Earnings Call: H2 2022

Mar 21, 2023

Good afternoon, and welcome to the Zotefoams Plc investor presentation. Throughout this recorded presentation, investors will be in listen only mode. Questions are encouraged and can be submitted at any time via the Q&A tab situated on the right-hand corner of your screen. Simply type in your questions and press send. The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so. Before we begin, I would like to submit the following poll. I would now like to hand you over to David Stirling, CEO. Good afternoon. Good afternoon, Lily. Good afternoon, everyone else. I am here presenting with Gary McGrath, our CFO. Gary and I will take you through the presentation. I will cover an introduction and drop into results with Gary and then close out with some detailed business unit commentary and outlook. If you have any questions, please submit them in the Q&A chat. It may be if a question comes in that we get to answer it on time in the slide, but more likely, we will close the session with Q&A at the end. If I can start the presentation. Zotefoams, today, we think about in three main divisions, polyolefins, which is about 54% of sales, HPP, which is about 44% of sales, and MuCell, which today is really a developmental business. We will talk about that in a bit more detail. Both the polyolefins and HPP businesses are based on our unique autoclave technology, with polyolefins being made from a premium foam from a commodity polymer and HPP Foams looking to enhance the attributes that are already in those polymers with more premium materials, such as materials which do not burn or high energy return in the case of, for example, footwear with Nike. Our business strategy is that we are primarily focused on organic growth. We look at our technology, we see where that can be pointed to develop a portfolio of high value-added products, and that we focus our resources on certain areas. That strategy allows us to adapt and move between markets. We are not market specific, neither are we geographically weighted any particular area, particularly with our high-performance products, which can ship anywhere around the world. Shipping is not really a barrier to those. The results summary this year is that revenue is up 26% to GBP 127.4 million, which is a record for Zotefoams. Our operating profit, here you see adjusted numbers. Operating profit is up 70% to GBP 12.2 million, 74% actually, GBP 12.2 million. EPS, up similarly high figures, adjusted in this case, 21.04, so up 126%. Because of very strong cash generation and paying down of debt, our leverage ratios dropped almost one whole turn of EBITDA to 1.2 times. In a bit more detail, that GBP 127 million has come from strong performance across all the divisions. Polyolefin sales up 25%, high performance products up 29%, and MuCell, although it is a smaller absolute number, still up 23%. We have, particularly in high performance products and MuCell, been aided by a stronger U.S. dollar. In polyolefin foams, the main reason for the growth was pricing and a little bit product mix. Because of those pricing improvements and because of our High-Performance Products being high margin and growing faster than the rest of the business, our gross margins are up by 400 basis points, and that improved mix is the main reason for that. We have absorbed about GBP 1.9 million of investment in our ReZorce technology, which is coming out of MuCell, and more about that later. Those record profit figures are after that amount of investment in that business. We are not just about sales. We have very strong operational and cost management, operational improvements, and particularly around waste, energy, et cetera. As the cost of raw materials rise, as the cost of energy rises, while we have always focused on these things, it is more sensible to invest the money to get better improvement when the prices of those things are higher. Our PBT up 74%, as we said, a group record, with EPS up to 20.6p, and we are paying a 5% increased final dividend in the year. Cash generation up 80% to GBP 23 million. With a very strong free cash flow at GBP 14 million. As I said, the debt down, and because of the strong cash flow, the leverage ratio has dropped significantly. So strong financial position and balance sheet. In summary, our strategy, polyolefin foams, we have seen a rapid recovery in margin through the price increases. We have seen the input costs drop off in some cases from very high levels seen during the middle of the year, particularly in polymer, and Gary will cover that later. A bit of a mixed bag across different markets there, but we do see that the polyolefin foams business does offer structural growth in particular, where we are tagged into the mega trends of environmental, regulatory, and demographics, and we have well-invested global capacity in this regard. High-Performance Products. We have very close and exclusive relationship with Nike in footwear. So keeping that going, offering them new products, getting specced in new footwear models, part of the ranges is part of what we do all day, every day now, as well as try and improve the cost position for them so they can hit price points in the market. That cost is not always price. Sometimes it is product design allowing better yield, material yield for Nike. The other two parts of our HPP business are in insulation and aviation, and very strong growth in those. We will cover that later. As we will with ReZorce. Sustainability, I would say, is really embedded within Zotefoams now, right through every decision we make. So whether that is new products, the markets we look at, how we manage operations, how we spend our capital, all considering sustainability, energy, efficiency, et cetera, right through the business. Very pleased that we will come out with a whole load of metrics around water, energy per unit revenue, waste, et cetera, in our annual report. A lot of this is captured by ratings agencies, and one of the bigger ones, or better-used ones, is MSCI, where we have been given a double A, which is the second top rating. Even looking at the AA rating, I can see that there are certain areas where we can improve the disclosure, and that is going to get us an improved result, not just improve the performance. Very pleased