Zotefoams (LSE:ZTF) — Interim Results

0:01 Good afternoon, ladies and gentlemen. Welcome to the ZOTEFOAMS PLC Interim Results Investor Presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged. They can be submitted at any time using the Q and A tab. Just situated on the right hand corner of your screen, simply type in your questions at any time and press send. Given the attendance on today's call, the company may not be in a position to answer every question it receives during the meeting itself. However, the company can review your questions submitted today, we'll publish those responses on the Investor Meet company platform. Before we begin, we'd like to submit the following poll. And if you could give that your kind attention, I'm sure the company would

0:32 be most grateful. I'd now like to hand over to the team from ZOTEFOAMS, Gary Ronen. Good afternoon. Thank you, Mark, and good afternoon, everyone, and welcome to the h one twenty twenty four interim update result folks. I'll make it straight into the deck. I'll take the important information as read. Okay. So h one performance. A record performance in both revenue and profit. Group revenue up 10% to 71,100,000. That was a profit before tax to a record of 8,300,000, so 12%. And net of the investment in resource, a driving a record profit of 10,500,000. Gross margin, so improvement of a 40 basis points to 33.2%.

1:23 The real engine for for growth in in h one has very much been high performance products, and and within that, the footwear business with Nike, and that grew by 37% to 36,100,000. I'll go into into quite a bit more detail on the drivers behind that later in the presentation. In terms of the the the key highlights, the the footwear business, as I as I said, is a is a real engine for growth, so a continued strong performance with that partnership with with Nike. And there are a number of of factors around that. So so some particularly supporting tailwinds around, one, the the Olympic year, which always sees an uptick in in demand for running shoes.

2:15 Two, a supply chain reassortment with within within Nike, which seen quite a few volumes moving from Chinese manufacturing to to to Vietnamese tier ones, and then building inventory as as that shifted. And then three, around the the Red Sea blockages and and and delays, which we saw some of the supply chain for building up inventories around that. So, you know, significant tailwinds that that have helped, and we would expect that demand to moderate somewhat as we go through h two and and beyond. We started our investments in in North America, and that's an investment on growth. It will also support operational efficiency. This is essentially bringing in a new low pressure autoclave, which will allow us then to retire some older equipment that are is less efficient. So this is gonna have a a dual impact of helping us increase volume, but also to to greatly improve operational efficiency.

3:20 And we see that coming on track in 2025, but but ground has been broken this year to allow space for that, and that project is is well underway. And then we have the resource circular packaging business. So significant progress here. We had a media event in May where we were able to announce Refresco as our joint development partner. They have been working with us since back in 2023. And this year, in in May, they felt suitably confident about the about our progress in this to break cover and and actually stands shoulder to shoulder with us announcing that they're they're working are working in detail with us in their facilities in Spain to to continue the development of this product and to to bring it to trial to to then bring it bring it to to to market.

4:12 And we're right now looking for a strategic investment partner in this business, but, again, I'll I'll go into more detail on that in the during the course of the presentation. And then the Shinseo Global Alliance, an alliance that's centered on on sharing technical capabilities, really for us to to to learn some of the new technologies that that they have developed and bring that into our manufacturing portfolio. But also, there's a commercial collaboration around the the global alliance where we will work with for them to access markets where they've not previously been able to penetrate it, and also us buying some products that they have developed that we would not necessarily love to manufacture ourselves. So so, you know, a really exciting alliance that that we've formed with with Shinsel.

5:04 Going into the to the segment performance, what we'll note here is that the high performance products for the first time, at least, as I can see in the history of ZOTEFOAMS, our revenues exceeded those of the polyolefin foams. So revenue at 36,100,000 versus the 34,400,000 in in polyolefin foams. Very strong margins in in high performance products, a less a a significantly lower margins in polyolefin foams, and that that comes from the mix of products that we manufacture there. I'd say there's there's two parts to this that I'd stress. One is the work that's been done in EMEA on mix enrichment, which continues to be successful at improving gross margins there.

5:49 In North America, there's certainly an opportunity for improvement, and this ties in with the l p two investment that that I mentioned in the in the earlier slide. So so that investment around retiring old assets,

6:02 bringing in modern assets that will improve productivity, improve gross margins, and also improve overall yield and and and output. I touched on the the strong footwear sales, you know, really, really strong at 40% growth. As I said, there are those tailwinds that we need to bear in mind there. And then decent growth around the the smaller sectors of a of ZOTEFOAMS and ZOTEFOAMS. ZOTEFOAMS being the aviation oriented product, albeit those sales are are always relatively low in h one, and and they are coming off of a relatively low base in h one in 2023. Sort of delve into into a little bit more detail on on the on the three areas. First, in in high performance products, as I said, footwear really dominates this part of the business.

