Earnings Call: H1 2024

Aug 6, 2024

Summary

H1 delivered record revenue and profit, led by high-performance products and footwear, though temporary demand tailwinds are expected to ease. Investment is rising in ReZorce and capacity, while management remains confident in full-year performance.

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&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 all questions submitted today, and will publish those responses on the Investor Meet Company platform. Before we begin, we would like to submit the following poll, and if you could give that your kind attention, I am sure the company would be most grateful. I would now like to hand over to the team from Zotefoams. Gary, Ronan, good afternoon. Thank you, Mark, and good afternoon, everyone, and welcome to the H1 2024 interim update for Zotefoams. I will get straight into the deck and take the important information as read. Okay, so H1 performance. Record performance in both revenue and profit. Group revenue up 10% to GBP 71.1 million. That drove a profit before tax to a record of GBP 8.3 million, so up 12%. And net of the investment in ReZorce, driving a record profit of GBP 10.5 million. Gross margin, so improvement of 40 bps to 33.2%. The real engine for growth in H1 has very much been high-performance products and within that, the footwear business with Nike, and that grew by 37% to GBP 36.1 million. I will go into quite a bit more detail on the drivers behind that later in the presentation. In terms of the sort of key highlights, the footwear business, as I said, is a real engine for growth, so a continued strong performance with that partnership with Nike. There are a number of factors around that. So some particularly supporting tailwinds around, one, the Olympic year which always sees an uptick in demand for running shoes. Two, supply chain reassortment within Nike. We have seen quite a few volumes moving from Chinese manufacturing to Vietnamese tier 1s, and then building inventory as that shifted. And then three around the Red Sea blockages and delays which we saw some of the supply chain building up inventories around that. So, significant tailwinds that have helped, and we would expect that demand to moderate somewhat as we go through H2 and beyond. We started our investment in North America, and that is 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 is less efficient. So this is going to have a dual impact of helping us increase volume, but also to greatly improve operational efficiency. And we see that coming on track in 2025, but ground has been broken this year to allow space for that, and that project is well underway. And then we have the ReZorce 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 May, they felt suitably confident about our progress in this to break cover and actually stand shoulder to shoulder with us, announcing that they are working in detail with us in their facilities in Spain to continue the development of this product and to bring it to trial, to then bring it to market. We are right now looking for a strategic investment partner in this business, but again, I will go into more detail on that during the course of the presentation. The Shincell global alliance. An alliance that is centered on sharing technical capabilities. Really for us to learn some of the new technologies that they have developed and bring that into our manufacturing portfolio. There is also a commercial collaboration around the global alliance where we will work with Shincell for them to access markets where they have not previously been able to penetrate, and also us buying some products that they have developed that we would not necessarily look to manufacture ourselves. So, a really exciting alliance that we formed with Shincell. Going into the segment performance. What we will 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 GBP 36.1 million versus the GBP 34.4 million in polyolefin foams. Very strong margins in high-performance products. Significantly lower margins in polyolefin foams, and that comes from the mix of products that we manufacture there. I would say there are two parts to this that I would stress. One is the work that has been done in EMEA on mix enrichment, which continues to be successful at improving gross margins there. In North America, there is certainly an opportunity for improvement, and this ties in with the LP2 investment that I mentioned in the earlier slide. So that investment around retiring old assets, bringing in modern assets that will improve productivity, improve gross margins, and also improve overall yield and output. I touched on the strong footwear sales, really, really strong at 40% growth. As I said, there are those tailwinds that we need to bear in mind there. Then decent growth around the smaller sectors of T-FIT and ZOTEK F. ZOTEK F being the aviation-oriented products. Albeit those sales are always relatively low in H1, and they are coming off of a relatively low base in H1 in 2023. Sort of delve into a little bit more detail on the three areas. First, in high-performance products, as I said, footwear really dominates this part of the business. The partnership that we have with Nike has really seen us drive those sales in H1. As I said, those