about that. Very, very few companies in our industry have AA ratings on the MSCI ESG Ratings. Then we talked about the spread of the business. We can see actually top left by geography, bottom left by industry. Although the business has grown 27%, the spread is roughly the same as it was in 2021, both geographically and by industry, with footwear being clearly the biggest customer, with Nike being around about a third of sales today, and those sales going into Asia, which skews the geographical revenue towards the rest of the world. The key point here is that we are well-balanced, both geographically and industrial, and a pretty stable, growing business in all areas. Given that, I hand over to Gary to talk about the numbers, and I will come back and cover business units in more detail later. Thanks, David. I will start off just by reminding everybody, we have adjusted numbers in here. David was referring to that earlier. That is often how we present to the analysts. There is not a lot of adjustment at Zotefoams. We are really talking, when you look at adjusted, what I am effectively doing is removing for 2022, some GBP 260,000 worth of amortization costs, and for 2021, around GBP 230,000, all related to acquisition of MuCell back good 10 years ago. That is fundamentally the difference. If we do get a bit confused between the two, it is not a big difference. Where are we? As David said, group revenue up 26%, or up GBP 26 million, at GBP 127.4 million. That includes GBP 7.6 million of currency, which is, as David said, related mostly to our HPP business, which is invoiced in dollars. We generated a gross profit 400 bps up at GBP 38.7 million or 30.4% gross margin. The key drivers are there, as we have already touched upon, were really the price increases in AZOTE, the faster growth in the higher margin business unit of HPP, and the strength of the dollar. The dollar, on average, moved about 10% during the year. In comparison, the euro actually dropped, weakened against the pound by 1%. The euro is fundamentally hedged by way of the fact that we sell into Europe, our largest AZOTE market in euros. A vast majority of all of our raw materials, covering HPP and AZOTE, are sourced out of Europe. The distribution admin line I pulled out separately, you can see below, because it is a little bit confusing. On the face of it, looks like a 35% increase. If you actually break it down, it is not quite that. The distribution costs themselves have gone up 10% in line with sales growth and some investment in sales staff and marketing. We are very much out of COVID now, we feel, so we have started to return as much as grow certain costs behind sales. More importantly is that admin line, which we report including our hedging movements. The hedging movements had quite a big movement in the year, a swing of GBP 3 million, with a benefit hedge last year and a charge this year. If you actually remove that hedging, you are left with a 22% increase in admin costs, which is about GBP 2.7 million. Two-thirds of the movement is explained by the variable pay impacts of 2022, based off of a record year, record revenues, record PBT, record EPS, versus last year, which was a disappointing year at GBP 7 million profit, GBP 7.2 million adjusted. When you then move down and look at that gives us adjusted operating profit of GBP 14.2 million, as David said, which is 70% up on last year. Then we have interest charges. I do not normally present the interest charge, but it is starting to get more relevant this year, and you can see is a 50% increase. Within that GBP 1.7 million is GBP 300,000 worth of amortization costs related to the closeout of our previous refinancing facility. So if you actually look at a like for like, you are looking at GBP 1.3 million against GBP 1.1 million, which is about 25% increase. That reflects obviously the increase in interest rates. We have a multi-currency debt facility. We do not draw down in pounds, so our debt is almost 50% dollar, 50% euro. That number has gone up, but offsetting that, of course, is the fact that our net debt, as you would have seen, has gone down by GBP 6.5 million during the year. All in all, gives us 25, 30- Gary, we have just lost your audio momentarily. Let me just bring you back in, if I may. Just bear with us while Gary just comes back in. Thank you. David, we have just lost Gary. He is going to be coming back in. Yep. He has been disconnected. I am just waiting for Gary to come back in. I do not know if you just want to pick things up and I will jump back in when Gary comes back in. Yeah, I can do that. Let me just the income statement. I will I think Gary pretty much finished on the income statement. If you have any questions, let us hold those and move on to the balance sheet. Not much movement in the balance sheet other than currency here, and increasing the tangible assets with a bit of capitalization of intangibles for the ReZorce. Obviously the payment of the debt, the reduction in debt, increasing our net assets. ROCE up to 10.1% in the year. Just to remind you, we refinanced in March. Our banks are Handelsbanken and NatWest, so not in the news currently. We have slightly better terms with four plus one years on our debt facilities, so nothing that is being renewed at any point in the future. A stable financial position and also a clear position with the banks there. Looking at the cash flow statement, you can see that the record cash generated from operations, GBP 23 million, not much movement in working capital at all. The profitability with an GBP 8.2 million depreciation coming right through to the cash generation. We can see here that we have not invested hugely in capital expenditure in the year. It has been about GBP 7 million, which is slightly below depreciation, which around about two is the ReZorce. Not a significant amount of money going into the business for new capacity that has been well invested over the past few years. Here comes Gary back. I think- Sorry, David, I have been speaking for Oh, it's gone again. Yeah, sorry, David. Please carry on. I'll carry on. If we look at some of the main influencers on our profit and loss account outside the sales numbers, our major raw material is low-density polyethylene within our polyolefin business. You can see a chart here that, just