 2020 and COVID pandemic. As we go through the business, we will see how the business has developed in 2020. Before we do that, however, I do want to talk about sustainability.

5:54 It is definitely becoming more and more of a key driver of decisions globally. I think in many industries and government, etcetera, and in our personal lives. And in ZOTEFOAMS we are considered by many to be a chemicals company. We are known to use plastics, both of which bring us under the spotlight of sustainability, potentially initially, I think, some sort of negative connotation. But we actually at ZOTEFOAMS think the opposite. We think that we use forming technology to create very lightweight materials that actually are beneficial to society.

6:40 Our products are are made for long term use. They are designed for permanent or semi permanent solutions which would just wait, improve installation, protect goods, protect people in applications such as medical or or aviation. And therefore, you know, we do believe that where we focus our efforts that our forms are the optimal materials. And with our resource in new cell technology, we are looking at solving some fairly intractable problems to reduce plastic and improve recycling. So and the way we think about this is we look at how we develop our business and in product development, market development, consider sustainability as as key, component of is it gonna be good for society? Is that business gonna be there long term?

7:39 And we focus on improving our operating efficiency internally in the way we make foam, the amount of material we use, reduction scrap, reduction of energy. And to this end, we are adopting the TCFD reporting standard for sustainability, and the information under TCFD will be available in next year's annual report. So if I move through the business structure and shape, oops, sorry. One more slide before then. Just highlights. It's quite interesting if we look at the results. Just as results, what we see is the revenue is broadly unchanged up a little bit.

8:24 Our cash generated from operations is up a bit, but, you know, not materially different. Our operating profit is very similar, and our earnings per share are very similar to last year. And, you would think, if you didn't know the history or the the background, that that's been a fairly serene year that management have just sat and and and kind of nursed the business through twelve months. And in fact, I would say the opposite is true. We've had some pretty wild swings in our product mix in our business, a lot of challenges to deal with. And if we look at how we've ended up, I'm really pretty pleased with the performance in the year. Our high performance product sales were up 13% and now represent 36% of group revenue.

9:13 The polyolefin foam sales ended pretty similar to last year in in markets that have aviation, automotive, industrial that were well down on the previous year was supplemented by creating a market for PPE, protective equipment, which filled that gap and that led us to a broader neutral result in polyolefin sales for the year. Our new cell extrusion business was hit hard. We sell equipment as well as get licensing fees, and the equipment sales dried up completely as they are more or less a discretionary item for a lot of our customers. And certainly, our staff weren't able to travel and promote our business and help our customers, you know, embed equipment in their processes.

10:08 So the COVID restrictions really really hurt NewSell in the year. With all these things going on, we actually delivered a a record six month period in the second half and overcame a fairly tough large decline in sales in the first half to to get back to that 2% growth in the year. I think, year end debt ratio was similar to to last year, about 2.1 times earnings, EBITDA, down from 2.6 at mid year, which is which is a really good performance. During the year, we didn't raise equity.

10:54 We took some government support, which was fully repaid fairly quickly in the second half. We did suspend our final dividend last year in the peak of the uncertainty of COVID, but brought back an interim dividend and have an increased final dividend compared to the last time we paid one this year. And I think ended up in in quite a a good position in a very difficult year. The story of the year is illustrated by the chart you see in front of you. Revenue by business unit, the top right, We've talked about it in the previous slide. But on the left hand side, what we see is revenue by geography with the rest of the world and The UK substantially higher proportions of our group revenue than they were in 2019.

11:49 And the rest of the world predominantly driven by growth in footwear, and The UK growth predominantly driven by the PPE sales. The hardest hit area was Continental Europe, which is predominantly a ZOTE business and quite a marked fall there. And if we look below that revenue by industry, we can see the same picture, sports and leisure well up, product protection which includes a lot of material industrial applications predominantly nasal well down, and medical PPE, well up, and transportation, which is aviation and automotive, and a little bit of railway, again, well down. So real swings and roundabouts in the year, difficult to manage both geographically and product mix through through the plan.

12:49 We've had to reallocate resources frequently and reprioritize frequently during the year. We managed to get through the year not not making any redundancies. We actually increased our our head count towards the end of the year to deal with the record second half. And we started 2021 in pretty good shape. So before I talk about that in much more detail, I'm going to pass over to Gary to cover the financial slides.

