TIDMZTF
RNS Number : 5191F
Zotefoams PLC
22 March 2022
Preliminary Results (unaudited) for the Year Ended 31 December
2021
22 March 2022 - Zotefoams plc ("Zotefoams" or "the Company" or
"the Group"), a world leader in cellular material technology, today
announces its unaudited preliminary results for the year ended 31
December 2021.
"Strong sales growth impacted by significant and unpredictable
cost inflation."
Financial highlights
2021 2020 Change
Revenue GBP100.8m GBP82.7m 22%
Gross margin 26.4% 33.6% (720)bps
Operating profit GBP8.1m GBP9.1m (11)%
Profit before tax GBP7.0m GBP8.3m (16)%
Taxation GBP2.6m GBP1.1m (131)%
Basic EPS 9.01p 14.87p (39)%
Cash generated from
operations GBP12.8m GBP13.0m (2)%
Net debt GBP34.3m GBP35.6m 4%
Leverage ratio(1) 2.1x 2.1x -
Final dividend(2) 4.40p 4.27p 3%
(1) Leverage is that defined under the bank facility, with net
debt at the end of the period divided by the preceding 12 months'
EBITDA, adjusted for the impact of IFRS2 and IFRS16
(2) Final dividend is subject to approval at the May 2022
AGM
Results highlights
-- Exceeded GBP100m sales for the first time in the Group's history
and delivered strong growth across all business units:
- Polyolefin Foams sales up 10% to a record GBP56.2m (2020:
GBP50.9m) and 15% in constant currency
- HPP sales up 41% to GBP42.3m (2020: GBP30.0m) and 47% in constant
currency
- MuCell Extrusion sales up 32% to GBP2.29m (2020: GBP1.73m)
and 39% in constant currency
-- Excluding the one-off PPE contract of the prior year, Polyolefin
Foams sales up 36%
-- Profit margins impacted by:
- Significant and unpredictable cost inflation with a lag on
sales price increases
- Unfavourable currency movements
-- Basic EPS reduced by 39% due to lower profit and a non-recurring
significant increase in the deferred tax charge mostly reflecting
the planned increase in UK corporation tax
-- Robust cash generation performance maintained, with net debt
down 4% and year-end leverage ratio remaining at 2.1x
Strategic progress
-- Rapid recovery in Polyolefin Foams demonstrates structural
growth prospects in this important business unit, underpinned
by the megatrends of environment, regulation and demographics
and facilitated by the Group's well-invested global capacity
-- Poland manufacturing plant commissioned in February 2021
-- Another excellent year of HPP growth in footwear products
and worked closely with our partner to develop further long-term
opportunities
-- Significant progress at MuCell Extrusion in developing the
ReZorce(R) mono-material barrier packaging solution, which
offers society a truly circular option using existing recycling
infrastructure
David Stirling, Group CEO, said:
"Geopolitical risks are currently much higher than normal.
Whilst these have limited direct impact on our operations
currently, we are mindful of the risk that they may lead to more
significant indirect impacts, especially in supply chain, inflation
and demand, rendering forward looking statements particularly
uncertain.
"Currently, we are experiencing good demand across our business
consistent with our expectations. Prices for polyolefin foams were
increased in January and, in some products and geographies, we have
additional increases notified to take effect in the second quarter.
The inflationary environment for our input costs remains highly
unsettled, with pricing of raw materials, freight and energy in
particular expected to be volatile for the remainder of the year,
at least, and accentuated by current events in Eastern Europe. Our
sales prices and margins are therefore being closely managed. Our
operational performance also continues to be challenged by an
unpredictable supply chain and the ongoing challenges presented by
COVID-19 and its variants. We continue to work hard to manage the
impacts of these as effectively as possible, however inefficiencies
are to be expected.
"We expect modest volume growth in our Polyolefin Foams business
during the year, with a similar product mix to 2021 and a strong
benefit from price increases improving margins, subject to managing
cost inflation appropriately. In our HPP business unit, both T-FIT
insulation and ZOTEK foams for aviation are expected to grow
strongly as market conditions improve, particularly in the second
half of the year, while demand for footwear products is expected to
remain at similar levels to 2021.
"ReZorce barrier packaging represents a potentially very
significant opportunity for Zotefoams but depends on achieving a
number of developmental milestones, the outcome and timing of which
are difficult to predict. We are therefore conducting frequent
reviews of progress but currently expect that, working with
partners, we will be able to successfully develop and commercialise
the technology. We will update stakeholders when appropriate.
"Overall, the Board remains confident about the future prospects
for our business".
Enquiries:
Zotefoams plc +44 (0) 208 664 1600
David Stirling, Group CEO
Gary McGrath, Group CFO
IFC Advisory (Financial PR &
IR) +44 (0) 203 934 6630
Graham Herring
Tim Metcalfe
Zach Cohen
About Zotefoams plc
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular
materials technology delivering optimal material solutions for the
benefit of society. Utilising a variety of unique manufacturing
processes, including environmentally friendly nitrogen expansion
for lightweight AZOTE(R) polyolefin and ZOTEK(R) high-performance
foams, Zotefoams sells to diverse markets worldwide. Zotefoams uses
its own cellular materials to manufacture T-FIT(R) advanced
insulation for demanding industrial markets. Zotefoams also owns
and licenses patented microcellular foam technology to reduce
plastic use in extrusion applications and for ReZorce(R)
mono-material recyclable barrier packaging.
Zotefoams is headquartered in Croydon, UK, with additional
manufacturing sites in Kentucky, USA and Brzeg, Poland (foam
manufacture), Oklahoma, USA (foam products manufacture and
conversion), Massachusetts, USA (MuCell Extrusion) and Jiangsu
Province, China (T-FIT).
www.zotefoams.com
AZOTE(R) , ZOTEK(R) , ReZorce(R) and T-FIT(R) are registered
trademarks of Zotefoams plc.
An introduction from our Chair
In the second year of the pandemic, a strong market recovery has
been accompanied by inflationary challenges as we continue to
deliver strategic progress
Performance
In 2021, revenue growth was strong as polyolefin foams demand
rebounded from the impacts of COVID-19 in the previous year and our
Footwear business grew significantly as expected. Significant and
unpredictable input cost inflation throughout the year suppressed
margins, alongside unfavourable currency movements, as higher
selling prices to recover these higher costs were retrospectively
implemented and were therefore not sufficient to recover the full
impact of continuing cost increases. Group revenue was 22% up on
the previous year at GBP100.8m (2020: GBP82.7m). Operating profit
was 11% below the previous year at GBP8.1m (2020: GBP9.1m). Basic
earnings per share was down 39% at 9.01p (2020: 14.87p). Excluding
a GBP1.0m deferred tax charge resulting from the UK government's
announced change in UK Corporation Tax rate from 19% to 25% in
2023, basic earnings per share was down 25% at 11.1p. At the end of
the year, the balance sheet remained strong, with leverage at 2.1x
(2020: 2.1x) and well within covenants, and liquidity headroom of
GBP13.4m (2020: GBP19.2m) after GBP6.5m of capital repayments.
Strategic progress
Our strategy is built around a focus on sustainable organic
growth. Zotefoams has a portfolio of differentiated products based
on unique and environmentally friendly technology and intellectual
property. We work with our partners to optimise our materials for
their needs and have developed a portfolio of high-performance
products that further enrich our product mix, adding more value for
customers and to our business. Alongside this, we have established
a diversified international manufacturing footprint to ensure there
is sufficient capacity to meet growing demand across a range of
attractive end markets. In another challenging year, we have made
good further progress with this strategy. Our largest market
segment, Polyolefin Foams, recovered in 2021 with volumes growing
39% after excluding the one-off PPE sales of 2020. We continue to
see structural growth prospects in this important business unit,
underpinned by the megatrends of environment, regulation and
demographics and facilitated by our new global capacity. In this
regard, we commissioned our Poland manufacturing facility in
February 2021, marking the final phase of a multi-year capacity
improvement commitment adding 60% capacity to pre-2018 levels. In
our High-Performance Products (HPP) business, we delivered another
excellent year of growth in footwear and worked closely with our
partner to develop further long-term opportunities. Also in HPP,
structural high-growth opportunities in T-FIT(R) insulation
products and ZOTEK(R) technical foams for aviation both remained
severely impacted by COVID-19 restrictions, growing by a modest 11%
and declining 10% respectively. The long-term growth outlook for
these markets remains compelling and we expect to see recovery in
the short to medium term. We also made significant progress at
MuCell Extrusion LLC, continuing the development of the ReZorce(R)
mono-material barrier packaging solution which offers society a
truly circular option using
existing recycling infrastructure. We built an experienced team
and installed and commissioned both our pilot line in the USA and a
sterile carton packaging machine to test the sheet's capability to
be formed into a carton and sealed to the required industry
standards. We have secured support to trial the technology with
leading, recognised industry players, and progressed the route to
market options. We expect to update stakeholders on the progress of
this high-reward, high-risk opportunity during 2022.
Dividend
The Board is proposing a final dividend of 4.40p (2020: 4.27p)
which, if approved by shareholders, would make a total dividend for
the year of 6.50p (2020: 6.30p), an increase of 3.0%. This reflects
the Board's continued confidence in the Group's future and is line
with its progressive dividend policy, recognising the importance to
our shareholders of the dividend as part of their overall return.
If approved, the final dividend will be paid on 1 June 2022 to
shareholders on the register on 6 May 2022.
Our people
We know that our people are key to our success and 2021 has once
again showcased their importance. They have faced a continuation of
the pandemic, Brexit and severe supply chain challenges combined
with high levels of business activity and a need to respond
quickly. Their resilience and commitment have been outstanding and
have ensured that the needs of customers were met in the most
difficult of circumstances.
Having the right people at Zotefoams, who understand and promote
our culture, act at all times with integrity, safety-consciousness
and dedication and possess the right knowledge and skills,
continues to be critical to our future success. I would like to
welcome the new employees who have joined us around the world
during the past 12 months and give a special mention to our
colleagues who have started up our newest manufacturing facility in
Poland. I would also like to thank those who have helped all our
new colleagues integrate successfully and thank, once again, all
our hard-working employees and their supportive families who have
helped the Group continue to make good strategic progress during
these very challenging times.
Sustainability
The Board is focused on the importance of sustainability and the
evolving debate around the use of plastics by society. It considers
both in relation to the future desired outcomes for all
stakeholders. Accordingly, our strategy incorporates the
consideration of climate change in terms of financial and
operational impacts. Zotefoams' products are used almost
exclusively for permanent solutions and often form a positive
element of our customers' own sustainability agenda. They are
seldom deployed for single-use purposes which, understandably in
certain applications, has caused most public concern. The premise
of our MuCell(R) technology is the reduction of plastic in society
and our exciting ReZorce mono-material barrier packaging solution,
using this technology, is a fully circular solution to very
challenging targets set by governments and brands in reducing their
carbon footprint and increasing the use of recycled materials. We
believe that plastics, used appropriately, remain the optimal
solution both functionally and environmentally for our customers'
needs and for society. We also recognise the importance of
continuous improvement around product development and operating
efficiency to reduce the Group's environmental impact.