6:53 And the the the partnership that we have with with Nike has has really seen us drive that those sales in in h one. As I said, those tailwinds do need to be noted, and I would imagine that that will will moderate as we go through h two and and beyond. As those three peculiar or those particular elements subside in terms of influence in in demand. I've mentioned T FIT growing significantly at 23%, albeit off of that low base. And and then we've also got the significance of of a new agreement with a design blue, which is focused on our our nylon products. So high grade foamed nylon products that they are using in a body protection.

7:39 And as I said, I'd also mentioned around shin cell technology development, allowing us to to access that technology, which also drives a lot of flexibility and adaptability about our manufacturing processes and gives us optionality in terms of modular manufacturing that could allow us to to to install facilities closer to some of our customers. So so giving us access to that modular manufacturing capability. We look at the polyolefin bones. As I said, the the mix enrichment continues with progress in in in EMEA. US, we could do better. That that low pressure vessel, I stress, being very important in terms of the op driving the operational efficiencies there in in 2025.

8:28 So it's a good progress on that self help project. Overall drivers of of inflation in this area, which has been a significant factor in recent years, we've seen the low density polyethylene prices come back actually below the long term the long term running averages. So so well off the the the peaks that we saw a couple of years ago. And we've seen relative stability around energy prices, and the the only significant sort of inflationary pressure that we see is around labor these days. And then we come on to to to to resorts. As I highlighted, a big key event in terms of May 24 with the announcement of Refresco as our partner.

9:14 At that event, Befa were also shoulder to shoulder with us, talking to to the industry and and the wider interest groups around circular packaging as to as to why they support this development. And, you know, this is a a model material. It's a it's a disruptive carton that that we are producing that is 100% recyclable and indeed can be manufactured with a with a high degree of recycled content. In h one, we invested about 2,200,000 in in operating costs, and then we had 2,600,000 of capitalized investment. Some of that in equipment, I think it's about 800,000, and then other portions of that of of activities that have been capitalized as per accounting accounting rules.

10:01 As we head into h two, critical moments for us are around both sterility and endurance testing, which is which is sort of milestone number one, really, really key. And then following that, it it's moving to to market trials. I've been engaging with with Refresco, our development partner here, and, you know, they're super excited about the sort of progress that we've made in this innovative packaging. The the interesting thing is that they try to they try to get us to to understand the the the complexities of making refinements around packaging to to get it to manufacture at scale. So they they complement us, so ZOTEFOAMS and the resource team with the with the very bold timelines that we that we lay down for for things like endurance testing, sterility testing, and market testing.

10:55 And they're they're there side by side with us, giving this the access to their facilities in in Spain to allow us to continue the development around that. But we are setting ourselves to ambitious sort of timelines around that. We have to also understand that this is an iterative process. This is a disruptive, new, innovative technology, and and it will continue more refinements, but but what I would say what I would really stress today is that, you know, all hands are on deck. We've got an amazing group of talented people that are focused on this, working with our partners at at Refresco, working with with the people at And and also with with some guidance as well from people that are that are gonna be net beneficiaries of modern materials, the likes of Bifa, who are hugely supportive and want to see this technology getting adopted because it really helps address a significant issue in terms of recyclability in in this in this market.

11:55 I'm just gonna head out hand over to to Gary who's going to bring us through through some more details on the finances. Gary, over to you. Thanks, Ronan. So start with key performance financials headlines. Ronan's already touched upon the group revenue record number $7,171,100,000, up 10% on the previous period last year. That actually includes a headwind of 1,800,000 on on FX. So that would have been 13% up on a on a constant currency basis. And as Ronan mentioned, it actually is the first time that we see HPP taking over as the as the the lead business unit with 34.4 36,100,000 of revenue against a $34.4.4 of polyolefin phones.

12:46 At the gross margin level, we're up 40 bps at 33.2%, which represents £2,400,000 on 6,400,000 of additional revenue. And that also, in turn, has a 1,100,000 FX headwind in the period. Operating profit of 9.7 is up 14% on on last year's 80 8.5. If you actually break down that 9.7 or or the the increase, 1,200,000. 1,400,000 is the phones business up, which represents 1313% increase. And we've and then we've increased the the investment in New Cell from 2,000,000 last year to 2,200,000. So that's actually the loss is up 10%.

13:33 Profit before tax. So so after after the interest charge is at 8,300,000. I'll talk about some of more details in the next slide. Up 12% on on the previous on the previous period. And and that also includes a FX loss of 300,000, whereas in the previous periods, the 7.4 included a 1,100,000 gain. EPS is up 12%, similar to PBT growth, 12.889 p. And the interim dividend is up 4.4% at 2.38 p. If I move into the next slide, which is a little bit more detail, I mentioned revenue have covered gross profit up 2.4, as I mentioned. That's obviously increased sales with a slight increase in margin.