13:23 Thanks, David. So as David mentioned, group revenue was up 2% in the year to 82.7 percent. And indeed, H1 revenues were knocked severely by COVID, and they came in at CHF 34,600,000 as reported in June. That CHF 34,600,000 was 18% down on 2019. But the second half was $48,300,000 and that was 25% up on the equivalent previous period. That revenue translated into gross profit of $27,800,000 which was $800,000 down on December on 2019 and translated into a gross profit margin of 33.6, which was 180 basis points behind the previous year.

14:12 So that was a mix of a number of items, some of them positive but offset by more negative. On the positive side, footwear sales were up and they have an average price that is superior to the group's average sales price, so that certainly benefited as did lower raw material costs through the year, and they actually reached the lowest point in about Q3 last year. In addition, and we've mentioned this on a number of our trading statements, we were able to flex our manufacturing costs quite successfully. We do we do bring in some degree of indirectness to the direct labor labor cost because we use agency staff to help flex and deal with ups and downs as well as overtime.

15:04 And obviously, during h one when an activity was much lower, we were able to reduce that cost quite noticeably. Offsetting those benefits to group to to market profit margin were firstly, the fact that we had the ZOTE volumes. We actually increased ZOTE volumes in 2020 by 7% versus 2019. But much of that was driven by a big element of that was the PPE contracts and that, although the volume is very high, came in at a sales price, which was below the average price for the group. So consequently, had a negative impact on margin. In addition, lower ZOTEFOAMS PLC, aviation, David mentioned 54 down in aviation in the ZOTEFOAMS business, and that is one of our highest margin businesses and consequently also depressive with margin.

15:59 And finally, 2020 saw the full operation of our UK investments. We'd invested through 'eighteen and 'nineteen in low in high temperature, low pressure vessels in The UK to help service the HPP growth, and they were on full. And we also had the full year impact of the second high pressure vessel from The U. S, consequence of which was an additional GBP 1,000,000 to depreciation. Adjusted profit operating profit was in line with 2019 at £9,400,000 Just a reminder, we adjust for the amortization of acquired intangibles, and it's not a particularly large number. In 2020, it was £260,000 And in 2019, it was GBP 280,000.

16:47 With that adjustment, like I say, the adjusted the operating profit was in line at GBP 9.4. And the reason that we're able to play catch up there from the gross profit position was was s g and a and fundamentally distribution costs where we have our sales, our our travel costs to the sales teams, our marketing expenditure primarily, which obviously was was was severely impacted by by COVID. In addition, where and it's applied across the range of s g and a where we where people left us, we made very clear decisions as to whether that was the right time to replace or whether we should hold off for a while. So consequently so that was the distribution cost. On the administrative side, actual admin cost actually increased if you ignore its effects just for the time being.

17:38 Admin cost actually increased by about 1,500,000, and that was almost entirely the net impact of of the hirings of previous of the previous year having a full twelve month impact. But offsetting that was FX. We had a a fairly neutral FX year in 2020, not that the the the currencies moved up and down, but over the average, they were fairly consistent. But the previous year had seen us take a 1,200,000 charge to that admin line. Consequently, that not happening offset the increase so that admin was actually neutral. But nevertheless, distribution, sales costs, etcetera, helped keep operating profit in line with the previous year. Adjusted profit before tax was down 400,000. That difference is entirely due to finance charges.

18:26 In 2020, that charge increased to £900,000 from the previous charge in 2019 of 500,000. However, on top of that finance charges is our finance related charges that you don't see in the P and L that capitalized in relation to the capacity expansion projects. And in 2020, that was entirely related to Poland with everything else being on stream by then. The tax charge, £1,100,000 or or effective tax rate of 13.7, which is below last year and below the the the corporate tax rate for The UK. We're generally below the corporate tax rate because of our r and d credits that we're able to claim annually.

19:11 However, in this in 2020, we also had the the benefit of over of of booking overpayments from previous years. So that has a one off impact we would expect to return to more normalized levels in the future. Adjusted EPS was in line with last year, as David mentioned, at 15.33p. And final dividend, we didn't we suspended the dividend last year. Obviously, this time last year, we will know where we were. That was a prudent decision to make. We took that. We did, however, reinstate dividends back in October for the interim, having repaid the very small amount of furlough monies and other government support that we've received, we're now continuing with that. And the 4.27% represents a 3% increase on the last paid dividend, which was for the 2018 financial year.

20:07 And just a reminder, really, we make reference to before exceptional items here, and we didn't have one in 2020, but we did have one in 2019. And that was pension related, and that was in relation to a credit that we received in relation to successful a successful claim against our former advisers to the defined benefit pension scheme. And that's in relation to the fact that the linkage to future increase in salary had not been broken. So back in 2001, we closed the scheme to future employees. And in 2005, we shut it to future accrual of service and salary. We we we discovered that indeed the future accrual of service had been broken, but the link to the salary had not, and we were able to to successfully claim 1,050,000 as a consequence.