tailwinds do need to be noted, and I would imagine that that will moderate as we go through H2 and beyond, as those three peculiar or those particular elements subside in terms of influence in demand. I mentioned T-FIT are growing significantly at 23%, albeit off that low base. Then we have also got the significance of a new agreement with Design Blue, which is focused on our nylon products, so high grade foamed nylon products that they are using in body protection. As I said, I also mentioned around Shincell technology development allowing us 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 install facilities closer to some of our customers. Giving us access to that modular manufacturing capability. We look at the polyolefin foams. As I said, the mix enrichment continues to progress in EMEA, U.S. we could do better. That low-pressure vessel, I stress being very important in terms of driving the operational efficiencies there in 2025. It is good progress on that self-help project. Overall drivers of inflation in this area, which has been a significant factor in recent years. We have seen the low-density polyethylene prices come back actually below the long-term running averages, so well off the peaks that we saw a couple of years ago. We have seen relative stability around energy prices, and the only significant sort of inflationary pressure that we see is around labor these days. Then we come on to ReZorce. As I highlighted, a big key event in terms of May 2024, with the announcement of Refresco as our partner. At that event, Biffa were also shoulder to shoulder with us, talking to the industry and the wider interest groups around circular packaging as to why they support this development. This is a mono-material. It is a disruptive carton that we are producing that is 100% recyclable and indeed can be manufactured with a high degree of recycled content. In H1 we invested about GBP 2.2 million in operating costs, and then we had GBP 2.6 million of capitalized investment. Some of that in equipment, I think it was about GBP 800,000, and then other portions of that of activities that have been capitalized as per accounting rules. As we head into H2, critical moments for us are around both sterility and endurance testing, which is sort of milestone number one, really, really key. Then following that, it is moving to market trials. I have been engaging with Refresco, our development partner here, and they are super excited about the sort of progress that we have made in this innovative packaging. The interesting thing is that they tried to get us to understand the complexities of making refinements around packaging to get it to manufacture at scale. They compliment us, so Zotefoams and the ReZorce team with the very bold timelines that we lay down for things like endurance testing, sterility testing and market testing. They are there side by side with us giving this access to their facilities in Spain to allow us to continue the development around that. But we are setting ourselves 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 it will continue more refinements. But what I would really stress today is that all hands are on deck. We've got an amazing group of talented people that are focused on this, working with our partners at Refresco, working with the people at Zotpack, and also with some guidance as well from people that are going to be net beneficiaries of mono-materials, the likes of Biffa, 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 this market. I'm just going to hand over to Gary, who's going to bring us through to some more details on the finances. Gary, over to you. Thanks, Ronan. Start with key performance financials headlines. Ronan's already touched upon the group revenue at record number GBP 71.1 million, up 10% on the previous period last year. That actually includes a headwind of GBP 1.8 million on FX. That would have been 13% up on a constant currency basis. As Ronan mentioned, it actually is the first time that we see HPP taking over as the lead business unit with GBP 36.1 million of revenue against the GBP 34.4 million of polyolefin foams. At the gross margin level, we're up 40 bps at 33.2%, which represents GBP 2.4 million on GBP 6.4 million of additional revenue. That also, in turn, has a GBP 1.1 million FX headwind in the period. Operating profit of GBP 9.7 million is up 14% on last year's GBP 8.5 million. If you actually break down that GBP 9.7 million or the increase, GBP 1.2 million, GBP 1.4 million is the foams business up, which represents 13% increase. Then we've increased the investment in new cell from GBP 2 million last year to GBP 2.2 million. That's actually, the loss is up 10%. Profit before tax, so after the interest charge, is at GBP 8.3 million. I'll talk about some more details in the next slide. Up 12% on the previous period. That also includes a FX loss of GBP 0.3 million, whereas in the previous period, the GBP 7.4 million included a GBP 1.1 million gain. EPS is up 12%, similar to PBT growth, 12.89p, and the interim dividend is up 4.4% at 2.38p. If I move into the next slide, which is a little bit more detail. I mentioned revenue I've covered, gross profit up GBP 2.4 million, as I mentioned. That's obviously increased sales with a slight increase in margin. We're investing in costs. 