14:22 We're investing in cost. We've obviously got the labor cost inflation impacts. And that, together with also investment in our Polish and U. S. Operations, takes us to that 2,400,000 increase in profit. SG and A is up 9%. It's actually up a bit more. The within here, we put our hedging movements. And last year, we actually had a hedging hedging gain, whereas this year, we had a hedging loss. In both cases, 500,000, so it's actually a million swing. And so the eight and the additional increase really is down to increased marketing costs, increased labor costs, pay rise pay rises, additional people, and board changes. We've been lucky enough to have almost effectively two CEOs for a period.

15:12 Operating profit, as as as I said before, was 4040% up at 9.7, and then and you can see 50 bps increase in the operating profit margin. Interest charge, really only related to to the the the you know, to to a an average, the higher debt level, and and when compared to the first six months of last year, higher interest rates. We draw down our debt entirely, not in sterling. We draw down it pretty much 50% in US and 50% in euro. Tax charge, we we're we're fairly we're fairly simplistic in our approach to tax. So you can see we're very close to The UK corporate tax charge of 25% coming at 24.2. Most jurisdictions we're jurisdictions we operate in are fairly similar.

16:00 We have we have operate we have a tax losses in The US, and we didn't generate a sufficient profit to make a big, big impact on that average rate in this period. I mentioned EPS and dividend, and I broke down that operating profit split previously. If we move from performance to balance sheet and capital allocation, EBITDA was 14,600,000, up 8%. We adjust our EBITDA IFRS two and sixteen. So that means we take out we ignore the share, the share incentive charge as well as finance lease related interest charges. That EBITDA was used to generate to to to invest in capital expenditure, up three x on the previous year at 8,100,000.

16:51 We talked about the projects, but I've got a slide coming up next that breaks that down a bit further. Working capital, the increase in the period was

16:59 5,900,000 compared to the increase in the previous comparative period of 6,500,000. I'll touch upon that in more detail on the next slide too. The final dividend was paid in June. We announced an annual report, so that's 2,400,000, up 6%. And that takes us to a net debt of GBP 35,100,000, excluding leases. I have a chart to show the waterfall on on net debt. There's a little bit of complexity now that our finance leases are are material versus what they have been in the past. So this is the excluding leases, and this is up 4,900,000 from 30.2 at the end of the year or beginning of this year to the 06/30/2024.

17:45 And leverage comfortably within covenants. Covenants 3.5 or 1.4. We know we know that, you know, we we know that two is starting to get, beyond certain people's or investor appetite. We're comfortably below there, and, it's just up a tad on the beginning of the year, which is what or last year. So a twelve month rolling, which is 1.2. If I move on to, like I said, let's break down a couple of the elements previously seen. Capital expenditure. We talked Rohan was talking about projects. Right? The resource project, the the the second low pressure vessel in The US and Shinsel. Together, they represent 65% of our h one capital spend of 8,100,000.

18:34 And consensus for the year is actually at 20,000,000. So you'd see that we're an uptick the spend in the second half, but very much still led by the resource and second LP, second low pressure vessel in the The US. If you move on to if we move on to net debt, as I said, that's a tricky picture. I hope this kind of helps explain it more clearly. Under accounting, using including finance leases under IFRS 16, Our net debt moved from the beginning of the year at 31.6 to the end of the period to forty forty four point six. That's a 30,000,000 increase. The 7,100,000 of that is the Shenzhou lease. That is a it's that that is a five year payment of of 80,000,000 RMB.

19:25 And what we effectively have to have to do under accounting is recognize the asset as a right of use asset in the top half of the balance sheet, which we are depreciating over ten years, as a liability in the bottom half of the balance sheet that we are recognizing as a liability and paying down over five years. And that is discounted because it's over a longer term period. If you exclude those, our net debt effectively, and that's that's the representation I showed in the previous slide or previous to previous slide, our net debt was 30.2 at the beginning of the period, and it rose 4.9 to 35.1 at the end of the period. That we we effectively have 14,600,000 of headroom, and that's the 1.4 leverage.

20:12 The that rate that increase in debt is driven by the free cash flow of of point eight, which is the EBITDA being used to invest in capital, working capital, pay off interest.

20:25 Then we have the dividend and the tax primarily driving that increase in debt. The my final slide is just a little bit more detail on the cash flow, and I've covered a number of them, but the one I obviously haven't covered yet was the working capital. And you can see there effectively increased activity in the business, higher revenues leads to increased receivables and indeed increased payables, which net to naught 800,000. There's no change in payment terms. There's no change there's certainly no no no changes in our recoverable recoverability of receivables, but the increase is impacted by just nature of mix as we've increased our footwear sales.