to explain it, if you've not seen it before, what it gives us is from 2018 onwards, the top line on the left-hand side in the shaded area is the price of low-density polyethylene, which is EUR per ton, and that's made up of two components. It's made up of ethylene, which is the oil derivative, which is the blue shaded segment, and then the additional cost of turning or the price of turning that ethylene into polyethylene. You can see on the left-hand side, and it's on a different scale, but still EUR per ton. The blue line showing a fairly muted cost of turning that ethylene into polyethylene, then suddenly it became very, very expensive in mid 2021 onwards to get the ethylene into polyethylene. That was mainly as a result of the market stopping functioning well. Our raw material cost really shot up at that point and has been well above the long-term average from first, second quarter 2021 right through to the half year 2022, at which point this cost started to come down again. What does that mean? Well, partly that was the impetus for us to put up our prices. That plus energy I'll cover, come in a minute. But the volatility can be quite difficult to deal with because you've got your prices for customers and then your costs quite clearly go down. We are keeping an eye on the pricing of polyethylene and our pricing to our customers as a result, and that is something that is very active process with our customers. Not quite on a weekly basis, but it is something we are well aware of. Just one thing I will say is the spread on polymer price over ethylene is a more normal level, back down at the €300 a ton, which is probably given energy prices right now about right. So it feels like the polymer price today is about right and certainly most of last year it was very high. Energy. A lot of talk about energy. Our 2022 energy costs increased by over 50% to £7.3 million from £4.8 million as a group. Most of that energy is used at Croydon, which is the biggest site and actually consistent with the sales coming out of Croydon. At £4.8 million in 2021, it was about 5% of sales and although it has gone up 50%, it is now about 6% or six and a bit percent of sales because our sales have increased, our prices have gone up. Right now energy costs are starting to come down from the peaks. We normally would hedge forward and have a good idea, but the forward energy costs compared to the current costs are so high that we are not hedging at all. Again, the market seems a bit of disarray. Nobody wants to take the risk. So we are dealing with that in a slightly different way in the past. Foreign exchange, I think Gary covered quite well. Significant impact on the dollar in particular in the year and that has inflated our sales numbers positively, particularly in HPP. It did not have much of an impact on polyolefin and group wide net of hedging increased the profits. If I go on and start to talk about the various business units. Polyolefin foams, as I said, about 55%. I think this slide slightly may be a wrong number in this, but 55% of group sales, up 25%. Most of that has been pricing with a little bit of FX and a little bit of product mix. Volumes were very similar to previous years, down a little bit in continental Europe where our customers were affected by high energy prices and labor shortages and just uncertainty on the demand side and not very strong automotive businesses. Whereas in the U.K., North America, Asia, actually we saw growth. North America in particular, which has been a more stable market, not as impacted by energy prices, we grew very well. The energy costs, the polymer costs, et cetera, I have talked about, but one of the key things is that as our business grows is the ability to manage the sustainability. We have actually launched a product with 30% recycled content. A couple of products actually, and using internal scrap. So it improves our waste numbers, it improves our cost numbers, it improves our sustainability argument for our customers that our product can be recycled and is being recycled by doing this. Starting to gain traction in the European markets, not yet launched in America. Manufacturing inefficiencies that we had referenced in 2021, beginning to be addressed. There is still a bit of way to go. There is still some benefit to be had there, particularly in North America again. It's a good performance, good turnaround by the business, but can, I think, still be improved with a bit more self-help. If we move on to High-Performance Products business, that business is 43% of group sales. It grew by 29% in the year, with the profit in segment up 75%. As I said, benefiting from the currency. But we actually saw growth in all areas, in footwear up 25%, in PVDF, ZOTEK F, which is mainly in aviation, up 48%, and insulation business up 48% as well. So good underlying growth. In insulation, it's market share growth. In aviation, it's a return to higher build levels, mainly of Boeing, where we are the biggest customer there. And in footwear, it's all Nike, and we've been very successful working with Nike to integrate what we do with their needs. And we're getting higher share of the running business there. They're launching more products. They've launched trail running shoes and things like that, which use our material. Before it was just road and track. And now looking at other categories for using our materials. That's something that will probably come in back end of this year. Nike usually work on a 2-year cycle for the running group. This is the end, the second year of a 2-year cycle now, and 2024 is the start of a new cycle where we anticipate further growth opportunities. So I think this year, the back end of the year might see a bit of a sell-through. We should see the launch of some other models, perhaps outside the running business, and maybe smooth a little bit of that tail end second-year volatility that we would normally expect at this time. And then moving on to MuCell. It's a smaller part of our business, only GBP 2.8 million sales. We did grow, but the majority of the effort and focus this year, and last actually, is to support the ReZorce development. And ReZorce is all about sustainable packaging, particularly we have decided to focus on cartons for juice and milks. If you go down to the supermarket, you'll