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 GBP 2.4 million increase in profit. SG&A is up 9%. It's actually up a bit more. Within here, we put our hedging movements, and last year, we actually had a hedging gain, whereas this year we have a hedging loss. In both cases, half a million, so there's actually a GBP 1 million swing. The additional increase really is down to increased marketing costs, increased labor costs, pay rises, additional people, and board changes, where we've been lucky enough to have almost effectively two CEOs for a period. Operating profit, as I said before, was 40% up at GBP 9.7 million, and you can see 50 bps increase in the operating profit margin. Interest charge really only related to an averagely higher debt level, and when compared to the first six months of last year, higher interest rates. We drew down our debt entirely, not in sterling. We drew down at pretty much 50% in U.S. and 50% in EUR. Tax charge, we are fairly simplistic in our approach to tax. You can see we are very close to the U.K. corporate tax charge of 25%, coming at 24.2. Most jurisdictions we operate in are fairly similar. We have tax losses in the U.S., and we did not generate a sufficient profit to make a big impact on that average rate in this period. I mentioned EPS and dividend, and I broke down that operating profits bit previously. If we move from performance to balance sheet and capital allocation, EBITDA was GBP 14.6 million, up 8%. We adjust our EBITDA for IFRS 2 and 16. That means we take out, we ignore the share incentive charge as well as finance lease related interest charges. That EBITDA was used to invest in capital expenditure, up 3x on the previous year at GBP 8.1 million. We talked about the projects, but I have got a slide coming up next that breaks that down a bit further. Working capital, the increase in the period was GBP 5.9 million, compared to the increase in the previous comparative period of GBP 6.5 million. I will touch upon that in more detail on the next slide too. The final dividend was paid in June. We announced in the annual report, so that was GBP 2.4 million, up 6%, and that takes us to a net debt of GBP 35.1 million, excluding leases. I have a chart to show the waterfall on net debt. There is a little bit of complexity now that our finance leases are material versus what they have been in the past. This is the excluding leases, and this is up GBP 4.9 million from GBP 30.2 million at the end of the year or beginning of this year to the 30th of June 2024. Leverage comfortably within covenants. Covenants 3.5 at 1.4. We know that two is starting to get beyond certain people's or investor appetite. We are comfortably below there. It is just up a tad on the beginning of the year, which is for last year, so 12 months rolling, which is 1.2. If I move on to, like I said, just break down a couple of the elements previously seen. Capital expenditure. Ronan was talking about projects, right? The ReZorce project, the second low-pressure vessel in the U.S. and Shincell. Together, they represent 65% of our H1 capital spend of GBP 8.1 million. Consensus for the year is actually at GBP 20 million, so you would see that we are expecting an uptick in the spend in the second half, but very much still led by the ReZorce and second LP, second low-pressure vessel in the U.S. If we move on to net debt, as I said, that is a tricky picture, and I hope this kind of helps explain it more clearly. Under accounting, including finance leases under IFRS 16, our net debt moved from the beginning of the year at GBP 31.6 million to the end of the period to GBP 44.6 million. That is a GBP 13 million increase. The GBP 7.1 million of that is the Xinchao lease. That is a five-year payment of 80 million RMB. What we effectively have to do under accounting is recognize the asset. It's a right-of-use asset in the top half of the balance sheet, which we are depreciating over 10 years. As a liability in the bottom half of the balance sheet that we are recognizing as a liability and paying down over 5 years. That is discounted because it's over a longer term period. If you exclude those, our net debt effectively, and that's the representation I showed in the previous slide or previous to previous slide. Our net debt was GBP 30.2 million at the beginning of the period, and it rose GBP 4.9 million to GBP 35.1 million at the end of the period. We effectively have GBP 14.6 million of headroom, and that's the 1.4 leverage. That increase in debt is driven by the free cash flow of GBP 0.8 million, which is the EBITDA being used to invest in capital, working capital, pay off interest. Then we have the dividend and the tax primarily driving that increase in debt. 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. You can see there effectively increased activity in the business. Higher revenues leads to increased receivables and indeed increased payables, which net to GBP 0.8 million. There's no change in payment terms. There's certainly no changes in our recoverability of receivables, but the increase is impacted by just nature of mix as we've increased our footwear sales. Those footwear sales are slightly longer term on the basis that the customers we supply to are based in China and Vietnam, and therefore have slightly longer payment terms than you'd expect if you were selling to someone in the U.K. 