21:12 Those footwear sales are slightly longer term on the basis that the customers we supply to are based in China or Vietnam, and therefore have slightly longer payment terms than you'd expect if you were selling to someone in The UK. A bigger driver, as you can see, our big driver is inventory in the period, and that is driven almost entirely by the footwear business and the EVF, ZOTEFOAMS, the aviation business. Indeed, 80% of that 5,100,000 increase is is related to those two.

21:46 Very simply, with footwear, it's the increased activity. And with the with ZOTEFOAMS, it's it's two factors. It's partly the impact of the price increases we referred to. We had a doubling of the of the cost of the raw material, which we referred to in the annual report, and that is, having an an effect on on this increase, as well as the fact that the nature of the product and the way it's produced and the uniqueness of it, when it's not something we buy on a weekly basis, we generally buy two, three times a year. So you tend to find a bulk purchase. It increases inventory, then it gets consumed, and then there'll be another one later on in the year. And so so we've effectively bought more than we need for the for the period in question, but specific to what we need to have to take us through the year before the next purchase.

22:32 So that fundamentally drives the 5,900,000 increase in working capital. I touched upon the 800,000 free cash flow movement as well as the increase, and I've touched upon the movement in debt, as you can see over to the right movement from 30.2 debt to 35.1 excluding leases. And with that, I pass you back to Roland. Brilliant. Thank you, Gary. I'm gonna move on to sort of share some first impressions and some reflections and and some priorities for the business. But but before I do that, I think it's it's useful to to sort of pause and think about the the foundations and the sort of the core of ZOTEFOAMS, what what I would call ZOTEFOAMS DNA.

23:21 And a few things really really strike me. And and and I guess what what what I what I would really want to stress is that these will remain the sort of building blocks on which we we will continue to grow the company. And as we as we create new growth curves that that see the the company continue to grow into the future, these will remain really, really important. So so first is that foundation around IP, and and I would say on top of IP, it's just, you know, incredible know how around our manufacturing processes that does very clever things with a whole variety of different polymers. And and and that that, you know, needs to be and will continue to be very much at the heart of what we do.

24:07 If we look at all of our products, it it exists as at the heart of of the products that we develop. Like, the other thing is is is around people. What what's really impressed me, what what runs through the organization is the stem talent, the number of employees that are that are scientists and engineers. And and and this business needs to continue to to to bring and develop that talent, and and that absolutely is what we will continue to do.

24:33 And then sustainability. As I sort of went out and tried to understand the foam market, what really stands out is the different nature that that our manufacturing processes go through, how how they are super clean, and and very different from from many other phones that that are out in the market, particularly those that are chemically blown phones. And there is a there's a real sustainability edge to what we do. So so how we make things and then and then what our products are actually doing and the the different attributes that are conferred on them by the manufacturing processes. And then and then there's innovation. So so process and product innovation has been important to to to ZOTEFOAMS, and and I will touch on this in a minute. There is an opportunity, I would say, to really amplify that and and ratchet up what we do in the space of innovation.

25:30 So if I take my my first impressions, if you look at the market in which we in which we operate, the the fundamental the the foundation of the business, we we are the manufacturers of cross linked microcellular supercritical phones, and and and we are the leaders in that market in in EMEA and and North America. And we we absolutely lead in this space. And and, you know, our manufacturing once we talk about alliances and developing manufacturing processes and and new technologies, I would just want to underline that the existing processes are are really great processes and and and achieve very neat things with with the polymers that we work with. And that sort of comes to the to the chemical flexibility is is is that range of polymers that we can work on and and then create different high value materials.

26:21 And those those high value materials give us access to many different markets. You know? Depending on how one looks at it, we we are we are supplying directly or indirectly into into over 20 markets. And certainly can see in my early days here, eleven weeks as CEO, that there are real opportunities for business expansion in in a number of those high growth markets. Not at all, but but there's an opportunity to focus in in some markets with a greater runway to way for growth, and and where potentially we can move along the value chain. The the relationships that we have as a business both with with with our suppliers, but but also some of those key customer relationships. Obviously, the Nike relationship stands out. It's been an engine for growth in in h one.

27:12 As an organization, I I firmly believe that we've got an opportunity to build more relationships, and I and and I do believe that we have to build more really strong lasting partnerships in other markets as we look to create the next growth curve for for the business. We've been very successful with Nike. That's a wonderful partnership. We want to to replicate that, do more of the same in other in other industries. And then, obviously, there's the resort circular packaging business. It it's I guess it's not often that you come into a business and you find a start up within the business. And one with with IP, with disruptive technology, and with an industry that is that is really welcoming it with with open arms and and and willing it on for for success.