find, not in the chilled aisle, on the ambient aisle, all kinds of juices, packaged waters, UHT milk, all that, and that's where we're aiming. Our products, we believe, are significantly lower carbon footprint, and this has been verified by external benchmarking by experts. We can use recycled content. The product can be recycled itself. And we're at the point now where we have developed what we believe is a good product for trialing. We have done internal trials and made those products into cartons through an internal packaging machine that's representative of what's out in the market with some success. There's still a bit of work to do, but we are at the point now where we are signing up supply chain for an in-market trial and looking to gear up for that. And that's something which will take, if I'm optimistic, 9 months, and with a bit of realism, probably 12 months from today, to have that in-market trial validation. So on supermarket shelves. That's not really a revenue generation, it's more a full-scale validation. And at that point, we have a business. So it is something that's slightly unusual for Zotefoams, but we have developed the technology within the MuCell business. It does rely, believe it or not, on foaming. That is something which we have filed a number of patents on, and the first patent has been granted in the U.S., which is very encouraging. We are, at this point, looking for a strategic investing partner for the MuCell ReZorce business, not for Zotefoams, as we believe that that would allow us to bring in external know-how, financing, de-risk, and perhaps accelerate the development of that within a defined risk appetite for the board. That is something that is progressing right now. That market is huge. A 1% market share would be equivalent to about the size of Zotefoams today, just in cartons. It is something that potentially is very, very attractive, but still some way to go on that. If we look at the sustainability angle or right across the business, we believe, and very confidently I think believe that we have four key aspects of business which demonstrate sustainability. One is the fact that we use nitrogen-based foaming, which just borrows nitrogen from the atmosphere. We are very efficient user of raw materials. Our foams are lighter than everyone else's. That uses less raw materials. That then plays into downstream lighter cars, lighter planes, better insulation, and in particular, in some industries like industrial protection, a lot less damage and less frequently replaced. If we look at our T-FIT insulation, not only does it save a lot of energy, but it needs to be replaced far less frequently than alternative solutions. In new product development, we are really focused on the use and the sustainability argument for the new products we are bringing out. That includes recycled product, as I said earlier, with 30% recycled content, ReZorce, barrier packaging, et cetera. Even today, 85% of our revenues come from products which are considered green according to an external evaluation criteria. I do not know why they will not let us use the name of the criteria anywhere, but I can assure you it is external. As I said, we have been rated AA by MSCI, and we do subscribe to the financial reporting and climate change reporting standards. An awful lot of information going out there about what we do and how we do it and target setting, et cetera, and making pretty good progress there. I absolutely assure you, everything we do as Zotefoams, sustainability is there as one of the criteria that we look at to make sure that we are thinking about future-proofing our business. Okay. A couple more slides. Just quickly on ReZorce. It is the first fully recyclable beverage carton using mono-material. Much less water, much less energy, and much lower carbon footprint expresses global warming potential. It is completely recyclable. We use recycled material and as far as I can say this, because legislation is global and actually local differences, but we comply with upcoming legislation in the places that we are interested in. IP backed and scalable, and that is particularly important that we are scalable using the existing packaging infrastructure. If we had to put a whole new infrastructure in for either packaging or recycling, it would be much, much more of a long slog here. We believe we can use the existing infrastructure. We are proving that as we speak. Moving to these pre-market trials, focusing on carton, as I said, we are not an acquisitive company, but we did buy some assets and some know-how and some people, from a business in Denmark that was trying to do the same thing and that had probably not managed their cash very well. We got a really complimentary deal there for not much money at all. As I said, we have appointed an advisor to seek that strategic investor. Then finally, just if you have been asleep or you have dozed off or you just want a succinct view, record revenue 74% increase in profit. We have done that after investing in this wonderful new technology that could have a great future, really good cash generation and reduction in debt. We have increased the dividend and we are a well-diversified business growing in a whole lot of areas with a good sustainability position. The outlook right now is that the markets out there are still difficult. I think they are better than they were in 2022. So where we come out with the results you saw. But still some challenges, but the team have done a really good job in getting us where we are. Our High-Performance Products, we have solid expectations of underlying growth there. The input costs in energy, raw materials, nitrogen, et cetera, are all abating. Certainly the inflation has gone out of that and coming, seeing deflation in some of those. We are seeing wage inflation, which lags everything else as you would expect. But I will say just a couple of things. One is that we put a program of support in for our lower paid workers in the U.S. and U.K. and Poland last year. In the U.K. we actually accelerated the wage settlements. We paid 4% in April and another 4% in October to lower paid staff. We paid 4%, an additional 2% in October to people earning between 32,000 and 50,000. We are looking to settle a decent amount this year for wage inflation. So it is in numbers but we are being responsible citizens as well as trying to make sure we can attract and retain skilled workers in today's challenging environment. That is something which is positive. Overall, we are confident about the future of the business and I think we are in question time so- That is great David. Thank you very much indeed. We have Gary back. Gary, I will just bring back up your camera as well if I may. 