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 PVDF, the ZOTEK F business, the aviation business. Indeed, 80% of that GBP 5.1 million increase is related to those two. Very simply with footwear, it's the increased activity. With ZOTEK F, it's two factors. It's partly the impact of the price increases we referred to. We had a doubling of the cost of the raw material, which we referred to in the annual report. That is having an effect 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's not something we buy on a weekly basis. We generally buy two, three times a year. 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. We've effectively bought more than we need for the period in question, but what we need to have to take us through the year before the next purchase. That fundamentally drives the GBP 5.9 million increase in working capital. I touched upon the GBP 0.8 million free cash flow movement, as well as the increase, and I touched upon the movement in debt, as you can see over to the right, movement from GBP 30.2 million debt to GBP 35.1 million excluding leases. With that, I pass you back to Ronan. Thank you, Gary. I am going to move on to share some first impressions and some reflections and some priorities for the business. Before I do that, I think it is useful to pause and think about the foundations and the core of Zotefoams. What I would call Zotefoams DNA. A few things really strike me. I guess what I would really want to stress is that these will remain the building blocks on which we will continue to grow the company. As we create new growth curves that see the company continue to grow into the future, these will remain really important. First is that foundation around IP, and I would say on top of IP is just incredible knowhow around our manufacturing processes that does very clever things with a whole variety of different polymers. That needs to be and will continue to be very much at the heart of what we do. If we look at all of our products, it exists at the heart of the products that we develop. I think the other thing is around people. What has really impressed me, what runs through the organization is the STEM talent, the number of employees that are scientists and engineers. This business needs to continue to bring and develop that talent, and that absolutely is what we will continue to do. Then sustainability. As I went out and tried to understand the foam market, what really stands out is the different nature that our manufacturing processes go through, how they are super clean and very different from many other foams that are out in the market, particularly those that are chemically blown foams. There is a real sustainability edge to what we do. How we make things and then what our products are actually doing and the different attributes that are conferred on them by the manufacturing processes. Then there is innovation. Process and product innovation has been important to Zotefoams and I will touch on this in a minute. There is an opportunity, I would say, to really amplify that and ratchet up what we do in the space of innovation. If I take my first impressions, if you look at the market in which we operate, the fundamental, the foundation of the business, we are the manufacturers of cross-linked microcellular supercritical foams, and we are the leaders in that market in EMEA and North America. We absolutely lead in this space and our manufacturing, whilst we talk about alliances and developing manufacturing processes and new technologies, I would just want to underline that the existing processes are really great processes and achieve very neat things with the polymers that we work with. That comes to the chemical flexibility is that range of polymers that we can work on and then create different high-value materials. Those high-value materials give us access to many different markets. Depending on how one looks at it, we are supplying directly or indirectly into over 20 markets. I certainly can see in my early days here, 11 weeks as CEO, that there are real opportunities for business expansion in a number of those high-growth markets. Not in all, but there's an opportunity to focus in some markets with a greater runway for growth and where potentially we can move along the value chain. The relationships that we have as a business, both with our suppliers, but also some of those key customer relationships. Obviously, the Nike relationship stands out. It's been an engine for growth in H1. As an organization, I firmly believe that we've got an opportunity to build more relationships, 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 the business. We've been very successful with Nike. That's a wonderful partnership. We want to replicate that, do more of the same in other industries. Then obviously there's the ReZorce circular packaging business. I guess it's not often that you come into a business and you find a startup within the business. One with IP, with disruptive technology, and with an industry that is really welcoming it with open arms and willing it on for success. So that for me is exciting. But it is a startup, and the