Zotefoams plc (ZTF) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and welcome to the Zotefoams investor presentation. [Operator Instructions] The company may not be in a position to answer every question received during the meeting. However, the company can review all questions submitted today and we'll publish those responses where it's appropriate to do so. Before we begin, we'd like to submit 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, Ronan Cox.

Good afternoon, everyone. Thank you for joining us for a presentation this afternoon where we will go through our 2024 preliminary results, and we'll also take an opportunity to delve into our refreshed strategy for the business. If we just move on, quickly pass the disclaimer. First, we'll touch on business performance. So 2024, an incredibly strong year for Zotefoams with record sales performance. Revenues up 16% to just under GBP 148 million. A big driver of that was High Performance Products and up 37% to GBP 79.6 million with footwear within that being the real driver of that growth. In terms of earnings, record earnings before the exceptional item. So record earnings of operating profit up 20% to GBP 18.1 million, and that drove an earnings per share before exceptionals to 25.95%. The exceptionals were all driven by the decision to pause the investment in the ReZorce technology, and I'll come on to that in a few slides. Incredibly strong balance sheet. Net debt is down 20% to GBP 24.1 million. That excludes leases. Gary will go into a little bit more detail on the structure of that later. But really key is our leverage moving from 1.2 down to 0.9. So a really, really strong performance in 2024. If we look at the 2 traditional segments, so High Performance Products and polyolefin foams, the high-performance product sector for us hit or constituted the largest part of our sales for the first time in the history of Zotefoams. So with those sales of GBP 79.6 million. As I said, the real driver around this is the strong footwear sales performance, and that footwear sales performance is all driven by the partnership that we have with Nike. ZOTEK F, which is our flame retardant grade product saw pretty strong sales, up -- sorry, up 7%, and that was despite quite a lot of headwinds still in the aviation sector. Very healthy order books in aviation, but really build rates still not getting back to pre-COVID levels. And so we still see some good opportunities there looking forward. They weren't materialized in full in 2024. We have taken the decision to make an investment in a manufacturing facility in Vietnam, and that is very much centered around the footwear business, and I'll take a chance to delve into a bit more detail on that later in the presentation this afternoon. The Shincell agreement that we entered into in 2024 is in some way allowing us to make that investment in Vietnam. But again, I'll touch on that in more detail when we come in to review that later in the presentation this afternoon. Very strong margins in HPP products, up to 28.5%. And that was before we took some inventory provisions. Those inventory provisions were taken just to be quite prudent in some of the inventory that we have in the business, but very, very strong operating margins in High Performance products. If we look at the traditional polyolefin foam business, as I said, first time that this has become the smaller element of the business, we saw pretty muted demand in Europe, actually with sales down 8% and headwinds there, particularly around automotive and particularly in Central Europe. The U.K., on the other hand, was pretty resilient with demand and sales up 4%. And then we saw U.S. sales up 3%, and that was despite some quite challenging mix changes that we see reversing over the course of 2025. We had lower demand in military grade products in our polyolefin foams for the U.S. We've also seen some market consolidation around industrial, which saw inventories being removed, and we see that actually turning around again in 2025. Key point in the U.S. in the polyolefin foam business is the investment in the second low-pressure vessel. The U.S. is a tremendous market opportunity for us. That vessel, the groundworks, et cetera were all completed in '24. Actually, the vessel itself is now in situ in site and is really standing us in great stead as we look forward from there. Again, I'll touch more on that as we come in and look at some of the strategy sections later in the presentation this afternoon. If we go to the next slide, Mail. We took the decision at the end of the year to pause the investment in Mail. And that was clearly a great disappointment for us as a business. We had reviewed the opportunities around the business and determined quite some time ago, over a year ago that to bring this to commercialization that we needed to get a strategic partner in place for this really revolutionary technology. This is a model material, fully recyclable challenger to the LPB market, so the liquid paperboard market. And we carried out extensive development and testing through the course of 2024. And our belief is that we've taken this product right to as far as we can take it on our own. And we engaged in the markets with right across the entire supply chain and value chain for this whole industry from resin suppliers, the whole way to retailers to try and bring a strategic investor on board for us to take this development from where we have brought it to market. Now the reality was that we were not able to do that. And our view was that there was no more that we could do on our own to actually change the outcome for this product at this moment in time. Now what's key is that we've taken the development. It hasn't gone away. We have taken the IP. We have carefully boxed it. We are protecting it. We still have some residual revenues from the MEL machine business, and we're using those revenues to maintain the IP until such time as we find the right opportunity to take this out and unlock value from this. But I would stress that it is not the intention for this to do this on our own. We continue to have discussions around this with potential interested parties. We don't believe that there's anything that we can do on our own at this point that will realize that value. However, as I said, this has not gone away, and we are maintaining that IP. And we're certainly not forgotten about this and are looking at how we might unlock future potential from this. That said, given the decision to pause the investment in this, given the decision to pause any further attempt to commercialize this on our own, that was the reason that we took the decision to take these exceptional charges in 2024 and to essentially reduce almost all of the costs related to the business, as I say, only really retaining cost around IP protection and that IP protection is being funded by the royalties that we have from the machine business within MEL. So our focus really is to take to move away from this particular development to try and bring strategic partners on board, but not deploying any more resources specifically to develop this ourselves so that we can take those resources and focus entirely on the development of the supercritical fluid foam business that generates the vast majority of the revenues for Zotefoams today and indeed previously in the past. So if we go to the next slide, Gary is going to jump in and take us through some of the key financials. Gary, over to you.