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. Just while David and Gary take just a couple of moments to review your questions submitted already, I would like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A, can be accessed via your Investor Meet Company dashboard. David, Gary, you received a considerable number of questions from investors today, so thank you to everybody on the call for your engagement this afternoon. If I may, David, Gary, if I can hand back to you. If I could just ask you to read out the questions and then give a response where it is appropriate to do so, then we will pick up from you at the end. Okay. I think we will just take them as they come which will mean diving in and out of subjects. The first one is from Kevin R. I will pass this one to Gary actually because I have done a lot of the heavy lifting with him dodging off. The question is, "What is the target on return on capital employed should the company not have nearer 15%? Yeah. First, I apologize. Trust me, you missed five minutes of excellent presentation of the balance sheet and cash flow, but I am convinced David did a very good job too. I did not realize I was not talking to anybody until a bit late. The question on the ROCE, we actually have added a slide for those that have the deck, it is the last slide we added a bit of a five-year performance chart. That shows that back in 2018 we had a return on capital employed of 16.5% and the reason we are not there now is because of the investment cycle we are in. We have invested quite significantly in the last six years and indeed that is also in the prelims, in the CFO review you can find the annual investment there. If you think that now we are at about GBP 8 million of depreciation and back a good few years ago it was about GBP 6, GBP 5 or GBP 6, we actually invested one year was GBP 24 million, the year before was GBP 18 million as we put the capacity into the U.S., into Poland and into the U.K. So we are carrying a capital employed level that allows us to be able to grow and expand in the coming years. But we are not there yet and of course the impacts of COVID effectively slowed us down from our original intentions on growth, probably a few years, a couple of years behind. So yes, you are seeing an increase from the low of 6% to 10.1% this year. Going forward as we utilize our plant better and as we mix enrichment in line with our strategy you will see that return on capital employed increase. All right. Next question from Andrew R. "Excellent results." Thank you. "Decision to seek a strategic investment partner to fund ReZorce development costs suggests that the material further expenditure is being planned to bring the product to market. What sort of expenditure is envisaged and over what period?" There are really three main stages here Andrew and everyone else. The first stage is what I'd say is an in-market validation test. So, if it's 50, 100,000 units going out to a couple of specific markets for a bit of consumer feedback, a bit of making sure that the recycling gets done properly, making sure that it gets shipped from A to B, there's no unexpected problems. To do that we need to make food safe sheet and control that down the process and it's in terms of production output it's half a day on our machine and probably half a day on a packing machine. But there's a lot of work to be done in compliance and product validation to get there. At that point if we get a tick in that box we can scale up from that half day production to many times that. Now that's still only going to give between 10 and 20 million units, something like that in the market which is a pretty small number given that the market's over 100 billion units. The costs of getting there are mainly manageable internal overhead costs and investment in clean processing, et cetera. At that point, then there is a decision made on whether or not to scale up. When we look at a strategic partner, we're looking for two things. One is, knowing that if we start the journey, that we can finish it. There's no point in getting to stage 1 and stage 2 and then going, "We haven't got money to scale up." The other one is that with the right strategic partner, we believe we will get there with less risk and more quickly, and therefore, save money and get to market more quickly. The amount of scale-up money at the end really depends on how aggressive the customers are, how aggressive the bottlers or packing companies are to move this product into the market. But that's something that we will make decisions each stage. We're not deciding now how much money we're going to spend in 12 or 18 months' time. But it's about risk and execution as much as capital expenditure. That really answers your next question about how we eventually intend to fund ReZorce in such a massive market. We believe that we can make profit very quickly. So if at that point, I think if we have a strategic partner, then we would have a share in a business, and that business would be able to fund itself in a variety of ways. The usual capital debt scale-up model. Next question also about ReZorce. Can you expand, please, on the potential for ReZorce? What's the addressable market revenue? And why MuCell can't be ignored by the industry compared to the incumbent? The addressable market is in excess of 100 billion cartons a year. That's in excess of $10 billion. It's actually I'd say relatively homogenous in that if I go to Japan or I go to Germany, I see the same technology. Slight differences in pack design, but it's essentially the same. So our technology can be used for all of that. I think the incumbents are all banging the drum of being paper-based. The reality is they are 70% paper and 30% or 20% something else, plastic, aluminum, plastic cap. So there isn't an alternative today, and that's one of the problems, that packaging has been