Sustainability and climate change are recognised as a principal
risk at Zotefoams and both the strategic and operational impacts of
sustainability are being embedded within decision-making processes
throughout the Group. This year, we made good progress refining our
sustainability strategy, based on our purpose of providing "optimal
material solutions for the benefit of society". Following our
adoption of the SASB framework in 2020, the business has set clear
targets aimed at optimising the use of raw materials, minimising
waste and improving recyclability and we have delivered our first
response to the Task Force on Climate-Related Financial Disclosures
(TCFD).
Governance and the Board
There were no changes to the experienced and engaged Board
during the year.
The Board leads an ongoing programme to ensure the highest
standards of corporate governance and integrity across the Group
and has remained abreast of developing governance standards. The
Board's interactions and communications with executive management
continue to be excellent and, as a result, the Board is well placed
to challenge, guide and support executive management in the
delivery of the growth strategy. During the year, we continued to
pay particular attention to the provision of a safe working
environment for our staff across all global locations and
maintained the improved visibility and quality of safety
performance data across the business and I thank all employees at
Zotefoams for their efforts in achieving an improved performance
this year. We continue to support and empower our employees and are
meeting our commitment to enhancing the employee voice in the
boardroom through the position of Jonathan Carling, Independent
NED, as Board representative for workforce engagement. The Board
also acknowledges the benefits of diversity, including that of
gender and ethnicity, and is committed to setting an appropriate
tone from the top in all diversity and inclusion matters.
The Board considers that it has fully applied all the principles
and provisions of the UK Corporate Governance Code during 2021.
Looking to the future
Zotefoams is well positioned with well invested, differentiated
assets and a clear strategy for organic growth. We have committed,
capable and passionate people and a strong pipeline of new
opportunities, including ReZorce, and whilst we remain mindful of
the uncertain external environment, made further unpredictable with
current events in Eastern Europe, and the ongoing challenges that
COVID-19 and its variants bring, we are confident about our future
prospects for growth and margin improvement.
S P Good
Chair
22 March 2022
CEO Review
Record sales exceeding GBP100m but profitability dampened by a
lag in recovering unpredictable cost inflation
United Continental North Rest of
2021 Kingdom Europe America the World Total
------------------------- -------- ----------- -------- ---------- -------
Change % (44%) 58% 13% 49% 22%
Group revenue (GBP000's) 10,768 28,200 19,959 41,823 100,750
% of Group revenue 11% 28% 20% 41% 100%
------------------------- -------- ----------- -------- ---------- -------
2020
Group revenue (GBP000's) 19,106 17,856 17,629 28,061 82,652
% of Group revenue 23% 22% 21% 34% 100%
------------------------- -------- ----------- -------- ---------- -------
-- Rest of the World comprises China: GBP28.4m (2020: GBP13.9m)
and other countries: GBP13.4m (2020: GBP14.2m)
In 2021, Zotefoams achieved a significant milestone by
delivering GBP100m of sales in the centenary year of the invention
of the nitrogen gas process that we use today. This milestone was
achieved in turbulent times with pandemic restrictions, large
swings in product mix and a very difficult supply chain
environment.
In addition to this strong sales performance, we have made good
progress on two notable initiatives, with the commissioning of our
GBP23m capacity expansion in Poland to budget and at the expected
time as well as the commissioning of our ReZorce(R) mono-material
barrier packaging development centre in Massachusetts, USA. Also
noteworthy, and based on our demonstrable focus on safety across
the Zotefoams Group, was the fact that we had no major reportable
accidents for the first time in many years.
We now see Zotefoams as an established, well-invested foam
technology business with a good portfolio of continuing growth
opportunities alongside ReZorce, which is a promising and
disruptive new platform offering significant potential.
The economic environment has been very challenging, with
significant and often unexpected cost increases from suppliers
together with headwinds from unfavourable currency movements. In
particular, prices for our main raw material, low density
polyethylene ("LDPE"), which is a commodity polymer, increased very
sharply in the second quarter of the year shortly after we had
implemented price increases to our customers. This, along with the
additional overhead needed to manage our business, including costs
related to our new facility in Poland, has reduced margins in the
short term. As further inflationary pressures have emerged, we have
implemented a series of price increases across our business,
although these pressures often result in a temporary margin squeeze
as, in most cases, inflationary shocks from our supply chain, such
as in freight, are not forewarned and are therefore impossible to
predict or pass on immediately. Over the course of the business
cycle, we intend to recover in full these higher input costs.
Zotefoams' contribution to a low carbon future, and
sustainability more generally, is a key consideration in how we
plan and operate our business. We utilise unique technology to make
what we consider to be "best in class" foams for a variety of uses
aligned to global environmental, regulatory and demographic trends.
We firmly believe that plastic, our main raw material, is the
optimal material for the applications for which our products are
used. These are predominantly not single use and often function for
many years as industrial and consumer durables in applications as
varied as medical devices, footwear, cleanroom insulation, cars,
aircraft and marine buoyancy. Zotefoams' stated business purpose is
"optimal material solutions for the benefit of society" and, when
considering our product range, markets, operations and investments,
this is the guiding principle when choosing between various courses
of action.
The principal drivers of short-term profitability for our
business are the ability to manage prices in line with our cost
base, operating efficiency, high asset utilisation and an improved
product mix. We anticipate a higher proportion of sales from our
more technical ZOTEK(R) HPP foams and T-FIT(R) insulation products
to be the key drivers of returns in the medium term.
Group revenue increased by 22% to GBP100.8m (2020: GBP82.7m),
with operating profit of GBP8.1m (2020: GBP9.1m), 11% below last
year mainly due to inflationary cost pressures not being fully
recovered in the period. A stronger pound, relative to the US
dollar in particular, also negatively impacted sales and
profitability by an estimated GBP4.1m and GBP0.5m respectively. In
2020, revenue included a "one time" PPE contract in the UK worth
GBP9.6m for Polyolefin Foams. Excluding this contract, Group
revenue increased by GBP27.7m, or 36%, of which GBP14.9m was an
increase in Polyolefin Foams with strong market recovery and
GBP12.2m was Footwear. Other movements were relatively minor, with
T-FIT insulation products and MuCell Extrusion LLC ("MEL") revenues
both growing by over 10% from small bases and sales of ZOTEK F
foams declining due to weak aerospace market conditions and
associated customer destocking.
Strategy update
Zotefoams' strategy remains unchanged: to invest in flexible
assets and technology with the capability to support the organic
growth opportunities afforded by our diverse, and often unique,
products. The results of this investment, in development and/or
capacity, typically take time to be realised fully and this can
create a short-term headwind for margins. However, we are confident
that our investment decisions are aligned to longer term growth
trends and that our differentiated and diverse products generate
good levels of demand with pricing power over the economic
cycle.
Over the past couple of years, we have curtailed investment in
some areas to manage our costs and cash at a time of extreme
uncertainty, but have continued to invest in Footwear products,
T-FIT insulation and ReZorce mono-material barrier technology. In
2021, we saw the benefits of this in Footwear sales and delivered
good progress against technical milestones in ReZorce. The ability
to develop our T-FIT business unfortunately continued to be heavily
impacted by pandemic restrictions and the sales growth here was not
as substantial as expected, although we do not believe this
diminishes its longer-term prospects.
Sustainability is a key consideration in developing and
implementing our strategy. Our core materials offer improved
product performance in durable solutions while using less material
than competitors do. Recyclability of waste material into foams has
been proven but is not yet common in the markets in which we
currently operate. MEL licenses technology specifically to reduce
polymer content and ReZorce offers a fully recyclable, circular,
barrier packaging solution. The strongly negative public perception
of plastic is becoming more nuanced beyond the environmental impact
of ill-considered, single-use, plastic used predominantly in
consumer packaging. Zotefoams' current markets are not immediately
impacted by this, as products using our foams are primarily
integrated components in larger systems or products (such as cars,
planes, footwear and medical parts) or used in the long-term
storage of items. They are very rarely used in consumer disposable
items. Our foams save weight and fuel in cars, trains and aircraft,
save energy by insulating and provide protection to people and
goods. Our products help our customers reduce emissions, lower
energy usage, improve fuel efficiency and comply with increasingly
stringent safety regulations. In common with other businesses, we
seek to minimise the use of natural resources through measures such
as reducing energy and polymer usage, which benefits the
environment and reduces our costs. We believe Zotefoams has
demonstrable credibility in reducing the carbon footprint of our
customers, but the world is changing rapidly with different
competitive solutions and a redefinition of requirements driven by
preferences and regulation. We therefore continue to develop both
our product range and technology to anticipate and react to these
changes.
Capacity and investment
Zotefoams is well invested in capacity to manufacture foams and
our facilities in the USA and Poland have been developed with a
base infrastructure to allow future capacity increases at lower
incremental costs. In making these investments, we took account of
the potential growth rates of various products across different
geographies. Simplistically, our polyolefin foams markets are
substantially regional, benefitting from a local manufacturing
presence which allows swift and efficient distribution to our
customers, while our HPP products are technically more complex and
expensive and customers are more able to plan further ahead, with
transport being a significantly lower proportion of the cost to the
customer. Our UK facility, which has the highest capacity,
therefore supplies all HPP products along with AZOTE(R) polyolefin
foam products, some of which ship to Asia and the Middle East,
while our facilities in the USA and Poland are today only supplying
their local markets with polyolefin foams.
Our capacity management decision-making requires us to consider
the three major manufacturing processes to make a foam: extrusion,
high-pressure gassing and low-pressure foam expansion. Extrusion is
the lowest cost per unit of capacity and high-pressure gassing is
the highest cost and most complex process, incorporating much of
our proprietary technology. We can separate these three processes,
for example in Poland, where its low-pressure foaming capacity
receives intermediate "pre-gassed" sheets from the UK or the USA to
expand into foams and thereby reduce the transport carbon
consumption and cost. Additionally, our extruders tend to be set up
for specific polymer types, while high and low-pressure autoclaves
can be used for all polymer types, with our newer vessels offering
complete flexibility to manufacture all products. We consider
capacity on a global basis with many factors influencing the
decision around which products to manufacture in which locations,
including customer service, sustainability and profit optimisation.
Future investment at our three main foam productions sites is
planned to remove production bottlenecks, improve operating and
carbon efficiency and upgrade infrastructure to improve our risk
profile.
Outside of our autoclave technology, other planned investments
relate to T-FIT, which requires a relatively low capital cost to
convert sheets of foam into insulation products, and the ReZorce
opportunity, which is addressed separately below.