28:01 So, you know, that, for me, is is is exciting, but it is a startup. And and and the development of a start up product, it is it is never entirely straightforward. It's not absolutely linear. And as I said, you know, our partners at the likes of Refresco tell us to be, you know, be be be aware of the iterative process that you need to go through to refine technologies to get them to market. You know, that's exactly what what we continue to do. What what's what's really struck me is is is the amount of sort of goodwill around this, and as I say, the amount of people that that want to see this as success. Okay. And and then sort of reflecting on on all of that, and this is based on having visited a a a large amount of our customers.

28:48 Certainly customers that represent more than 80% of of our revenue. And and they have reaffirmed our position as that leader in that low density microcellular block foam. And, yeah, it is it is recognized. Our our product is recognized as as a as a premium product. And for that reason, I I genuinely believe that we've got a right to win further down the value chain in a number of markets. And I think I I would see that as a as an opportunity for for the business. We we've I've touched on emerging technologies. I've I've I've touched on the alliance that we have with Shinseo, which leans into that. And I see that technology acceleration with partners being being really important to allow us to get closer to our customers.

29:39 So so to allow an element of flexibility and agility around manufacturing infrastructure that allows us to to to to essentially grow not only from our core bases in The US and in and in Europe, but also to look at lower bars to to the capital investment required to expand in other areas. As I said, you know, the product that we make our phones really push into the megatrends of the moment in terms of cleanliness, so clean products, clean manufacturing processes, lightweighting, durability, and sustainability with with all sorts of technical performances depending on the mixture of polymers that we choose to to use in our in our manufacturing processes.

30:29 But all of this will will require more and more innovation in business, and I think that, you know, the business has innovated strongly in the past. I I I also see an opportunity for really investing more in innovation to to essentially create that next exciting growth curve for for the organization. Innovation and innovative products that are both customer led and supplier led, are going to be absolutely key for us. We need to be close to our to our customers. We need to be close to our suppliers, and we need to really build up the current platform and accelerate and and expand the amount of innovation that we as an organization are are involved in. So so over over the last few months and and looking forward, I've been looking at the sort of opportunities and those those early wins.

31:22 I've been working with the team to reorientate ourselves from a product led business, so one that talks about just distinctly products, but one that looks at markets that that that can help us identify those markets with that runway for growth where we can go essentially narrow and deep. So where we can where we can become experts, where we can move along that value chain and not just sell phone, but be solution sellers and move further down the value chain in some really, really attractive high growth markets. Right now, we're we're we're refining the commercial strategy, and we're a case of of realignment of teams, but also bringing in some new talent in into the business to really help us with this orientation to to customer and market focus.

32:13 Driving integrated regions, so full p and l responsibility, and we had a divisional splits, which which cut across regions and actually allowing regions to manage their performance top to bottom, whether that's The US, whether that's EMEA. And then leaning leaning really hard into this new technology. So, you know, I wanna reinforce the the the the qualities of the existing autoclave technology that we have, you know, that have been built up over one hundred years with incredible know how and very, very successful. And and and really, you know, the best in class for for that particular those particular niche markets that we operate in, but leaning into new technology to allow us to open up new opportunities.

32:58 And right here, right now, we're looking at at resource in terms of driving that market readiness. So so working hand in hand with Refresco, bringing all the talent together to ensure that we that we hit those real critical milestones in terms of endurance, sterility, market trials over the coming, you know, over the coming months and beyond to ensure that this product is a success. As I said, we've we've set some really aggressive internal timelines, and they are important, and and we will we will keep to those. We will we will keep setting those aggressive timelines. But but also, we we need to be very mindful of the iterative nature of the way that new product introduction and innovation. Yeah. It requires you to be agile, and that's what we are having to be.

33:47 But but I would just stress, as I as I mentioned that that, you know, Refresco are there with us. We we we continue to be in their sites working in their facilities, working on the ongoing development, steering towards those critical milestones. And and then in in the future, so so so as I look to refine the strategy, in in the coming months, I see the opportunity to get closer to get closer to to our customers. So that is both geographically and moving along that value chain. It's driving vitality through a new approach to innovation. So I said, putting more into innovation and ensuring that we're we're we're innovating at at pace, and we have a breadth and depth that's going to help us create that new growth curve.

34:36 I mentioned about m and a and our right to win in certain areas. Our product confers a huge amount of value on the end products that that that our phone goes into, there are opportunities for us beyond the core where our phone is critical to end applications, and and I think that it is entirely within our right to look at the value down the value chain. And then a resource, which I've I've mentioned quite a lot in terms of the monetization. We are looking right now in terms of those critical milestones, but in parallel to that, we are actively talking to potential strategic partners from a from a range of different areas, be that LPB manufacturers to to to to polymer suppliers to to to financial investors, that we have been talking to about potential strategic partnership to allow us to to scale up and bring resource to to market.