20:56 Moving on to to the statement of cash flows and and and debt liquidity position. David made reference to it where our net our our net debt under bank definitions is 34.2, which was down slightly from the half year, but up against previous year as we expected. Why bank definitions? That's the number that we use to calculate bank covenants. What it does is probably only about a million off IFRS version it relates and what we take out is the is IFRS two, which is stock options and IFRS 16, which is finance leases for which we have relatively few. So the net debt to EBITDA ratio, 2.1, down from 2.6 at the half year, but it was 2.0 this time last year, very comfortably below the bank covenant of three.

21:49 And liquidity has remained pretty constant throughout the whole year. I think we started the year with 20. We had 19 at the half year, and we've ended that we ended sorry. Started at 2019, we had 20 at the half year, and we were back at $20.19 for the end of the year. In terms of cash in terms of performance, we are a cash generative business, and cash generated from operations was up 10% to 13,000,000. And that's very much driven by effective cash management, cost management factors that I've explained previously when discussing the p and l. Working capital was well managed through the year.

22:36 I think receivables, particularly I'm particularly happy about. And I think the very fact that in a very difficult year, we actually reduced our receivables is is a sign of the the strength of the business and the importance that our that that our product is to our customers and therefore the importance of them paying to make sure that they that we continue to work together. In addition, we had quite a lot of focus on it in my team in terms of recovery of of of debts and so on. And indeed, for the last six months of the year, we averaged about half a percent of of over dues, which which was a quite considerable achievement. Offsetting offsetting the receivables is inventory, and that both inventory and payables actually reflect the 2021 expectation.

23:21 So consequently, we you know, it was a fairly we we we when we started last year, you know, we we had a q four twenty nineteen, which was pretty difficult, so activity wasn't extreme. But as we've entered q one twenty twenty one, we there's a lot of lot of activity going on, so it's important to to make sure that the high performance product, raw materials were in place. And also, of course, Brexit uncertainty, we just make sure that in certain areas, had the contingency there, particularly in our in our AZO business, which all comes from Europe to make sure that sure that we weren't cut short caught short in the first weeks of the year. And finally, capital expenditure down from a historic level in last year of $25,000,000 where we had a number of expansion programs underway.

24:11 By 2020, we were down to just Poland.

24:14 We had we we spent 7,000,000,000 of the of the 13 on Poland. An element of the rest had already been committed to by the beginning of the year and certainly by the time we hit March and and and the pandemic spread. So after that, it was very, very little, and we we we took quite considerable action there to manage our our cost position. And Poland plant is now operational since since February this year. With that, I'll pass back to David. K. On to the business review. I'll run through these fairly quickly.

24:55 Overall, we saw the subdued demand at the back of 2019 continue into the first part of twenty twenty, and then we're hit by COVID. So it's been a year where demand's been all over the place. As I said, we have really reorganized and realigned our business around the areas where we could see growth and new opportunities, market share, etcetera. So the traditional markets of industrial, automotive, aviation, marine, all dying by by more than 30%.

25:36 PPE, footwear, teeth installation saw growth, and, you know, the shape of the business changed quite a bit in the year. If I look specifically at polyolefins in Azul, even though the segment revenue was at similar levels, our profit, has declined in the year as we've been carrying more costs in the year and some of our premium azole business such as aviation declined, as well. But the main reason is we have built capacity at a time that's coming on stream at a time when the markets are depressed. So having that underutilized capacity in asset gives us a heavier overhead burden than we would normally have expected.

26:24 And because ZOTE takes up the bulk of our capacity, it gets burdened with the bulk of the overhead in the business. So we've seen that margin shift. We did see slightly lower polymer prices in 2020 than in the previous year. That helped a bit. And, I think, as we, mentioned before, the key to margin enhancement in this business is number one, asset utilization. So that is our primary goal in the short to medium term is to get the asset utilization up and that would ultimately drive these margins.

27:10 Although, as Gary said, we have got COVID coming on in 2020 and that will give us some non cash depreciation costs in there and also some operating costs of a plant that's currently running at one shift and and won't move to two shifts until later in the year. Our high performance products is a range of different materials, but predominantly it's footwear and aviation with some technical insulation and T fit. First half, we actually saw a decline because of the aviation business of 7% with a 32% growth in the second half. And the margins on this, as you can see, very much higher than the AZOTE business.