so successful. It's ubiquitous, and there isn't an alternative. Because of the amount of investment in infrastructure, packaging infrastructure, it can't be switched quickly. Now, if we can prove success, then potentially people can switch quite quickly using existing infrastructure. I think people are watching us and waiting. But I think we have got people interested in this technology. For us, it's about how do we manage the scale up? How do we manage the risk? We are not packaging experts. We are technology development experts, and we've developed the technology. So we have brought people in from outside. I have a sterilization specialist, got an ex-Tetra Pak commercial director. I've got other people from the industry come in to help us and advise us. This is something which is big, big potential. But also, we need to face the possibility that we get out-innovated or something else happens. We see no sign of that, nor do the people we're talking to, but that doesn't mean that we are the only solution out there. So I think we need to be sensible about this for the size of the opportunity, investment, and also the size of Zotefoams. I don't think, and maybe I talk to a broker about this, but I don't think there's any value for Zotefoams shareholders today in our share price for this. It feels to me that we get judged on a business that's generating GBP 12.2 million, not a business that's generating GBP 14.2 million profit plus this development option. But we just got to keep doing what we're doing, communicating, and hopefully we turn it. Another question from Kevin R. Any new contracts for electric car battery installation? Well, we have some things going in China that were going quite well last year. Actually, a customer has been told not to use us because we're affiliated with America, we've operations in America, which is quite surprising. That wasn't big, but we have alerted, let's say, people to the technology and the way it was being done and trying to push that in North America and Western Europe. We are working on a number of different technologies for battery insulation. One of the difficulties is all the battery systems are different, so all their requirements are different. So for a company our size, we need to spread our bets a little bit. We are working on it, but if we get something big, then we'll know about it. Next question from Andrew R. "Will Refour focus on pouch packaging as distinct from cartons, or has it been integrated into ReZorce?" The Refour acquisition in Denmark, we are taking the people there and the know-how and using those to augment our carton team. A lot of the action's happening in Europe. They've got good knowledge of how to do that in Europe. At the moment, we have decided that pouch or flexibles is being put on the back burner, in terms of development, so we can focus on the carton. We are continuing to file IP on the pouch, so that preserves our position. But carton is the priority. Next question: "Why do you feel the market has not responded to these excellent results? What's the view from institutional holders? Would you consider listing in the U.S.?" And that's from Sam. The market, I think, is always a bit of a strange place. And right now, what we're seeing, and this is my interpretation, is that some of the institutions are having to sell and rebalance their portfolios, and they end up selling quality companies because that's who will buy. The feedback we've got is that we're a quality company and therefore transactions, people are transacting our shares as liquidity, whereas there isn't in other places. But I think also if you look, there's a lot of companies coming out with slightly negative results or flat results, and they're getting hammered. So, I just think sometimes it takes a little while to digest the results. We've got no current plans to move to the U.S. It is a sort of conversation topic that's been raised given the apparent valuation disparities between the markets. But at the moment, no, not for us. It's not a no, it just means we're not discussing it as yet. A question from James. "You use ethylene and polyethylene, which are oil industry derivatives. As we transition away from hydrocarbon fuels, how do you see this impact from Zotefoams over the medium and long term? And what alternatives are there from the production of foam? And are you looking at transitioning?" So two things. One is, I would contend that the world today has all the plastic it needs. And if we recycle it, either mechanically or chemically, and there's a lot of work going on in chemical recycling, then we don't need to transform any more oil into plastic. It just goes round and round, and you take your old foam packaging or whatever, you throw it in the right place, and it comes back as brand-new plastic to be reused. What's the problem with that? If I'm wrong there and we do need more, then bioplastics. We need to distinguish between biodegradable and bio-derived. They're not the same thing. Bio-based or bio-derived plastics can come from sugarcane or something like that, have exactly the same performance as oil-based. They won't degrade in the environment. We could use those if we needed things for longevity. If we want to make products that biodegrade, we can do that. But those tend to be throwaway. Biodegradation is really more suitable for throwaway things, single use, where somebody throws it in the hedgerow or in the ocean, by mistake. Our products are not in that market, and therefore they're more used for permanent solutions. You don't want your trainers to be made from biodegradable plastic because you're out there running and they start to break up. That's not really the intent. Yeah, we've looked at this. It's not really an issue, and I think there are many people who would be in trouble if this was happening before us. I think we are a very sensible use of these types of resources. Okay, next question from Andrew R. "When is it anticipated the large scale commercial trials for ReZorce carton?" I think small scale is 12 months off and large scale is after that, if we're successful. That sort of timeline. Next one from James E. Gary, this one for you. "Are you able to share year-on-year performance numbers on a constant currency basis? Yeah. In terms of the detail breakdown, that