Good afternoon, everybody. Everything appears to be working. Welcome to Eden Park. If you're, if you're here for the Travis Scott concert, I'm told it's Travis Scott out there, you're about ten days early. This is the Skellerup Annual General Meeting. And as I was last year, I'm John Strowger, no name change, still Chairman of Skellerup Holdings Limited. Thank you for joining us. We're delighted you can, that we can meet both in person with those of you able to be present and by video with shareholders joining online. The notice of meeting and two thousand and 24 annual report have been circulated and made available to all shareholders. You can also access these at any time via our website. As noted, today's meeting is being held as a hybrid meeting here at Eden Park and online via Computershare online meeting platform.
If you're online, congratulations, you've already successfully negotiated entry. We try that joke every year, Graham. Before we commence the formal business, I should advise those present in the event of an emergency, please remain calm and follow the clearly marked signs to exit the building safely. I'm pleased to advise that there being a quorum of shareholders present, I declare the annual meeting open. I'd like to take this opportunity to introduce you to the people alongside me here today. On my immediate right is Graham Leaming, our new Chief Executive Officer. Alongside Graham is Tim Reynolds, our new Chief Financial Officer. Alongside Tim is Alan Isaac, who is not new, an independent director. Alongside Alan is Rachel Farrant, an independent director. On my left is David Cushing, an independent director.
Alongside David is David Mair, the former CEO and now a non-executive, and at this point, not independent director. Alongside David is Paul Shearer, an independent director. Also in attendance with us today are representatives of our auditors and our legal advisors, Chapman Tripp. A number of our leaders across the Skelleru p group are also here today, and Graham will introduce these people later. First, the order of events. The order of events for today is as follows: first, I will take you through my perspective on Skelleru p's highlights from the past year. I'll then hand on to Graham to give a presentation as Skelleru p's Chief Executive. We will then provide an opportunity for questions at that point on my address and Graham's presentation. I will then put the resolutions outside, outlined in the notice of meeting.
We will cover each resolution in turn and invite questions specific to those resolutions, and there will then be an opportunity for any discussion by shareholders on Skellerup's business and performance. For online attendees, you may submit a question at any time. To do so, select the Q&A tab on the right half of your screen, type your question into the field, and press Send. Please note that while you can submit your questions from now on, we will not address them until the relevant time in the meeting. Please note that your question may be moderated, or if we receive multiple questions on one topic, amalgamated together. Finally, due to time constraints, we may run out of time to answer all questions, and if this happens, we will answer them in due course. I hope that doesn't happen. In fact, it never has.
Today's voting will be conducted by way of a poll on all items of business. For those in attendance, you should all have a voting paper which was given to you when you registered. If you do not, can you please indicate now by raising your hand, and a member of the Computershare team will assist you. We're all equipped. Very good. For those online, I now declare voting open on all items of business. To vote, simply select your voting direction from the options shown on the screen. You can vote for all resolutions at once or by each resolution in turn. We'll now turn to my address, the chairman's address. As usual, it's my pleasure to stand here again in front... Briefly, the numbers.
As you can see, hopefully behind me or to the side, 2024 financial year delivered a record EBIT for the group of NZD 72.7 million. Underlying NPAT came in at NZD 50 million, admittedly just under 2023's record of NZD 50.9 million, as a consequence of an increased tax burden and higher interest charges that shareholders will be very aware of. Skellerup's balance sheet continues to be very strong. We enjoyed record cash flows in financial year 2024 of NZD 70.8 million, a staggering 31% improvement on the last year. As a consequence, net debt is NZD 15.4 million, 43% down on last year. Indeed, this morning, we were discussing a scenario where at the 30th of September, we had cash at the bank. We've now gone back into overdraft to fund the dividends to you all.
I said that last year's record will be increasingly hard to beat, but the team has again, and this is clearly an excellent result in what are challenging market conditions in New Zealand and indeed globally. So that's the headline metrics, and in theory, I could stop there, another successful year, but there's been quite a bit behind the numbers in 2024. Anyone who's followed Skellerup for quite a while knows we see ourselves as the quiet achievers. Incremental growth rather than bold quantum leaps, which usually, in my experience, carry significant additional risks and can just as quickly reverse. We've got more than a bit of change last year.... The most obvious change for the group in financial year 2024 was the shift at the top.
After fourteen years of exceptional performance and delivery of year-on-year record results, David Mair advised of his intention to leave Skellerup in February twenty 24. The board is, and shareholders ought be, extremely grateful to David for his long and enduring contribution to the group. To repeat a few of the comments I made at the time of his announcement, but which I think bear repeating in this forum, the first time I've had a chance to do so publicly, as opposed to a somewhat sterile NZX announcement. David has been an outstanding CEO. Over the almost fourteen-year period he's been in the role, Skellerup's reported EBIT has increased by more than 400%. To my side, you can see a graph now describing the EBIT growth over the term of David's tenure, of this company, the Reign of Mair.
