Zotefoams plc (ZTF) Earnings Call Transcript & Summary

Good afternoon, and welcome to the Zotefoams plc investor presentation. [Operator Instructions] Before we begin, I'd like to submit the following poll. I'd now like to hand you over to David Stirling, CEO. Good afternoon.

Good afternoon, Lilly, good afternoon, everyone else. I'm 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 poll -- in the Q&A chat, sorry. It may be, if a question comes in that we get to answer it on time on the slide, but more likely, we will close the session with Q&A at the end. So if I can start the presentation. Zotefoams today, we think about in 3 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'll 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 the HPP foams looking to enhance the attributes that are already in those polymers with more premium materials such as materials which don't 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 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. So we're 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, GBP 0.2104 up 126%. And because of very strong cash generation and paying down our debt, our leverage ratio has dropped almost one whole turn of EBITDA to 1.2x. 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's a smaller absolute number, still up 23%. We have, particularly in high-performance products and MuCell being aided by a stronger U.S. dollar. And in polyolefin foams, the main reason for the growth was pricing and a little bit of product mix. Because of those pricing improvements and because of our high-performance products being a 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 up at MuCell and more about that later, but those record profit figures are after that amount of investment in that business. We're not just about sales. We have a 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's more sensible to invest the money to get better improvement when the prices of those things are higher. So our PBT up 74%, as we said, a group record with EPS up to 20.6p, and we are paying a 5% increase final dividend in the year. Cash generation, up 80% to GBP 23 million, with a very strong free cash flow of GBP 14 million. And 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've 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 and 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 megatrends of environmental, regulatory and demographics, and we have well-invested global capacity in this regard. High-performance products. We are very close, an exclusive relationship with Nike in footwear. So keeping that going, offering them new products, getting spec-ed 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. And that cost is not always price. Sometimes it's product design, allowing better yield -- material yield for Nike. The other 2 parts of our HPP business are in insulation and aviation and very strong growth in those. We'll 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's 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. And I'm very pleased that we'll come out with a whole load of metrics around water, energy per unit revenue, waste, et cetera, in our annual report. But a lot of this is captured by ratings agencies and one of the bigger ones or better used ones is MSCI, we have been given a AA, which is the second top rating. And even looking at the AA rating, I can see that there are certain areas where we can improve the disclosure, and that's going to get us an improved result, not just improve the performance. So very pleased with that. Very, very few companies in our industry have AA ratings on the MSCI Sustainability Index. And 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 1/3 of sales today, and those sales going into Asia, which skews the geographical revenue towards rest of the world. So the key point here is that we are well balanced, both geographically and industrial and a pretty stable growing business in all areas. So given that, I'll hand over to Gary to talk about the numbers, and I'll come back and cover business units in more detail later.

Thanks, David. I'll start off just by reminding everybody, this is -- we have adjusted numbers in here, David has referred to that earlier. That's often how we present to the analysts. There's not a lot of adjustment at Zotefoams. We're really talking -- when you look at adjusted, what I'm effectively doing is removing for 2022, some GBP 260,000 worth of amortization costs, and for 2021, around GBP 230,000 were related to acquisition of MuCell back a good 10 years ago. So that's fundamentally the difference. So if we do get a bit confused between the 2, it's not a big difference. So where are we, as David said, group revenue up 26% or 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 of 400 bps up at GBP 38.7 million or 30.4% gross margin. And the key drivers are there, as we've already talked upon, where we really get 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%, but the euro is fundamentally hedged by way of the fact that we sell into Europe, our large AZOTE market in euros, and the 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's a little bit confusing on the face of it, it looks like a 35% increase. And if I actually break it down, it's 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're very much out of COVID now, we feel, and so we've started to return as much as grow at certain costs behind high sales. But more importantly is that admin line, which we report, including our hedging movements. And 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're left with a 22% increase in admin costs, which is about GBP 2.7 million. And that 2/3 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 -- that gives us adjusted operating profit of GBP 14.2 million, as David said, which is about -- is 70% up on last year. And then we have interest charges. I don't normally present the interest charge, but it's starting to get more relevant this year. And you can see it's 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. And so if you actually look at a like-for-like, you're looking at 1.3 against 1.1, which is about a 25% increase. That reflects the obvious increase in interest rates. We are not -- we don't -- we have a multicurrency 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 GBP 25 million, GBP 30 million.