35:37 So as I look at the priorities for the business, commercial transformation, I talked about that right to win and going deep into five or six key markets. The resource circular packaging, I guess I'm gonna say it seven times. It's a it it is it is super important. It's got all of our focus, and and it continues to be a a top priority item for us as as a business. M and a has not been something that that we have done a lot of in the past as ZOTEFOAMS. We're not looking to vet the farm, and this will be about a smart margin accretive m and a. You know, we would start a with with with bite size opportunities, I would say, but this can be transformative.

36:28 There are industries that we can go into that that whether consolidation opportunities where our phone is super, super critical. Innovation, I repeat, ultra important for the future. Building also that that technology capability, getting the flexibility from the from the technology that we've entered or that we've got access to now, thanks to the alliance that we have with the chin cell. And then global leverage. This is really about joining up the company. It's making sure that the that the whole is greater than the sum of its parts. We've got some fantastic facilities we've grown over the last decade, which

37:08 spread out a little bit. There is and there are day to day operational efficiencies that that we can drive within the business. And we're also very mindful that that we need to drive cost effectiveness in the business and ensure that that just doing the basics that we're doing it doing it absolutely right, and that is about taking the the rest of the organization to the best performers up to that level and then looking outside the organization and ensuring that we're bringing best practice into into everything that we do. So if I summarize, you know, a really terrific first half and really strong sales growth, really, really good profit growth. HPP, the engine, there'll be some moderation in the the footwear market.

37:58 Polyolefin foams, EMEA continues with that rich enrichment strategy, which which I completely support. We need to continue with the with the work to be done in North America, which the investment around the LP two will will absolutely help. Resource, absolutely key. And and Shinseo, that that technology will be complementary for for us, and it's something certainly that we see numerous opportunities or or we believe we will be able to develop opportunities for in in in the near future. So coming back to to to outlook, and outlook for for the rest of the year, we are confident in our full year performance. We we we enter h two with with positive momentum. There will be some normalization of of footwear. It's it's not necessarily immediate, but we have to we have to be clear that that sort of growth is not sustainable.

38:55 It is it is driven, you know, large elements are driven by by by other factors. And resource is is right there in terms of our priorities. It is it is super critical. It is you know, it's been fantastic to see Refresco to break cover to come out, the collaboration that we have with them, the support we have from the industry, and the likes of FIFA. We will continue our efforts in this regard in in h '2 as we develop this disruptive and innovative new product. And then finally, it's about building and executing the next growth curve. It's about really finding those new partners that we can bring on to the existing strong partnerships that we have. And it's also about really driving up innovation and ensuring that we bring new products to market that will assist us in bringing those new partnerships the business.

39:52 So with that, I think we are stopped the presentation. We'll move to Q and A. That's great. Gary, Ronan, thank you very much indeed for updating investors. 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. So I, Gary, Ronan, take a few moments to review your questions submitted already. I just like to remind you that the recording of this presentation along with a copy of the slides and the published q and a will be accessible via your investor meet company platform. Gary, Ronan, you received a number of questions ahead of today's presentation. I know you've touched on a lot of those points throughout your presentation and you've received a number of questions throughout your presentation itself. Thank you everybody for your engagement. If I may just hand back to you just to read out the questions where it's appropriate to do so and then I'll pick up from you at the end. Right. Very good. Thank you. Okay. So forgive us while we sort of juggle some in front of us and some to the side of us. So let's let's just start. So look lots to look forward to with resorts. Can you give a summary of how the industry responded when you launched Amsterdam?

40:51 Have you seen any reaction from the likes of Tetra Pak or others that surely the destruction will be significant to them? Yeah. I, you know, I I think that we we've certainly seen quite a reaction. We we we've got a lot of press coverage, and and and, yeah, I think that that, you know, some of the incumbents that are that are out there absolutely have taken notice of this. So a 100%. Yeah. It it's been recognized. This has not went under the radar. We we never wanted this to go under the radar. We've we've got a lot of people both, you know, directly in the industry and and around the industry looking at this. So so a 100%. Next question is from from Gavin. Nike has seen serious share price fall. No issues for the PLC.

41:39 Nike is a massive business. It's it's an incredibly successful business, And they you know, their share price fall wouldn't wouldn't necessarily have have have any any any real impact on on the relationship that they have with us. And, you know, I think today, Nike manufactures something like 800,000,000 shoes. We we our phone goes on on the very, very, very pinnacle of those shoes, around about 1%. So And they have the apparel business there. And they have a they absolutely they've got the apparel business and and many other sports as well. So thank you, guys. Absolutely. Can you talk about the performance edge that your case, a Nike over competitors, and how vulnerable you are to phone competition?