Thank you, Ronan. So first of all, these financials are as reported. For those that look at analyst reports, these do not include the amortization of acquired intangibles. For the simple reason that it's so small that it just confuses it's GBP 250,000 of adjustment I would have made this year and the exact number last year. So these are the reported numbers you will see in the annual report and will have seen on our prelims. Looking at group revenue, that number of GBP 147.8 million, a record for Zotefoams is actually GBP 4 million impacted by currency headwinds. So on a constant currency basis, that was GBP 151.8 million. But the reported number, up 16% on last year. And as Ronan mentioned, the first year that HPP actually surpassed polyolefin foams in terms of revenues. The -- if you look at gross margin, 31.2% that's down 110 bps on last year. If you actually adjust for 2 items, as Ronan mentioned, you actually get to a margin very much in line with last year. Those 2 items being quite thorough review of our inventory, particularly inventory that is aging and HPP, the high-performance product stuff. Our product doesn't really -- when it ages, it doesn't really lose its quality. But when you get to -- when you've been at 2, 3, 4 years and your salespeople aren't moving it, you begin to sort of really start to challenge people. We challenge them a little bit more than we have in the past. We identified GBP 1 million of additional provision, which we added to the existing provision. On top of that, the Shincell agreement is a 5-year agreement. It's quite a complicated accounting approach. You have to amort, you have to capitalize it in the balance sheet. We write that down over 10 years, but you also have to recognize the liability in the bottom part of the balance sheet, and that's over 5 years, in line with the quarterly payments over 5 years we're making. That's an RMB 80 million investment about between GBP 8 million and GBP 9 million. We took an amortization charge of GBP 0.5 million in the year. It's not a full year. We signed up to that agreement back in April, May, but GBP 0.5 million had an impact. Those 2 together, those items would have taken us to pretty much 32.3% as last year. We had SG&A up 8%, mainly actually not a lot of movement in -- generally in costs outside of people. I didn't mention for the growth to get to gross margin. Energy costs pretty stable. Raw material costs pretty stable, around about the historical average if you take away the COVID years. And SG&A up 8%, really very much driven by people. The full year impact of '23 additions, people in '24, we had 7 months of 2 CEOs, and we started to build the new executive team, which Ronan will talk about shortly. That led to a record operating profit of GBP 18.1 million, up 20% on the GBP 15.1 million of the previous year and also includes a currency headwind of GBP 1 million. So constant currency, GBP 19.1 million operating profit. Interest slightly up for much for the first 3 quarters of the year, our average debt was slightly higher than the previous year, we also took costs related to -- financing costs related to Shincell in line with the IFRS 16 treatment of this investment. But that still left us with a record PBT, GBP 15.3 million, up 19.19%. I haven't mentioned until now, that's excluding exceptional item. I trust you know that, that was mentioned by Ronan, and you will see shortly the impacts of the exceptional item on the P&L. EPS, again, before the exceptional item, up 37% to 25.95p. Ronan has talked about the exceptional item, 15.2p. That was GBP 13.8 million of asset impairment, some assets relating to the original MuCell acquisition back in pre-2010, so goodwill and so on, but the majority of it being intangible assets as a result of capitalizing the development costs through the period since 2019 when we first launched the initiative. Taking account of that, PBT dropped to GBP 0.2 million, I don't know why -- yes, GBP 0.2 million and loss per share was 5.66p. So in summary, record revenue, record underlying profits and the net impairment really summarized the P&L for 2024. If we look on to kind of the key cash and balance sheet items, cash generated from operations, we are a cash-generative business, and we proved it very much so in 2024 with GBP 30.4 million of cash generated. That is a very high cash conversion rate over 90% and up 2.5x that cash generated in 2023. We did invest, and I've got a slide next on capital expenditure. That was GBP 13.6 million. Working capital and net inflow this year. Last year was an outflow of GBP 11.1 million with investments being made in inventory, particularly. We've settled down. We've managed -- we're starting to manage that much more tightly. We dropped the actual percentage of -- actual working capital as a percentage of revenue was 40% plus in 2023. That drops to 33% in 2024, and we have a target of reducing that by a further 5% through the coming 5 years as we grow. A lot of our receivables longer terms are with customers that we've been with for 20-plus years. But as we grow the business and capture new customers, we expect to see that average reduce. We will be managing our inventory more closely. And we are also taking quite proactive actions around our suppliers and trying to get a better balance between our payables and our receivables. Return on capital employed is up 140 bps at 11.7%. If you exclude our investment in MuCell, that was 16%, up from 14.2% in the previous year. Of course, going forward, those losses won't be repeated. Ronan mentioned strong balance sheet, net debt. A lot of this cash inflow, the net cash impact resulted in net debt falling by 20% to GBP 24.1 million from GBP 30.2 million. And that in turn, as Ronan also said, has left us in a very strong balance sheet position with 0.9x of leverage down 0.3x. The final dividend, up 4% to 5.1p. Full dividend for the year, 7.48p, reflecting our progressive dividend policy. A couple of items I want to dig into in a little bit more detail just to show you. Here's the -- here's our capital expenditure breakdown. And you can see that when you take ReZorce and you take LP2, the low-pressure vessel that we're putting into the U.S., that represents 69% of our capital expenditure growth capital. So without that, the 5.2 is significantly below our depreciation charge. ReZorce is on pause. As mentioned, the LP vessel has actually arrived last week. We had very nice pictures of that arriving. It's quite a big thing to drive through the streets of the U.S.A. It's there. It will now be hooked up and connected, and we expect to commission early in H2. And we're looking at another GBP 6 million to complete that, leading to a total of around GBP 10 million investment. Shincell is not included in here. And then my final chart before passing back to Ronan is really the debt. Previously, it's pretty straightforward. Our net debt that we -- that many people consider to be real debt, i.e., the actual cash number was pretty similar to the IFRS 16 representation of debt, which includes the finance leases. Different this year with that Shincell investment. So whereas on a full IFRS basis, our net debt rose from GBP 31.6 million last year to GBP 33. When you take out those leases, it fell, as I said before, from GBP 30.2 million to GBP 24.1 million. You can see that represented on this chart. You can see the impact of our cash inflow, a free cash inflow of GBP 13.9 million, then funding dividends and finance charges that leading to a significant reduction in total debt. And really putting ourselves with that strong balance sheet in a really firm position upon which to be able to build our refreshed strategy. And with that, I'll be passing back to Ronan.