We thought that was aptly named, a benign dictatorship, I can assure you. Customer-focused development, continuous operational improvement, and careful allocation of financial and human capital are key elements that David has installed into Skellerup. David brings a laser intensity of focus to everything he does in business, as anyone who has worked with him will attest. He challenges everybody. His success has been rightly recognized over recent years, and while I've previously remarked on our growth and performance is due to a contribution of many, they have been expertly enabled and led by David. So, David, thank you. David has agreed to remain on the board post his departure as CEO. Former CEOs on boards is not a model that works for everyone, but it's gonna work for us.
David has an invaluable, deep institutional knowledge of Skellerup, its products, people, and customers, which we're anxious to retain, while still also ensuring his successor can bring his own perspectives to bear on the business and continue the legacy at the same time. The inevitability of David's departure was, of course, anticipated by the board, and both he and the board have been focused on ensuring we had a strong successor in the form of Graham Leaming. Graham has been with us for a number of years and is a known quantity to the board, as we are to him. The transition from David to Graham, while in the sense momentous, has been seamless. The business genuinely has not missed a beat, and the board is already appreciating the subtle changes in perspective which Graham brings to the business.
The ease of transition has been a credit to both David and Graham. At the same time, we have a group of talented and somewhat, it must be said, somewhat younger business leaders emerging from within the group. Looking at the depth of the bench, we have real confidence that the future of Skellerup is very bright in the medium and long term. Graham will introduce you to some of these people shortly. I talked in my address to you last year of some of the supply chain management issues which we've encountered in FY 2023: uneven ordering patterns, customer nervousness about the robustness of our supply chain. This has been the case this year, too. Sure, you can now get container space out of New Zealand, but we've all read about the Suez Canal.
We're a long way from some of our key markets, and mitigation of this takes careful management. To add to this, the world is becoming more isolationist. I don't need to tell shareholders about the direction of travel in respect of tariffs, tariffs in North America, irrespective of who's elected, which has been the case for us for a number of years now, our largest market by a significant margin. While most of our products into that market are not subjected to punitive tariffs, the bottom line is that our business has sustained incremental tariffs rising to NZD 3 million per annum in that market in FY 2024. We've been able to do that without compromising profitability. However, there are no guarantees that that situation will continue. In light of that, and to mitigate, and to mitigate these factors, the board has tasked senior management to investigate in-market manufacture possibilities.
Some early initiatives of which have already been taken, but there is significant potential to do a lot more. Graham will speak further about this shortly. This will be an important change for the group over the next few years. As with anything we do, we'll be considered in our initiatives in this area. We will be looking to put a toe in the water. But although we will be cautious, the board is absolutely clear that this is something that needs to be pursued. Another part of the solution, which will address perceived supply chain fragility, at least, if not the tariff position, will be to carry higher levels of stock in market. Whatever the solution here, it seems inevitable that a higher level of working capital investment will be necessary, and this will likely subject the business to additional cost.
We will look to do this in a way that does not suddenly impose significant additional costs on the business, which might jeopardize the continuation of the recorded performances that we aspire to and which capital markets have come to expect. However, we also do need to ensure that the business is rightly configured for the long term. There is some need for reconciliation between these two slightly competing statements. This year, for the first time, we provided substantial climate-related disclosure reporting. Being cognizant of the impact of our activity, that our activities have on the environment, treating our people well, and working with parties who carry the same perspective is frankly nothing new. It has been integral to sustain and growing profitability as Skellerup has for many years. The development of our first climate statements has been a significant body of work that our team started working on early-...
And has helped us better understand the risks and opportunities for Skellerup arising from the impact of climate change, and further inform the investment of our financial and human capital to design and manufacture products that our customers need, and reduce the intensity of greenhouse gas emissions we consume in their creation. In Graham's report, you'll find the customary, for Skellerup, remarks about customer-focused developments and the integration of Skellerup manufactured components into OEM products with consequent, enduring, and hard-to-shift relationships. There's a temptation for the eyes to glaze over when reading these messages, but they remain as vital and jealously protected for us today as they were when David first conveyed these messages a number of years ago. These business practices are integral and vital to many things we do. I touched briefly earlier on our low levels of debt.
As I've said previously, we'd be keen to find business acquisition opportunities which work for us in adjacent industries or markets. But until we do so, our dividend policy of distributing the bulk of our annual earnings to shareholders, you, the owners, will continue. A number of market commentators have now noticed the strong historical earnings record which Skellerup has enjoyed, and the stability of earnings we've experienced. It is true that we do enjoy the stability which a diversity of product range and market geographies, both in suppliers and customer terms, can produce. However, there are no easy wins, and repeat business is never guaranteed. The point here is that it takes considerable effort to maintain results, let alone to move steadily forward.
It is a testimony to the senior leadership team and all of our people that we continue to move resolutely upstream, despite the strengths of the current against us, which has obviously not abated in recent years. As always, I'd like to record the board's appreciation to management and all of our people for their contribution during FY 24. The continuation of success is not assumed, but shareholders can be assured that we will strive for bigger and greater things again in FY 25. And I hope also to be able to report to you in a year's time on some progress made against some of the other operational targets and aims that I've discussed above. In the meantime, I thank you for your continued interest and support in the business, its people, and this board. And I now hand over to Graham for a more granular detail.