Gary, we just lost your audio momentarily. Let me just bring you back in, if I may. Gary just comes back in. David, we've just lost Gary. He's going to be coming back in -- he's been disconnected. So I'm just waiting for Gary to come back. I don't if you just want to pick things up and I'll jump back in when Gary comes back in.

Yes, I can do that. So let me just -- the income statement. So what I will do is I will -- I think Gary pretty much finished on the income statement. If you have any questions, let's hold those and move on to the balance sheet. So 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 resource. And obviously, the payment of the debt, the reduction in debt, increasing our net assets ROCE up at 10.1% in the year. And just to remind you, we refinanced in March, our banks are Handelsbanken and NatWest. So not in the news currently and with slightly better terms with 4 plus 1 years on our debt facility. So nothing that's being renewed at any point in the future. So 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 generated -- cash generated from operations at GBP 23 million, not much movement in working capital at all. So the profitability with an GBP 8.2 million depreciation coming right through to the cash generation. We can see here that we haven't invested hugely in capital expenditure in the year. It's been about GBP 7 million, which is slightly below depreciation with which a run back to is the resource. So not a significant amount of money going into the business for new capacity that's been well invested over the past few years. And here comes Gary back.

Sorry, David. I've been sticking ...

Nope -- he's gone again.

Sorry David, please carry on.