is in my review and the prelims, where we break it down by revenues by business units and the sub-business units. At a high level, total sales, as I mentioned, when you were listening to me able to listen, GBP 7.6 million of the top line was currency. That was split GBP 3 million polyolefin foams and GBP 4.3 million HPP, and a little bit of MuCell. When you look at the profit, we disclose that as well. That was GBP 2.5 million after hedging. That is not very much at all polyolefins, about GBP 0.3 of a million. David mentioned HPP, that is more GBP 4.3, because almost all the revenue from HPP is in USD, whereas, the costs are a decent amount are euro-based, some dollar, but a decent amount is euro-based, and then a tad on metal as well. That's primary, fundamentally top line GBP 7.6, bottom line GBP 2.5 impact of currency on those results. Okay. We need to just watch our time on some of these. Our next meeting is at quarter to, Gary, is that right? 3:00 o'clock. Oh, 3:00 o'clock. Okay, so we can give a little bit more. Sorry. Next question from Steve K. "Do you think you will engage in M&A to expand the business? Organic growth amazing by the way." Thank you. "But note your recent acquisition, can you expand on the reasons for this acquisition?" I think as we generate a lot of cash, we have, as Gary explained, been through a few years ago, a capital investment program to expand capacity. As we grow, we generate cash, and we're not spending the money capacity, the debt should fall, and that opens up possibilities for acquisitions. We have a unique technology. It is quite difficult to go upstream. We are not going to be buying polymer companies. Going downstream, we need to be careful because you end up competing with your competitors sometimes. Going across, you end up perhaps buying technologies that are more me too. It is a big world out there. There is always a lot of opportunity. We have not ruled out acquisitions, and the one we did in Denmark was really about accelerating a technology play, and giving us more resources to do that. If we find certain industries or certain applications that we feel that are really valuable users of our material or technology, then I would not rule that out. But we have not announced anything yet. That covers that, I think. Next question. "What interest do you see from ESG funds given the strength of your compelling ESG standards?" At the moment, it is very little. You are standing on the hill waving the flag. I think there has been a perception over the last few years that Zotefoams, we are quoted in the chemical sector. We've looked at that, and we've been told, actually, you're in specialty materials. That's where you belong. We are a certain size. We process plastics. There's a kind of perception that perhaps we're not right for the ESG fund. That's something that we're nudging now with the latest reports come out. I think to get our brokers and to get an audience with some of these shareholders, I think to be honest, it's getting easier because there's a bit more standardization over how people look at this. But 2, 3 years ago, it wasn't standardized. I remember getting a really, really low ESG score and looking at it and going, "Why is this?" We were getting marked down for uses of polluting chemicals, and we're getting marked down for using a private jet, right? We don't use a private jet, but we didn't disclose that we didn't have any polluting chemicals. We didn't disclose that we didn't have a private jet. The rating agents were saying, "Well, I'm not giving them any marks for that," or, "I'm marking them down for that." We started from a position of going, "Do we really have to disclose all the things we don't do?" The answer is yes, we do. We have gone through a process, and being a technology company stuffed with scientists and STEM people and engineers and whatever, if they're saying you don't do something, it's almost prove that we don't do it. Prove we've got none of these emissions. So we've had sensors and all kinds of things put in to prove that we don't do things. We're now at the point where we can disclose all this. It's cost us a bit of money, but it's put us in a position where we can do it. It's been frustrating, and I think it will take a little bit more time for the message fully to get through. But, that's the story of the journey so far. Okay, I've got a couple of questions. One on dividend and capital allocation, and one on dividends and buybacks. So I'll take those together. The first one is, with big capacity increases complete and improved profitability, what are your thoughts on capital allocation priorities and dividend growth cover? Gary, you're going to answer this one. The second one is, you're not an acquisitive company and so retained earnings for non-organic growth makes little sense. In terms of capital allocation, it's a question of which option is most accretive to share returns. In my opinion, repurchases are far more beneficial than dividends, because of paid out tax earnings, et cetera. Why do you have such a rigid dividend policy? Please don't say you need to pay dividends because there's a bunch of really, really big American companies named who pay dividends. So what do we think about capital allocation, dividends, buybacks, Gary? Yeah. Fundamentally, we are growing a business with a focus on a number of areas, of course, right? If you only look back at last year, we had a leverage ratio of over 2, debt at GBP 30 plus million, and the general feeling was, as we recognized, that we need to get our debt down. The focus has been trying to get more of a balance across growth, profit, return on capital employed, those sort of areas. That is really a management focus at the moment. While of course we are a growth company with ideas and we are pursuing those. ReZorce is a great example of capital being allocated to a high reward but high risk opportunity. Of course, there is only so many that we can do with a company our size and the management ReZorce we have. I think at the moment, we are still at that point where we are cognizant of our debt levels, and of the balancing act between growing the autoclave business, the HPP business, investing behind that, as well as pursuing the ReZorce opportunity. When that comes to an end, whenever that