Thank you. John. Thanks, John, and good afternoon, everyone. This is the thirteenth Skellerup annual general meeting that I've attended, and I remember the first as I was just before I started with the company, and I was in the audience as an interested observer, at least so I thought, sitting down in maybe the first or second row here. And that was until Sir Selwyn Cushing offered me the opportunity to comment on a shareholder question on foreign exchange. It was a good early test from Sir Selwyn, and now a few years later, I'm very pleased to speak to you for the first time as CEO of a company that, as John has outlined, is in robust shape with a track record of strong earnings growth.
Today, I'll give you a summary of our business and strategy, a recap on FY 2024 results, discuss current markets, our future, and introduce you to some of the people critical to delivering future success. First, on our business. At a broad level, there are four key elements of how we do business at Skellerup. On their own, they are not unique, but collectively, we think they provide us with a competitive advantage. They're the applications we focus on, our approach to markets and customers, our business model and allocation of capital, and our business structure. Sometimes, Skellerup gets labeled as difficult to understand. We do not have a single hero product or range or customer upon which our success depends.
We design and manufacture products for a wide range of applications, as shown on the screen, on the next slide, I think, but also, as you can see from the product displays over here. It's not an accident. It's a deliberate strategy and enables us to exploit our deep technical expertise for maximum value. While we consciously target a wide range of applications, we're not chasing every rainbow. We are focused on opportunities where we can create and capture value by applying our expertise for the design and manufacture of precision, high performance and conformance applications. In addition to designing and molding complex parts, we integrate discrete parts and materials into products to reduce complexity, risk, and cost for customers, and you can see some examples of those on the product displays if you've already seen them today or perhaps after the meeting.
Put simply, we thrive on designing and manufacturing technically demanding products for demanding applications. We are a global business. 80% of our revenue is derived from international markets. We have people and facilities in New Zealand, Australia, China, Europe, the U.K., and U.S.A. The U.S. has been a market of particular focus due to the size of the opportunities and the breadth of customers needing the technology we offer. Over the past seven years, U.S. revenue has more than doubled, and we now have six facilities from which we manufacture and/or distribute product. Europe, including the U.K., Australasia, and Asia, continue to be important markets for growth. We have a consistent customer-focused approach to development, whether we are designing and making products for original equipment manufacturing or OEM customers, for example, components for a Tapware customer or other equipment manufacturers...
or whether we are making branded products for industrial and consumer applications. Examples include our products for roofing applications and our rubber footwear. We invest our resources in opportunities our customers are committed to. Practically, that means us working clearly to understand the need and value of our offering, and ensuring conviction from the customer, tangibly represented by a financial contribution to the development cost, and/or an irrevocable commitment for our product. Our global business is set up to be innovative, responsive, and competitive. As noted earlier, we have on-the-ground presence in the key markets of our customers. It is very difficult to grow without these. These teams of varying sizes are supported by development centers, of which our largest are in New Zealand, but we also have smaller teams across the world.
Our manufacturing capability is a combination of our facilities in New Zealand, Europe, China, and the U.S., and contract manufacturing partners, most notably in Vietnam. The combination of customer commitment to development, that I spoke of earlier, and manufacturing partners mean our capital and development expenditure is relatively low. It reduces the risks of projects failing and allows us to optimize the allocation of financial and human capital. We organize Skellerup into business units within two divisions, industrial and agri. These business units generally align with a location and an application focus. The leaders of these business units are accountable for growth and performance, and this is matched with authority that enables them to make decisions where the customer requirements, the supplier choices, the resources, and the people needs are best understood. These business units draw on and effectively contract with the expertise provided by our development centers.
This structure has been, and will continue to be, a key plank to deliver growth, and it enables robust, regular evaluation and prioritizing of initiatives and decisions around larger investments or commitments and capability, be that equipment or people. Of course, the success of a proven model does not guarantee future success. We are and we will make changes. We are increasing collaboration across the group. This does not detract from focus, rather it's a case-by-case assessment of where the most suitable skills for the best opportunities are. The recent development and launch of our Thrivr team, which you can see over here on the table if you haven't already at the end of the meeting, for dairy calves, was led by Agri Development team, but also used the expertise of our Industrial Development team in Auckland.
We are also alert to the opportunity to better leverage the presence and knowledge of Skellerup businesses in any location across the world to service the needs of other Skellerup businesses, a less siloed approach than we have adopted in the past. An easy step is distribution, but opportunities also exist for manufacturing and converting. I'll now reflect on the recent past, and in particular, FY 24. The key elements of our business strategy and structure have helped reduce the impact of economic cycles on our business, and this is evidenced by the consistent growth in our earnings and cash flow over a prolonged period, as demonstrated on the graphs on the slide behind us. Focusing on FY 24, and to repeat an overused sporting analogy, it was a game of two halves.
Higher than anticipated levels of customer destocking caused a lower than expected first half EBIT, but this was offset by a strong second half across the group, with the aggregate outcome, as John's already mentioned, an EBIT of NZD 72.7 million, up NZD 1 million on the prior year, and an eighth successive year of EBIT growth. Again, as John mentioned, non-recurring, non-cash tax charges related to the removal of tax depreciation on buildings was the primary driver in reducing net profit after tax below the previous year's record. Again, repeating some of what John said, a critical metric for Skellerup and any company is cash flow, and in particular, operating cash flow. In FY 2024, our operating cash flow was a record. The improvement in EBIT was complemented by continued good management of receivables and a planned reduction in inventory.