Thank you, Gary. And just to repeat that point, as we look at a refreshed strategy, we are refreshing the strategy from a position of tremendous strength. So that sets us in an incredibly strong position. We've spent the last 19 minutes looking backwards. So now I want to spend much of the rest of the presentation today looking forward at what we can deliver through that strategy refresh. In this slide, we've got essentially the strategy on a page, okay? And I think what's really key here is that our purpose as a business does not change. Our purpose is around making material solutions for the benefit of society, and that does not change at all. At the core of our business is a technology, which is called supercritical fluid foaming. It's a particular way of taking gases and then expanding foams. We are world leaders in that. We've got 104 years' experience of doing it. We've been on our biggest site for 90 years in the U.K., and we've been expanding from there over the last few decades. So we have got incredible strength in our core business. And it's that core business that I see will continue to propel the future of this great business. As we look out 5 years, we're setting ourselves revenue targets that will grow revenue by up to GBP 70 million or indeed more. This business is able to generate great operating profits. I certainly believe that 18% operating profit within our strategy period is absolutely continues to be achievable. And then the bottom point on return on capital employed, I can see opportunities to really turbocharge return on capital employed in the business. So growing by over 8 points from the 2024 position to take return on capital employed in 20%. And that's about doing things slightly differently, but we're not talking about absolutely moving away from our core competencies in supercritical fluid foaming. There are essentially 5 real strands to the strategy. The first is to pivot from product to industry focus. And I'm going to go into a bit more detail on that over the next few slides. The second is about expanding our capabilities. So technology capabilities that will get us closer to our customer in the format of what we produce, but also physically closer to customers. The third is around sustainable innovation. Innovation has been at the core of what we've been doing for the last 104 years. it will be absolutely key to the next growth phase of this company. So we will invest more in innovation as a business. And I'll delve into that later in the slides. The 2 other areas, so M&A has not been a feature for Zotefoams in the past, okay? And this is a muscle that we are developing as a business. We are preparing ourselves and making sure that we're in a fit state to actually seize any of the M&A opportunities that may be out there. We're not in a rush, and we're not going to bet the farm. We have created great discipline in terms of the perimeter that we set for ourselves in terms of M&A. We can see that there are multiple opportunities. But what we are doing is making sure that the word is on the street that people understand that we are in the market, and we're ensuring that we've got the right ability in-house to be able to execute transactions when the right transaction comes along. But I would stress, we are not going to bet the farm. We are humble enough to understand that we have to develop this muscle and develop it over time. But what we are ensuring is that as there are opportunities that come along and we can see opportunities and indeed, we're looking at opportunities that we are properly equipped to execute on those opportunities. The fifth part is around executing the strategy, and this is about creating high-performing teams. As Gary mentioned earlier, we've been investing and I've been investing in bringing new talent into the business to supplement the already incredible talent that we have in this great business. Now as we do that and as we bring the skills in that allow us to actually execute the strategy, we're also really, really, really clear that we have to be disciplined around our cost structure. So part of executing the strategy will see us addressing cost opportunities in both manufacturing overheads and in SG&A, where we are looking to actually remove existing costs from the business, both a combination of people and non-people costs and then reinvest roughly half of the cost that we take out back into this strategy into a strategy that will really be focused on the commercial strength within the business and also within innovation. And then underlying all of this is our focus on health and safety. As we expand this business, we've got big manufacturing facilities. Everything that we do, we ensure that we do it in a safe and responsible way. We have always done that. We will continue to do that as we take this business into its next growth phase. So just delving into some detail on those first 3 points, product to industry, expanding capabilities by getting closer to customer and innovation leadership. Sorry, before I go there, what I would like to underline is that as a business, our strategy period, we see organic growth to GBP 220 million, but our ambition is way beyond that. And on the next slide, I'll be able to describe why we think that our ambition can be way beyond that in terms of the addressable market. Now our route of adding GBP 70 million of organic sales can be augmented by other activities, whether that is through M&A that I mentioned or opportunities for other joint ventures or joint agreements that could see us propel well past that GBP 300 million mark. And that 20% operating profit is something that is very much within our gift as an organization. And what's really key about the growth that we can deliver as a business, it will be in IP-rich areas. This will be sticky sales growth. We think that the multiple -- we know that the multiple that can come from this business as it grows, it will be really, really strong. So touching on the first point in terms of product to market focus. First of all, over the last few months, we've engaged in very detailed market analysis. We've worked with an external consultancy who's helped us map the entire global foam market and then specifically look at the markets where we operate today and then look at the opportunities beyond that market. And the first thing I would say is that the overall foam market globally, and this is for foam, this is prefabrication is around GBP 106 billion. The addressable market for us within that is GBP 15 billion. But traditionally, we have focused on a real small subsegment of that GBP 800 million market. Now what extends this out? Within the GBP 15 billion, there are 2 rough components. One is the polyolefin foam business and the other is the GBP 11 billion of high-performance engineered polymers. What I would stress is all the products that we make within Zotefoams are high-performing products. If you remember what I said is GBP 106 billion is the total foam market. We discount roughly GBP 91 billion of that GBP 106 billion market that we don't participate in because they are not high-performing foams. The foams we make, the supercritical fluid foams are super high-performing products. We create this natural difference between polyolefin foams and the high-performance engineered polymers. The only difference really there is around temperature and temperature ranges that they operate. So engineered polymers typically have higher heat operating ranges, so 120 degrees and above. We can see a real opportunity to be confident about increasing our addressable market from that GBP 800 million out towards the GBP 15 billion addressable market. And that's what we set our sights on when we look at the business and the business opportunities going forward. This is what is driving our focus in terms of where we innovate and where we operate and the markets that we operate in. And just to build on that a little bit. You will have previously probably heard for those of you that have followed the company that our product goes into well over 20 different industries. And you can broadly categorize those into 3 segments, and they are consumer and lifestyle, transport