Zotefoams plc (ZTF) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Zotefoams sustainability presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting itself. However, the company can review questions for today and publish responses where it's appropriate to do so. As usual, before we begin, we'd like to commit the following poll. And I'm sure the company will be most grateful for your participation. I'd now like to hand over to CEO, David Stirling. Good morning.

Thank you, Mark, and good morning, everyone. I'm joined here today by Dr. Karl Hewson, who's our Director of Technology and Development at Zotefoams Group; and Neil Court-Johnston, who's the President of our MuCell Extrusion subsidiary that will be presenting later on, on topics specific to their scope. But what I'd like to start is just remind everyone a little bit about Zotefoams business. So we're here today to talk about the sustainability angles. I think sustainability has come up many, many times, investor questioning, et cetera. And often, when we present is a subset or a part of financial or interim results presentation. And given its prominence and importance, we felt the appropriate just to give a bit more information on what we're doing, what we've achieved so far and how we see the context in the future. We will cover that in -- or I will cover that in these 6 different categories. So starting with products and markets. Just to remind everyone, Zotefoams has 2 main technologies. We use high-pressure autoclaves to create foams with the unique and highly differentiated properties from a range of polymers. Those are -- our technology facilities are located in the U.K., in Northern Kentucky and in Poland and used to make -- the vast majority of Zotefoams sales today coming from these products. And we think about the products in different business categories, first polyolefin foam. This is where our Zotefoams business originated, really taking materials like predominantly low-density polyethylene and creating premium and durable foams for a range of markets globally, but predominantly in Europe and North America where our facilities are located and to a lesser extent in Asia as we already ship materials out there. We use the same technology, the same asset base to create high-performance foams. And here, we're using higher value, higher performance polymers to create more technical application foams for more technical applications. And the biggest part of this market is high-performance footwear, but also in aviation and space and in our T-FIT insulation products. In addition to that technology, we have extrusion-based forming. That's been something which, in the past, we have licensed people making products to help them reduce the polymer content, common packaged goods. And we still do that. But increasingly, we're focusing on that technology being applied to our new product range, ReZorce. Neil will cover that later on. So the main markets and typical applications are important for us when we look at the different places that we sell foam, really to come under these categories. Product protection is a very large one. Some people call it packaging. But actually, I think -- when we think about packaging quite often, we think about single-use disposable packaging. And our business isn't really involved in that other than trying to completely redefine it through our ReZorce and MuCell technologies. So packaging is all about functionality. Can you protect or transport the product in the packaging? And can you do that at some -- a low cost of damage, a low cost of storage and transportation and importantly, a low cost of the packaging? And typically, traditionally, when people talk about cost, talk about financial costs, increasingly, that's carbon cost as well. And so when we look at the packaging or protection areas that we're involved in the autoclave business, predominantly, we are looking at long life or permanent packaging solutions. So a thing where the foam is part of a solution or protecting very high-value goods for a long time or is reusable. So for example, in the electronics industry, manufacturing computer chips, silicon chips, our foams will make at least a static for different conductor forms that are used in multiple back and forward journeys almost every day to protect these foams during -- protect the chips during the manufacturing transit. If we look more widely, our business in May 2016 identified 3 main trends that would drive growth. Demographics and regulation were two. The third one was environment. So saving scarce resources is something which we have looked at and focused our business on for many, many years. And the long-term strategy for growth has been built around these mega trends that ultimately drive demand for the products. Our purpose is to provide optimal materials, solutions for the benefit society. And when we think about -- the reason we have the solutions word in there is we think about a whole system effect. It's not just about, is plastic good or bad, is the foam good or bad, is it the right or wrong solution. It's always about the context that's used in. And so there are many applications, which we've decided over the years that we don't really want to develop our products to go into. And there are other ones where we see really very high benefit. So you'll see later in the presentation, the T-FIT installation products, aviation products. The benefit that society gets from having our foams used in those solutions is very, very high. And so if we look just historically, 1926 is as far back as we can trace our products being used in insulation solutions. And if you're in the U.K., you recognize Wall's ice cream probably. And that's something that is -- goes through our history. We see many, many applications, aviation in the 1930s where our foams are used for these materials and applications. And in common