Polyolefin Foams
Segment revenue GBP56.2m Change +10% (2020: GBP50.9m)
Segment profit margin 1.2% (2020: 9.5%)
Segment profit GBP0.7m Change (86)% (2020: GBP4.8m)
In 2021, sales of Polyolefin Foams grew by 10% to a record
GBP56.2m (2020: GBP50.9m) and account for 56% of Group revenue
(2020: 62%). In constant currency, sales increased by 15%. As
expected, there was no repeat of the 2020 sales of GBP9.6m for
personal protective equipment ("PPE") for the UK National Health
Service. Overall, sales volume grew by 6%, price increases
delivered 4% sales growth in the period and sales mix improved by
5%, offset by adverse currency movements of 5%.
Volumes improved by 39%, when excluding PPE from the 2020
comparative and after very sharp falls across most industrial
sectors in 2020, and were 13% ahead of 2019. Overall, we
experienced a broad-based recovery in most markets by geography and
by application segment, with the notable exceptions of aviation and
automotive which remained well below previous levels of activity.
Geographically, those areas which experienced the sharpest falls in
demand in 2020 typically grew fastest in 2021. We increased prices
late in the second quarter, with the consequence that these price
rises only contributed partially to full year revenues.
Input costs for polyolefin foams are primarily raw materials
and, to a lesser extent, energy and operational costs such as
labour. Freight costs, whether paid by Zotefoams or by customers,
can also be a significant factor. Prices for the main raw material,
low density polyethylene ("LDPE"), increased rapidly and
significantly from the relative lows experienced in the second and
third quarters of 2020. The average price paid during 2021 was
around 80% higher than the previous year and 50% higher than the
long-run, pre-pandemic average. When we were implementing price
increases during 2021, we initially predicted that this peak would
correct towards the long-run average relatively quickly and that
relatively modest increases in pricing would recover general
inflationary pressures plus the catch-up from the relative lows of
polymer pricing in the previous period. At that time in the second
quarter of 2021, ethylene, the main feedstock for LDPE which
normally accounts for 70-80% of the LDPE price, was priced around
its long-run average and LDPE premium pricing was driven by a
capacity shortage of polymer processing in Europe. Since then,
demand for polymer has remained high and ethylene prices have risen
considerably, leading to unprecedented levels of LDPE pricing.
Input costs for other materials and services have also increased
markedly, particularly later in the year with respect to energy and
products which are energy intensive. As a result, input costs
during 2021 were only partially recovered through pricing
adjustments, impacting our margins in Polyolefin Foams
significantly.
In the final quarter of 2021, we implemented further pricing
increases effective early January 2022 in most markets and in
January notified some customers of a further price increase from
April. In setting prices historically, we have typically tried to
absorb the short-term variability in polymer and freight prices and
act on inflation which is more "permanent" such as employment costs
or, as in the past, commodity costs which have undergone a
structural change in pricing. Cost increases in polymer, freight,
energy and other raw materials were substantially more impactful
than expected and our 2022 price increases have reflected this.
Whether these materials and services have undergone a structural
change in pricing remains too early to call at this time.
Segment profit declined to GBP0.7m (2020: GBP4.8m), representing
a margin of 1% (2020: 10%), with the variance being accounted for
almost entirely by the timing and level of pricing not recovering
increases in raw material and other input costs in the period.
Segment margin benefitted from an increase in volumes offset by
manufacturing yield inefficiencies, predominantly in the USA, where
on-site support would normally have come from UK technical staff,
and adverse foreign exchange rates of around GBP0.6m (partially
offset by hedges recorded centrally).
HPP
Segment revenue GBP42.3m Change +41% (2020: GBP30.0m)
Segment profit margin 20.6% (2020: 26.3%)
Segment profit GBP8.7m Change +10% (2020: GBP7.9m)
HPP comprises ZOTEK(R) technical foams, which include foams for
footwear where we have an exclusive relationship with Nike, and
T-FIT(R) insulation products. These products are typically unique
or highly differentiated and designed to deliver specific
performance attributes, such as energy management, excellent fire
resistance or high-temperature performance to meet the exacting
needs of industries such as sports equipment, aviation, automotive,
biotech and pharmaceutical.
The HPP Business Unit sales increased by 41% to GBP42.3m (2020:
GBP30.0m) and accounted for 42% of Group sales in 2021 (2020: 36%).
In constant currency, sales increased by 47%. Within this business
unit there are currently three main end-use applications: footwear,
aviation and technical insulation. Footwear grew strongly as
expected, following on from the strong second half in 2020 and,
with sales of GBP33.9m, now accounts for 34% (2020: 26%) of Group
revenue. This strong performance came despite well-publicised
shutdowns of Nike partner factories in Vietnam in the second half
of the year due to COVID-19 restrictions, which negatively impacted
the manufacturing of some shoe models. We have an exclusive and
close relationship with Nike which aligns our activities to their
business priorities on performance, sustainability and value in
premium running shoes. This also gives good visibility around
Nike's intentions for the future, with demand planning being a
critical part of our cooperation. Sales of ZOTEK F fluoropolymer
foams, primarily for aviation applications, reduced again in 2021,
by 10%, following a large decline in 2020. Sales of GBP4.2m (2020:
GBP4.6m) are now 58% below their peak of 2019, due to the impact of
continued supply chain contraction primarily linked to Boeing's
ongoing reduction in manufacturing of certain aircraft models.
Demand for aircraft interior products, mainly linked to airlines,
saw some modest growth from a low base in the previous year. As
demand for air travel returns, we are focusing on the development
of applications that use our materials within the cabin and which
support the drive to make aviation lighter and thus less fuel
consuming. Furthermore, our technical and business development
focus over the past few years has extended beyond aviation, with an
emphasis on other areas of opportunity such as battery insulation
for electric vehicles and other technical insulation applications,
where feedback from customer trials in these markets is
encouraging. These initiatives, and the fact that our products
remain specified on existing aviation manufacturing applications,
give us good grounds for optimism later in 2022 and beyond. T-FIT
insulation products grew by 11% in the year, which was a second
year significantly below our expectations mainly due, again, to
COVID-19 impacts particularly in India, where sales grew modestly,
and Europe, where sales declined for the second consecutive year.
In China, where we manufacture most of our T-FIT products, sales
grew strongly towards the end of the year and the country now
accounts for 52% of T-FIT sales. We remain optimistic about T-FIT
insulation but need to recognise that our ability to create demand
for this technical product range at this stage of development
relies on sales teams meeting customers. Over time we will further
develop our T-FIT branding and leverage customers who clearly have
a positive experience of our products, thereby transitioning from
the current high-contact sales model to an increasingly experienced
team focused on specific development opportunities.
Segment profit increased by 10% to GBP8.7m (2020: GBP7.9m) and
by 25% to GBP9.9m in constant currency. The main difference between
sales growth of 41% and the lower percentage increase in segment
profit, in addition to adverse currency movements which are hedged
centrally, was the cost of servicing customers, particularly in
respect of higher freight costs late in the year, investment in
T-FIT selling costs relative to the growth in sales and a higher
allocation of depreciation to this segment. Segment margin declined
to 21% (2020: 26%).
MEL
Segment revenue GBP2.3m Change +32% (2020: GBP1.7m)
Segment loss before amortisation GBP0.5m Change +58% (2020:
GBP1.2m)
Segment loss after amortisation GBP0.7m Change +52% (2020:
GBP1.4m)
The MuCell Extrusion LLC business model is to develop and
license or sell intellectual property (IP) and related machinery.
The focus of MEL's business has evolved to create unique properties
in plastic rather than merely reduce the plastic content of an
article. Specifically, we have been working to develop and
commercialise mono-material barrier technology, branded ReZorce(R)
, for packaging of food and drink in a container which is
recyclable and uses recycled content in its manufacture - a true
circular economy product.
The core MuCell(R) technology can reduce polymer content, and
cost, in existing packaging by around 15% by injecting inert gas to
displace plastic with microcellular bubbles. This requires the
packaging manufacturer and brand to align both technically and
commercially on the improved solution, which has proved difficult
as packaging producers are often remunerated on a "cost plus"
basis. The ReZorce technology is a completely new solution,
offering brands the ability to significantly reduce their carbon
footprint and also help meet their pledges on both recycling and
use of recycled content in their packaging, putting sustainability
at the heart of our MEL development agenda. There are considerable
challenges to developing the complete "end-to-end" solution, but we
have made good progress in creating a sheet material which meets
the required oxygen and moisture barrier properties and has a range
of stiffnesses to allow it to be used in both carton and pouches,
two of the most common barrier packaging formats for food and
drink. We believe there is a significant market pull for this
technology, as current barrier packaging is typically made from
combinations of materials and is therefore difficult to recycle and
often uses low or no recycled content.
Given the market opportunity and multiple challenges to
commercialise, we are investing in a phased manner, with future
investment and the preferred business model to be determined
following the outcomes of the current phase of technical
development and market assessment. At this time, we are focusing on
the beverage carton market, which we estimate to be in excess of
GBP7.5bn revenues from the sale of packaging materials which
ReZorce could replace, although work is also progressing on pouches
and other opportunities in the background. Internally, we have
established a pilot line to develop and manufacture ReZorce sheet
and commissioned a sterile carton packaging machine to test the
sheet's capability to be formed into a carton and sealed to the
required industry standards. This has proved successful on a
limited basis, looking at one carton format and, relative to the
most modern machinery, running very slow processing speeds. As we
move to commercial trials, planned for the second quarter this
year, the technology will be exposed to much more demanding
conditions including high-speed processing. If these trials are
successful, we will have passed a significant milestone in creating
value from ReZorce cartons and will consider a number of business
models which can deliver value to our stakeholders.
Revenue from the MEL business unit increased by 32% to GBP2.3m
(2020: GBP1.7m), although both periods were heavily impacted by the
inability of our staff to travel and develop business. Sales in
constant currency increased by 37%. Segment loss for the year was
GBP0.7m (2020: loss of GBP1.4m), representing a negative margin of
30% (2020: negative margin 83%), which reflects the switch in
business focus to developing the ReZorce material and the
capitalisation of certain staff and other costs in accordance with
IAS38. Overall ReZorce capital expenditure was GBP1.9m, of which
GBP0.8m was the capitalisation of intangible assets, mainly related
to people and IP development costs.
Measuring strategic progress
The markets in which we operate are driven by global trends -
environment, regulation and demographics - which we believe offer
the potential for high rates of market growth as well as
opportunity for our disruptive technology solutions. Having
previously measured strategic progress on four metrics, we have
this year decided to separate MEL from HPP and have added
sustainability as a separate strategic objective:
1. We intend our HPP Business Unit to offer higher growth rates
and better margins than Polyolefin Foams. Sales in our HPP Business
Unit, which offers unique disruptive products and solutions, now
account for 42% (2020: 36%) of Group revenues with growth of 41%
(47% in constant currency). The unique benefits offered by these
products, combined with market recovery in aviation, offer good
growth prospects. Margins in the period were 21% (2020: 26%), while
margins in our Polyolefin Foams business unit were 1% (2020:
10%).
2. Sales of our highly differentiated AZOTE polyolefin foam
products increased by 10% (15% in constant currency), against our
target rate of twice global GDP growth. The market disruption and
UK government PPE contract in the second half of 2020 distorts the
underlying growth of this business unit and, against 2019, which is
a better comparative, sales grew by 9% (14% in constant
currency).