and smart technologies and then construction and other industrial. We are most successful when we sell to brand owners. We are most successful when we work with OEMs to get our products specified. We see that in examples across all of these sectors. So examples like Nike who don't buy any foam directly, but specify our foam for the shoes that they have manufactured in the Tier 1s. Exactly the same with the likes of Boeing, who do not buy our foam, but specify the foam and the products that their Tier 1s manufacture for them. And then in the likes of construction projects, where it is big owners of facilities that are specifying the type of materials that are used in the installations that they are getting developed. So 3 broad categories. And our business will not look at products because our customers are generally product agnostic. And our products are not always competing against foam. Very often, we will compete against hard plastics, against aramids, against metals. And what we want to do is to offer product solutions to the industries and customers within these verticals where we see the greatest opportunity for growth. So within that, then our commercial team is being reorientated. We are bringing in business development experts who understand those industries with the very longest runway for growth for us. So for example, whether it's automotive or EV batteries or whether it's footwear or whether it's medical packaging or whether it's in construction. And this orientation is allowing us to be really focused also about where we spend our innovation plans. And as I say, where we bring the talent in that know how to navigate the way through these industries to get our really high-performing products onto the brand's products. I can see by the end of our strategy period by 2029, that at least 80% of our sales will come from specified sales. What does that mean? That means that the brand owners will specify our products in their products and that the people that make things for them will use our raw material as opposed to inferior raw materials that may have been substituted in the past. Now we have got a whole host of really great fabricators that work within our business, and we're going to work with those to ensure that we've got an organized fabricator network. So approved fabricators that really know how to get the best out of our products that can work with us in the industries where they go narrow and deep. So we can see that with this focus and this application selling focus that we can also broaden that addressable market that we've typically been looking at in the past. So a huge, very significant part of the strategic shift, that shift from a product focus to an industry focus. I think the last thing I would say on this slide is what are these 3 broad categories have in common. The selling cycle to a Nike or Decathlon is not entirely dissimilar. So there's a lot of fast-moving products, a lot of attention to color seasonality, lots of changes and the sales cycle can be really, really fast. And you need people to know how to navigate the sales cycle, whether it's in Portland or in Neil for those customers. When it comes to transport and smart technologies, the business developers that understand how to get accreditation and get over regulatory requirements in aviation or automotive, not get over, but to pass them that takes a different type of person. It's similar for medical requirements and high-end application. People need to understand that long sales cycle, the level of work that goes into it, and when you get specified that you're stuck on a product for a very long time and can navigate through that and have the resilience to that. Different sort of people in this area than necessarily selling in the consumer and lifestyle area. And then likewise, then when we come to construction, very much project orientated, understanding what are the projects that are out there, getting in with the architects and the designers and making sure that our products are actually specified into new buildings as they come along or for those refurbishments. Again, very different selling techniques. In the past, we have sold foam. Tomorrow, we're selling solutions with knowledge of the industries that we operate in. So really key pivot. The second area that I wanted to touch on was on expanding our capabilities. So today, our primary manufacturing locations are in the U.K., so in our Croydon facility, where we have been for 90 years, where we have -- all of our manufacturing techniques are deployed there. We have a facility in the U.S. in Kentucky, which is a smaller version of what we have in Croydon. That's been in place since 2021. And then we have -- sorry, 2001. And then in Poland, we have a facility that's been in place since 2021. Now the yellow dots are new investments that we are making to expand our capabilities. The first to note is the investment in an innovation center of excellence in the U.K. Why the U.K.? It's because this is where a lot of our talent is today, and it's also where we see a lot of the plastics industry. We can attract the talent that we need for this business to create the next generation of industry solutions. We can also protect our IP by having this core innovation center of excellence in the U.K. This will be located off the Croydon facility. It will be independent. It will be servicing the rest of the Zotefoams business. If we go across to the West, in our Kentucky facility that I mentioned, which has been in place since 2021, we've got that additional capacity that's going in right now. That's the LP2 that we've referred to in previous presentations. It's a GBP 10 million, $13 million investment. It's getting not only additional capacity for the current ranges in the U.S., but it's also going to give us the ability to produce all of those engineered polymers in the U.S. That capacity is going to come on stream over the next few months, should be up and running properly in H2. And then as we go into next year, they'll be able to take that extended range of high-value, high-performance polymers in there. In the Midwest, we are going downstream with manufacturer of components for the construction industry. So this is a big foray in fabrication, specifically for the construction market. We've already invested there. We've been doing some of this over the last few years. Over the last few months, we've been investing in automated clearing lines to get us closer to the customer with that component production. And then I jump across to the East, this very significant investment in Vietnam. It's GBP 24 million invested specifically to make 3D parts for the footwear industry. Really important footwear industry. We see a fantastic runway for growth there. We currently supply this out of the U.K. We will continue to supply some block foams from the U.K., but we're moving 3D parts to give a greater array of products that we can satisfy to our key customer there, Nike in Vietnam. And then in South Korea, we're investing in innovation specifically to support that footwear industry. Why South Korea? Well, a lot of the footwear industry and the owners of the footwear industry in terms of the big footwear manufacturers are based out of South Korea. We've also got our partner, Nike has got a development center there. Mindful of time, talking about the Nike investment. We started this business with Nike in 2016. In 2024, our foam is now on 18 million pairs of Nike shoes. So from 0 to 18 million over the course of roughly a 9-year period. So a tremendous growth. As we move to Asia, what we want to do is to get on even more platforms. So today, we are on the premium platforms. We started at the very, very premium. We've evolved down the pyramid in terms of product ranges for Nike, still at that high end running. As we move to Asia, we can see the opportunity will grow for us to move into even more shoe platforms. We're also going to be reducing a huge amount of waste for the customer when we do that. So this is a transitionary period moving from block foams to 3D solution parts for our customer. And moving on, we're going to just quickly play a video on innovation. [Presentation]