with many other people, we have got an approach that looks at the hierarchy of waste. First, reducing the amount of material used then reusing it and then recycling it. So most preferred is that prevention and reduction. And second -- excuse me, I've got a small dog, I'm sorry. Most preferred is the reduction and reuse of products. And a lot of our focus really is on that. How do you use less material? How do you make things lighter? How do you make them use less material? But obviously, the reduction is only part of the system, and the recycling and recovery at the end is something we've been working quite significantly on including recycling our own materials. So examples of reduction include -- we've mentioned aviation before. We replaced materials, which saves significant amount of weight. Here, you can see these examples of 65% of raw material weight saving in aviation for silicon rubbers and fiber reinforced composites in aviation. And fiber reinforced composites, I would say, 10 years ago was being titled as the big weight saving system in aviation, ducting in the air conditioning systems, and we are significantly lighter than that. If we look at the materials we use, you can see here that the size square of foam is the same way as a U.S. quarter. So that, not only are we making very light materials, but we're making light materials that outperform competitors. Sometimes a factor of 2x for a competitive foam and 3 to 10x on other composite or foam material or other material systems. So a very, very big reduction in the amount of material we use here. Reuse. I mentioned within the packaging market, the reuse is very important. We are creating foams, which actually are designed to be part of our permanent solution. So if you can use it once, twice, that's great. But things like you see the red and black foam there used in tool control for like an aircraft mechanics set or something like that. Foam is used multiple, multiple times, and that's something that gives us very high sustainability credentials. And finally, on recycling, our products are definitely recyclable. A lot of our scrap -- our customer scrappage used and other products. And then finally, we use materials from our own processes. We use recycled materials to make 30% recycled content foams as a standard now, and many people are switching to those as a substitute for our standard foams, which is great news that overall saves everyone the carbon footprint. Our Ecozote foams use 30% recycled content, and we are deciding other materials using -- or looking at other materials using a variety of different recycled materials, including recovered ocean waste. You'll hear later from Neil about the recycled content in the ReZorce product. So that makes it a really circular product where we take raw materials that have previously been used combined with virgin materials and using to create a new packaging of the same format. The key aspects of our business we think about will help us to survive in the future. Number one is our nitrogen-based expansion process. Basically, we use nitrogen gas and energy to compress that gas or -- sorry, [indiscernible] materials and use the gas to form them, expand them. So -- and as we invest, we become a lot more efficient at that. Those internal targets are something that we are happy for years, but we are much more focused on now. And particularly for the high energy costs, it really helps that focus become something that the facilities live and breathe. The efficient use of raw material. It's not just about the lightweighting ultimately of the products. It's about the amount of material we need to make those products, and we're becoming a lot more efficient on that. Our products do avoid emissions, whether that's in the manufacture use, et cetera. And we think about green revenue. We look at products, which net the cost of our manufacturer and the net benefit further down the production or for the supply chain is very significant, and that includes materials where our solutions such as running shoes uses much less material than competitive processes. So the raw material content use is lower. And then finally, with the new product development, Karl will cover that in a little bit of detail. But we are looking really when we develop all of our raw materials, new materials, scoring systems, which incorporate not just the economic prospects, but the carbon-saving prospects. And today, we are finding that those significantly overlap. The reason for that is the economy is just looking for better carbon solutions right across the board. And so something, which has been talked about, thought about for years, is now becoming a reality. I would say it's still something that we find some resistance to in getting new products accepted for being lower carbon footprint. I think the high inflation and the economic difficulties are slowing down adoption a bit. But it's something that we've got the products people are talking about and looking at, and we expect that to accelerate over time, the proportion of materials are thought because of the carbon footprint of the sustainability as our priority almost over the financial cost. And when I talk about the green economy materials, which use less material further or safe carbon further down the supply chain, materials switch use less raw materials than competitive offerings, 85% of our revenues today fall into these categories and would expect particularly the ReZorce products start to become a bigger and bigger part of our business. And that would substantially increase because 100% of those products would fall under these definitions. So at this point, I will hand over to Karl to cover our product development process and the external scoring targets, and he will hand over to Neil to cover the ReZorce and MuCell business. And I'll come back at the end to moderate Q&A. So thank you for now.