We have a track record of strong operating cash flow, enabling eight years of successive dividend growth, alongside investing in the opportunities we need to grow our business and keeping net debt levels very low. Looking now to the future and FY 2025, we've had a strong start, with revenue and EBIT both ahead of the prior comparative period. Demand across our industrial division, with the exception of roofing construction products in Australia, has been strong. For the agri division, demand for dairy rubberware in international markets has much improved on a weak prior year comparative, but partially offset by lower, slower sales of rubber footwear, impacted primarily by the New Zealand economic environment. The nature of our business means we do not have long order books to provide certainty beyond the very near term.
Global uncertainties persist, and as in previous U.S. election cycles, we observe some volatility and demand in the months surrounding the election. Taking all these factors into account, our best estimate at this stage is for FY 25 NPAT in a range of 52-57 million, as reported to NZX earlier today. Looking longer term, how might Skellerup look in the future, say, three years from now? Achieving higher revenue and earnings is a given, and I've touched on items such as greater internal collaboration and leveraging existing operations, but there are two further areas I'd like to highlight. The first is greater in-market presence. In recent years, we have talked about the importance of this to ensure profitable market access and to strengthen customer examples. Sorry, customer relationships. I'm jumping ahead. I'll highlight two examples.
We've made very good progress with developing a more advanced, standardized, and efficient manufacturing capability for dairy rubberware products. We will soon have the capability and optionality to deploy this in market at a time we consider optimal and to best meet our and our customers' needs. In early 2025, we will open a facility in the Netherlands to meet growing demand for high-performance foam products for marine applications in Europe. We will deploy a proven business model, which includes capability for kit conversion that we currently deploy in New Zealand and Australia. The second area of change is likely to be a larger share of our revenue being derived from more integrated or value-add products that combine components to deliver a more valuable proposition for customers.
Our vacuum system solutions are a fantastic example of this, where we have continued to integrate additional elements, making our customers' task of installing these systems on their trucks much faster and more cost-effective and increasing the value captured per unit of sale for Skellerup. We continue to see opportunities to build on this, with the most recent integration being the inclusion of a water pump. And if you'd like to talk a bit more about that afterwards, you can chat to Guy or Logan. Another example in our industrial division, which we have talked about a little bit in recent years, is a foam dispensing pump for a global hygiene customer. Our product incorporates eleven discrete components manufactured and assembled by us, and sales for this grew considerably in FY 24.
In the agri business, we've recently launched a milking liner, preloaded in a single-use recyclable shell, which greatly reduces the time required for the exchange of liners in a milking shed. Our team is working to take this a step further with a single-use recyclable cluster in due course. All of these examples have a common theme: reducing complexity and cost for customers, genuine value add for them, and value capture for us. We have other similar opportunities with customers that we're working on. I've discussed our business strategy and structure, recent results, the immediate outlook, and future. Our achievements and future ambition draw on the skill, tenacity, and contribution of many people who are represented by a small but important group today. I'll introduce you to them now. Alongside me is Tim Reynolds.
Tim joined Skellerup in March 2021, and he reminded me, as Group Financial Controller, and that was during one of the, the COVID lockdowns. Regular attendees will remember Tim's recent cameos behind the microphone as the interface for John and virtual attendees. It was a straightforward decision to promote Tim into the CFO role. He has a background in CA environments and listed companies in South Africa and New Zealand. He's highly competent, driven, and a strong match for our needs now and in the future. On the floor, we have a number of business leaders and specialists, many of which you have met before, but a year is a long time, so I'll briefly introduce them again.
Dino Kudrass, maybe stand up, Dino, joined us in twenty twenty-one to head up product and process development at Agri Division, Agri Design, Manufacturing, and Distribution facility in Wigram. Dino's rapid and valuable contribution resulted in his promotion to head the Agri Division at the beginning of November last year. Guy Muly joined around about the same time as me in December 2012. Guy moved to the U.S. in 2016 to spearhead growth for our vacuum systems business. His success means increased opportunity and responsibility. He also now heads our engineered polymer products business, focused on potable water, hygiene, and other industrial applications in the U.S., and our roofing and construction businesses in the U.S. and U.K. Patrick Crotty joined our OEM engineered polymer products business in Australia in 2016 and was promoted in late 2018 to lead the business through a period of considerable change.
Pat's contribution and capability led to the expansion of his role to lead our global Ultralon Foam business, including New Zealand, Australia, the U.S., and Europe, late last year. Sean Spacey. Sean heads our product development center in Auckland. Sean and his team have been instrumental in the growth achieved with our OEM business in North America. More recently, their ambit has been expanded to provide technical expertise for our global foam business and for some of our roofing products. Sean's been with Skellerup since we acquired Gulf in 2007. Christian Spears. Christian is the leader of our DEKS roofing construction business based in Melbourne, servicing the Australian and Asian markets. Christian joined in 2017 and was promoted to lead the business in 2019, transforming the way we engage with customers and generate demand in Australia and relocating the business to a modern, efficient distribution center in Melbourne.