development of a startup product, it is never entirely straightforward. It's not absolutely linear. As I said, our partners at the likes of Refresco tell us to be aware of the iterative process that you need to go through to refine technologies to get them to market. That's exactly what we continue to do. What's really struck me is the amount of goodwill around this, and as I say, the amount of people that want to see this a success. Okay. Then sort of reflecting on all of that, and this is based on having visited a large amount of our customers, certainly customers that represent more than 80% of our revenue. They have reaffirmed our position as that leader in that low-density microcellular block foam. It is recognized. Our product is recognized as a premium product. For that reason, I genuinely believe that we've got a right to win further down the value chain in a number of markets. I think I would see that as an opportunity for the business. I've touched on emerging technologies. I've touched on the alliance that we have with Shincell, which leans into that. I see that technology acceleration with partners being really important to allow us to get closer to our customers. To allow an element of flexibility and agility around manufacturing infrastructure that allows us to essentially grow, not only from our core bases in the U.S. and in Europe, but also to look at lower bars to the capital investment required to expand in other areas. As I said, the product that we make, our foams really push into the mega trends of the moment in terms of cleanliness, so clean products, clean manufacturing processes, lightweighting, durability, and sustainability with all sorts of technical performances depending on the mixture of polymers that we choose to use in our manufacturing processes. But all of this will require more and more innovation in the business, and I think that the business has innovated strongly in the past. I also see an opportunity for really investing more in innovation to essentially create that next exciting growth curve 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 customers, we need to be close to our suppliers, and we need to really build up the current platform and accelerate and expand the amount of innovation that we as an organization are involved in. Over the last few months and looking forward, I've been looking at the sort of opportunities and those early wins. 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 can help us identify those markets with that runway for growth where we can go essentially narrow and deep. Where we can become experts, where we can move along that value chain and not just sell foam, but be solution sellers and move further down the value chain in some really, really attractive high growth markets. Right now, we're refining the commercial strategy. We're a case of realignment of teams, but also bringing in some new talent into the business to really help us with this orientation to customer and market focus. Driving integrated regions, so full P&L responsibility, and we had divisional splits which cut across regions and actually allowing regions to manage their performance top to bottom, whether that's the U.S., whether that's EMEA. Then leaning really hard into this new technology. I want to reinforce the qualities of the existing autoclave technology that we have. That has been built up over 100 years. It's incredible know-how and very successful and really the best in class for those particular niche markets that we operate in, but leaning into new technology to allow us to open up new opportunities. Right here, right now, we're looking at ReZorce in terms of driving that market readiness. Working hand in hand with Refresco, bringing all the talent together to ensure that we hit those real critical milestones in terms of endurance, durability, market trials over the coming months and beyond to ensure that this product is a success. As I said, we've set some really aggressive internal timelines, and they are important, and we will keep to those. We will keep setting those aggressive timelines. But also we need to be very mindful of the iterative nature of the way that new product introduction and innovation, it requires you to be agile, and that's what we are having to be. I would just stress as I mentioned that Refresco are there with us. We continue to be in their sites, working in their facilities, working on the ongoing development, steering towards those critical milestones. Then in the future, as I look to refine the strategy in the coming months, I see the opportunity to get closer to our customers. That is both geographically and moving along that value chain. It's driving vitality through a new approach to innovation. As I said, putting more into innovation and ensuring that we're innovating at pace and with a breadth and depth that's going to help us create that new growth curve. I mentioned about M&A and our right to win in certain areas. Our product confers a huge amount of value on the end products that our foam goes into. There are opportunities for us beyond the core where our foam is critical to end applications, and I think that it is entirely within our right to look at the value down the value chain. ReZorce, which 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 range of different areas, be that LPB manufacturers to polymer suppliers to financial investors, who we have been talking to about potential strategic partnership to allow us to scale up and bring ReZorce to market. 