3. Group operating margin was 8.1% (2020: 11.0%). Increased
input costs, not fully recovered in the period, were the primary
reason for the reduced operating margin, which was also impacted by
unfavourable foreign exchange rates, manufacturing yield
inefficiencies and the additional costs of servicing customers
particularly late in the year. We anticipate margin recovery as the
prices we charge our customers increase more quickly than input
costs in 2022 and as we experience growth in higher margin areas
such as aviation and T-FIT products.
4. Group return on capital declined to 6.1% (2020: 9.0%),
largely as a result of the lower profitability of the Polyolefin
Foams business unit and an increased capital base which includes
the commissioning of the Poland manufacturing facility. The Group
has invested in a large capacity enhancement programme over recent
years, including significant expenditure in the supporting
infrastructure that will be sufficient to support further capacity,
if needed, at much lower incremental cost. There is currently no
further commitment to large-scale increases in capacity and the
Group is well invested to support future growth. Capital spending
is planned to return to more normal, lower levels, broadly in line
with depreciation. The net assets of the business have increased
significantly and profit and margin recovery and higher asset
utilisation from increased sales will be an important factor in
delivering material improvements in the return on capital over the
coming years.
5. In 2021, we introduced material sustainability targets
arising from our SASB assessment, provided fuller disclosures
compliant with the Task Force on Climate-Related Financial
Disclosures guidance (TCFD) and ran customer focus groups on
sustainability to generate data to guide strategy. In line with our
commitment to using electricity from renewable sources wherever
feasible, we switched to a fully sustainable energy source in the
UK in 2021. In March 2022, we incorporated clearly defined ESG
targets in our bank refinancing arrangements.
6. MEL has potentially disruptive technology to improve
sustainability, primarily in consumer packaging. We intend to
invest within the Group's risk appetite to develop and
commercialise this technology, which at this time is focused on
ReZorce mono-material barrier packaging. This approach recognises
that there is a high "option value" for success and at this time
our business model remains flexible to deliver this value in the
best way for our stakeholders.
People
The top priority for Zotefoams is ensuring the health and safety
of employees and site visitors. The Board tolerance for risk is set
accordingly, with Health and Safety an agenda item at every Board
and Executive Committee meeting. The behaviour of all employees is
now the major factor driving our improved performance and lower
risk profile and, in 2021, there were no major reportable injuries
in the Group (2020: 1).
For the past two years, managing the business during COVID-19
has required us to adapt to different ways of working, including
staff working from home and the adoption of new safety protocols
across all Group sites. During this period, our employees have
demonstrated flexibility and resilience and embraced the challenges
of rapidly changing business priorities caused by the external
environment. This has not been easy, particularly for newer
employees unfamiliar with the company or their colleagues and also
for people working on new initiatives. Clear communication of our
strategy, objectives, progress and approach to different
challenges, as well as a common culture, are particularly important
to ensure cohesion in these difficult times.
I would like to extend my thanks to my colleagues and to their
families for their support given.
Forward-looking statements
Forward-looking statements have been made by the Directors in
good faith using information available up until the date they
approved these financial statements. These forward-looking
statements should be considered in light of the continuing
uncertainty surrounding the impacts of the COVID-19 virus and the
geopolitical environment, currently most impacted by the events in
Eastern Europe, on economic trends and business.
Current trading and outlook
Geopolitical risks are currently much higher than normal. Whilst
these have limited direct impact on our operations currently, we
are mindful of the risk that they may lead to more significant
indirect impacts, especially in supply chain, inflation and demand,
rendering forward looking statements particularly uncertain.
Currently, we are experiencing good demand across our business
consistent with our expectations. Prices for polyolefin foams were
increased in January and, in some products and geographies, we have
additional increases notified to take effect in the second quarter.
The inflationary environment for our input costs remains highly
unsettled, with pricing of raw materials, freight and energy in
particular expected to be volatile for the remainder of the year,
at least, and accentuated by current events in Eastern Europe. Our
sales prices and margins are therefore being closely managed. Our
operational performance also continues to be challenged by an
unpredictable supply chain and the ongoing challenges presented by
COVID-19 and its variants. We continue to work hard to manage the
impacts of these as effectively as possible, however inefficiencies
are to be expected.
We expect modest volume growth in our Polyolefin Foams business
during the year, with a similar product mix to 2021 and a strong
benefit from price increases improving margins, subject to managing
cost inflation appropriately. In our HPP business unit, both T-FIT
insulation and ZOTEK foams for aviation are expected to grow
strongly as market conditions improve, particularly in the second
half of the year, while demand for footwear products is expected to
remain at similar levels to 2021.
ReZorce barrier packaging represents a potentially very
significant opportunity for Zotefoams but depends on achieving a
number of developmental milestones, the outcome and timing of which
are difficult to predict. We are therefore conducting frequent
reviews of progress but currently expect that, working with
partners, we will be able to successfully develop and commercialise
the technology. We will update stakeholders when appropriate.
Overall, the Board remains confident about the future prospects
for our business.
D B Stirling
Group CEO
22 March 2022
Group CFO's review
2021 was a mixed year for Zotefoams, with significant revenue
growth generated from footwear and polyolefin foams markets
accompanied by significant cost escalation across production input
costs, freight and certain critical overheads
Group revenue Profit before tax
GBP100.8m GBP7.0m
Change +22% Change -16%
2020 GBP82.7m 2020 GBP8.1m
Net debt Leverage
GBP34.3m 2.1x
Change +4% Change nil
2020 GBP35.6m 2020 2.1x
Overview
Group revenue for the year increased by 22% to GBP100.8m (2020:
GBP82.7m), with another strong year in Footwear leading to growth
of 41% in High-Performance Products (HPP) and Polyolefin Foams
growing 10%, or 36% excluding the one-off PPE sales in 2020, as
many end markets recovered and supply chains refilled. MuCell
Extrusion LLC (MEL) sales grew 32%, albeit from a smaller base. In
constant currency, Group revenue increased by 27% to GBP104.9m, an
adverse currency impact of GBP4.1m.
Operating profit declined 11% to GBP8.1m (2020: GBP9.1m). Input
costs rose rapidly and unpredictably and were not fully offset by
price increases in the year. Average raw material costs for our key
raw material low density polyethylene (LDPE) more than doubled,
along with significant increases in freight, energy and operating
costs from our newly commissioned Poland facility. This led to a
gross margin decline of GBP1.2m to GBP26.6m (2020: GBP27.8m), and a
gross margin percentage of 26.4% (2020: 33.6%). Net finance costs
were GBP1.1m (2020: GBP0.9m), resulting in profit before tax of
GBP7.0m (2020: GBP8.1m). The taxation charge was GBP2.6m (2020:
GBP1.1m) and includes a GBP1.0m deferred tax accrual related to the
UK government's announced increase in the Corporation Tax rate from
19% to 25%, a further GBP1.0m deferred tax charge related to a
prior year tax credit and current year overseas losses prudently
not recognised as an asset. Basic earnings per share was 9.01p
(2020: 14.87p), down 39%. In constant currency, profit before tax
was GBP7.5m, an adverse impact of GBP0.5m.
At 31 December 2021, net debt was GBP34.3m (2020: GBP35.6m) and
leverage (net debt to EBITDA, using definitions under the bank
facility agreement, see section 'Debt facility') was 2.1x (2020:
2.1x). Net debt declined by GBP1.3m after net cash flows generated
from operating activities of GBP10.9m (2020: GBP11.4m) were
consumed mostly by capital expenditure of GBP7.0m (2020: GBP13.3m)
and dividends of GBP3.1m (2020: GBP1.0m).
Revenue performance
Polyolefin Foams business unit sales grew 10% to GBP56.2m (2020:
GBP50.9m). In constant currency, sales grew 15% to GBP58.3m.
Excluding GBP9.6m of PPE-related sales in H2 2020, which were a
unique contract secured by the Group's largest UK customer with the
UK government during the depths of the pandemic, annual sales of
polyolefin foams increased 36%. This reflected the strong and rapid
recovery in global demand following the sharp decline in activity
from Q2 2020, coupled with restocking which, in most cases, was
complete by the end of the year. All regions experienced very
strong sales growth: the UK (ex PPE) increased 13%, Europe
increased 58%, the USA increased 13% and the Rest of the world
increased 49%, while most industrial markets recovered except
aviation and automotive.
HPP sales increased 41% to GBP42.3m (2020: GBP30.0m). In
constant currency, sales grew 47% to GBP44.1m. Footwear is the
largest application currently within HPP and revenue in this market
grew 56% versus 2020, after growing 68% in 2020, maintaining the
run rate achieved in H2 2020. Sales were boosted by the delayed
2020 Olympic games but hindered later in the year by an eight-week
shut down of operations at one of the Group's key customers in
Vietnam. ZOTEK(R) F fluoropolymer foam sales ended the year 10%
down versus 2020, impacted by the continuing depression of the
airline industry, although we began to see some signs of recovery
in Q4 2021. T-FIT(R) advanced insulation sales continued to face
challenges from COVID-19, particularly in Europe and India, which
limited growth to 11% (2020: 4%), with a strong performance in
China offset by a decline in Europe.
MEL sales growth was affected by the current strategy to focus
on existing customers and redirect resources to the ReZorce(R)
mono-material barrier packaging initiative. Despite this, sales
grew by 32% to GBP2.3m (2020: GBP1.7m), with negligible impact in
absolute terms from currency.
Revenue by market
(%)
------------------- ---- ----
2021 2020
------------------- ---- ----
Sports and leisure 37 29
------------------- ---- ----
Product protection 26 21
------------------- ---- ----
Building and
construction 11 12
------------------- ---- ----
Transportation 10 12
------------------- ---- ----
Industrial 7 7
------------------- ---- ----
Medical 5 16*
------------------- ---- ----
Other 4 3
------------------- ---- ----
* 11.6% of this 16% was a result of the PPE sales
Within the transportation segment, aviation represented 4.5%
(2020: 6.5%) and automotive 5.8% (2020: 5.5%) of Group revenue.
These two markets remain well below their pre-pandemic levels and
in 2019 were 15.0% and 7.0% respectively.
Gross profit
Gross margin decreased to 26.4% (2020: 33.6%), representing a
reduction of GBP1.2m in absolute terms from GBP27.8m to GBP26.6m.
While sales price increases were implemented in the Polyolefin
Foams business in Q2:2021, costs for related raw materials
continued to escalate and more than doubled through H1 2021,
remaining close to their peak for the rest of the year. Zotefoams'
approach has previously been to adjust prices only when longer-term
structural changes in input pricing are evident, absorbing the
advantages and disadvantages of short-term price movements while
longer term shifts are passed on through pricing to customers. The
unpredictable and significant increase in LDPE prices throughout
2021 meant that costs were not fully recovered during the period.