Bhargav Dave. He heads our rubber and engineered plastic manufacturing facility in Auckland, joined in twenty twenty, ahead of a swift rise to VU manager in twenty twenty-two. Bhargav's business is not only a key supplier to technical customers in New Zealand, but he's also a partner to our global businesses. Mike Draper. So Mike heads our engineered plastics business in Christchurch, manufacturing demanding products for international and domestic customers in electronic and health applications. Mike joined Skellerup when we acquired Talbot in September 2021. Logan McKenzie. Logan plays a key role in the ongoing development of our vacuum systems and supporting international growth. With over thirty years in vacuum systems, his vast knowledge is invaluable, not only to the development and manufacturing of our products, but also to our customers. Some new faces now, and I think they're sitting down the back.
Troy Ballantine is the Head of Commercial Operations for Agri. Troy joined Skellerup in 2023, and Shayden Whipps is the Marketing Manager for Agri. Shayden joined in July 2023. Both Troy and Shayden are based at Wigram as part of Dino's team. Kim Summerhays is our Group Financial Controller, joining us in June 2024, following Tim's promotion. Kim was previously with Television New Zealand, so is well-prepared for the virtual intermediary role today. Finally, but certainly not last, Laura Dixon, standing down the back, our EA, and will be well known to many of you. Laura joined in 2014 and makes a significant and versatile contribution, both managing and supporting a broad range of activities. These are some of the people who have been and will continue to be important contributors to Skellerup's success.
I'm excited about the ambition we share and the collective skill, courage, and capability to initiate and embrace change, to improve and grow our business. Please take the opportunity to chat to them if you've not already done so before the meeting. To close, while they know it, I've expressed my appreciation to the board for their commercial direction and perspective they bring. Their availability, engagement, and experience are invaluable, ensuring robust debate and sound decisions to deliver the best outcomes for our future sustained success, and a final thanks to all in attendance today, both in person and virtual. We appreciate your interest and investment in Skellerup. We're committed to continuing to apply ourselves, deliver critical products for customers, and to deliver excellent returns for you. Thank you.
Thank you, Graham. Before we move to consider the resolutions before the meeting, we will now open the floor to floor and online participants for any questions on the presentations provided by Graham or myself. A reminder to please state your name and whether you are a shareholder or proxy holder. I'll first take questions from the floor. We have people with microphones just anxious to take your call.
Cheers. Gary McMaster, shareholder. You purchased a company, I think it was called Silclear, a couple of years ago, which was involved in medical and products and packaging. How is that proceeding? I haven't really noticed that much comment on it.
So we bought, we purchased Silclear, actually not long before lockdown. I think it was November 2019, at around about the same time the Rugby World Cup was on, because John and David were in Japan. So that business is primarily focused on the extrusion and molding of silicone products, primarily for the dairy sector, and our motive for buying that business was it complemented nicely the range of food-grade rubberware products that we had, and the opportunity to sell more of those products into some of our existing customer base. So the business has performed well. It does have a limited range of sales into other applications, but the business has performed well, and we still consider these ample opportunities for us to further grow that business. It's met our expectations of that.
Peter Kamel, shareholder. Just a question regarding the sales growth. How much of that is attributable to price rises as opposed to volume?
I can't give you a straightforward answer to that, 'cause I don't have it at hand, but perhaps a way of thinking about it, if you look at our results, I think we may have had it on one of the pages, but we... Over a seven-year period, our gross margin has steadily grown, and most certainly, price increases are a part of that. There was opportunity in some of our businesses where I think we probably undervalued the value we created, and with a better understanding of that, we've been able to capture more value with some price increases. Also, typically, when we're bringing in new business, and some of the more technical products we are producing, there's an opportunity to earn higher margins than we have for some of our more mature products.
So certainly an element of it, Peter, is price rises, and particularly perhaps in the agri division, more recently, there's actually been an underlying volume reduction as customers who've moved to a longer life, more valuable product.
Hello, my name is Alan Best, and I'm a shareholder for a long time, and enjoyed being it, too. We're all interested in tomorrow, and I wondered if you could give us a bit more of a feeling of what the pipeline is like, that you've got out there waiting, if you like, for some decisions, some implementation. Is it greater or less, given the economic circumstances we're in?
Even, even I can speak to that, although Graham will probably add some detail. I don't think the pipeline's been healthier and stronger ever in my time at Skellerup. There's some really fantastic opportunities out there.
Nothing to add.
But we're not gonna tell you what they are.
I'm Coralie Van Camp, shareholder. Thank you for a lovely dividend, and congratulations on your result. Graham, I'm not sure if I heard correctly, but you mentioned a single-use product in the milking shed. What is it? And of your products, how, what % are recyclable?
So, answer the first part of your question first. The dairy rubberware products that we sell, and I could easily get Dino to answer this more eloquently than I would, but most of the dairy rubberware products we sell are consumable in nature, so the very nature of milking and milk fat breaks down the material, so ultimately it needs replacing. That's actually a good thing. It means we continue to sell the product. And the example I was giving before there about a single use is exactly that, in that the team have developed a shell the liner sits in, that is able to be recycled, whereas, the conventional method, in the milking shed is for a stainless steel shell, which is not able...