Thank you. As David already said, we recognize the importance of sustainability for our contribution towards society. And we have a good product range at the moment that contributes and helps our customers and end users reduce the carbon footprint of what they do from lightweighting through to insulation. But we also recognize that things are changing, and we need to ensure that our portfolio of products continually evolves to meet the requirements of this sustainable world, producing products that help customers reduce further weight and insulate better -- not just insulate, but at lighter weight, for example. And I'll talk a little bit more about some of the projects that we've got and how they fit in the portfolio. What this strategy does make is that we preferentially select projects that contribute to a lower sustainable world, so lower carbon footprint. It doesn't mean that we don't develop projects where other attributes are worth paying the carbon premium for. So for example, we have very pure products. We supply into the medical sector. They are more interested in purity of the product than they are in the carbon footprint of the product. And we continue to develop products for that area. But we put metrics in internally that look at the carbon footprint as a whole of each of the developments that we have in our portfolio, and we preferentially develop projects and develop products, which either performance of one of these -- following 4 bookings. The first one is to reduce the weight of the use phase and reduce the impact of use phase, which is predominantly through weight saving. The second is to reduce the overall carbon footprint from the raw material that we use right away in use phase. The third is products from recycled polymers. We recognize that long term that it's most likely going to come a closed loop. So we're on that thought path at the moment and that road map at the moment to having to be able to use polymers, which have been recycled and perhaps aren't as efficient and as optimal as we would like. And also technology development. So how much energy do we use to make the products that we have? And is there a better way of doing it, a lower energy way of manufacture? So just delving into each of those. In terms of products to reduce weight, this tends to come from semi structural parts in aviation, mass transportation. So there are many solids used. You're all flown on airplanes where the inside panels of the airplanes, which are nonstructural, they're semi-structural. They're just there for aesthetics, holding the wall in place with insulation behind it. If we can replace some of those solids with foam materials that drastically reduce the weight and insulate as well, which means they can reduce the amount of insulation behind them, that's very attractive use in the way. And the knock-on effect isn't just about the saving of weight that we produce over the material that we're displacing, but the overall weight in the aircraft, which obviously saves kerosene or gives them longevity if they do move to electric engines. We've developed in -- we already have loss materials, which are thermal insulation and very low weight, but we're going lower. We've got components that are looking to make thermal insulation materials even lower density and lower weight, which again not only save weight in use, but also reduces the amount of material that go to the product. And we have projects which look at improving thermal insulation. That means that you can use less material to achieve the same insulation factors. In terms of products that reduce the overall carbon footprint, there are a number of projects in the portfolio, which include things like biopolymers. There are a range of foams that we currently make, which we can reduce the carbon footprint by using raw materials that are made partially from biopolymers. We have products manufactured where -- that we currently supply where customers, particularly from the consumer sector, are asking us to reduce the carbon footprint. And we can do that by reducing -- optimizing the size for them of the part that we make or actually changing the manufacturing location. We have one example where the customer is manufacturing in Central Europe, and we made our products in Poland which reduced the shipment and transportation carbon footprint. So there are a number of things that we can do within the portfolio where we evolve the products and develop products at different manufacturing sites to reduce the overall carbon footprint. For recycled polymers, we have several developments ongoing, one of which is looking at reusing our own internal scrap. We have a range of polymers of these brands, where we actually take material that doesn't end up in the product, reprocess it, make foam out of it and supply it and make a product which is almost identical to the one that we currently sell, which is what customers are wanting. They're actually wanting a lower carbon footprint but the same product place in a lot of cases. Similarly, we have investigated use of commercially available recycled materials, so mechanically recycled materials. Those present more of a challenge. Often, they are not as optimal in terms of polymers as the ones that we use at virgin polymers, but we are developing great around that and trying to learn how to do this because we recognize this is on the road map for the long term that we have to do it. Where is the challenge is most of our products are optimized per unit weight. And using a mechanically recycled polymer means it's probably not optimal. So we add weight to it, and we are always looking to find that balance between the compromise on properties and performance that you get when you use recycled materials. And that's very much a journey that we're on. We also have applications looking at ocean waste. There's foams that are used in sports & leisure, in particular in consumer goods, where material which recovered from fishing nets can be used to make foams that are sold into the consumer goods sector. So we have a number of avenues that we're developing products for the future. And finally, in terms of technology development. We used nitrogen gas, which is borrowed from the atmosphere. So which regarded as one of the cleanest foams that you can buy and one of a more environmentally friendly foams. But we still consume energy in that manufacturer. And part of our development is how can we do this by consuming less energy? We have a number of technology shifts that we're investigating at the moment. While we've agreed with some of the -- our banks that we have loans with sustainability-backed loans, some metrics around product development, which are ultimately how much of our portfolio and sales that are generated, revenues generated from products that are developed for use-based sustainability. We also have an internal metric where we look at the holistic carbon footprint of our product development. And what we can say, over 75% of those development projects that