Fantastic. So we're expanding and innovation is at the core of our past success. It is absolutely going to be vital for the future success of the business. As I mentioned earlier, we're investing in an innovation center of excellence in the U.K. We will have a hub-and-spoke approach. So our first spoke will be innovation spoke center in Asia, which is specifically looking at the footwear innovation right besides, right in the middle of the ecosystem of footwear innovation for the footwear -- for the whole footwear industry, but aligned very closely with Nike and their Tier 1 partners. So innovation is going to be key to continuing to drive our success for the future. Okay. So very quickly, I don't want to talk about the '24 too much. Gary has talked about it. I've talked about it. It's been a record year. HPP really strong, polyolefin foams, strong with some headwinds in Europe, but we see some developments around there. The real big thing is the reorientation towards our industry focus and future. The Shincell alliance, by the way, has helped us evolve the technology that means the ticket size for entering Vietnam is significantly lower than what it would have been previously. We are not using the Shincell technology, but we've been able to learn from their processes to accelerate our own innovation to accelerate what we do to allow us to make that ticket size for getting into Vietnam at least 1/3 -- sorry, at least 2/3 lower than what it would have been had we tried this to replicating technology that we have in the U.K. or in the U.S. It's a one-way agreement. What we've learned, we keep it. We integrate it into our existing know-how. We actually believe is that it's going to create an even better solution for us for the future, and we keep all that know-how to ourselves and ReZorce, we touched on. Looking forward to 2025 performance. Consumer Lifestyle, Transport and technologies have had a pretty robust start to the year. And so we've got really a very good order book there. Construction and other industrial has been slower. We kind of anticipated that, and we see that coming around in the coming months. So the trading landscape is pretty good for us. We feel good with the diversity of our footprint. We also think that is going to help us in terms of the headwinds that are around the macroeconomic situation with tariffs. We feel pretty well positioned versus many of our competitors. I'm really excited about the refresh strategy, really excited about the reorientation to the commercial verticals to the investment in people that are going to help us expand that runway for growth for us. U.S. capacity is well on plan. That move up the value chain and forward integration in the U.S. with parts manufacturer is going well. And then this innovation in R&D. R&D has been at the heart of what we've done. It's been at the heart of the success that we've had over the last 104 years. It's super important that we really ratchet up on this. And we're going to self-fund this. So this is about disciplined cost savings and reinvesting those back into the business. And then all of the partnerships that we have, it is extremely important that we continue to work on those partnerships across the verticals to drive the growth in the business. So with that, mindful of time, we're going to jump into Q&A.