I'll carry on. So if we look at some of the main influencers on our profit & loss account outside the sales numbers, our major raw material is low-density polyethylene within our polyolefin business. And 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 euros per tonne and that's made up of 2 components. It's made up of ethylene, which is the old derivative, which is the blue shaded segment. And then the additional cost of turning -- or the price of turning that ethylene into polyethylene. And you can see on the left-hand side, and it's not a different scale, but still use per tonne. The blue line showing a fairly muted cost of turning that ethylene into polyethylene. And then suddenly, it became very, very expensive in mid '21 onwards to get the ethylene into polyethylene. And that was mainly as a result of the market stopping functioning well. So our raw material cost really shot up at that point. And it's been well above the long-term average from sort of -- for the first, second quarter 2021 right through to the half year 2022, at which point this cost started to come down again. So what does that mean? Well, partly, that was the impetus for us for prices, that plus energy will cover in a minute -- but the volatility can be quite difficult to deal with because you've got the prices to your customers and then your costs quite clearly go down. So we're keeping an eye on the pricing of polyethylene and our pricing to our customers as a result, and that's something that's very active process with our customers, not quite on a weekly basis, but it is something we're 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 EUR 300 a tonne, which has 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 cost increased by over 50% to GBP 7.3 million from GBP 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. Obviously, at GBP 4.8 million in 2021, it was about 5% of sales. And although it's gone up 50%, it's now about 6% or 6% and a bit of sales because our sales have increased, our prices have gone up. And right now, energy costs are starting to come down from their peaks. But we normally would hedge forward and have a good idea that the forward energy costs compared to the current costs are so high that we're not hedging at all. And again, the market seems a bit of disarray. Nobody wants to take the risk. So we're dealing with that in a slightly different way in the past. And then foreign exchange, I think Gary covered quite well. But significant impact on the dollar in particular in the year, and that's inflated our sales numbers positively particularly in HPP. Didn't 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 is slightly -- maybe 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 in the demand side and not very strong automotive businesses. But as in the U.K., North America, Asia, actually, we saw growth and North America in particular, which has been a more stable market, not as impact of energy prices, we grew very well. The energy costs, the polymer cost, et cetera, I've talked about, but one of the key things is that as our business grows, it's the ability to manage the sustainability. And 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 and starting to gain traction in the European markets, not yet launched in America. And then manufacturing efficiencies that we had referenced in 2021, beginning to be addressed. There's still a bit of way to go. So there's still some benefit to be had there, particularly in North America again. So 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, grew by 29% in the year with a profit in segment of 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 our installation business up 48% as well. So good underlying growth in installation as 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 is a material, but before it was just road and track. And now you're looking at other categories for using our materials. That's something that 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 the 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, we 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 relativity 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 resource development and resources all about sustainable packaging, particularly we have decided to focus on cartons for juice and milk. If you go down to supermarket, you'll find on the -- not on 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 get up to 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 a technology within the MuCell business. It does rely, believe it or not, on foaming. And that's something which is -- we have filed a number of patents on, and the first patent has been granted in the U.S. and -- which is very, very encouraging. So 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, derisk and perhaps accelerate the development of that within a defined risk appetite for [ the Board ] and that's something that's progressing right now. That market is huge. So a 1% market share would be equivalent to about size of Zotefoams today just in carton. So it's something that potentially is very, very attractive. But still some way to go on that. If we look at the sustainability angle right across the business, we believe very confidently, I think, believe that we have 4 key aspects of our business, which demonstrates 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 the alternative solutions. And in new product development, we are really focused on the use and the sustainability argument to the new products we are bringing out and that includes recycled products, as I said earlier, with 30% recycled content, a resource, barrier packaging, et cetera. And even today, 85% of our revenues come from products which are considered green according to an external evaluation criteria. Now I don't know why they won't let us use the name of the criteria anywhere. But I can assure you, it is external. And as I said, we've been rated AA by MSCI and we do subscribe to the financial reporting and climate change reporting standards. So an awful lot of information going out there about what we do and how we do it in target setting, et cetera. And making pretty good progress there. And I absolutely assure you, everything we do [ is all forms of ] sustainability is they are as one of the criteria that we look at to make sure that we are thinking about future-proofing our business. Okay. So a couple more slides. Just quickly on ReZorce. It is the first fully recyclable beverage carton using monomaterial, much less water, much less energy and much lower carbon footprint expresses global warm potential. It's 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're interested in. IP backed and scalable, and that's 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, and we are proving that as we speak. So moving to these premarket trials focusing on carton as I said, we -- we're not an acquisitive company, but we did buy some assets and some know-hows people from business in Denmark. We are trying to do the same thing and that had probably not managed the cash very well. So we've got a really complementary deal there for not much money at all. And as I said, we have appointed an adviser to seek that strategic investor. And then finally, just that if you've been asleep or you dosed off or you just want a succinct view, record revenue, 74% increase in profit. We've done that after investing in this wonderful new technology that could have a great future, really good cash generation and reduction of debt. We have increased the dividend, and we are a well-diversified business growing in a whole lot of areas with that good sustainability position. And the outlook right now is that the markets out there are still difficult. I think they're better than they were in 2022, so where we closed the results you saw. But there's still some challenges. But the team have done a really good job in getting us where we are. High performance products, we have solid expectations of underlying growth there and the input costs in energy, raw materials, nitrogen, et cetera, are all baked in. 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, I should expect. But I will say just a couple of things. One is that we got a program of support in for our lower-paid workers in the U.S. and U.K. and Poland last year. And 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 GBP 32,000 and GBP 50,000. And we are looking to settle a decent amount this year for wage inflation. So it isn't numbers, but we are being responsible citizens as well as try to make sure we can attract and retain skilled workers in today's challenging environment. So that's something which is positive. So overall, we are confident about the future of the business. And I think we're in question time.