we're currently scaling up regarded by us as having high sustainability credentials, and more than 50% of those in the R&D phase have got high sustainable credentials. Obviously, they will filter out and some of those will result in products that scales up. But that tells you that we are building a portfolio for the future, which is really geared towards meeting sustainability goals of our customers and end users. The external target is very challenging. It's very reliant on not just Zotefoams developing products, but also our customers wanting those products and developing in their time scales. Purposely challenging, and it's going to be tough to achieve. We achieved it last year as I'll reflect on in a minute what is going to be tough to achieve going forward. In terms of our sustainability journey, where have we come from? There's recognition that 2 real principles will deliver long-term sustainability. The first is the use of fewer natural resources, minimizing how much material that we use in the manufacture of our products. And the second one, as I've already touched on in product development, is preferentially operating in markets and developing products that are sustainable -- have a sustainable advantage. So there, the guiding principles which through embedding within our control framework, we have guided internally decision-making. So if I go back to 2020, we adopted the SASB framework. We embedded this within our control framework, highlighting all of the metrics that are used within SASB for a chemical company, and embedded them within each of the functional areas of the group. At the same time, we embedded TCFD. We then set about through our control framework that we target for the individual areas, what do we need to do to reduce the risk of not achieving good sustainability metrics. That target-setting process has evolved. We've published those targets and then we start in -- graded by the agencies who look at sustainability. Over that period of time prior to setting targets where we didn't publish metrics, we got marks as having a bad score. So what you will see over a period of time, I'll cover it on the next slide, is our stores are gradually increasing. So for example, if we didn't publish that we didn't emit chemicals, things that are just from using nitrogen is a chemical foaming -- physical foaming agent. Chemical emissions are just not important, so we just didn't publish those. And that was taken by the agencies as being negative because they assume that you then emit lots of VOCs and various chemicals. So we now having picked up SASB. We do publish the fact that we don't emit it. So we're seeing our scores now with these agencies improve. And the absence of data been replaced by data, which obviously shift process in a good light. So looking at some of the metrics that the external agencies as ranks us by. We have the MSC green economy mark. MSCI -- sorry, MSCI have rated us as one of the leaders. We've got AAA rating on the -- AAA to C rating, so regarded as a leader in there. Sustainalytics have given us very low risk range of 23.9, which is very favorable against the average score for manufacturing companies in our sector of 31.6. CDP, we don't get such a good rating. That's from 2022 November, which used 2021 data. And as I covered in the last slide, we only really started adopting SASB and publishing the data in 2022. So as a consequence, we scored lowly. We're confident that in November, when CDP publish score for the following year that the ranking will be a lot over that. And interesting, the ESG, they give us our rank in B, which is a good mark. And we're confident that these will improve over time. As I mentioned earlier, we published a number of external metrics. We've agreed 3 with our loan provider, a sustainability-backed loan. The first one is energy reduction. The second is about having a sustainable development portfolio of products. And the third is around our raw material consumption. In 2022, we published for the first time, this is a 5-year plan that our energy reductions, we intend to achieve a 10% reduction over a 5-year period. This is measured in terms of the NGP unit revenue. We selected that because it allows us to continue the development of high-performance products, which typically consume more energy per unit mass but to sell at a higher price per unit mass. So as consequence, those 2 things canceled each other out, and that was the principle behind why we selected that metric. And we achieved that last year, and we actually overachieved. And one of the reasons being that inflation took off and the prices went. We actually did the calculation and presented to the Board, just to highlight that we actually -- if we strip out price increases from inflation, the metric came out at about 0.715. So we even achieved beyond what we should have achieved in 2023 without any production initiatives. And of course, all of that flows down into internal metrics, which are measured and reported at our internal control framework. The sustainability -- sustainable product portfolio, we achieved 1.2% of revenue from new products that were introduced since 2022. By the end of 2022, that metric -- or that target for the following year, this year, 22% is going to be very difficult to achieve, primarily not because we're not developing the right products, but because the timing of adoption of those developments, one of the key ones being in the aviation industry, has been put back due to the build rate in aviation industry. But that's a tough target and was always intended to be at some time. And in terms of raw material consumption, again, a 5-year target to half the raw material that didn't end up in the final product that we sell to our customers. We have set off, and this is a staged approach, very low amount of savings in the early years with very large amount of savings in the latter years. The reason being, we know that we need to make some capital investments and not significant ones, but reasonable capital investments, changes to our process to modify equipment to save raw material. But last year, our target was 2.5%, and we achieved 4.7% in the first year. And we're on target to achieve our 7.5% this year. And my final slide is on the sustainable development goals and probably how many other metrics that we are adopting or considered. We've looked at a wide range of frameworks, SDG -- and SDGs were one of them. We have chosen not without this. Even though we broadly align and meet all of the requirements of the SDGs, we have to, as a business, strike a balance between investing and spending money, paying to measure ourselves against all of these metrics versus the benefits we get from doing that measurement. And we believe that the metrics, the framework of SASB and the targets that we've currently got are very beneficial to us now pointing this in the right direction and an efficient way of doing that for the business. So we've chosen not to adopt further framework. Okay. I'll hand over to Neil now.