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 ReZorce circular packaging, I guess I'm going to say it seven times. It is super important. It's got all of our focus, and it continues to be a top priority item for us as a business. M&A has not been something that we have done a lot of in the past at Zotefoams. We're not looking to bet the farm. This will be about a smart margin accretive M&A. We would start with bite-size opportunities, I would say. But this can be transformative. There are industries that we can go into where there are consolidation opportunities, where our foam is super critical. Innovation, I repeat, ultra important for the future. Building also that technology capability, getting the flexibility from the technology that we've entered or that we've got access to now thanks to the alliance that we have with Shincell. Global leverage. This is really about joining up the company. It's making sure that the whole is greater than the sum of its parts. We've got some fantastic facilities. We've grown over the last decade. We've spread out a little bit. There are day-to-day operational efficiencies that we can drive within the business. We're also very mindful that we need to drive cost effectiveness in the business and ensure that just doing the basics, that we're doing it absolutely right, and that is about taking 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 everything that we do. If I summarize, a really terrific first half, really strong sales growth, really good profit growth. HPP, the engine, there'll be some moderation in the footwear market. Polyolefin Foams, EMEA continues with that mix enrichment strategy which I completely support. We need to continue with the work to be done in North America, which the investment around the LP2 will absolutely help. ReZorce, absolutely key, and Shincell, that technology will be complementary for us, and it is something certainly that we see numerous opportunities or we believe we will be able to develop opportunities for in the near future. Coming back to outlook and outlook for the rest of the year. We are confident in our full-year performance. We enter H2 with positive momentum. There will be some normalization of footwear. It is not necessarily immediate, but we have to be clear that that sort of growth is not sustainable. Large elements are driven by other factors. ReZorce is right there in terms of our priorities. It is super critical. It has been fantastic to see Refresco, the break cover that come out, the collaboration that we have with them, the support we have from the industry and the likes of Biffa. We will continue our efforts in this regard in H2 as we develop this disruptive and innovative new product. Finally, it is about building and executing the next growth curve. It is about really finding those new partners that we can bring on to the existing strong partnerships that we have. It is also about really driving up innovation and ensuring that we bring new products to market that will assist us in bringing those new partnerships to the business. With that, I think we stop the presentation. We will move to Q&A. That is great. Thanks. Gary, Ronan, thank you very much indeed for updating investors. Ladies and gentlemen, please do continue to submit your questions using the Q&A tab just situated on the right-hand corner of your screen. Gary, Ronan, take a few moments to review your questions submitted already. I would just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&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 have touched on a lot of those points throughout your presentation, and you 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 is appropriate to do so, and then I will pick up from you at the end. Right. Very good. Thank you. Forgive us while we sort of juggle some in front of us and some to the side of us. Let's just start. Lots to look forward to with ReZorce. Can you give a summary of how the industry responded when you launched Amsterdam? Have you seen any reaction from the likes of Tetra Pak or others, as surely the disruption will be significant to them? I think that we've certainly seen quite a reaction. We've got a lot of press coverage. I think that some of the incumbents that are out there absolutely have taken notice of this. 100%, it's been recognized. This has not went under the radar. We never wanted this to go under the radar. We've got a lot of people both directly in the industry and around the industry looking at this. 100%. Next question is from Gavin. Nike has seen serious share price fall, no issues for the PLC? Nike is a massive business. It's an incredibly successful business. Their share price fall wouldn't necessarily have any real impact on the relationship that they have with us. I think today Nike manufactures something like 100 million shoes. Our foam goes on the very pinnacle of those shoes, around about 1%. They have apparel business as well. Absolutely. They've got the apparel business and many other sports