That's great. Ronan and Gary. [Operator Instructions] Ronan and Gary, you have received a number of questions from investors. So thank you to everybody for engagement. If I may, Ronan, just hand back to you if you would be so kind just to moderate us through that Q&A, and I'll pick up from you at the end.

Yes. Okay. Perfect. Thank you, Mark. So first one is, when do you expect the first revenues from the Vietnam facility? So 2027 is when we plan to have first revenues coming through there. And then how does the initial capacity of 10 million midsoles from the factory compared to your current capacity? We were at 18 million pairs of shoes this year. So it's a component of that. I would describe the Vietnam investment as a beachhead for our entry into the center of the athletic footwear market. Vietnam is where all -- well, the vast majority of high-end running shoes are. This is just a Phase 1. It's an incredibly important entry point there for us. Sorry. Let's go through and have a look at some of the other questions. Given that Zotefoams is not in a position to redevelop ReZorce further, is there an option instead to sell or license the IP to a big player? Yes, there is that option. As I said, ReZorce has not gone away, and we will see how we can monetize it in the future. All that's happened is that we're not going to invest anymore because we don't think we can add any more value in it. But we're looking at the best ways that we could return value from the investment that we've made in that, absolutely. Next one is, does the Nike deal preclude Zotefoams from selling materials to any other footwear companies? Our agreement with Nike is to exclusively sell to them up to the end of 2029. What plans do you have to utilize the freed up capacity at Croydon and Poland once the new Vietnam is operational? Will they require further capital expenditure to bring technology up to the level of the plant? No. Sorry, let me just repeat that. Will they require further capital to bring them up to the level of Vietnam? No. I think those facilities are very well invested. We absolutely see opportunities to bring that capacity into other markets, that is other industries. I think that we're well -- it's -- we'll be able to use that capacity for future growth in other areas. So I'm pretty confident around that. There'll always be a need for some CapEx, but not -- I would say, not really of the sort of CapEx that we've seen in the past. So not for high-pressure autoclaves or large pressure autoclaves. So of a completely different scale. One of the things I would underline is my commitment to drive up the return on capital employed and the return on invested cash. I think that we can drive those returns up significantly over the coming years. Do you intend to develop the further 4, 5 Nike customer relationships that you aspire to create on the face of it, the new Vietnamese investment appears to increase the Nike concentration risk. Listen, our approach to this is win with the winners and win where it matters. Nike is a leader in running shoes. They've published their results over the last week. And if you read through the detail of it, you'll see that where they're winning is in a running category. For as long as our relationship with Nike on an exclusive basis sees that we grow and that we continue to add benefit to them, then they're one of the best partners that you could have in that industry. If that were ever to change, and we don't want that to change, but if it ever were to change, then we're in the right place, yes, we're in the right place for the footwear industry should we ever need to change that direction. But we're really committed to Nike. It's been a great partnership. But if it were to change, then our facility in Vietnam will be in the center of the footwear industry. But honestly, I see this relationship with Nike just continuing to go from strength to strength. Our foam is on 18 million shoes. They produce over 60 million pairs of shoes. There's a lot of runway for growth in Nike itself. I'm going to have to give Gary one here. Let's have a look, going through, there's a lot on Nike, which I think I've answered a lot. Okay. New strategy. Could new strategy could make it very attractive to a Solvay or a SABIC perhaps. Do you see Zotefoams being independent in 5 years' time? There you go. Gary, that's one for you. I've got -- my answer is pretty clear, but you have a go at that.