I guess it could be recycled, but not able to be recycled as easily as the product initiative that we've come up with. In terms of what proportion of our products are able to be recycled, I talked about the dairy business there in terms of a number of our products being consumable. On the industrial side, a number of our products go into an OEM customer's product that has a life of a very long period of time, so they're not consumable in nature.
So the single-use product-
Mm.
then negates the need for the stainless steel shell to be washed?
Yeah, it does, and the emphasis on it is much like we were talking about before with the vacuum systems business and how some of the things we've done has made the installation time on a truck much quicker to reduce the valuable labor cost that's incurred. The objective of a product like this is to make the process of changing out liners in a milking shed be performed, maybe performed more quickly than it can under a conventional method of having to undertake all those activities in the shed.
Thank you.
Dino, would you like to add anything to that?
Maybe just, just briefly, the average change intervals for a liner in New Zealand sits probably between 4,000 and 5,000 milkings. Every expert in the industry agrees that it should be closer to 2,500 milkings. The main barrier to a more frequent change of that consumable is the effort, the labor intensity of doing so. So moving to a recyclable single-use shell will incentivize farmers to change liners more often as they should.
One more. One more? Okay.
Douglas Lowe, shareholder. Maybe for Graham or Tim, but there's usually a degree of seasonality in the first half. In the outlook, what degree of seasonality are you expecting in the second half of this year?
I think as I commented at the last year-end, the sort of a long tail impact of COVID is, during that period of time, there was less seasonality in our numbers. Last year, as I talked about today, the first half was quite weak, and the second half was much stronger. We don't expect a repeat of that degree of seasonality that we had in FY 2024 to repeat in FY 2025. There will still be a degree. We would expect ordinarily our second half to be slightly stronger than our first half. The impact was exacerbated in FY 2024 because of the restocking activity that was happening both in the dairy sector and in our marine foam product sector.
By and large, we're not suffering those sorts of impacts now, so hence a stronger year-to-date result, and we won't see the same sort of skew in terms of first half, second half, results this year.
That seems to be the conclusion of questions from the floor. A reminder that there'll be another opportunity to ask more general questions of us later after conclusion of formal business. Kim, our famous moderator, are there any questions online?
There are no online questions at this time, Mr. Chairman.
Okay, very good. We'll now move to the part you all like, formal business. After last year's procedure fest, we tried to streamline the process that follows. It'll be up to you to judge whether we succeeded or not. I fear a negative vote. But we now turn to the formal business. Following, as I've said, there'll be an opportunity for further questions of me, Graham, and indeed other directors, and I know David's keen to speak. He's not used to not speaking at an annual meeting about the performance and the business of your company. We have four resolutions to be voted on today. The first two relate to the re-election of Alan Isaac and myself as directors, the third for an increase in the non-executive directors' total fee pool, and the fourth being the auditors' fees.
I shall give an opportunity for discussion for each resolution, and we will also monitor the online platform for questions. At the appropriate time, should you wish to raise a comment or question, please raise your hand and we will bring the microphone to you, or for online people, submit your questions online. Again, please advise your name, whether you're a shareholder or a proxyholder, and the name of the shareholder you represent. As noted earlier, in accordance with the NZX listing rules, the voting will be by poll. Those here at Eden Park should all by now have a voting paper. We know that. We asked you earlier, and as noted before, online attendees can vote at any time. A number of shareholders have cast a postal vote or have appointed proxies to cast their votes ahead of today's meeting.
I advise that the board is holding discretionary proxies, which will be voted in favor of all resolutions. Resolution number one, re-election of Alan Isaac. In accordance with the company's constitution, Alan retires at this meeting, and being eligible, offers himself for re-election. The board recommends Alan to you as a director of Scalar Up and unanimously supports his election. Before we consider the resolution, I'd like to invite Alan to briefly talk in support of his election. Alan?
Thank you, John. Good afternoon, everyone, wherever you are today. I welcome the opportunity to speak briefly. By profession, I'm a chartered accountant, but I've had significant commercial experience with a number of leadership roles, both in New Zealand and internationally. I mention the commercial experience because, in my opinion, experience is being undervalued today in the interest of greater focus on diversity in many aspects of our life. I've been a professional company director since retiring from the leadership role at KPMG in New Zealand in 2006, and I was first appointed to this board in 2016. I chair the Audit and Risk Committee, as I do in my other two listed roles at Scales Corporation and Oceania Healthcare.
At Skellerup, we have a strong focus on the skills required on the board to effectively govern Skellerup, and in my opinion, we have a very capable board with a high level of trust and respect in each other, and I look forward to your support so I can continue to add value to Skellerup, which has a very strong balance sheet and is well-placed to achieve profitable growth. Thank you.
I now move as an ordinary resolution that Alan Isaac be elected as a director of the company. I will now pause for any questions on this resolution, and again, we'll take questions from the floor first. Kim, are there any questions from the online population?
There are no questions on this resolution, Mr. Chairman.
