AGM, page-112

I have been given a comprehensive report from a colleague who attended the AGM. He is a shareholder, tertiary qualified in both chemistry and commerce, and is not a Hot Copper participant. His report therefore I think can be seen as competent and impartial. It covers quite a few points in more explanatory detail that have been posted already on HC, as well as some others. Cut-&-pasted below with permission.
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The first 20 mins were taken up by Gavin Rezos going through the procedural matters and the resolutions. Then there was a presentation by Dirk that went on for about an hour, essentially in keeping with the presentation documents released in the last few days and containing not much more than has already been said there or in the internet broadcasts.

The main advantages came from the answers to various questions and Gavin interjected quite a lot in Dirk’s presentation giving more information on particular topics and items.

I was quite impressed with Gavin and would not be at all concerned about him continuing as Chairman. He seemed to have a good general understanding of the product technical aspects and their implications.

(1) To me the best bit of information came from a question as to whether the current FR producers would be readily able to develop FR products that would duplicate or better the AJX products. Dirk explained that the current FR providers are large chemical companies and the FR products are a minor component of their business. The bad press FR has been getting for a long time has been a problem for those companies but FR has been required in lots of products so they have continued to produce them even though, as far as they are concerned, they were a problem for them. When a number of compounds came under severe criticism various companies just dropped them and didn’t worry about replacing them. In short, the FR products are problems for them and many would be glad to get rid of them. Dirk doesn’t think they will put too much effort into coming up with new replacements. He seems to be of the view that these companies are glad AJX has these products and they therefore don’t have to.

AJX have good relations with a number of the companies and those companies provide the FR product as part of a component of a formulated composite product to their customers. They have approached AJX to incorporate the AJX product into their formulation, that way they still sell the other components and don’t have to worry about the FR problems.

Gavin pointed out that formulation skills were one of AJX’s main skill assets and all customers want formulated products not just the FR component itself.

Changing from current FR to AJX FR by a potential customer involves changes in production processes which cause major disruptions to their operations. Customers are effectively only going to do so because of regulatory requirement and this now will increasingly occur. They have already had approaches from a number of previous potential customers who did not originally proceed with AJX.

(2) The US military now want FR in all of its uniforms across all services. Obama signed into law a requirement for this. Previously the army had only one FR uniform that was very expensive to produce requiring a special rayon sourced only from Austria. The remaining 90% of uniforms now will be required to have FR and are nylon/cotton not rayon. (In answer to a question) Gavin said that Nick Clarke’s comment that the military was a minor product for them would have related to the first uniform. Dirk also pointed out that with the developments made in the other markets and products the military market is now the 4th most significant market for them when previously it was the thought to be the 1st or even only market.

(3) The next most significant business success will probably be the tents for the UN for refugees. Whilst tents are made in China (in answer to a question on IP theft by the Chinese) Gavin indicated that the product that enters China is a composite product that will be provided by a US company that will police its IP and that the various processes that have produced the AJX FR component will have occurred well before the composite product has been produced and it will not be possible to work out the AJX IP processes by analysis or reverse engineering of the product that enters China.

(4) There are effectively 3 mattress market segments, the high-end expensive segment, the middle price segment and the low-end cheaper segment. They have only been involved so far with the high-end segment for the FR/cooling products. They see entry into the other two segments as a major activity over the next 6-12 months. This is because “it would be impossible to achieve a lower cost” than the AJX product.

(5) With something like a mattress you can get the cooling effect from the PCM and it will regenerate such that when you roll over you will get a cooling effect again. With something like a T-shirt this would not be the case. The T-shirt on the body would not regenerate (obviously it depends on the latent heat of fusion and a T-shirt on the body would not cool) and so you would not get the same effect. For products such as this, which will be combined with wicking technology that would give the continuing cooling effect, the main advantage to the brand owner is a “point of sale” marketing advantage. Gavin illustrated this with a stack of Bonds T-shirts sitting next to a stack of Haines T-shirts in a retail store, each claiming a cooling property (because of wicking). If the Bonds had AJX PCM in it the customer, picking up each product, would immediately feel a cooling effect with the Bonds and not with the Haines. They would consequently buy the Bonds. (ie, could be considered a marketing gimmick but would be effective for AJX)

(6) They will be looking to partner with someone expert in the lumber area to develop the appropriate technology. The technology will be similar to their cotton products because it is cellulosic technology. It has recently been found that wood that has been treated with the current FR materials degrades after about 30 years and it is causing structural problems. They see this as a good opportunity.

(7) They are currently involved with 6 product “platforms” each worth about $50-100 million to them. They want to partner with people with knowledge in various other potential market/product areas to develop currently unidentified market opportunities “to take that from 6 to 30 or 35 platforms”.

(8) Gavin indicated they had wanted to get US listing because the US has a number of institutions that specialise and deal only with chemical firms. They believe they would be able consequently to get ready financial support from such institutions. The Aus institutions have however wanted them to hold off going to the US. He said they have no need for finance at present and the 10% equity resolution would only be invoked if they suddenly got a large military and large bedding contract, etc, both together, so they feel no pressing need for US listing. The obvious ready access to finance is important however with customers, particularly the military. The DoD would not want to commit to supply from a company that suddenly might have supply problems because of finance.

Moelis is one of the institutions that specialise in chemical companies and that is why they were chosen. The Moelis analyst who inspected the labs, etc, and assessed the company said it “was the most exciting thing he has seen in the chemical industry in 30 years as an analyst”.