Karl, thank you. So our MuCell division comprises 2 key technology platforms, MuCell 1.0 and ReZorce. And I'll speak briefly first about our core polymer reduction technology, which we term MuCell 1.0. This core technology is based on high pressure inert atmospheric gases that we inject into polymer. We displaced the resin to both strengthen and lightweight, whether they be extrusion of thermal foams or blown films or sheet. We subject atmospheric gases. We only use atmospheric gases to -- in excess of 10,000 PSI pressure, and we create a supercritical fluid which enables us to mix the gas with the polymer to create a homogenous solution. It works with PET, with polypropylene, with polyethylene. And through controlling optimum pressure, temperature and extrusion speed through our proprietary equipments and process, we achieve optimum results, typically reducing polymer usage by 15% to 20%. And in so doing, MuCell 1.0 as a technology produces lighter, greener and lower-cost products. Moving to ReZorce. ReZorce is a fully recyclable mono-material, food contact barrier packaging. I'm showing a chart here from the Ellen MacArthur Foundation. And as you look at this chart, you see 6 of the world's biggest brand owners listed down the left-hand side. And you can see in the first column that they are consuming approximately 7.7 million metric tons of virgin polymer every year. About 90% of this will never be used in their packaging again. And the European Union regulation requires that from 2025, that plastic packaging contains 30% recycled content. In fact, just this morning, the European Union have issued a guidance in draft, the Packaging Treaty if you Google, and you'll see that the European Union are actually stiffening the legislation and the requirements in terms of recycled content and also in terms of extended producer responsibility, which I'll talk about a little bit later. Crucially, the issues that -- for example, Nestlé, the world's largest food company, struggling with here is, one, material science; and, two, the general availability of high-quality food grade recycle. Those are really the key challenges. So ReZorce addresses this need. The unique micro cellular technology here enables us to extrude 9 layers within the film that is, for example, the thickness of a crisp bag. And our technology enables up to 100% recycled content within the substrate. If we think about mechanical recycling as a work stream, then we would work with, for example, up to 70% recycled content in today's work stream, the only virgin layer being in direct contact with the food, which is a regulatory requirement. And crucially, the ReZorce technology is fully scalable globally at minimal cost and complexity. This material can be processed using existing filling machines with very few changes. And I know that there's a couple of questions that have been already raised on the platform that I'll come on to talk about at the end of this presentation. If we compare the ReZorce technology to liquid paperboard containers, ReZorce is lighter, it's stronger and it also provides access to new markets because unlike LB, it does not wick and it is microwavable. Nothing goes to waste with ReZorce. The ReZorce technology is fully circular. It lends itself to many different packaging applications such as pouches, trays, films, bag-in-box, sachets, et cetera. But at Zotefoams, we've made our initial focus, beverage cartons due to the size of the market and the absence of recyclability and circularity for what are currently composite mix material products, most of which are -- today are incinerated around the world. We have successfully validated all print technologies with ReZorce, whether flexo print surface, offset [ lighter review ], reverse laminate BOP and even actually digital print solutions, which enable us to provide bespoke print solutions. In terms of the life cycle assessments, well, due to a prevalence of green washing, Zotefoams subjected ReZorce to extensive life cycle assessments to the ISO 14044 standards on a cradle-to-grave basis. We have benchmarked ReZorce mono material, HDPE beverage cartons against liquid paperboard cartons, which contain a mixture of fiber, polymer and aluminum. We have partnered some of the best science institutions to analyze ReZorce environmental impact, and we've looked at 19 different impact categories. Our work has been reviewed by Dr. Jasmin Cooper of Imperial College London as well as being validated by Professor Michael Shaver of Manchester University, the LCA Centre in the Netherlands and IKTR and RecyClass in Germany. The 3 of the 19 impact categories, which are probably most representative of -- for its products environmental impact, are water consumption, energy use and global warming potential. In all cases, ReZorce beverage cartons significantly outperforms LPB cartons demonstrating at least a 50% reduction in the negative impact versus the mixed material cartons. We've partnered with Europe's key recycling experts, and we've achieved full accreditation for what is a fully circular packaging technology. We understand in