That's great. David, thank you very much indeed, and we have Gary back. Gary. I'll just bring back up here 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. David and Gary, take just a couple of moments to review your questions submitted already. I'd like to remind you the recording of this presentation along with the copy of the slides and the published Q&A can be accessed via your investor 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. And if I may, David, Gary, if I can hand back to you and if I could just ask you to read out the questions and then give a response where it's appropriate to do so, and then we'll pick up from you at the end.

Okay. So I think we just take them as they come, which will mean diving in and out of subjects. The first one is from Kevin R. and I'll pass this one to Gary actually because I've done a lot of the heavy lifting with him dodging off. And so the question is, what is the target on return on capital employed, should the company not have nearer 15%?

Yes. first, I apologize. I -- trust me, you missed 5 minutes of excellent presentation of the balance sheet and cash flow, but I'm convinced David did a very good job too. I didn't realize I wasn't talking to anybody until a bit late. The question on the ROCE, we actually have had out of the slide for those that have the deck, it's the last slide. We added a little bit of a 5-year performance chart. And that shows that back in 2018, we had a return on capital employed of 16.5%. And the reason we were -- we're not there now is because of the investment cycle we're in. We've invested quite significantly in the last 6 years and indeed, that is also in the prelims in the CFO review. You can find the annual investment there. And if you thought -- if you think that now we're at about GBP 8 million of depreciation and back a good few years ago, it was about GBP 5 million or GBP 6 million, we actually invested 1 year it was GBP 24 million, the year before that GBP 18 million, as we put the capacity into the U.S., into Poland and then into the U.K. So we're carrying a capital employed level that is -- that allows us to be able to grow and expand in the coming years, but we're 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, we -- you're seeing an increase from the low of 6% to 10.1% this year. And going forward, as we utilize our plant better and as we mix enrich 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 suggest that the material further expenditure is being planned to bring the product to market. What sort of expenditure is envisaged and over what period? So there are really 3 main stages here, Andrew, and everyone else. The first stage is what I'd say is that in-market validation test. So if it's 50,000 or 100,000 units going out to a couple of specific markets for about consumer feedback, about making sure that the recycling gets done properly, making sure 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 is 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 million 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 cost 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 not to scale up. So when we look at a strategic partner, we're looking for 2 things. One is knowing that if we start the journey that we can finish it. There's no point getting to stage 1 and stage 2 and then going we have no money to scale up. And the other one is that with the right strategic partner, we believe we will get there with less risk more quickly and therefore, save money and get to market more quickly. And the amount of scale up money at the end really depends on how aggressive the customers are, 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 are 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. And that really answers your next question about how we eventually intend to fund resources such a massive market. We believe that we can make profit pretty quickly. So 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. What's the -- can we expand, please, on the potential for ReZorce? What's the addressable market, revenue, why MuCell cannot be ignored by the industry compared to the incumbent. So the addressable market is -- it is in excess of 100 billion cartons a year. That's an 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. And so our technology can be used for all of that. And 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. And 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 alternative. And 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. And I think people are watching us and waiting. But I think we have got people interested in this technology. And that for us, it's about how do we manage to scale up? How do you manage the risk? And 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, advise us. And this is something which is big, big potential. But also, we need to face the possibility that we get invaded or something else happens, we've seen no sign of that nor do the people we're talking to, but that doesn't mean that it's -- 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. So I don't think -- and maybe a broker talking 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 got -- 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're just going to keep doing what we're doing, communicating and hopefully, we turn it. Another question from Kevin. Any near-term contracts for electric car battery insulation? Well, we have some things going in China that were going quite well last year. And actually, our customer -- this is -- has been told not to use us because we're affiliating with America, with 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, and we are working on it. But if we get something big, then we'll know about it. Okay. 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 focusing -- using those to augment our carton team. A lot of the actions 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 could focus on the carton. We are continuing to file IP on the pouch, so that preserves a position, but carton is a priority. Okay. 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.? So that's from Sam. The market, I think, is always about 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 the portfolios and they end up selling quality companies because that's who we'll buy. And the feedback we've got is that we're a quality company and therefore, transactions, people are transacting our shares as liquidity whereas there is a lot 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 doesn't mean that it's not a no, it just means we're not discussing it as yet. All right. A question from James. You use ethylene and polyethylene which are oil industry derivatives as we transitioned it from hydrocarbon fuels, how do you see this impact in Zotefoams in the medium and long term? And what alternatives are there from the production form and are you looking at transitioning? So 2 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 around and around. 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 was the problem with that? If I'm wrong there, we do need more than bioplastics. We need to distinguish between biodegradable and bioderived. They're not the same thing. So biobased or bioderived plastics can sort of 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. People worry -- biodegradation is really more suitable for throwaway same single-use, where somebody throws in the hedge row or in the ocean by mistake. Our products are not in that market. And therefore, they are more used for permanent solutions. So 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 the intent. So yes, we've looked at this. It's not really an issue. And I think there are many, many people who would be in trouble if this was happening before ours. So I think we are very sensible use of these types of resources. Okay. Next question from Andrew R.: we anticipated the large-scale commercial transfer ReZorce carton. I think small scale is 12 months off, and large scale is after that if we're successful. So 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?