Pricing actions implemented during 2022 are planned to allow gross
margins in the medium term to recover and the drop-through effect
on underlying profit to increase materially. In addition to these
raw material price increases, freight availability pushed logistics
charges up, most notably in H2 2021, and utilities increased
significantly in Q4 despite some protection during this period from
energy hedges . In February 2021, the Group commissioned its third
major foam manufacturing site in Poland, which increased overhead
costs, including depreciation of GBP0.7m and an equivalent level of
other fixed overhead as expected, and delivers additional, global,
operating capability that is not yet fully utilised. The increased
strength of sterling against the US dollar, in particular, also
impacted gross margin by GBP2.0m, with the offsetting impacts of
the Group's hedging strategy appearing under distribution and
administrative costs below, in line accounting standards.
Distribution and administrative costs
The Group has a clear expansion strategy, founded on proprietary
cellular materials technology linked to longer-term demand growth
in our chosen markets. Organic growth with a portfolio of unique
and highly differentiated products requires that we invest actively
in, and reprioritise where needed, technical, sales-focused and
administrative resources to create, execute and manage this growth.
After a large part of 2020 was spent managing the uncertainties of
COVID-19, with operating cost investment into these growth drivers
postponed and discretionary spend tightly controlled, a return to
investment in this area commenced in the latter part of 2020 and
continued in 2021. During the year, the average number of Group
employee roles not directly related to production amounted to 191,
an increase of seven over the previous year.
Included within distribution costs in the consolidated income
statement are sales, marketing and warehousing expenses. These
costs increased by GBP0.5m, or 8%, to GBP7.3m (2020: GBP6.8m)
during the year, mostly reflecting a recovery of some of the
expenditure held back during 2020 and increased sales activity.
Included within administrative expenses are technical development,
finance, information systems and administration costs as well as
the impact of foreign exchange hedges maturing in the period and
non-cash foreign exchange translation expenses. These costs reduced
in 2021 by GBP0.8m, or 6%, to GBP11.1m (2020: GBP11.9m). However,
after removing foreign exchange movements, these administrative
costs increased by GBP0.7m, mostly representing increased support
costs in Asia, Poland and at MEL, together with higher recruitment
costs after a quiet 2020. See Currency review for further
information and context around foreign exchange movements.
The business unit results do not include central plc costs,
which are not considered to be segment specific. Neither do they
include hedging movements. In 2021, central plc costs were GBP1.8m
(2020: GBP1.9m).
Operating profit
Operating profit was GBP8.1m, 11% below 2020 (GBP9.1m).
Finance costs
The total interest charge for the year increased to GBP1.1m
(2020: GBP0.9m) and includes GBP0.1m (2020: GBP0.2m) of interest on
the DB Scheme pension obligation. The Group capitalised GBPnil
(2020: GBP0.6m) of interest in relation to the financing of its
capacity enhancement projects still under construction, a reduction
following the commissioning of the Poland plant at the beginning of
February 2021, at which point interest capitalisation in the Group
ceased.
Profit before tax
Profit before tax decreased by 16% to GBP7.0m (2020:
GBP8.3m).
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars and euros. The
exchange rates used to translate the key flows and balances
were:
2021 2020
---------------------------- ----- -----
GBP to USD - average 1.376 1.284
---------------------------- ----- -----
GBP to USD - year-end spot 1.351 1.366
---------------------------- ----- -----
GBP to euro - average 1.163 1.125
---------------------------- ----- -----
GBP to euro - year-end spot 1.192 1.111
---------------------------- ----- -----
Movements in foreign exchange rates can have a significant
impact on results. During the year, the sterling average exchange
rate year-on-year against the US dollar strengthened by 7% and the
sterling average exchange rate against the euro strengthened by 3%.
The sterling spot rate against the US dollar from 31 December 2020
to 31 December 2021 weakened marginally by 1%, rising steadily by
4% to the mid-year before steadily falling back, while the sterling
spot rate against the euro from 31 December 2020 to 31 December
2021 strengthened by 7%, with most of the gain being achieved by
mid-year.
Zotefoams is a predominantly UK-based exporter which invoices
mostly in local currency. In 2021, approximately 90% of sales
(2020: approximately 79%) were denominated in currencies other than
sterling, mostly US dollars or euros. Most operating costs are
incurred in sterling, other than the main raw materials for
polyolefin foams used for production in the UK, which are
euro-denominated, US subsidiary production and operating costs,
most other subsidiaries' staff and operating costs and some HPP raw
materials, which are US dollar-denominated. Poland operating costs
are incurred in Zloty. The Group therefore uses forward exchange
contracts to hedge its foreign currency transaction risk to US
dollar and the euro. The Group generated a net gain on forward
exchange contracts of GBP1.3m (2020 loss: GBP0.1m).
Zotefoams also faces translation risk. Zotefoams plc, the parent
company, holds the Group's multi-currency borrowings facility and
has provided intercompany loans and intercompany trading facilities
to the USA and Poland to support the Group's capacity expansion
projects. It also has a growing Footwear business, which is
invoiced from the UK in US dollars, adding to its exposure to
foreign currency denominated net assets. This translation exposure
is mitigated, where possible, through an offset with same-currency
liabilities, primarily through borrowing in the relevant currency.
Every month, these foreign currency denominated intercompany net
positions, despite being cash neutral, require to be translated by
Zotefoams plc on a mark to market basis and the movement taken to
the Company income statement. This treatment also applies to the
non-sterling accounts receivable balances held on the Company's
balance sheet, the impact of which should reverse through forward
currency contracts but is subject to the timing difference between
the recording of accounts receivable and cash received. In the
year, the Group recorded a translation loss in the income statement
of GBP0.1m (2020 loss: GBP0.2m).
Currency movements during the year negatively impacted Group
revenue by GBP4.1m (2020: GBP0.1m negative impact). They positively
impacted operating costs by GBP2.4m (2020: GBP0.1m negative
impact), resulting in a net negative impact of GBP1.7m (2020:
negative impact GBP0.2m) before hedging. After deducting the
hedging gain of GBP1.2m (2020: charge of GBP0.3m), the net currency
negative impact for the year was GBP0.5m (2020: negative impact
GBP0.6m).
We expect growth to come mainly from outside the UK and
recognise that one of our principal risks is our exposure to
foreign currency fluctuations, particularly the US dollar, which we
will manage through hedging strategies. Based on 2021, it is
estimated that, with respect to transaction risk and for every one
percentage point movement in the US dollar/sterling rate, profit
moves by GBP0.24m unhedged and GBP0.08m hedged. In the year, it is
assumed that the transaction risk from euro/sterling movements
continues to be substantially naturally hedged, with sales revenues
offset by costs, primarily related to raw material purchases and
certain further processing costs.
The Group does not currently hedge for the translation of its
foreign subsidiaries' assets or liabilities. The foreign currency
hedging policy is kept under regular review and is formally
approved by the Board on an annual basis.
Currency impact on business segments in 2021
Currency had a GBP4.1m negative impact on the Group's sales
performance
Segment revenue GBPm
2021 2021 2020 Net change
Reported Adjusted Reported %
(*)
----------------- --------- ---------
Reported Adjusted
----------------- --------- --------- --------- ---------- --------
Polyolefin Foams 56.2 58.4 50.9 10 15
----------------- --------- --------- --------- ---------- --------
HPP 42.3 44.1 30.0 41 47
----------------- --------- --------- --------- ---------- --------
MEL 2.3 2.4 1.8 32 37
----------------- --------- --------- --------- ---------- --------
Group 100.8 104.9 82.7 22 27
----------------- --------- --------- --------- ---------- --------
* Constant currency, adjusting 2021 values to 2020 rates. See
exchange rates table above.
Tax and earnings per share
The effective tax rate for the year is 37.6% (2020: 13.7%),
which is significantly above the Group's weighted average corporate
tax rate for the year of 19.0% (2020: 19.7%). This resulted in a
tax charge of GBP2.6m in the year (2020: GBP1.1m). The higher
effective tax rate for the year arises primarily from an increase
in the deferred tax charge of GBP1.0m, that results from the
expected future change in UK Corporation Tax rates to 25% from the
current 19% and which was substantively enacted on 14 May 2021, a
prudent approach to recognising overseas tax losses as a deferred
income tax asset, amounting to GBP0.4m (2020: a credit of GBP0.1m),
no adjustments in the current year to the prior year UK Corporation
Tax charge (2020: a credit of GBP0.4m) and a lower profit before
tax of GBP7.0m (2020: GBP8.3m). Net income tax paid during the year
was GBP1.1m (2020: GBP1.1m).
Basic earnings per share was 9.01p (2020: 14.87p), a reduction
of 39%. Without the deferred tax charge as a result of the expected
future change in UK Corporation Tax rates, earnings per share was
11.1p, a reduction of 25%.
ReZorce
ReZorce(R) technology, being developed by MEL, offers brand
owners the ability to significantly reduce their carbon footprint
and also help meet their pledges on both recycling and use of
recycled content in their packaging, putting sustainability at the
heart of our MEL development agenda. During the year, Zotefoams
significantly increased its investment in this opportunity. Labour
amounting to GBP0.4m was redirected from MEL to ReZorce and
capitalised. One half of this, as well as expenditure of GBP0.6m
representing additional, directly attributable costs, was
capitalised in line with IAS 38 "Capitalisation of Development
Costs". The Group also invested GBP0.9m of capital and used the
other GBP0.2m of MEL labour resource to complete the commissioning
of its pilot line and implement sterile carton packaging, the
combined sum of which has been recorded as tangible assets. In
total, investment in ReZorce amounts to GBP1.9m during 2021 and
GBP2.4m cumulatively, which will be amortised in line with Group
policies, if successful, or be fully impaired, if not, in line with
accounting standards.
Investments
Given the capital intensive nature of the Zotefoams business,
long lead times for key equipment and the importance of operational
gearing, investment decisions require significant planning and are
made with a clear assessment of strategic fit, risk, risk appetite
and expected returns. Confidence in the Group's developing
portfolio of HPP opportunities is a significant consideration in
determining the timing of certain investments, while the strategic
importance of maintaining growth in the profitable Polyolefin Foams
business, the Group's largest volume product range, informs the
decision to increase total Group capacity versus relying solely on
mix enrichment.
Zotefoams targets improvements in the Group's return on capital
over the investment cycle, while recognising the short-term impact
on this return during construction and operating initially at lower
utilisation levels. When Zotefoams embarks on investment in a major
expansion or new location, such as the installation of extrusion
and high-pressure capability at our existing Kentucky, USA site or
the most recent investment in foam manufacturing at the Poland
site, we take into account the importance of scale and dilution of
heavy infrastructure cost over a (future) second or third line. As
such, the first step is invariably more dilutive to capital return
than any subsequent investments.
Zotefoams defines the return on capital employed (ROCE) as
operating profit before exceptional items divided by the average
sum of its equity, net debt and other non-current liabilities. This
measure excludes acquired intangible assets and their amortisation
costs. We also exclude significant capacity investments under
construction until they enter production. We do not attempt to
adjust for the first phase inefficiencies as mentioned above.