Europe and North America, for example, the mechanical recycling work stream will represent about 2/3 of all recycling by 2030. And in any case, mechanical separation of material types is required for chemical recycling and enzymatic work streams. ReZorce beverage cartons are sorted into the HDP work stream after being successfully separated using either size, magnetic, Eddy current, near infrared and float-sink separation methods. For example, here in the U.K., we've validated ReZorce mono-material HDP containers can be processed by Biffa and Veolia as part of the closed loop milk bottle recycling infrastructure, which is recognized as a high bar for qualification. And so doing critical challenges that we've overcome have included discoloration, odor, contamination of feedstock, lots of mechanical properties, bleeding of inks, gel content and others. In each case, ReZorce has either met or exceeded the industry standard. To provide transparency and trust with industry and consumers, Zotefoams plans to have the ReZorce package contain a digital passport. Using a QR code, it will be possible for consumers to learn about the materials contained within the package as well as how to dispose of that package. In the U.K., as an example, the ReZorce container can be disposed of by consumers in the same way that they would dispose of a milk bottle today. In terms of the market sizes, I'm not going to read all of the numbers on the chart. Suffice to say, these are enormous markets. We know, for example, that with beverage containers, that there are 250 billion mixed material beverage cartons consumed every year around the world. Whether it be the ReZorce technology or our MuCell 1.0 technology, we're well placed to attack these markets. And in terms of the approach that we'll take, we are very focused to ensure success. We will focus primarily initially on, for example, the juice market. We will be focused around Europe and North America and with retailers who have, we described it on the slide as, attitude. Many retailers are -- understand that a mono-material product technology such as ReZorce can be easily recycled and have categorized these materials, PET, PP and PE as green materials for the future, and that's where we're focused. Finally, we have signed a joint development agreement with one of the world's leaders in beverage packaging. We have also signed up one of Europe's leading retail groups, and we will be running market trials in the first quarter of 2024. And our activities crucially are about packaging at industrial scale on the existing equipment.

I have a couple of questions. Some asked 2 questions. Firstly, how much of the USP does ReZorce really have? And how difficult will it be for brands to stay now to adopting it? So the first part of the question in terms of the USP, I think there are 4 elements I would draw out. The first to say is that this is an industry-first, fully circular packaging technology. We are -- we see a lot of progress in the nonfood area. But as we -- as I shared with the Ellen MacArthur slide, food contact barrier packaging has been a real problem for industry, and this addresses that need. The regulatory requirements demand 30% recycled content be included in plastic packaging by 2025, and our ability to include the 70% using the mechanical recycling work stream, I think, is a key point. The last thing I would say in terms of our USP is really the life cycle assessment because if you look at the products in the round, the technology in the round, you see that from a cradle-to-grade point of view, we more than half the global warming impact, the water consumption, toxicity, et cetera. The second part of Sam's question, how difficult will it be for brands to say no to adopting it? I think I'd look at 3 sectors here. If you are an extruder, well, this technology uses current extrusion processes. If you are a packer, this material can be processed using your existing filling lines with some minimal changes. If you are a brand owner, then going back to the Ellen MacArthur challenge in terms of the regulatory requirements and the government taxation, then this will be a critical enabler for you. So I think, hopefully, that answers your question, Sam. There is another question from Tom and that is, are there any new regulatory developments that will impact Zotefoams? So maybe what I can do is just answer for ReZorce and pass to David to talk about Zotefoams. From a ReZorce perspective, Tom, what we're seeing, and you'll see it live on the newswires today with the European Union is that the regulatory requirements are stiffening in terms of the greenwashing that has gone on. And we see, for example, in the U.K., a packaging tax that is now in place and we see extended producer responsibility. And this EPR across all of the European countries financially will be extremely punitive for those brand owners that don't have 30% or more recycled content in the substrate. The onus is being placed very much on the brand owner to, if you like, clean up here in terms of post consumer. David, maybe I'll pass to you for Zotefoams.