27:59 Takes up disproportionately less capacity, but the reality is that these are higher priced, more technical materials and capable of generating higher margins and higher growth rates. Footwear has grown from 16% of group sales to 26% of group sales in the, you know, the from 2019 to 2020. So it's been a very significant success and a very significant driver of our our business growth and margins in that period. Fluoropolymer sales, as we've said before, substantially linked to aviation and that is a market where, you know, demand is just very low at the moment.

28:45 I'll talk about the future when we come on a bit later. And TFEIF is our insulation product which is sold into biotech, clean room, food processing, all of which generally are the areas which are, you know, unaffected or not hugely affected by by COVID in terms of demand from the markets. And that's what we saw in in China. We saw a 60% increase there because the Chinese market was operating as normal and they're building factories. Whereas in Europe, even though the demand for the products are there, they've not been building the facilities because they couldn't complete them due to COVID. So a lot of postponed capital expenditure there leading that market to decline by about 40% and there's been some destocking through the supply chain in that as well.

29:37 Whereas India, which we'd expected to to grow quite healthily and and has got very big potential for these products, was relatively flat caused mainly by good demand, underlying demand, but inability of people to get projects moving again because of COVID delays. The margin here, even though it's much better than the nasal and has improved, has still got potentially some way to go. The reason for that being that we have early stage products in our HPP portfolio, are, of course, costing us money and not contributing yet to the revenue line. So that's a portfolio margin and as the portfolio matures, we have the opportunity to to grow that subject to the overhead allocation of the business.

30:35 I just I just had a couple a question from Simon c, which is specifically relevant to to that comment. I'll just pick up right now. It's saying what you see is the addressable market for t fit, and where is it being used, and and footwear visibility. So I'll start with footwear. We have an exclusive deal with Nike. We work very, very closely with them on their priorities for the upcoming two or three years. So we've got pretty good visibility going forward. Nike themselves obviously are forecasting how many shoes they would they would sell of which particular model, and so it's not a precise number. But, certainly, they've been pretty good in the past at giving us reasonable estimates of where our demand's gonna gonna come.

31:27 And, I think we see 2,021 as a continuation of the second half of twenty twenty. So that footwear demand year on year should show a nice positive growth story. As far as t T fit, we are targeting things like biotech, pharma, food processing. And if you look, you know, over the press releases and annual reports from ZOTEFOAMS, you'll see they've been used in Coca Cola juice processing, Pfizer, you know, people like that, as well as semiconductor processing. So we are an expensive solution.

32:13 I make no apology for that because we're the best solution on the market, we think, and the the people buying it obviously think so. But it does take quite a bit of education with the end users about how the whole life cost benefit analysis can be done. And, the types of people that we're engaging with are people who are who are building facilities like the the construction contractors. Sometimes it's the it's the operator themselves. It's the it's the Pfizer or or or the Glaxo. And sometimes it's the insulation contractors who are recommending how to insulate pipes in in the clean room environment. So we have seen a good demand pipeline from, for example, in China vaccine development, they're talking to us because we want to get up and running quickly.

33:05 And in China, they're talking about building an entire vaccine plant in twelve weeks. I don't think we would get the planning permission to do it in in '24, thirty six weeks, and they remain to build a factory, but that's what they're talking about. And our insulation solution is very conducive to quick working as well as as effectiveness. So, you know but ultimately, we want to drive the business into the food and beverage market because it's such a big, big market compared with the clean room market. So that's something that we're working on as we as we go. Moving on to to Museo. As I explained earlier, Museo revenue come from equipment and licensing.

33:53 Equipment is down because it's difficult to to get out to the customers. Licensing broadly stable and with the lack of travel, the operating result has been the same. Musel, I I think over the years has been a little bit of a frustration because there's been a lot of potential there and it's never quite caught in the market. And although a lot of people are interested in it, it does seem to be, for many people, a discretionary idea or a discretionary spend to try to put equipment in to reduce their plastic content because of the way the market's structured and and the expectation that those savings will be passed on to their customers.

34:46 So in some cases, it's been extremely successful and we are seeing large licensees

34:53 still interested in resell and some of the licenses we signed are starting to, you know, get reach higher levels of of license royalty payable, etcetera. But one of the things that we have done over the past eighteen months or so is to kind of move more of our focus on resource of new self across our resource technology. I'll talk about that. I've got a specific slide on that later, so I'll leave that until then. But that's extremely interesting prospect. So in terms of strategic progress, cover three things. One is just the markets we're in, where do we see the growth coming from.