In 2021, the Group's return on capital employed decreased to
6.1% (2020: 9.0%). The main cause of this movement in the year is
the commissioning of the Poland manufacturing site at the beginning
of February 2021, which was previously adjusted for as a
consequence of it being a significant capacity investment under
construction in line with the Group's definition of ROCE, and
reduced operating profit. The main cause of a reduction in ROCE
since 2018 is the increase in the capital base following the
completion of our investments in the UK, USA and Poland and the
additional operating costs arising from their operation, which is
expected during this stage of the investment cycle. However,
business growth as a result of this increased capacity and improved
utilisation is expected to improve ROCE beyond that previously
achieved.
The Group's recent committed capacity expansion programme is now
complete.
Investment in growth (GBPm)
2015 2016 2017 2018 2019 2020 2021 Total
------------------------------ ---- ---- ---- ---- ---- ---- ---- -----
Growth capital 6.1 6.9 7.8 12.8 19.8 10.3 3.4 67.1
------------------------------ ---- ---- ---- ---- ---- ---- ---- -----
Capitalised interest - - - - 0.9 0.6 0.0 1.5
------------------------------ ---- ---- ---- ---- ---- ---- ---- -----
Maintenance capital 2.6 5.2 3.6 3.0 3.7 2.1 2.6 22.8
------------------------------ ---- ---- ---- ---- ---- ---- ---- -----
Total investment in property,
plant and equipment 8.7 12.1 11.4 15.8 24.4 13.0 6.0 91.4
------------------------------ ---- ---- ---- ---- ---- ---- ---- -----
Dividend
The Board has a progressive dividend policy, recognising the
importance to our shareholders of the dividend as part of their
overall return. The Directors are proposing a final dividend of
4.40p (2020: 4.27p), which would be payable on 1 June 2022 to
shareholders on the Company register at the close of business on 6
May 2022. Taken with the interim dividend of 2.10p (2020: 2.03p),
this would bring the total dividend for the year to 6.50p (2020:
6.30p) and would represent a dividend cover of 1.4 times (2020: 2.4
times). This multiple is lower than that of 2020 as a result of the
short-term inflationary impact on margins as well as the higher tax
charge for the year, in part driven by the non-recurring deferred
tax charge arising from the UK Corporation Tax increase to 25% in
2023.
Cash flow
The Group continues to be highly cash generative with net cash
from operations before investment in working capital and provisions
of GBP16.5m, up 3% on the previous year (2020: GBP16.1m). Of this,
GBP3.0m (2020: GBP2.4m) was re-invested in working capital. Trade
and other receivables increased by GBP1.6m (2020: reduced GBP1.2m),
reflecting greatly increased sales. Overdue balances remained on
average below 0.5%. Inventories increased by GBP2.8m (2020:
increased GBP4.5m), with the movement being driven by an increase
in footwear raw material reflecting the Vietnam shutdown close to
the year end and a build-up of finished goods inventory in Poland
now that it is operational. The change in mix also impacts the
value of inventory, with HPP raw materials being significantly more
expensive than their polyolefin counterparts and their uniqueness
requiring higher inventory levels to mitigate supply chain risks.
Trade and other payables increased GBP1.5m (2020: increased
GBP1.0m), supporting higher business activity. Zotefoams recognises
the importance of its supplier relationships and has improved its
performance with respect to honouring agreed payment terms. As a
result of the above, cash generated from operations was in line
with the previous year at GBP12.8m (2020: GBP13.0m).
During the year, the Group paid interest of GBP0.8m, none of
which was capitalised (2020: paid interest of GBP1.1m, of which it
capitalised GBP0.6m on qualifying assets under IAS 23
"Capitalisation of Borrowing Costs"). The interest paid has been
split between operating activities of GBP0.8m (2020: GBP0.5m) and
investing activities of GBPnil (2020: GBP0.6m) to reflect the
Group's utilisation of the interest paid. Taxation paid during the
year amounted to GBP1.1m (2020: GBP1.1m).
Zotefoams' property, plant and equipment capital expenditure
reduced in 2021, as expected, following several years of capacity
expansion, with total expenditure including capitalised interest of
GBP6.0m (2020: GBP13.0m). The primary focus on this year's
expenditure was investments in the Poland plant to allow for its
commissioning in February 2021, assembling a pilot line and trial
system for the MEL ReZorce opportunity, and improvements to the
Croydon plant. A small amount of capital investment is outstanding
in Poland, delayed from 2021, and the level of expenditure on
ReZorce during 2022 will be dependent on key milestones during the
year. Other than this, we expect capital expenditure to be at
levels more in line with the Group's depreciation charge. The Group
also invested GBP1.1m (2020: GBP0.3m) in intangible assets, almost
entirely related to MEL patents and capitalised development costs
for the ReZorce opportunity at MEL.
After dividends paid in the year amounting to GBP3.1m (2020:
GBP1.0m) and lease payments of GBP0.5m (2020: GBP0.4m), closing net
debt was GBP34.3m (2020: GBP35.6m). At the year end, the Group
remains comfortably within its bank facility covenants, with a
ratio of EBITDA to net finance charges of 16 (2020: 24), against a
covenant minimum of 4, and net debt to EBITDA (leverage) of 2.1x
(2020: 2.1x), against a covenant of 3.0x. See 'debt facility' below
for definition of leverage and information on the Group's renewal
of its refinancing arrangements in March 2022. We expect to remain
within covenant levels going forward.
Debt facility
At 31 December 2021, the Group's gross finance facilities were
GBP47.3m (2020: GBP53.8m), comprising a multi-currency term loan of
GBP20.0m (2020: GBP25.0m), a multi-currency revolving credit
facility of GBP25.0m (2020: GBP25.0m) and a remaining balance of
GBP2.3m (2020: GBP3.8m) of a further GBP7.5m sterling annually
renewable term loan, repayable in equal quarterly instalments. The
bank facility in place at 31 December 2021 is for a five-year
period and expires in May 2023. At the date of the statement of
financial position, headroom, which we define as the combination of
amount undrawn on the facility and cash and cash equivalents
disclosed on the Statement of Financial Position, amounted to
GBP13.4m (2020: GBP19.2m). The facility is subject to two covenants
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges.
Zotefoams defines EBITDA as profit for the year before tax,
adjusted for depreciation and amortisation, net finance costs, the
share of profit/loss from its joint venture and equity-settled
share-based payments. Net debt comprises short and long-terms loans
less cash and cash equivalents and is adjusted from IFRS by the
impacts of IFRS 2 and IFRS 16 under the bank facility
definition.
Group banking covenant definition
Net debt to EBITDA ratio
(Leverage)
GBPm 2021 2020 GBPm 2021 2020
Profit after tax 4.4 7.2 Net debt per IFRS 34.3 35.6
Adjusted for: IFRS 16 leases (1.1) (1.4)
Finance leases pre
Depreciation and amortisation 7.6 6.7 1 January 2019 0.0 0.1
Finance costs 1.1 0.8 Roundings 0.0 (0.1)
Finance income 0.0 0.0 Nebt debt per bank 33.2 34.2
Share of result from
join venture 0.0 0.0
Equity-settled share-based
payments 0.4 0.3
Taxation 2.6 1.1
Roundings 0.0 0.1
EBITDA 16.1 16.2 Leverage per bank 2.1x 2.1x
EBITDA to net finance
charges ratio
GBPm 2021 2020 GBPm 2021 2020
EBITDA, as above 16.1 16.2 Finance costs 1.1 0.8
Finance income 0.0 0.0
Share of result from
joint venture 0.0 0.0
EBITDA to net finance
charges 16.1x 23.7x Net finance charges 1.1 0.8
With the Group's debt facility arrangement expiring 13 months
from the date of signing of the financial statements, the Group has
undergone a renewal tender process and selected Handelsbanken and
NatWest, the incumbents, to continue as its lenders. Under the
terms of the new facility, completed in March 2022, the Group's
gross finance facility comprises a GBP50m multi-currency revolving
credit facility with a GBP25m accordion, on a 4+1 tenor, and with
an interest rate ratchet on slightly improved terms to the previous
facility and including a small element related to the achievement
of sustainability targets. The finance cost and leverage covenants
remain in place, with the former remaining at 4:1 and the latter
increasing to 3.5:1 from 3.0:1. Unamortised costs of GBP0.3m
relating to the previous facility will be charged to income in the
first half of 2022.
Post-employment benefits
The last full actuarial valuation of the DB Scheme took place as
at 5 April 2020, in line with the requirement to have a triennial
valuation. On a Statutory Funding Objective basis, a deficit was
calculated for the DB Scheme of GBP7.7m (previous triennial
valuation: GBP4.2m). As a result, the Company agreed with the
Trustees to make contributions to the DB Scheme of GBP643,200 per
annum, beginning 1 July 2021, to meet the shortfall by 31 October
2026 (previously 31 October 2026), up from GBP492,000 per annum
previously. In addition, the Company pays the ongoing DB Scheme
expenses of GBP216,000 per annum (previously GBP180,000 per annum)
to cover death-in-service insurance premiums, the expenses of
administering the DB Scheme and Pension Protection Fund levies.
The net IAS19 deficit on the DB Scheme decreased by GBP4.2m to
GBP4.7m as at 31 December 2021 (2020: GBP8.9m). The main factors
leading to the improvement were the strong investment performance
over the year and changes in assumptions, in particular the use of
a higher discount rate following an increase in corporate bond
yields over the year, which has placed a lower value on the defined
benefit obligation. The deficit is the net total of GBP34.1m (2020:
GBP31.9m) of assets and GBP38.8m (2020: GBP40.8m) of liabilities
and represents 4.8% (2020: 9.4%) of consolidated net assets.
Zotefoams does not consider its pension scheme to be a key risk to
its ability to achieve its strategic objectives. Mitigation of
further risk is expected to come from our growth expectations and
the refocus by the Trustees on a lower-risk strategy to meet the DB
Scheme's deficit shortfall.
Going concern
The Directors believe that the Group is well placed to manage
its business risks and, after making enquiries including a review
of forecasts and predictions, taking account of reasonably possible
changes in trading performance and considering the renewal and
terms of the new debt facility, have a reasonable expectation that
the Group has adequate resources to continue in operational
existence for the next 12 months following the date of approval of
the financial statements. The Directors have also drawn upon the
experiences of 2020 and the Group's success in reacting to the
challenges of COVID-19 through its safety protocols and cost and
cash management, all of which could be replicated in a similar
scenario.
After due consideration of the range and likelihood of potential
outcomes, the Directors continue to adopt the going concern basis
of accounting in preparing these preliminary results.
Financial risk management
The main financial risks of the Group relate to funding and
liquidity, credit, interest rate fluctuations and currency
exposures.