Which one? Can you just get us back to where that is.

Sorry, this one. New strategy.

All right. New strategy, could make this attractive to Solvay.

Yes.

Do we see Zotefoams as being independent in 5 years' time? Yes, we do. We're laying out a strategy with -- it's about having ideas and being able to persuade and excite our own shareholders of sticking with us and doing what -- and believing that this management team is the right management team to drive the ambition forward. I think we're laying out today a pretty clear and have done -- did last Tuesday, a pretty clear path, extremely rational, building on our core capabilities, not going off in all sorts of directions, being very prudent with our approach to inorganic growth, which is something new to us. And so anyone coming in would need to be able to demonstrate that they can do a better job than we do. We being people that are deeply involved in the organization, a leadership team that includes very, very exciting new talent, but combined with people that have been in the business a long time and in this organization a long time, it is quite a unique organization. So we absolutely believe we are, SABIC and so on, not overly sure why they would be interested in this particular business. But no, I think we're pretty confident that we -- I mean, we do need British plc to get a bit of a boost, right? We do need the 2 to 3 years of net monthly cash outflows to change, maybe Mr. Trump will be helping us there, start getting inflows back in, start getting interest in U.K. plc and start seeing our share price reflect the existing PBT and earnings, let alone in the future.

Very good. And I think there's a similar question, which I'll come to as well, which is, how do we make sure that we protect ourselves from unwanted acquisition, which that would be.

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Yes, exactly. We've can just -- we've just got to execute. We've got to leave nothing on the table, and we drive this growth plan, yes. We just can't leave any low-hanging fruit, and that's why we're going to execute at pace, absolutely. Question here is, is it practical to warehouse the ReZorce assets? Okay. I think just on ReZorce, it sits on a shelf. We're not going to resurrect it ourselves. We see -- there are various options for the resurrection of this by potential investors, and we're confident that for the right people coming along that you could realize value out of it. But we have written the value of this down to 0. It now occupies less than probably 1% to 2% of management time, which is exactly the right thing as we focus all of our growth on the supercritical fluid foams business. Okay. There's a few questions here. Could you elaborate on the specific market segments you're prioritizing for strategic partnerships? It's not necessarily strategic partnerships, but it's where we see the greatest opportunity for avenues or runways for growth. If you're talking about specifications, then that can be -- certainly be a partnership. The 3 verticals are well laid out. There are, say, 20 industries within those. Footwear is obviously very key to us. We see automotive in general. We see EV, we see aviation. We see opportunities across medical packaging, and we see construction as sort of the key verticals. Our product, as I say, goes into over 20 different industries. But within those, we see there are the biggest opportunities and actually where we've got some -- already some traction. And so they're probably the most attractive to us at this point, and when we look at talent, that's really where we're looking to bring talent into the business is from those industries. What key learning from Nike partnership have been incorporated into the strategy? You know the industry, yes, sell to the brands, work with them in getting your products specified. The people that are -- tend to be -- have the most influence is if you can get your products specified into their products and they understand the inherent values. We make the best foam in the world. It is super lightweight. It's super sustainable. It's super durable. It's super clean. It's got no VOCs. There's a multitude of attributes to the stuff that we make that sometimes gets lost across the value chain when you can go straight to the brand owners who understand it and what it means to their brand values, you are most successful, okay? And that's why that we will target to have at least 80% of our revenues coming from specified sales in the future. Okay. How does Zotefoams foam compare with other recent competitor products in terms of performance and durability? And what is your strongest advantage? We've been developing our product for 100 years. There's other stuff that -- there's other foam that's out there, yes. We are materially better than chemically blown foams. There's no question about that in terms of performance, in terms of the 0 VOCs. But we must not rest on our laurels. We cannot sit here and think that there's a company XYZ that we've never heard of that isn't going out there developing products. I think there's a massive future for supercritical fluid foams and people are waking up to that. So that's why we're investing in innovation is to create the next generation of those supercritical fluid foams. These are incredible materials that have got their moment. I'm sure that there are other stuff that's being developed out there. We're just going to keep charging ahead and keep creating the next generation of products to drive our growth. Okay. What part of the 46% growth in footwear sales increase would you qualify as exceptional? Do you expect to improve on 66% in full year '25? Can you provide some color on the Nike partnership? What is the potential to be integrated into more shoes as an exclusive, what does that mean? You can't do business with other brands. So working the way back, 2029 is when the -- at the end of '29 is when the partnership runs out. We're very happy with our partnership. We only supply our foam to Nike, and they love that. They love the innovation that we bring and they love the exclusivity. And we love them for loving that because that's really, really important, okay? Can you provide some potential to be integrated more shoe ranges? Absolutely. We're in 18 million pairs of shoes. I would say there's a natural limit supplying Asia because all of our foam goes from the U.K. to Asia at the moment. You will hit a ceiling, which is quite low out of their 600 million shoes. Now about half of those will require foams of one form or another, but let's say, 300 million shoes. The ceiling is quite low when you're supplying out of the U.K. When you go into Vietnam, then that runway for growth with them will increase significantly. I mean, significantly, okay? So -- but you've got to be there to develop that. We've got the supply for not in block format, but in 3D formats for them. That's exactly why we're doing it because we can see the opportunity there. How much of the 2024 demand was exceptional? It's amazing. Nike is -- they're refocusing stuff internally. They're deprioritizing and sort of taking a lot of the athleisure stuff off the shelf and they're putting a lot more. They're focusing on 5 key sports of which running is one of them. And that's the category where we are most present. That's the category that sponsors us in Nike and then after that is basketball. So we've seen tremendous demand from them. We've seen tremendous demand as they -- I think they've been really injecting that back into their focus on those sports. If you read the results presentation or listen to it from last week, you'll hear whilst there are some headwinds, the bits that are really delivering. If you drill down into it, you see running is winning. So I can say demand remaining pretty robust from there. It's always difficult to get forecasts in this space. But it's -- '24 was a robust year that I guess took us a little bit. We were very pleased with how strong it was. I don't know, Gary, if you can add anything more on that in terms of -- in terms of the numbers?