might be, clearly, we then are faced with wider decisions around where is our debt profile going. We would expect that profile to reduce, because we are cash generative, and that then becomes decision-making around that as to whether it is time to expand our Poland plant to make it a plant that is similar to the U.K. and the U.S., or whether it is time to give something back to shareholders. That is something that the board has not debated at this point, while it has been focusing on other priorities. In terms of rigid dividend policy, I do not believe we had one. Our policy is progressive, but we have just invested quite a significant amount of cash in capacity in growing this business and taken on debt. We therefore, I do not think it is rigid to say that we have maintained a fairly cautious dividend policy to help ensure that we are funding and paying down our debt levels to maintain a strong balance sheet. Anything missing, David? Anything you can think of? No, I think that is probably it. Do you want to pick up the next question from Tom H on tax rate? Yeah. I think you may have heard this bit from me, but we don't have any complex, clever tax vehicles. Neither would we seek them. Our tax rate is generally, at the moment, driven very much to a large extent by the U.K. tax rate. Our U.S. business, as it grows, has tax losses, which would provide a benefit to us, in the future. But fundamentally, it's about the PLC in the U.K. When we're at 19%, we generally come in, all things being equal, around the 18. As we go to 25, I would expect that to be a percentage or two below. Clearly 2023, if that's the question, has a blended corporation tax period for the first three months will be at the 19 and the final three quarters will be at the higher rate. It will be a blended of that. Okay. Next question is from David B. How many reportable accidents has the company had in the last year? This will come out with our annual report, but I'm happy to give it now. We've got three main metrics that we run on health and safety. Two of those are benchmarked against other plastics and rubber processing companies. One is, Days Away From Work, where someone's got an incident, they're not physically at work. And the other one is Days Away Restricted or Transferred, so they're at work, but they can't do their main job. And then we measure what's called RIDDOR, which is a reportable incident under U.K. law. So on DAFW, Days Away From Work, our rate was 0.51. I can give you the details on this. But the industry benchmark is 2. Sorry, it's 1.2, so we are less than half the industry benchmark. DART was also 0.51, and the industry benchmark for that is 2.3. So we're sort of a quarter of the industry benchmark in terms of incident rates on that measure. We did have two RIDDOR incidents, which are reportables. One where an employee in the U.S. cut his hand on a blade and required a stitch, or two stitches, I think. And one where an employee in the U.K., misstepped going down a step and put his hand out to stop himself falling and, unfortunately broke a bone, this bone in his hand, or fractured this bone in his hand. He was back at work the next day, but because it was a fracture or a break outside the finger or toe, it describes a RIDDOR. So those are our two incidents this year. We didn't have any last year in 2021, sorry. Next question, Douglas G. How secure are sales to Nike? Obviously, there are risks around having such a large customer relative to group sales." Well, we're very close to Nike because, as we depend on Nike depends on us. So, we work with a sort of two-year minimum, and right now it's almost a three-year, depends on what part of the cycle. We've got about three-year visibility. So we have good visibility out to 2025 with Nike. And the reason for that is they have to go NAP on the shoe designs and approximate volumes for those shoes now, so they can organize a supply chain, and we're a key part of that supply chain. And we have to go back to our supply chain to get raw materials, et cetera. I think the answer to that is we've probably got more visibility and more security over that period than with almost any other customer. Next question. I think this is the last question. Scott M, "What is the current utilization rate in Poland?" Easiest probably to give you, this year's right now, we anticipate about one-third of our polyolefin sales business in Europe and the U.K. coming out of the Poland site, which would give us slightly higher than two-thirds utilization on that site for the equipment there today. That's great, David and Gary. You've taken every question from investors. Thank you once again to everybody on the call today for your questions. David, Gary, thank you for being so diligent and going through all of those and responding. I know investor feedback is particularly important to you both, and I'll shortly redirect the investors on the call to give you their thoughts and expectations following these outstanding results. Perhaps if I may, David, just hand back to you just for a few closing comments before I redirect investors for their feedback. Thanks, Mark. Yeah, it's always a pleasure to engage directly with individual investors. We really value your questions. We definitely value your feedback in the polls. We've worked hard as a team. We've got quite an experienced management team, good mix between understanding each other and challenging each other, to deliver record group results this year. I am aware the share price is probably half of what it was at its peak, but we will continue to communicate, we'll continue to engage investors in our story, and we will continue most particularly to work hard to deliver the profitability and positioning for the future that I think we can. We've got a lot going on. Watch this space and, many thanks. That's great. David, Gary, thank you once again for updating investors this afternoon. Ladies and gentlemen, please do not close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the management team can really better understand your views and expectations. This may take a few moments to complete, but I'm sure it'll be highly valued by the company. On behalf of the management team of Zotefoams plc, we'd like to thank you for attending today's presentation. Good afternoon to you all.