Yes. Thanks, Neil. And I guess, just more generally, we go back to the slide I presented about in 2016, we identified regulatory drivers as one of the main growth or environmental context presenting us with growth opportunities and changing the environment for our business. And while it's impossible to say exactly how regulation is going to be implemented, I think we can see in general the regulation points towards making consumers safer, making products safer, fire standards. It's now hand-in-hand with environmental legislation around the minimization of resources, which generally is good for a home industry. We are here to take polymer and use less of it, make it lighter and make the functionality better. Having said that, there are a few examples like U.K. Packaging Tax. The way that was implemented wasn't particularly helpful. It wasn't unhelpful, but the MuCell business reduces the amount of plastic that it takes to make a plastic tray, for example, for food packaging. And the way the legislation was implemented, the tax legislation, despite us lobbying and consulting on that, said they do it by weight. And so if you use less plastic, less recycled plastic by foaming, you're actually penalized. You want to be more plastic in so that you can get your way up of recycled content, and that therefore doesn't attract the tax. So it's a bit -- that's something that -- whereas recent consultations on chemical recycling actually look quite positive for this. So I think the general flow is good. You get some Eddy currents pushing you the wrong way sometimes, but I think very positive. Some other questions we have just in the last few minutes, Chris is asking about ESG funds. We've got our brokers knocking on the doors of a lot of ESG investors, not a big part of our register today. The sector we are operating in small cap. In particular, there's not been something that's seen a lot of funds inflow and ESG funds tend to a slightly higher market cap threshold at the moment. But that's something we just keep working on, keep pushing ourselves in front of them. And we are a good investment, but it does take someone to open their eyes and do the research because on the face of it, we're a chemicals company, we're a polymer company, and you can easily jump over that and say, well, that's not what I want in my portfolio. So to do the research, they typically are doing those on billion pound market cap companies at the moment. We're slightly below that, unfortunately, and it may take time for the focus to come around to smaller companies. Next question, Sam. Why don't airlines adopt the materials more broadly, given the benefits? And how can we increase that product used more broadly? I mean, largely, it's not the airline to state, the aircraft manufacturers or Boeing, Airbus, et cetera. And they are aware of our materials. It just takes a long time. In the airline industry, if you do something in 7 years, it's considered pretty quick. Now a lot more pressure on lightweighting the planes, a lot more pressure on fuel efficiency. So the drivers are there, and we've got a lot of conversations going on. We would see that as an area for significant growth over the next few years as the plane models get refreshed and the number of planes being produced rises. So something we do see a pretty strong growth pattern in there going forward. Next question from Richard. Have you sense for cartons mass produced? What the cost differential will be? We do. There are quite significant economies of scale to be had in going from where we are now, which is one pilot line production facility with maybe 40 million, 50 million cartons per annum on a single line up to a facility doing 1 billion cartons. So we have modeled that. We have got pretty good idea of what that would look like, and we've got a reasonable idea of the economics of the conventional cartons. We also are modeling different tax scenarios. And as Neil said, the extended producer responsibility, the packaging tax type things are and will, I think, continue to help us because, as we use high-recycled content and we are circular, that's basically with the legislation trying to push people. So I think from 2025, we get a bit of a boost on that as well. Tom, are we saying ReZorce is the only fully recyclable material for cartons? And how thin is the market opportunity? Well, the market today is in excess of 300 billion cartons. So if you translate that into money, it's an awful lot of money. I think 0.3% of market share would be a business, which is larger than Zotefoams today. When we talk about recyclable, if you look at the incumbent carton, we'll see something on it along the lines of widely recycled. Now what that means differs in different places, but essentially cartons, which are mostly not recycled, I'd say that right now, mostly they are sent to landfill or incinerated. And where they are recycled and what they do is they strip the card out and use that card for other purposes, not for making another carton. And the plastic and aluminium content is mixed. And again, it's often used as a building material or something like that, concrete filler, et cetera. Now so those are -- it can be recycled by that very, I'd say, unappealing definition of recycling. Our cartons and all the waste in the manufacturing process, et cetera, when you cut this out or you've got scrap, all can be put back into our carton again. So that's circularity. We haven't found anything out there that gives that. We've talked a lot to brands. We talked a lot to beverage packaging companies, and we've commissioned independent research. None of that has come up with anything, which is circular in the way our product is. When you see announcements about, this is a more sustainable carton is comparing with the previous version and the big innovation that is being pushed by the current producers is to remove aluminum. So they put a carton with polymer and plastic together in a plastic