Yes. I mean it was strong. We were predicting it towards the end of the year to slow down because we did reference the Olympics and so on. But as Ronan says, there's a new strategy. The analysts have it down a bit from the 66% for 2025. But with the CEO -- as the question raises, there's a new CEO in town, there's a new focus. There's a little bit of uncertainty. It started well. It's probably too early to be able to say whether or not what we were seeing last year is going to realize or whether there's going -- whether we're going to have a little bit more momentum than we thought. We probably need a few more months to work that out because Nike is still working themselves out.

Yes. I think there's a good point here because if you just look at the headlines of their results, it does talk about having excess shoe inventory that needs to work through the last -- a few quarters to work through, listen more to that, yes. And that's on things like Air Force 1's and Nike 95s and the sort of old, those ranges that are feeling a little bit old now. That's what's working its way through the inventory. They don't have Zotefoams foam on them. Have a look at that where the positivity is coming, and that's from the sort of categories where our product is going. They've got a big focus back on sports. Yes, I think they talk about 5 sports in 5 cities in 3 countries or it's around this real focus. It's really important and running is a key category, and that's where we are. And that's what -- that's actually been offsetting some of the headwinds that's seen in other areas like their leisure sort of ranges. Good. I'm very conscious of time, see if there's...

It does seem, Ronan, for every question you asked, there's another 1 or 2 coming your way.

I'm never going to keep up, Mike, am I?

We're going to keep you for the rest of the day, I think. But what we'll do, Ronan, if there's any questions post today's meeting that you haven't had a chance to respond to, we can always have a response, and we'll publish those to investors further. So look, on that note, perhaps, thank you, everybody, for your engagement, for your questions. And Ronan and Gary, thank you for your time. I know investor feedback is important to you, particularly with the new strategy in place. So I'll shortly redirect those on the call to give you their thoughts and expectations. But before doing so, Ronan, if I may, just ask you for a couple of closing comments.

Yes. Well, first of all, thank you for the time this afternoon. As I said, this is a fantastic company, an incredible heritage. We have had a tremendous 2024. We are driving this new strategy from a position of incredible strength. I'm incredibly excited about the future for Zotefoams. And we've set out the new strategy. It's fairly simple. I'm confident in our ability to execute. I'm excited for the future.

That's great. Ronan and Gary, thank you once again for your time. If I could please ask investors not to close this session as we'll now automatically redirect you for the opportunity to provide your feedback in order that the company can better understand your views and expectations. This may take a couple of moments to complete, but I'm sure it will be greatly valued to the company. On behalf of the management team of Zotefoams plc, we would like to thank you for attending today's presentation.