as well. Thank you, Gary. Absolutely. Can you talk about the performance edge that gives Nike over competitors and how vulnerable you are to foam competition? Our foam we are selling to Nike to the highest performing end of their ranges. I have got no doubt that competition are out there looking to come and take part of that space. I think as an organization, we have to be incredibly mindful of what could be coming up behind us. That's absolutely why I'm talking about commitments to innovation. It's why we look at new technologies that can maybe allow us to do different things with other foams. We cannot sit still. We have to move forward and continue to develop and develop next generation supercritical foams. That's our business. I am confident that we can do it. There is a competitive landscape out there. It would be naive to think that foams will not continue to progress and competition will not come up. We have got to be ultra fit for that, and that is why innovation is so important for the future. "To what extent did Nike encourage support collaboration with Shincell?" They were not directly or even indirectly involved with Shincell. They are supportive with the flexibility and the agility that the technology could give us. I think that they are super interested in it. They did not lead us there. That was the intuition and the work of the Zotefoams management team that brought us there. Anything that allows you to be more creative, that can allow you to be more flexible, agile, and that can get you closer to customer, your customer is going to love. Nike, as a partner, love when we come with stuff that can help solve some of their problems. So better performing product and many products that are better suited to exactly what they are doing. No, they did not lead us there, but they are certainly, I think, happy that we can come with solutions and new stuff. "The timing of ReZorce trial has slipped from early 2024 when initially announced in November. Can you provide more clarity on the timing and the amount of further investment required?" Yeah, that is a great one. This is a new product. This is a startup business. It is an innovative new product. It requires finessing, improving. It requires many iterations to get it right. We have demonstrated the efficacy of the product in lower volumes. The concept is 100% understood. The product has been IP protected. Internally, we will set very demanding targets on ourselves, and that is extremely important. As with any innovation and any new product, one needs to be super careful with laying down particular dates by which something will be done, because you just do not know. You do not know what you do not know. What I would sort of try and convey to everyone is that the sooner we get this product to market and we get strategic partners on board, and we can get the scale, the sooner we are making money out of this. This is a new innovation. There is finessing work that has to be done on both production lines, and it takes time. It is just the nature of innovation. Okay. "You have invested in ReZorce through cost losses and also capitalized development spend. How much has been invested in total since you started with this project?" Gary, do you want to- Yeah. I've got that one. Yeah. Before that, you knew that one was coming. That's in the interim statement. Yeah. Capitalized to date, at the 30th of June, is GBP 10.2 million. If you look at losses, we pretty much pivoted fully towards ReZorce within our new cell business last year. Last year, we generated a loss of just about GBP 5 million. This year, again, we're GBP 2.2 million halfway through the year, and it's pretty much doubling that. So that's 9. Together, that would make 19. If you then just look back at maybe the element of ReZorce prior to 2022 or 2023, not a lot. So a couple of million on top. So you're talking GBP 20 million-GBP 22 million through the period. Okay. Thank you. There's a question here. It's a long question. It looks tricky, so I'm going to give that one to you, yeah? There you go. You say that various costs with dividends being the largest cause the increase in. Oh, the debt question. Okay. In debt over the period. This is tantamount to saying that you're borrowing to pay dividends. How do you justify that? Dividends are distribution of unneeded capital on the balance sheet, not something that should be paid by increasing debt. Why do you feel inclined to pay dividend? Ooh, there's about five different questions in there, unless there's a further demonstration of coherent capital allocations from management. I'm not entirely sure everyone would agree with you that you can drop dividends when you want. You have a duty to support your investors. We have used the EBITDA, the cash generation, to invest 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 capital expenditure. We consider ourselves a growth stock. People are not investing in Zotefoams to become millionaires from our dividends. But we still feel we have consistently paid a dividend. Our policy is a progressive dividend. 