G C McGrath
Group CFO
22 March 2022
Consolidated income statement
For the year ended 31 December 2021
2021 2020
Note GBP'000 GBP'000
Revenue 2 100,750 82,652
Cost of sales (74,184) (54,874)
--------------------------------------------- ----- --------- -----------------------
Gross profit 26,566 27,778
Distribution costs (7,316) (6,793)
Administrative expenses (11,117) (11,876)
--------------------------------------------- ----- --------- -----------------------
Operating profit 8,133 9,109
--------------------------------------------- ----- --------- -----------------------
Finance costs (1,116) (872)
Finance income 11 26
Share of (loss) / profit from joint venture (20) 38
--------------------------------------------- ----- --------- -----------------------
Profit before income tax 7,008 8,301
Income tax expense (2,632) (1,138)
--------------------------------------------- ----- --------- -----------------------
Profit for the year 4,376 7,163
Profit attributable to:
Equity holders of the Company 4,376 7,163
--------------------------------------------- ----- --------- -----------------------
4,376 7,163
Earnings per share:
Basic (p) 9.01 14.87
--------------------------------------------- ----- --------- -----------------------
Diluted (p) 8.87 14.63
--------------------------------------------- ----- --------- -----------------------
Consolidated statement of comprehensive income
For the year ended 31 December 2021
2021 2020
GBP'000 GBP'000
---------------------------------------------------------------------------
Profit for the year 4,376 7,163
---------------------------------------------------------------------------- -------- --------
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial losses on defined benefit pension schemes 3,517 (2,460)
Tax relating to items that will not be reclassified (444) 467
---------------------------------------------------------------------------- --------
Total items that will not be reclassified to profit or loss 3,073 (1,993)
---------------------------------------------------------------------------- -------- --------
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation losses on investment in foreign subsidiaries (96) (583)
Change in fair value of hedging instruments (344) 952
Hedging (losses)/gains reclassified to profit or loss (1,251) 82
Tax relating to items that may be reclassified 376 (256)
Total items that may be reclassified subsequently to profit or loss (1,315) 195
---------------------------------------------------------------------------- -------- --------
Other comprehensive income for the year, net of tax 1,758 (1,798)
---------------------------------------------------------------------------- -------- --------
Total comprehensive income for the year 6,134 5,365
---------------------------------------------------------------------------- -------- --------
Total comprehensive income attributable to:
Equity holders of the Company 6,134 5,365
----------------------------------------------------------------------------
Total comprehensive income for the year 6,134 5,365
---------------------------------------------------------------------------- -------- --------
Consolidated statement of financial position
As at 31 December 2021
2021 2020
Notes GBP'000 GBP'000
--------------------------------------- ------ ------------------------- -----------------
Non-current assets
Property, plant and equipment 6 91,401 92,925
Right-of-use assets 1,104 1,397
Intangible assets 6,224 5,888
Investment in joint venture 163 183
Trade and other receivables 11 54
Deferred tax assets 492 509
---------------------------------------
Total non-current assets 99,395 100,956
--------------------------------------- ------ ------------------------- -----------------
Current assets
Inventories 25,954 23,033
Trade and other receivables 24,338 22,150
Derivative financial instruments 173 1,580
Cash and cash equivalents 8,055 8,503
--------------------------------------- ------ ------------------------- -----------------
Total current assets 58,520 55,266
--------------------------------------- ------ ------------------------- -----------------
Total assets 157,915 156,222
--------------------------------------- ------ ------------------------- -----------------
Current liabilities
Trade and other payables (9,242) (7,851)
Derivative financial instruments (600) (53)
Current tax liability (83) (101)
Lease liabilities (486) (420)
Interest-bearing loans and borrowings 5 (26,564) (23,430)
Total current liabilities (36,975) (31,855)
--------------------------------------- ------ ------------------------- -----------------
Non-current liabilities
Lease liabilities (643) (986)
Interest-bearing loans and borrowings 5 (14,710) (19,263)
Deferred tax liabilities (3,155) (891)
Post-employment benefits (4,657) (8,851)
--------------------------------------- ------ ------------------------- -----------------
Total non-current liabilities (23,165) (29,991)
--------------------------------------- ------ ------------------------- -----------------
Total liabilities (60,140) (61,846)
--------------------------------------- ------ ------------------------- -----------------
Total net assets 97,775 94,376
--------------------------------------- ------ ------------------------- -----------------
Equity
Issued share capital 4 2,431 2,431
Share premium 4 44,178 44,178
Own shares held (10) (23)
Capital redemption reserve 15 15
Translation reserve 2,228 2,324
Hedging reserve (310) 909
Retained earnings 49,243 44,542
--------------------------------------- ------ ------------------------- -----------------
Total equity 97,775 94,376
--------------------------------------- ------ ------------------------- -----------------
Consolidated statement of cash flows
For the year ended 31 December 2021
2021 2020
Note GBP'000 GBP'000
------------------------------------------ ----- --------------------- ---------------------
Cash flows from operating activities
Profit for the year 4,376 7,163
Adjustments for:
Depreciation and amortisation 7,624 6,746
Disposal of assets 6 53 40
Finance costs 1,105 846
Share of profit from joint venture 20 (38)
Net exchange differences 376 (133)
Equity-settled share-based payments 360 300
Taxation 2,632 1,138
------------------------------------------ ----- --------------------- ---------------------
Operating profit before changes in
working capital and provisions 16,546 16,062
(Increase) / decrease in trade and
other receivables (1,636) 1,199
Increase in inventories (2,843) (4,536)
Increase in trade and other payables 1,506 980
Employee defined benefit contributions (779) (700)
------------------------------------------ ----- ---------------------
Cash generated from operations 12,794 13,005
Interest paid (789) (456)
Income taxes paid, net of refunds (1,087) (1,113)
------------------------------------------ ----- --------------------- ---------------------
Net cash flows generated from operating
activities 10,918 11,436
------------------------------------------ ----- --------------------- ---------------------
Cash flows from investing activities
Interest received 11 26
Interest paid (32) (604)
Purchases of intangibles (1,069) (346)
Proceeds on disposal of property, 88 -
plant and equipment
Purchases of property, plant and
equipment (6,002) (12,363)
Net cash used in investing activities (7,004) (13,287)
------------------------------------------ ----- --------------------- ---------------------
Cash flows from financing activities
Proceeds from options exercised and 40 -
issue of share capital
Repayment of borrowings (7,739) (8,053)
Proceeds from borrowings 6,974 13,180
Principal elements of lease payments (543) (433)
Dividends paid to equity holders
of the Company (3,074) (977)
------------------------------------------ ----- --------------------- ---------------------
Net cash (used in)/ generated from
financing activities (4,342) 3,717
------------------------------------------ ----- --------------------- ---------------------
Net (decrease)/ increase in cash
and cash equivalents (428) 1,866
Cash and cash equivalents at 1 January 8,503 6,656
Exchange losses on cash and cash
equivalents (20) (19)
------------------------------------------ ----- --------------------- ---------------------
Cash and cash equivalents at 31 December 8,055 8,503
------------------------------------------ ----- --------------------- ---------------------
Consolidated statement of changes in equity
For the year ended 31 December 2021
Own Capital
Share Share shares redemption Translation Hedging Retained Total
capital premium held reserve reserve reserve earnings equity
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Balance as at 1
January 2020 2,415 44,178 (9) 15 2,907 131 40,003 89,640
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Profit for the
year - - - - - - 7,163 7,163
Other
Comprehensive
Income for the
year
Foreign exchange
translation
losses on
investment in
subsidiaries - - - - (583) - - (583)
Change in fair
value of hedging
instruments
recognised in
other
comprehensive
income - - - - - 952 - 952
Reclassification
to income
statement -
administrative
expenses - - - - - 82 - 82
Tax relating to
effective
portion of
changes in fair
value of cash
flow hedges, net
of recycling - - - - - (256) - (256)
Actuarial loss on
defined benefit
pension scheme - - - - - - (2,460) (2,460)
Tax relating to
actuarial loss
on defined
benefit pension
scheme - - - - - - 467 467
Total
comprehensive
income for the
year - - - - (583) 778 5,170 (1,798)
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Transactions with
owners of the
Parent:
Options exercised - - 2 - - - (2) -
Proceeds of
shares issued,
net of expenses 16 - (16) - - - - -
Equity-settled
share-based
payments net of
tax - - - - - - 348 348
Dividends paid 3 - - - - - - (977) (977)
Total
transactions
with owners of
the Parent 16 - (14) - - - (631) (629)
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Balance as at 31
December 2020 2,431 44,178 (23) 15 2,324 909 44,542 94,376
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Balance as at 1
January 2021 2,431 44,178 (23) 15 2,324 909 44,542 94,376
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Profit for the
year - - - - - - 4,376 4,376
Other
Comprehensive
Income for the
year
Foreign exchange
translation
losses on
investment in
subsidiaries - - - - (96) - - (96)
Change in fair
value of hedging
instruments
recognised in
other
comprehensive
income - - - - - (344) - (344)
Reclassification
to income
statement -
administrative
expenses - - - - - (1,251) - (1,251)
Tax relating to
effective
portion of
changes in fair
value of cash
flow hedges, net
of recycling - - - - - 376 - 376
Actuarial gain on
defined benefit
pension scheme - - - - - - 3,517 3,517
Tax relating to
actuarial loss
on defined
benefit pension
scheme - - - - - - (444) (444)
Total
comprehensive
income for the
year - - - - (96) (1,219) 7,449 6,134
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Transactions with
owners of the
Parent:
Options exercised - - 13 - - - 27 40
Equity-settled
share-based
payments net of
tax - - - - - - 299 299
Dividends paid 3 - - - - - - (3,074) (3,074)
Total
transactions
with owners of
the Parent - - 13 - - - (2,748) (2,735)
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
Balance as at 31
December 2021 2,431 44,178 (10) 15 2,228 (310) 49,243 97,775
------------------ ---------- ---------- --------- ----------- ------------ --------- --------- ----------
1. General overview and accounting policies
Basis of preparation
Zotefoams plc (the 'Company') is a public limited company, which
is listed on the London Stock Exchange and incorporated and
domiciled in the UK. The registered office of the Company is 675
Mitcham Road, Croydon CR9 3AL.
The preliminary results (unaudited) (referred to as the
'preliminary results') include the results of the Company and its
subsidiaries (together referred to as the 'Group'). The preliminary
results of the Group have been prepared on the basis of the
accounting policies set out in the statutory financial statements
for the year ended 31 December 2020. Whilst the financial
information included in this announcement has been computed in
accordance with the recognition and measurement requirements of
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards, this announcement does not itself contain
sufficient disclosures to comply with IFRS.
The information for the year ended 31 December 2021 does not
constitute statutory accounts for the purposes of section 435 of
the Companies Act 2006. A copy of the accounts for the year ended
31 December 2020 was delivered to the Registrar of Companies. The
auditors' report on those accounts was not qualified and did not
contain statements under section 498(2) or 498(3) of the Companies
Act 2006. The audit of the statutory accounts for the year ended 31
December 2021 is not yet complete. These accounts will be finalised
on the basis of the financial information presented by the
Directors in these 'preliminary results' and will be delivered to
the Registrar of Companies following the Company's annual general
meeting.