cap. And new legislation with the cap needs to be tethered to the packaging means that, that plastic cap is not attached to the composite carton. So these are improvements over something which if you compare that improved version with ours, we would very confidently, I think, have a lower sustainability scores -- or better sustainability scores. But as Neil said, the life cycle analysis we have done and completed has been based against the carton, which today includes aluminum. So our differential advantage may not be as big, but certainly, we are the only people that are producing anything that we have seen, which is -- can be deemed as circular. Next question from Simon. Could you please add a bit more detail to the recycling process for ReZorce? For instance, how is it recycled, who recycles it, how does it impact the manufacturing process? I'll just keep going on these a bit of time, Neil, if that's all right. But there are many different recycling processes globally, not everyone uses the same system. But we have tried our cartons on all the main systems. In the U.K., basically what happens mostly is you put it in your recycling box that gets taken to what's called a mix recycling facility, where they separate, for example, the glass from plastic or paper that would then use various systems such as infrared or float-sink, separate different kinds of plastic, which need to be recycled separately. And eventually, hopefully, you end up with a recycling stream that includes just in our case, high-density polyethylene. So it would follow the same track in the U.K. as a milk carton. It then gets chopped up into little bits, washed and [indiscernible] and sold on depending on the cleaning process, either as a standard polymer or sometimes if it's been printed, it will be sort of grayish used in different applications or food grade is very high recycled content. So these facilities do exist. Actually, the U.K. industry are very, very keen on our product because it would defer a significant amount of new business into the recycling, the value-added recycling streams. Okay, Simon. Can you recycle the foam in running shoes? If it's not, you may consider investigating. Well, running shoes, along with many other products, are designed to last. They're not designed to kind of fall apart after a couple of weeks running. So when it comes to the foams in there, the best way we can describe that is if the shoe is put in somewhere that they take a part, the foam in itself can be recycled. And we know that because when they're manufacturing the shoes, any scrap or cuts, et cetera, are recycled into different shoe formats. So Nike have at least one shoe format using the recycled materials from their own internal processes. Tom, and surely for brands says no to ReZorce. It's fairly [indiscernible]. Well, I think we'll worry about that, Dave, when we've got enough production capacity to satisfy all the people that really do want it. And as Neil alluded to earlier, we're not going to be instantly able to satisfy all the demand we see. So we are concentrating on geographies where recycling is high, and it will be treated properly. We're concentrating on areas or certain products where the value added is higher. So for example, you get water packed in aseptic cartons. Why? I don't understand that. I just -- why would someone want to do that. It's far less recyclable than a plastic bottle. Is that reputational as you say? I could have done very, very well from that and have done very well because the public are, by and large, uninformed, and it looks like, hey, this is less plastic, right? And so I could name some of the U.K. retailers that will tell you, I'm moving everything I can to cartons because it's less plastic. And other U.K. retailers are going, I want to get rid of cartons because they're not recyclable. So which one do you work with? You work with the one that wants to get rid of cartons or existing composite cartons because actually the packaging format, the squareness of it, the packing density, the functionality is very, very good. It's a successful product, the carton format, because it's very, very good. And it's just not recyclable in the way that the retailers and the brands want it, and we've come along with something that is. So in a sense, we work to work with the people that really are at the leading edge here and see the world in the way that we see it, and I think there are plenty of those that really are.

That's great, David. I think you've taken all the questions you have from investors during today's call. So thank you to everybody for engagement. And of course, if any other questions do come through, David will make those available to you and the team for your review. David, I know that investor feedback will be important to you and to the company as a whole, and I'll shortly redirect those on the call to give you their thoughts and expectations. But I wondered before doing so, if I may just ask you for a few closing comments.

Yes. So just thank you very much for listening. I apologize a small dog into my office, which has never happened before. The early part slightly distracted me, but I hope you'll be able to get the bulk of the messaging clearly enough. So thanks to the co-presenters, Karl Hewson and Neil Court-Johnston, a key part of our team delivering the sustainability agenda at Zotefoams. And keep following our progress. Thank you very much.

That's great. David, Neil, Karl, thank you very much indeed for updating investors today. Could I please ask investors on the call not to close this session as it now automatically redirect you for the opportunity to provide your feedback in the company that can better understand your views and expectations. This may take a few moments to complete, and I'm sure it'll be greatly valued by the company. On behalf of the management team at Zotefoams, I'd like to thank you for attending today's presentation. Good morning to you all.