35:40 Well, with the Poland plant now committed the Poland plant now finished, but ends the kind of capacity enhancement commitment. That plant is well placed to serve, particularly, the Aesop market in Central and and the German region of Europe. And as the HPP business, footwear, etcetera, grows, that uses the capacity in a UK facility. And as that capacity use is used up, we will increasingly serve the markets in Germany, etcetera, from our Poland facility. Footwear is now 26%, as I said, of group revenue. We can see that increasing going forward.

36:28 The footwear sales, I would hope that the rest of the business would would grow significantly as well. So we wouldn't necessarily see the percentage increasing, but certainly the absolute value of footwear It's been a very successful collaboration with Nike. And as I said, we are deep in with them on their priorities for sustainability, innovation, and cost and efficiency. Through 2020, we did prioritize development on certain areas that were more longer term in nature, aviation, automotive in particular, e vehicles. And although we don't see those really generating huge benefits in 2021, there's an awful lot of activity right now as, basically, the aviation automotive guys have cut back on their development for, the duration of COVID, and they're now playing catch up with, some fairly tight deadlines and and fairly big projects to deliver.

37:34 So I think we did the right thing. I think we're well placed there, but that's not something necessarily that's going to show through in 2021 and more like a 2022 type impact there. We have, again, looking at sustainability, developed recycled forms with internal process scrap and polyolefin, and we're looking to extend that to some of our HPP products. And I've talked about the the ground transportation, e vehicles, trains, etcetera. Again, an awful lot of work being done, and it it feels like this is a good opportunity set for our lightweight and high performance materials, particularly around fire and temperature performance.

38:25 And we've invested quite a lot to develop resource. I've got a slide on that, so I'll come to that in a minute. In terms of capacity, the major capacity investments are are now complete and you can see a picture of the pooling facility top right there. And we are putting a pilot line in for a resource development in Massachusetts in USA. And that specific pilot line is linked to downstream evaluation for beverage cartons, so the likes of apple juice, you know, kind of brick cartons. Resource is in in this, design, the first fully recyclable beverage carton.

39:22 If you buy apple juice, orange juice or whatever, these types of cartons, they're made primarily from approximately 70% wood pulp, virgin wood pulp, and the balance being plastic and aluminium often. And the combination of these materials gives great functionality. It stops oxygen and moisture spoiling the apple juice, for example. However, it means that they're not easily recyclable, and in fact in The UK they're not recycled. They are primarily incinerated or sent to landfill. And globally, that's also the case. It's very difficult to separate the pulp from the plastic from the aluminium.

40:10 And so you have to go to specialist recycling facilities which are pretty energy intensive and and the output tends to be a pellet which is used in construction applications like fence posts or whatever. So not truly recycled. Our product gives the performance and functionality using 20% of the energy, 10% of the water, and half of the global warming potential measured by c o two emissions. It's a 100% recyclable. It can be recycled back into itself and backed by our own IP. And we we've developed this using new cell technology to create bubbled layer structures in plastic, which makes it feel and perform like a paper that can be folded, printed, etcetera, but with the barrier properties comparable to the multi layer structure of aluminium in plastic and paper.

41:15 We are at the validation process, and it's extremely exciting, I would say. We've involved external consultants. They've been with us in in many of the steps along the way, and we have contacted a large number of potential customers who, I think, out of the 50 first 50 people we contacted with brands, retailers, etcetera, there was only one that wasn't immediately interested and that some of them want to work with us on pilot stage. We're still at the stage for ourselves of of validating this, but it is a very interesting development in a market where our sustainability is key. Consumers, brands, etcetera, are frustrated by the existing solutions, and, you know, it's a very big market.

42:07 You know, the leader in this market is Tetra Pak. Their sales for the last year are around €8,000,000,000 just of the the carton substrate. The the the the material to make the cartons. So it's something we're very excited about, but it's still still too early. It's still something we're putting money into, but this is where we are focusing the the new cell technology at the moment. So key messages, I think we've performed well. Capacity is commissioned. We've got good financial strength and good opportunity pipeline. We have started 2021 strongly.

42:55 There is a bit of inflationary pressure headwind. We are putting our prices up, with a little bit of a lag, to allow our customers to respond better and keep more gain more business, we believe. We do see significant growth this year and we are pretty optimistic about about the future. So given that, that's the end of the presentation and we would go to the questions. So, Mark Yeah. That's brilliant, David. Thank you very much indeed. Ladies and please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. But just while the company take a few moments to review the questions submitted already, I would like to remind you that a recording of this presentation along with a copy of the slides and the published Q and A can be accessed via your Investor Meet company dashboard, and we will send you an e mail to notify you when that's been completed.