42:31 A Okay. So so, yep, our phone we are selling to Nike to the to the highest performing end of their of their ranges. And I have got no doubt that competition are out there looking to to to to to come and take take part of that day part of that space. So I I think as an organization, we have to be incredibly mindful of of what what could be coming up behind us. And that's absolutely why I'm talking about commitments to to innovation. It's it's why we we look at, you know, new technologies that can maybe allow us to do different things with with other partners. We cannot we cannot sit still. Yeah. We we we have to to move forward and continue developing and develop, you know, next generation supercritical phones. That's our business. I'm confident that that that that we can do it, but then there's a competitive landscape out there.

43:27 It would be naive to think that that that they that phones won't continue to progress and competition won't come up. So so, yeah, we we we've gotta be ultra fit for that, and and that's why innovation is is so important for the future. To what extent did Nike encourage support collaboration with ShinCell? A they they were not in any you know, they were not directly or even indirectly involved with with ShinCell. You know, they they are they are supportive with the flexibility and the agility that the technology could could give us. So, you know, I think that they're they're super interested in it. But, you know, they have not been the you know, they did not lead us there. That that was that was the intuition and the work of the of these old homes management team that that brought us there. But, you know, anything that that allows you to be more creative, that that can allow you to be more flexible, agile, that can get you closer to customer. Your customers come a lot, and and they and and, you know, Nike as a partner love when we come with stuff that they that can help solve some of some of their problems.

44:34 And so better performing product and and, you know, many products that that are better suited to to exactly what what they're doing. So no. They they didn't they did not lead us there, but but they're certainly, I think, happy that we can come with solutions and and new stuff. The timing of resource trial has slipped from early twenty four when initially announced in November. Can you provide more clarity on the timing and the amount of further investment required? Yeah. You know, that that's a that's a great one. This this is this is a this is a new product. It's a you know, this is a start up business. It's an innovative new product. It is it it requires finessing, improving.

45:19 It requires many, many iterations to to to get it right. We have demonstrated the the efficacy of the product in in in lower volumes. The concept is is a 100% understood. The the product has been IP protected. You know, I I internally, we will set very demanding targets on ourselves, and and that is extremely important. But it as with any innovation and any new product, one needs to be super, super careful with with laying down particular dates by which something will be done because you just don't know. You don't know what you don't know. And and I would I would just you know, what I would sort of try and convey to everyone is that, yeah, the sooner we we we we get this product to market and we get strategic partners on board and we can get the scale, the sooner we're making money out of this.

46:16 But but this is a new innovation. This this this this requires, you know, we we we there's finessing work that has to be done on on both production lines, analytics time. It's it's just the nature of of of innovation. K? You have invested in resource through cost losses and also capitalized development spend. How much has been invested in total since you started with this project? Gary, do you wanna Yeah. I'd love to about that one? Yeah. Before that, you know, it was coming. That's an interim statement. Yeah. So capitalized to date, June 30, is 10,200,000. If if you look at losses, you know, we pretty much pivoted fully towards resource within our new cell business last year. Last year, we generated a loss of just about 5,000,000.

47:08 This year, again, we're 2,200,000 halfway through the year, and it's pretty much doubling that. So that's nine. So so together, that would make 19. If you then just look back at maybe the, you know, the element of resource prior to '22 or '23. Not a lot. So a couple of million on top. So you're talking 20 to 22,000,000 through the period. K. Thank you. There's a question here. It's a wrong question. Yeah. It it looks it looks tricky, so I'm gonna give that one to you. Yeah? There you go. So So you say that various costs with dividends being the largest cause of the increase in debt. Oh, the debt question. Okay. In debt over the period. This is tantamount to saying that you're borrowing to pay dividends.

47:55 How do you justify that? Dividends or distribution of unneeded cash on the balance sheet, not something that should be paid by increasing debt? Why do you feel the type to pay dividend? Well, there's about five different questions in there, this is for a demonstration of coherent capital allocation from management. I'm not entirely sure everyone would agree with you that dividends, you know, you can drop dividends when you want. You have a duty to support your investors. I don't believe that we are I mean, we are we have used the the the EBITDA, the cash generation to invest and and and allocate capital the way we feel is appropriate, be it through returning some to our, investors as well as, investing in working capital and cap and net capital expenditure.

48:45 I think, you know, we are not a we are a growth we consider ourselves a growth stock. We do not pay people are not investing in in ZOTEFOAMS to become millionaires from our dividends. But we still feel we have consistently paid a dividend. Our policy is a progressive dividend. We have that we have there's only one year back in 2020 for obvious reasons that we held, the dividend, but we're proud to be able to, manage. I'm proud to be able to manage it and to manage a balance sheet that enables us to allocate capital and direct some of that towards our investors. Very good. Thank thank you, Gary. Okay. Does the well documented airplane supply shortage restrict short medium term opportunity?