Yes. And in terms of the detailed breakdown, that is in my review in the prelims, where we break it down by revenues by business units and the sub-business units at a high level total sales, as we mentioned, as I mentioned in the -- 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 disclosed that as well and that was GBP 2.5 million after hedging. And that is not very much at all polyolefins, about GBP 0.3 million. David mentioned HPP that is more GBP 4.3 million because a lot of the revenue is -- almost all the revenue from HPP is in USD, whereas the costs are a decent amount are euro based, some dollar but a decent is euro-based and then it had on that as well. So that's primary fundamentally top line GBP 7.6 million, bottom line GBP 2.5 million impact of currency on those results.

Okay. right. We need to just watch our time on some of these. So and just our next meeting is at quarter to 2:00. Gary, is that right?

3:00 o'clock.

Oh, 3:00 o'clock. Okay, so we can give a little bit more. 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 not your recent acquisition, can you expand on reasons for this acquisition? So 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. And so as we grew, we generate cash, we're not spending the money on capacity, the debt should fall, and that opens up possibilities for acquisitions. We have a unique technology. It's quite difficult to go upstream. We're not going to be buying polymer companies. And going downstream, we need to be careful because you end up competing with your competitors sometimes and going across you end up perhaps buying technologies that are more me too. So but there are always -- it's a big world out there. There's always a lot of opportunity. We have not ruled out acquisitions and the one we did in Denmark was really about accelerating our technology play and giving us more resources to do that. So if we find certain industries or certain applications that we feel that are really valuable users of our material or technology, then I wouldn't rule that out. But we haven't announced anything yet. So that's 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's very little. It's -- you're standing on the hill waiving the flag. I think there's been a perception over the last few years that Zotefoams, we're quoted in the chemical sector. We've looked at that, and we've been told actually in specialty materials, that's where you belong. We have a certain size, we process plastics. There's a kind of perception that perhaps we're not right for ESG funds. So that's something that we're nudging now with the latest reports come out. And I think to get our brokers and to get an audience with some of these shareholders, I think to be honest, it's been -- 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? And we were getting marked down for uses of polluting chemicals, we're getting marked down for using a private jet, right? Like 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. And so the rating agents were saying, well, I'm not giving them any marks for that, but I'm marking down for that. And so we started from a position of going, do we really have to disclose all the things we don't do? And the answer is yes, we do. And so we are going through a process and being technology companies, stuff with scientists and spend people and engineers and whatever. They -- if they're saying you don't do something, it's almost proven that we don't do it, proof 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. And we're now at a point where we can disclose all this. It costs 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 to get fully to get it 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, one on dividend and buybacks. I'll take this 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. So just keep in -- and then the second one is -- you're not acquisitive company and so retained earnings for nonorganic growth makes lots of sense. So in terms of capital allocation is a question of which option is most accretive to shareholder 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? And please don't say you need to pay dividends because -- and there's a bunch of really, really big American companies named who pay dividends. So what are we thinking about capital allocation, dividends, buybacks, Gary?