Thank you, Kim. We now move to resolution number two, the re-election of John Strowger. I think Alan will chair this component of the meeting.
Before you hand it over to me, John, to chair this part of the meeting, you were gonna speak, but so it's over to you to speak, and then I think I pick it up from there.
Yes, well, let's speak to the proposition. I guess you all probably know me. I don't necessarily need to go through a long CV. I was a commercial and corporate lawyer in a large national law firm for nearer forty than thirty years, whether that's a good thing or a bad thing, and was a partner there for about thirty years, so I completely endorse Alan's comments about experience. When I think about the skill sets that go to determining who is a good or at least functioning director in listed environments, I think some of this does turn on context.
We can all think of environments where the director's role is a very intensive role, where a company, if a company's in financial difficulty, or is, for example, tendering on a series of projects, all of which it appears to lose money on, there's a real case for strong, heavy, directive engagement by boards. Happily, though, we are not in this position with this company. If it's not clear to you already, I'll say it again, we have an incredibly strong senior leadership team with great depth on the bench, very low debt, tremendous faith in what they do. And I think in that circumstance, really, the role of a director, for my money, is to encourage, to offer suggestions politely, and to not get in the way.
And so if you favor me with re-election today, I promise to continue with that strategy, to encourage, to offer suggestions politely, and most importantly, to not get in the way. Thank you.
Thank you, John. So, in accordance with the company's constitution, John retires, and being eligible, offers himself for re-election. The board recommends John to you as a director of Skellerup and unanimously supports his re-election. So I now move as an ordinary resolution that John Strowger be elected as a director of the company. Are there any questions? Thank you. I speak. Sorry, Kim, online?
No online questions.
Thank you.
I was hoping my father might have had an online question, but we turn to resolution number three, the increase in non-executive director's total fee poo l. The resolution is that the non-executive director's total fee poo l, it's quite a mouthful, be increased by NZD 200,000 from NZD 650,000 to NZD 850,000 per annum, with effect from 1 July 2024, to be divided amongst the non-executive directors as they consider appropriate. I note that this resolution is put to shareholders in accordance with NZX Listing Rule 2.11.1 and relates to the maximum aggregate fees payable to all non-executive directors per annum. At present, the total fee pool for non-executive directors is NZD 650,000 per annum, as approved by shareholders at the company's annual meeting on 25 October 2021.
It is proposed to increase the total non-executive director fee pool by NZD 200,000 to NZD 850,000 per annum, being a 31% increase. The board will determine how fees are allocated among directors. Should the resolution be passed, the initial allocation of scheduled board and committee fees payable to non-executive directors per annum will be as set out in the notice of meeting. There are no committee fee, members' fees paid except for the roles of Chair of the Audit Committee and the Sustainability Committee. The company is seeking approval of shareholders to increase the total fee pool for non-executive directors for the following reasons: One, to provide for an increase in the number of non-executive directors on the board.
Prior to David Mair from Chief Executive Officer to non-executive director on April 1, 2024, the board comprised five non-executive directors and one executive director. Following this change, the board comprises six non-executive directors. An increase in the pool is required to enable all non-executive directors to be remunerated at the current fee level, that is, in order to pay David. Secondly, we seek the increase to ensure the company can continue to offer directors' fees to retain and attract non-executive directors of the highest caliber. The company has significant global operations and continues to deliver robust financial performance.
The board considers, in light of the workloads and responsibilities undertaken by the board and consideration of the independent report prepared by PwC as contained in the notice of meeting, that the proposed increase to the total annual fee pool for non-executive directors is fair and reflective of market conditions. Based on current board membership and committee composition, the proposed total annual fees payable to the company's non-executive directors will be NZD 750,000, leaving NZD 100,000 of the proposed increased pool unallocated initially. To be clear, there is no current intention to increase the amount of total fees paid, save for the allocation necessary to remunerate David Mair as a consequence of his moving to non-executive director status. The proposed increase in non-executive directors' fees has the unanimous support of the board.
The NZX Listing Rules require that remuneration of directors be authorized by ordinary resolution. In accordance with the NZX Listing Rules, each director and all associated persons of each director, as that term is defined in the Listing Rules, is disqualified from voting in favor of this resolution, other than where the vote is cast by a director or associated person of a director as proxy for a person who is entitled to vote in accordance with the express directions of the proxy form to vote for the resolution. Practically, this means that David Cushing, David Mair, Alan Isaac, Paul Shearer, Rachel Farrant, and myself will not vote the shares that we or our associated persons have a beneficial interest in, but we will vote shares as a proxy for non-associated persons where we have been appointed.
I now move as an ordinary resolution that the non-executive director's total fee pool be increased by NZD 200,000 from NZD 650,000 to NZD 850,000 per annum, with effect from 1 July 2024, to be divided among the non-executive directors as they consider appropriate. I'll now pause for any questions on this resolution, and again, take questions from the floor first. Anything online, Kim?
There are no online questions on this resolution.