49:36 Actually, yeah, you there are only so many aircraft builders. One of them is having and has had some some challenges in the recent past. Boeing's build rates are are set to increase over over the coming quarters and and years, but but I think that they are forecasting that they're not gonna get back up to rate for for a couple of years. That said, I think the low point is is behind us. And if anything, I I think that there will be some modest tailwinds from from from build increases on the airplanes on which our products are specified. So I think, actually, we've probably seen the worst of it. Quite, you touched touched wood feeling some some other restrictions on on on on build rates.

50:27 But but we should, yeah, we should have seen seen the low point, and and we should see we should see those volumes increasing. What are the two major pieces of equipment for resource that ZTF will be acquiring in h two, are they necessary for the 150,000 juice trial? So these are a these are a I I know the names of the machines. These are forming machines, essentially. Are they are they required for the 150,000 juice carton trial? Yes. We've got the machines. Actually, we we've got all the machines that we require at this point in time for the 150,000 juice carton trial.

51:16 Yep. Might do technology, enthusiasm, refining commercial leads to better premium prices being charged. How CEO is cautious and pushing for price rises for fear of losing customers? It's it's always a super delicate point in terms of price elasticity. I think that as I look at as I look along the value chain, what I would say is I I I see their opportunity for for greater value creation. We it's very it's it's horses for courses. You cannot necessarily go out with blanket price increases. Some of the markets that we sell into are are are much more sensitive to others.

52:03 Some some of the products that we have are are much more technical than others. So it's a you know, I think the pricing is is a very important lever and muscle for for any business. But but there is not a there is not a one size fits all approach to it. But certainly, I come to the business with with a lot of emphasis in looking at pricing and ensuring that that we are that we are pricing sufficiently for for the for the value that that we create. Can you speak a little bit about the concentration risk with customers such as Nike and competition in the full market that may jeopardize that customer relationship so at some point in the future? This is this is a real, you know, this is a real a real significant point that we as a that as a organization look at. You know, Nike has become an incredibly significant part of the business. It is it is very important, and you know, we need to grow other parts of our business.

53:03 There is no doubt about that. We we you know, I I've mentioned about finding other partnerships, creating a second growth curve. So, you know, the the it it is Nike as as a as a single customer with that percentage of sales, it's been tremendous. The performance has been tremendous, but but it is absolutely clear to me that that we have to build more depth to to the customer base, to those significant customers that that are that are, you know, really growing in a way that we can do with Nike. So let's use Nike as a fantastic example of how we can build other relationships at ZOTEFOAMS, and but we we have to. We we we absolutely have to. We cannot assume that that business will be there forever.

53:54 Yeah? It's just that that that that would not that would not be right. Okay. As as a new CEO, do you envisage a much larger group in terms of revenue and profit over the medium term? I'm here to grow this business. I I am here to to to drive significant growth. I am here to to to you know, with with the team to create the next growth curve that that they that, you know, really drives huge value in in this business. So so absolutely. Yeah. Yeah. That is my agenda is is to find those new partners. It's to find and develop those new products that create the next growth curve for ZOTEFOAMS.

54:48 Okay. I think, Ron, I'll just jump in there because for every you seem to be answering. There's another two or three that keep coming your way. I think there's a a theme of the questions, and I think you've touched on them throughout. But, of course, what we'll do is we'll provide all the questions as we come up to the hour now. And any additional responses, we can publish those back to those on the call. So thank you everybody for your engagement this afternoon. Ronan, I know investor feedback. Gary, I know investor feedback is particularly important to you both, and I'll shortly redirect those on the call to give you their thoughts and expectations. But I wonder before doing so, I may, Rowan, just come back to you for a couple of closing comments. And then as I say, I'll ask investors for their feedback. Yeah. Yeah. Thank thank you, Mark, and they yeah. Thank you everyone for for joining the the call today.

55:34 As we, know, as we mentioned, Gary and I, this has been a a very strong h one. We are we are going into h two with with momentum. We have got a number of significant strategic initiatives that that are very exciting in the business that will that will really set foundation for for, as I say, the the next growth curve for for the organization. I'm delighted to have joined ZOTEFOAMS, and I'm I'm super excited about being part of the of the next growth phase of the business. So, you know, it's been a pleasure taking on this role. It's been a delight to present h one results for the company, and I look forward to continuing with the progress of the business.

56:19 That's great. Ronan, Gary, thank you very much indeed for updating investors this afternoon. Companies ask investors not to close their sessions when they automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This will only take a couple of moments to complete, but I'm sure will be greatly valued by the company. On behalf of the management team at ZOTEFOAMS PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.