43:53 I'd also like to remind you that your feedback is important to the company. And immediately after this presentation has ended, you will be redirected for David, Gary, obviously, investors had the ability to submit questions ahead of the event. We did receive one. Regarding the recent I guess, the recent large trade in the market that went through a week or so ago. Question reads, why did Sekisui sell its total shareholding in ZOTEFOAMS? Perhaps I could address that to you before going to the live Q and A. Yes. Thanks, Mark. Well, SECI SUI are a Japanese company who have firm operations across the globe and in 2000 had a relationship with ZOTEFOAMS in Europe and Asia.

44:43 Some marketing arrangement, critical marketing arrangement. And at that time, they took what was termed a friendly stake in ZOTEFOAMS. That was around the early two thousands. So they've they've held the stake for over fifteen years and that's been diluted a little bit with equity raises over the years. They've never been an active shareholder. They've never engaged with us on presentations like this or anything to do with being a shareholder. I'm surprised they kept the stake so long. I don't have any specific information as to why they sold at this time. Although, they are a Japanese public company with a March year end, I believe. So I would expect that along with many companies in industrial markets, they were impacted by COVID and felt that that cash would be better in their pockets than than sitting in ZOTEFOAMS shares.

45:38 That last part is my personal opinion. I have no no they they didn't engage with me on the reason for sale or or anything else. So but the the shareholders that come in all seem to be, you know, very interested in ZOTEFOAMS. Some of them have we've been meeting for for quite a long time. So I'm pleased that we've got the kind of liquidity in the market from from secretary leaving, but I haven't got any particular pluses or minuses to say about them as a shareholder. They've been very silent for fifteen plus years. Brilliant. Thank you very much indeed, David. If I could just ask you, David, Gary, if you just click on the, the questions tab, obviously, you'll see the questions in in the box. If I could ask you to read out the question and who it's from and where appropriate, obviously, give a a response, and then I'll pick up at the end.

46:33 Okay. Do you want to dive in, guys? There's a few in finance and inventory. Yeah. Yeah. Certainly. I think I've probably answered most of these, but just run through them. Inventory has changed a great year in the set of results. Is this about storing the greater amounts that should be delivered following the year end? Can you explain the change changes to depreciation? So energy, I think I explained that. Yeah. I think somebody else spotted that or asked the same question as I'm covering two here. Up four and a half million, I I explained why. It's also important to to recognize that, you know, our our strategy is about mix enrichment moving more towards moving more towards the the higher value HPP products. We get a we get higher prices for those, but they are they come at a higher cost. So as we as we as we grow the business, we will naturally have a higher volume of the product and and though higher value and volume. And volume is also linked not only to the fact that we're selling more, but but to the fact that they are made less frequently.

47:37 Our our raw material for raw for azo, for polyolefin foams is a commodity. It is a special specialty polymer when it comes to HPP, they are not made all the time. So we have to take care to ensure that we have sufficient safety stock to ensure that we can meet the the the demands of blue chip customers such as Nike and and Boeing. So yes, it's going up. Can you explain the changes to changes to depreciation? I I think I did that right. That's a million up, and it's very much related to the to the commissioning of assets. Primarily, this year, in twenty twenty's accounts, it was primarily related to The UK asset and the second line in The US, as well as the fact that the The UK plant is an older plant, and so many assets are fully depreciated as we replace them.

48:34 But, you know, as a natural part of our process, they suddenly start depreciating. Do you wanna take do wanna go network step by step, David, or should I try and cover anything finance first and then your preference? Yeah. Keep going. So if I I think you've covered two of the questions. Think I have done Matt g asked how did better days move in 2020. You probably it will probably work that one out themselves, but I've just done it, and they moved if you purely take set group group sales and look at the trade trade receivables, they moved from a 105 down to 98. There are whole reason bunch of reasons why they moved down and why the numbers what it is relates to mix and history and so on, that probably is a topic for another another occasion.

49:19 But they they went down by seven days. I think debtors and inventory were the only ones I can see finance related. Okay. I'll I'll pick up some of the other ones then. So first one from Simon c. What do see the market opportunity from NewSell? And from a technology viewpoint, are there any competing technologies as a barrier to adoption? I I think you sell this as a platform technology. So actually a resource technology, although I've explained the the application and the the sort of Tetra Pak carton, beverage carton. We are looking at that for everything from sort of crisp bags to pouches to sachets.