Thank you, Kim. We turn to the fourth and last resolution in the formal business: remuneration of the auditors. Ernst & Young are the existing auditors of Skellerup. Pursuant to Section 207T of the Companies Act, Ernst & Young are automatically reappointed as auditors for the ensuing year. The board seeks the approval of shareholders to be authorized to fix the remuneration of Ernst & Young for the 2025 financial year. I now move as an ordinary resolution that the directors be authorized to fix the remuneration of the auditor for the year ended Thirty June 2025. Are there any questions from the floor? Kim, are there any questions online?
There are no questions online, Mr. Chairman.
Running a lean ship today. Thank you, Kim. Ladies and gentlemen, that concludes our discussion on the resolutions. Here we go again. If you wish to vote on the resolutions, whether in person or online, you should do so now, as I will shortly close the voting. Once all the votes have been cast, they will be counted by the company's share register, Computershare. The results of today's meeting will be released to the NZX on completion of verification of voting. I will now pause to allow you time to finalize your votes, to the extent you haven't voted already. The script says I wait 15 seconds. I won't. Voting is now closed. For those of you here in the room, I now ask Computershare to collect the voting papers. We now move to general business.
At this point, we will open the floor to any questions on Skellerup's performance and any other matter shareholders now wish to raise, including questions submitted online during the course of the meeting. Again, a reminder to please state your name and whether you are a shareholder or proxyholder. I will take questions of any general nature specific to Skellerup from the floor first.
Peter Kamel, shareholder. You mentioned last year about examining the possibility of in-market manufacturer, and we've got a significant business risk about to be voted on in the U.S. in the next few days, and the tariffs. Can you give us an update on how that project's coming along, please?
I talked about it in general in my address. It's a topic that firmly occupies the board's attention. Graham will provide now the granularity on the initiatives we've undertaken to date, to the extent he's comfortable to disclose them.
So, I mean, obviously that's an important factor and consideration for us, Peter, and what was it? Ten years ago, I guess now, there was some tariffs imposed which had an impact on our business, and we were able to manage our way through that. So, I guess at the moment, we don't know what the outcome's gonna be, but what we can do is be thinking about the actions we can take now or we might take subsequent, depending on how they fall out. So some parts of our business, obviously, the country that is perhaps most in the sights of one of the administrations that might come in is China.
So we have been looking at alternatives in terms of where we might undertake some of that work and doing some initial work on that. So we'll be ready and able to make an orderly change if that's what we need to do. But at the moment our businesses are well-managed, well-run. In some respects, for some of the products we have, we do have the opportunity to adjust our prices to compensate. But that also depends on the competitive environment in terms of what sort of position our competitors are in. So it is a case-by-case basis. If the tariffs are imposed on a wider group of countries, well, then that's also a consideration of why and where we might be doing things.
In terms of a more substantive process on being able to manufacture products in-market, which is something we've been talking about for a number of years, we've taken a number of small steps. For example, in North America, about 18 months ago, we took full ownership of a small manufacturing facility in Wisconsin, which gives us a small platform but something we can expand upon. And we set up a manufacturing partnership with another manufacturer in North America to manufacture a limited range of products at the moment. And then within our own businesses now, and I dwelt a little bit on this in my address, particularly for our dairy rubberware products, we have been investing in developing a more standardized manufacturing process.
And by that, I don't mean we are oversimplifying and losing our intellectual property. We've still got the intellectual property in our product, in our product design, in our tooling, and how we make it. But in terms of a more standardized piece of equipment for how we might do that, we've been progressing that along the path. So I guess we're working on it, as you would expect, in a number of ways, so that we can respond in the way we might need to.
I guess the other point is we intend to respond rather than anticipate. You know, we're configured, the way we're configured works well now, but we're not immune to this change, so we've certainly taken all preparations to be able to respond quickly, should the tariff position change in the U.S. or elsewhere. Any other questions?
Alan again. Given that, you've got batch manufacturing processes largely, do you face any capacity constraints in any areas that you can foresee?
Graham's telling me no. I mean, on occasion, I know at Agri, down in our Wigram facility, we run extra shifts. It's 24/7 from time to time, but we don't anticipate any absolute obstacles.
I guess the other thing is, our manufacturing models are scalable in most of the facilities that we're in, and particularly if we talk about the progression we're making to some more standardized equipment, also gives us the opportunity to adjust and scale up as we need to to meet increases in demand, so it's a constant thing for us. Each year we are either investing in some new capacity, which increases what we have, or to replace some of our older equipment and get both capacity gains and efficiency gains from that.
You know the question, Tim, Kim, what's the answer?
We have a question.
Excellent.
We have a question from Sylvia Watson, shareholder. Sylvia has asked, she said, "Congratulations on an excellent result for FY 2024 and the subsequent dividend. Has there been any consideration about reintroducing a, about introducing a dividend reinvestment plan?
We had one very historically. Utilization of it was anemic. It is suspended currently, but there's no current intention to reopen it or resuscitate it. There's something called the NZX Market every day. If Sylvia wants to reinvest her dividend, she's more than welcome.
There are no further questions online.
There appear to be no further questions, in which case, I'd like to thank you for your attendance, and I now declare the meeting closed and invite you to join directors and management for what is sometimes referred to as afternoon tea, but certainly and also refreshments. Thank you very much for your attendance.