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 a balance sheet that enables us to allocate capital and direct some of that towards our investors. Very good. Thank you, Gary. Does the well-documented airplane supply shortage restrict short-medium term opportunity? Actually, there are only so many aircraft builders. One of them is having, and has had some challenges in the recent past. Boeing's build rates are set to increase over the coming quarters and years, but I think that they are forecasting that they are not going to get back up to rate for a couple of years. That said, I think the low point is behind us. If anything, I think there will be some modest tailwinds from build increases on the airplanes on which our products are specified. So I think actually we have probably seen the worst of it. Crikey, touch wood. Feeling some other restrictions on build rates. But we should have seen the low point, and we should see those volumes increasing. What are the two major pieces of equipment for ReZorce that ZTF will be acquiring in H2? Are they necessary for the 150,000 juice trial? These are I know the names of the machines. These are forming machines, essentially. Are they required for the 150,000 juice carton trial? Yes. We have got the machines. Actually, we have got all the machines that we require at this point in time for the 150,000 juice carton trial. Might new technology enthusiasm refining commercial lead to better premium prices being charged? As CEO is cautious in pushing for price rises for fear of losing customers. It is always a super delicate point in terms of price elasticity. I think that as I look along the value chain, what I would say is I see there opportunity for greater value creation. It is horses for courses. You cannot necessarily go out with blanket price increases. Some of the markets that we sell into are much more sensitive to others. Some of the products that we have are much more technical than others. So I think the pricing is a very important lever and muscle for any business. But there is not a one-size-fits-all approach to it. But certainly, I come to the business with a lot of emphasis on looking at pricing and ensuring that we are pricing sufficiently for the value that we create. Can you speak a little bit about the concentration risk with customers such as Nike and competition in the foam market that may jeopardize that customer relationship, so at some point in the future? This is a real significant point that as an organization look at. Nike has become an incredibly significant part of the business. It is very important. We need to grow other parts of our business. There is no doubt about that. I have mentioned about finding other partnerships, creating a second growth curve. Nike as a single customer with that percentage of sales, it has been tremendous. The performance has been tremendous. But it is absolutely clear to me that we have to build more depth to the customer base, to those significant customers that are really growing in the way that we can do with Nike. So let us use Nike as a fantastic example as how we can build other relationships at Zotefoams. But we have to. We absolutely have to. We cannot assume that that business will be there forever. It is just that would not be right. As a new CEO, do you envisage a much larger group in terms of revenue and profit over the medium term? I am here to grow this business. I am here to drive significant growth. I am here with the team to create the next growth curve that really drives huge value in this business. So absolutely, yeah. That is my agenda, is to find those new partners, it is to find and develop those new products that create the next growth curve for Zotefoams. Okay. I think, Ronan, I will just jump in there because you seem to be answering, there is another two or three that keep coming your way. Okay. I think there is a theme of the questions, and I think you have touched on them throughout, but of course, what we will do is we will provide all the questions as we come up to the hour now. Okay 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 will shortly redirect those on the call to give you their thoughts and expectations. But I wonder, before doing so, if I may, Ronan, just come back to you for a couple of closing comments, and then, as I say, I will ask investors for their feedback. Yeah. Thank you, Mark, and thank you everyone for joining the call today. As Ronan and I mentioned, this has been a very strong H1. We are going into H2 with momentum. We have got a number of significant strategic initiatives that are very exciting in the business that will really set foundation for, as I say, the next growth curve for the organization. I am delighted to have joined Zotefoams, and I am super excited about being part of the next growth phase of the business. So it has been a pleasure taking on this role. It has been a delight to present H1 results for the company, and I look forward to continuing with the progress of the business. That is great. Ronan, Gary, thank you very much indeed for updating investors this afternoon. Companies ask investors not to close this session, as we will now 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 am sure it will be greatly valued by the company. On behalf of the management team at Zotefoams PLC, we would like to thank you for attending today's presentation. Good afternoon to you all. Attending today's presentation. Good afternoon to you all.