50:06 There's even been talk of things like toothpaste tubes, etcetera. All of which, you know, in in the various guys, you suffer from the difficulty in recycling because they are ultimately barrier technologies often metallized. So if you open a bag of crisps, you'll see kind of metallized inside to keep the crisps fresh, and and that means the plastic and the the metallization aren't compatible with recycling. So, you know, many things like that we are looking at. I wouldn't say there's any specific barriers to entry, but I think or or us entering the market other than a kind of market willingness to to pull the technology through.

50:53 And in that sense, you know, we are competing with other solutions. As far as I can see, most of the other solutions are are better than what's on the market today, but are not a complete solution. They're not an end. They're they're just an improvement. Whereas we offer something which is, you know, completely circular and therefore if if it was properly managed through recycling, you would just keep doing it and and keep recycling it. And so that's that's sort of nirvana that we can get there. So I I think we've got a a great product technology. We have IP. We have patents, etcetera, filed around this.

51:39 But I think the barriers, you know, there's so many things you have to do with food packaging technology, testing, etcetera, that this is not something that can happen overnight. So we are going through a fairly robust and and then structured process with what we believe are the highest priority opportunities on this, but it will take a while. So I'm out I'm out of that from Simon answer. Question from David c. He said, over lunch in York, around three years ago, you showed me a prototype tree, fairly translucent that potentially provided you with a more environmentally friendly alternative to ready new microwave tree.

52:27 That was actually something which used new cell technology. It is something where we had some interest, but again, I think the market for that wasn't it didn't pull it sufficiently strongly enough. We have got some interest now with our resource material for for tree type applications. So that's something that's progressing, and I think we are in a good place for that. I'm not sure once we do the initial trials with this customer whether it'll meet the the top level priority list. But, again, it's it's, back to, you know, being something which is definitely better than than a lot of the things on the market just now.

53:20 Most or many microwave trays don't need to be barrier technology because they're frozen meals. And so we perform particularly well when there's a barrier technology needed. That's where our our value is strongest. So it depends exactly on the market for that. But and and, no, unfortunately, I'm not, at this point, able to provide any any customer names. But as we progress through and we go to trials, I I think we have got some people who do want to be associated with this because they see their brand being associated with sustainability and want to be at the the leading edge of of this type of technology. And so I think if we get to late stage trials, we will be releasing some brand names, and I'm pretty sure you'll recognize them.

54:12 So question from George L. Is it possible to form bio based plastics? The simple answer is yes. They would form very similarly to the existing polymers that we form. All of our market studies tell us that there is not really a market for this. They don't want to pay a premium and a quite a deal of skepticism around bio based because most bio based polymers are coming at the moment from land which can be used to grow food for for human consumption. So there's a bit of a trade off there and the industry is not quite sure. The biopolymers are more expensive as well, so it would be a premium in the market. And the research at the moment is is pretty mixed on on whether that's something that's sensible to do from a commercial perspective.

55:18 A question from Simon c. Can you talk about any products in HPP development pipeline? Understand if not, but given these could be the next Nike, it'd be good to understand what opportunities there are and the size of the potential. And I think I have a similar question for from Mike l. What future do you see for Nile and Foam? I'll take both of those at the same time. We have got so so distinguished between products and applications. Products, we have got nylon in there. We have got the the Nike type material TPE, which is being looked up for industrial applications just now, and a lot in in automotive.

56:06 So in terms of the the the the scale, we've been pushing Nile in opportunities for a while now with with not much success, unfortunately. And I would say there's been more action with Nile in in the last six months in COVID than there has been in in the past six years. We are very close to some 6 figure programs with Nylon. Our operations guys have been told to get ready to ramp up. 6 figures, you know, is is not really a game changer for us at this point, but the the types of applications they are would imply that if they're successful, they would be very good case studies for for other similar things, mainly in automotive at the moment. And same with TPE, a lot of opportunities in in automotive for something which is a good energy damping, higher temperature material performs better than is thermoformable unlike a rubber which can't really be shaped.

57:18 So those are the types of things we're looking at. A good number of them around e vehicles and battery technology as well. Battery technology in particular where they are looking for fire return properties in their installation. The aircraft grades of fluoropolymer foams are are also interesting. And then finally, we are looking within our fluoropolymer foams at heavier density, believe it or not. So semi structural foams for aviation and also at the much lighter density and we've got some longer term R and D projects and they are looking at things like aviation installation.