Yes. The -- I mean, fundamentally, we're 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 recognize that we need to get our debt down. So the focus has been trying to get -- is more and more of a balance across growth, profit, return on capital employed, those sort of areas. So that's really a management focus at the moment. While of course, we are a growth company with ideas, and we're pursuing those resources a great example of capital being allocated to a high reward but high-risk opportunity. And of course, there's only so many that we can do with a company our size and management resource we have. So I think at the moment, we're 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 what -- where is our debt profile going on -- we would expect that profile to reduce because we're cash acquisitive and that may become a decision-making around that as to whether it's time to expand our Poland plant to make it a plant that's similar to the U.K. and the U.S. or whether it's time to give something back to shareholders. That is something that the Board has not debated at this point, while it's been focusing on other priorities. In terms of rigid dividend policy, I don't believe we had one, our policy is progressive, but we have just invested quite a significant amount of cash in capacity and growing this business and taking on debt. And we therefore -- I don't think it's rigid to say that we've maintained a fairly cautious dividend policy while we need to help ensure that we're funding and drawing down -- paying down our debt levels to maintain a strong balance sheet. Anything missing, David, anything you can think of?

No. I think that's -- that's probably it. So do you want to pick up the next question for me on tax rate?

Yes. So I think you may have heard this bit for me, but we're generally around -- we don't have any complex clever tax vehicles, neither would we seek them. So our tax rate is generally at the moment, driven very much by -- 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 1% or 2% below. Clearly, '23, that's the question as a blended corporation tax period for the first 3 months, we'll be at 19% and the final 3 quarters we'll be at a higher rate. So it will be a blended of that.

Okay. Next question is from David B, how many reportable accidents that the company had in the last year? This will come out with an annual report. I'm happy to give it now. We've got 3 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 got an incident, they're not physically at work and the other one is basically restricted or transferred, so they're at work, but they can't do their main job. And then we measure what's called [ rigr ], which is a reportable incident in -- under U.K. law. So on DFW, days away from work, our rate was 0.51. I'll give you details on this. But the industry benchmark is -- sorry, it's 1.2. So we are less than half the industry benchmark. And DART was also 0.51 and the industry benchmark for that is 2.3. So we're sort of quarter of the industry benchmark in terms of instant rates on that measure. We did have 2 [ rigr ] incidents, which are reportables. One where an employee in the U.S. cut his hand on a blade and required a stitch or 2 stitches, I think. And one where an employee in the U.K. missed stepped -- going down a step and then put his hand out to stop himself falling and unfortunately, broke a bone in his hand or fractured this bone in his hand. He was back at work the next day, but because it's a fracture or a break outside the finger [indiscernible] describes a [ rigr]. So those are our 2 incidents this year. We didn't have any last year and '21, sorry. Next question, Douglas G. How secure our sales to Nike? Obviously, there are risks at having such a large customer relative to group sales. Well, we're very, very close to Nike because as we depend on Nike, Nike depends on us. And so we work with a sort of 2-year minimum. And right now, it's almost a 3-year, it depends on what part of the cycle. We've got back 3-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 the 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. So 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. So Scott M, what is the current utilization rate in Poland? So easiest probably to give you this year's right now, we anticipate about 1/3 of our polyolefin sales business in Europe and the U.K. coming out of the Poland site, which would give us slightly higher than 2/3 utilization on that site for the equipment there today.

That's great. David and Gary, you've taken every question from investors. So thank you once again to everybody on the call today for your for your questions and 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, but 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. So yes, 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 in -- as a team, a great 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 -- so we've got a lot going on, watch the 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 management team can really better understand your views and expectations. It'll 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, I would like to thank you for attending today's presentation. Good afternoon to you all.