58:10 So mark those as red. I'll move on to AT, when will you be off exclusivity with Nike? I can't tell you that, but I can tell you I don't want to be. I think the Nike relationship is excellent. Exclusivity allows us kind of unfettered access to Nike in a way that, you know, we they know that we can only supply to them, so we're completely aligned with them. And it also means that they know that they can put the marketing dollars behind the products made by ZOTEFOAMS, and no one else can have those products. So they've been very heavily promoted by Nike. And I think if we were not exclusive with Nike, we wouldn't get the access to to the people in the same way. We wouldn't work collaboratively in the same way, and they wouldn't promote the forms as heavily.

59:05 So I'm very pleased that that the exclusivity is there, and that's kind of what we we we structure how how we structured it going into the agreement believing that was the right thing. And I think, actually, we made the right decision there. Okay. Next one from Simon c. What's a realistic timeline for resource to go from validation to sales? We actually have one licensee who is looking to move into sales in this carton market later this year, but it would be very small volumes initially.

59:53 We have someone else who's licensing technology in sheet form who is also in sales and that's in in North America. But as far as the wider carton market, it's probably if we took Europe, for example, it's probably late next year would be the the earliest that we would expect to see anything from that. But the market is huge. So PetroPact, the biggest, are are 8,000,000,000 and, you know, there's there's a fairly big market there with with a lot of demand hungry demand pool. So I I think I I would expect that the validation needs to be done properly. This is this is high visibility, high risk for brands and retailers to get wrong, and we need to make sure this is done absolutely properly. We can't go in half cocked on this because it it it wouldn't work.

1:01:02 Okay. Next question is from Glenn b. What percentage capacity increase can you achieve from Poland without the foreign major investment? The investment we've done in Poland is extrusion and and forming, and it's it's part of a global capacity balancing act because we we've got different stages of capacity in different places around the world, it's not all completely balanced. But if I answer it with that sort of background caveat, it's about 20% increase, predominantly for ease of products, take full investment. Next question. In the next decade from Neil W next decade, there's a UK news towards a net zero future.

1:01:57 All energy intensive industries will need to reduce reliance on fossil fuels and build circularity into your cross linked products. What are your plans? Well, so there's a couple of questions in in there. Firstly, I guess, around cross linked forms and and, you know, the ability to melt, reprocess, or recycle those. Typically, it's quite technical area, but our foams are lighter density and use less material than competitors. So if you look at a non cross linked foam, they would use twice as much polymer as a cross linked foam to get to a similar performance.

1:02:44 And I think one of the things that we are, you know, promoting is using less material to start with. You know, once it's out there, we have a number of routes for recycling, and we're working with some people in the market. In fact, all all the scrap from our customers is a there are people who buy it, they're they're they're selling it, and it's been recycled into products as we speak. So, you know, the the the forms themselves are are recycled. Although they're not typically recycled back through our our own process, And there are a couple of reasons from that, mostly around the quality of the recycling.

1:03:34 But as the industry, the chemicals industry develops, there's a lot of companies looking at chemical recycling. So they take forms and chemically recycle them into equivalent virgin forms without coming from oil. So that's that's a segment. We just realized in fossil fuels is is difficult, to be honest, for for ZOTEFOAMS. We can obviously, you know, move as much as possible to green energy. In fact, all the energy we buy now is certified renewable. The the electricity we buy is certified renewable. But I think we also look at the other side of the equation, which is how much energy does the foam save, you know, in use as an installation material or light weighting of a vehicle.

1:04:33 You know, that's that's an important part of the equation. So again, we are adopting the the TCFD disclosure framework and sustainability, and, we're starting to work with a lot of our customers to look at, you know, the benefits of our materials versus other materials and further downstream and make sure all the information is available for the supply chain to make the right choices about what materials they want. David, sorry to jump in, but I think you've actually taken every question that's been submitted by investors during Obviously, the you're mindful of time, and I know you've got a series of investor meetings today. So perhaps before I redirect investors to provide you their thoughts and expectations, I could ask you for a few words to wrap up with.

1:05:22 Yeah. Well, just thank you for joining. You know, we've got a lot going on. Keep keep your eye on the ZOTEFOAMS website. Sign up for notifications. And, hopefully, we make progress on some of the opportunities or resource, etcetera, you know, we will let you know progress as it happens. Thank you. Thanks ever so much, David. Ladies and gentlemen, please could I ask you not to close this session as you'll now be automatically redirected for the opportunity to provide your feedback. If you access this meeting from our website, the feedback page will appear. But if you access this via the meeting this meeting via the link sent to you by email, you'll be asked just to log back in to provide your feedback.

1:06:07 On behalf of the management team at ZOTEFOAMS, I'd like to thank you very much for attending today's presentation. That now concludes today's session. Good afternoon to you all.