The preliminary results are prepared on the historical cost
basis except for derivative financial instruments which are stated
at their fair value. The same accounting policies, presentation and
methods of computation are followed in the 'preliminary results' as
were applied in the Group's 2020 annual audited financial
statements.
2. Segment reporting
The Group's operating segments are reported in a manner
consistent with the internal reporting provided to and regularly
reviewed by the Group Chief Executive Officer, David Stirling, who
is considered to be the 'chief operating decision maker' for the
purpose of evaluating segment performance and allocating resources.
The Group Chief Executive Officer primarily uses a measure of
profit for the year (before exceptional items) to assess the
performance of the operating segments.
The Group manufactures and sells high-performance foams and
licenses related technology for specialist markets worldwide. The
Group's activities are categorised as follows:
Polyolefin Foams: these foams are made from olefinic homopolymer
and copolymer resin. The most common resin used is
polyethylene.
High-Performance Products ('HPP'): these foams exhibit high
performance on certain key properties, such as improved chemical,
flammability, temperature or energy management performance. Revenue
in the segment is currently mainly derived from products
manufactured from three main polymer types: PVDF fluoropolymer,
polyamide (nylon) and polyether block amide (PEBA). Foams are sold
under the brand name ZOTEK(R) , while technical insulation products
manufactured from certain materials are branded as T-FIT(R) .
MuCell Extrusion LLC ('MEL'): licenses microcellular foam
technology and sells related machinery. It is also currently
developing a fully circular solution for mono-material barrier
packaging, which it has branded "ReZorce(R) ".
Polyolefin
Foams HPP MEL Consolidated
2021 2020 2021 2020 2021 2020 2021 2020
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Group revenue 56,166 50,904 42,294 30,016 2,290 1,732 100,750 82,652
Segment profit/(loss)
pre-amortisation 684 4,836 8,732 7,907 (494) (1,184) 8,922 11,559
Amortisation
of acquired
intangible assets - - - (194) (262) (194) (262)
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Segment profit/(loss) 684 4,836 8,732 7,907 (688) (1,446) 8,728 11,297
Foreign exchange
gains/(losses) - - - - - - 1,168 (300)
Unallocated
central costs - - - - - - (1,763) (1,888)
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Operating profit 8,133 9,109
Financing costs - - - - - - (1,116) (872)
Financing income - - - - - - 11 26
Share of (loss)/profit
from joint venture (20) 38 - - - - (20) 38
Taxation - - - - - - (2,632) (1,138)
------------------------ --------- ---------
Profit for the
year 4,376 7,163
Segment assets 107,613 106,792 40,189 41,046 9,601 7,875 157,403 155,713
Unallocated
assets - - - - - - 492 509
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Total assets 157,895 156,222
Segment liabilities (40,795) (46,676) (15,224) (13,234) (883) (944) (56,902) (60,854)
Unallocated
liabilities - - - - - - (3,238) (992)
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Total liabilities (60,140) (61,846)
Depreciation
of PPE 4,780 4,478 1,052 813 133 115 5,965 5,406
Depreciation
of right-of-use
assets 302 307 90 43 133 36 525 414
Amortisation 640 494 289 55 194 279 1,123 926
Capital expenditure:
Property, plant
and equipment
(PPE) 4,543 9,928 743 3,475 1,160 447 6,446 12,776
Right of use
assets 223 13 7 126 - 623 230 639
Intangible assets 98 89 34 97 918 235 1,050 346
------------------------ --------- --------- --------- --------- -------- -------- --------- ---------
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis
but operate from UK, USA and Asian locations. In presenting
information on the basis of geographical segments, segmental
revenue is based on the geographical location of customers. Segment
assets are based on the geographical location of assets.
United Continental North Rest Total
Kingdom Europe America of the
world
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- ------------ --------- -------- --------
For the year ended 31 December
2021
Group revenue from external
customers 10,768 28,200 19,959 41,823 100,750
Non-current assets 42,944 19,830 35,521 445 98,740
Capital expenditure - PPE 2,776 798 2,391 31 5,996
-------------------------------- --------- ------------ --------- -------- --------
For the year ended 31 December
2020
Group revenue from external
customers 19,106 17,856 17,629 28,061 82,652
Non-current assets 44,343 21,050 34,351 520 100,264
Capital expenditure - PPE 4,090 7,095 1,423 168 12,776
-------------------------------- --------- ------------ --------- -------- --------
3. Dividends and earnings per share
2021 2020
---------------------------------------------
GBP'000 GBP'000
--------------------------------------------- -------- --------
Prior year final dividend of 4.27p (2020: 2,058 -
nil) per 5.0p ordinary share
Interim dividend of 2.10p (2020: 2.03p) per
5.0p ordinary share 1,016 977
--------------------------------------------- -------- --------
Dividends paid during the year 3,074 977
--------------------------------------------- -------- --------
The proposed final dividend for the year ended 31 December 2021
of 4.40p per share (2021: 4.27p) is subject to approval by
shareholders at the AGM and has not been recognised as a liability
in these financial statements. The proposed dividend would amount
to GBP2,130k if paid to all shareholders on the Company register at
the close of business on 31 May 2022.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing
consolidated profit after tax attributable to equity holders of the
Company of GBP4,376k (2020: GBP7,163k) by the weighted average
number of shares in issue during the year and which excludes own
shares held by the EBT, which are administered by independent
trustees. The number of shares held in the trust at 31 December
2021 was 196,888 (2020: 459,201). Distribution of shares from the
trust is at the discretion of the trustees. Diluted earnings per
ordinary share adjusts for the potential dilutive effect of share
option schemes in accordance with IAS 33 "Earnings per Share".
2021 2020
----------------------------------------------- ------------- -----------
Weighted average number of ordinary shares
in issue 48,577,945 48,186,077
Adjustments for share options 755,954 779,660
----------------------------------------------- ------------- -----------
Diluted number of ordinary shares issued 49,333,899 48,965,737
----------------------------------------------- ------------- -----------
4. Issued share capital
Issued, allotted and fully paid ordinary shares of 5p each:
Number Share
of shares Par value premium Total
GBP'000 GBP'000 GBP'000
----------------------------------- ----------- ---------- --------- --------
Opening balance 1 January 2020 48,301,234 2,415 44,178 46,593
Share issue to Employee Benefit
Trust 320,000 16 - 16
As at 31 December 2020 48,621,234 2,431 44,178 46,609
At 1 January 2021 and 31 December
2021 48,621,234 2,431 44,178 46,609
----------------------------------- ----------- ---------- --------- --------
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled, on a poll, to one
vote per share at meetings of the Company.
5. Interest-bearing loans and borrowings
Group Company
----------------------------- -------- -------- -------- --------
2021 2020 2021 2020
-----------------------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- --------
Current bank borrowings 26,564 23,430 26,564 23,430
Non-current bank borrowings 14,710 19,263 14,710 19,263
------------------------------ -------- -------- -------- --------
41,274 42,693 41,274 42,693
----------------------------- -------- -------- -------- --------
In May 2018, the Group completed a debt refinancing to enable it
to continue to grow capacity and meet its expected demand growth.
These facilities are secured against the property, plant and
equipment and trade receivables of the Group. The total facility of
GBP47.25m comprises a GBP20m multi-currency term loan, with GBP5m
repayable during year four and the remainder at the end of year
five, a GBP25m multi-currency revolving credit facility repayable
on demand and a further GBP2.25m sterling term loan renewable
annually and repayable over five years in equal quarterly
repayments over the term. The negotiated facility also includes a
GBP25m accordion feature to provide additional flexibility to
pursue further investment opportunities in the future.
At the end of the financial year, the Group has utilised
GBP19.8m ($20.6m and GBP4.5m) of the multi-currency term loan,
GBP19.5m (EUR17.5m and $6.5m) of the revolving facility and has an
outstanding GBP2.25m on the sterling term loan. The total amount of
GBP41.3m above is net of GBP0.25m loan origination fees paid
upfront and being amortised over the period of the loan.
In March 2022, the Group completed a bank refinancing and
selected Handelsbanken and NatWest, the incumbents, to continue as
its lenders. Under the terms of the new facility, the Group's gross
finance facility comprises a GBP50m multi-currency revolving credit
facility, with a GBP25m accordion, on a 4+1 tenor, and with an
interest rate ratchet on slightly improved terms to the previous
facility and including a small element related to the achievement
of sustainability targets. The finance cost and leverage covenants
remain in place, with the former remaining at 4:1 and the latter
increasing to 3.5:1 from 3.0:1.
6. Property, plant and equipment
Group
Land Plant Fixtures Under
and buildings and equipment and fittings construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- --------------- -------------- -------------- --------
Cost
Balance at 1 January 2020 31,075 83,974 3,915 29,532 148,496
Additions 159 720 115 11,782 12,776
Disposals - (51) (2) - (53)
Transfers 1,857 15,866 36 (17,759) -
Effect of movement in foreign
exchange (298) (1,472) (33) 1,178 (625)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2020 32,793 99,037 4,031 24,733 160,594
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 1 January 2021 32,793 99,037 4,031 24,733 160,594
Additions 16 404 254 5,322 5,996
Disposals (88) (122) (133) - (343)
Transfers 13,346 11,239 (291) (24,774) (480)
Effect of movement in foreign
exchange (291) 233 10 (815) (863)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2021 45,776 110,791 3,871 4,466 164,904
------------------------------- --------------- --------------- -------------- -------------- --------
Accumulated depreciation
Balance at 1 January 2020 11,471 48,936 2,437 - 62,844
Depreciation charge for the
year 1,277 3,642 487 - 5,406
Disposals - (13) - - (13)
Effect of movement in foreign
exchange (170) (370) (28) - (568)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2020 12,578 52,195 2,896 - 67,669
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 1 January 2021 12,578 52,195 2,896 - 67,669
Depreciation charge for the
year 1,479 4,184 315 - 5,978
Disposals - (87) (114) - (201)
Transfers 51 (79) (125) - (153)
Effect of movement in foreign
exchange 52 148 10 - 210
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2021 14,160 56,361 2,982 - 73,503
------------------------------- --------------- --------------- -------------- -------------- --------
Net book value
At 1 January 2020 19,604 35,038 1,478 29,532 85,652
------------------------------- --------------- --------------- -------------- -------------- --------
At 31 December 2020 and 1
January 2021 20,215 46,842 1,135 24,733 92,925
------------------------------- --------------- --------------- -------------- -------------- --------
At 31 December 2021 31,616 54,430 889 4,466 91,401
------------------------------- --------------- --------------- -------------- -------------- --------
7. Financial instruments and financial risk management
Capital management
The Group's objectives when managing capital are to safeguard
its ability to continue as a going concern, in order to provide
returns for shareholders and benefits for other stakeholders, and
to maintain an optimal capital structure to reduce the cost of
capital. In order to maintain or adjust the capital structure, the
Group can adjust the amount of dividends paid to shareholders,
issue new shares or redeem existing ones or borrow funds from
financial institutions.
The Group monitors capital on the basis of the following
leverage ratio: Net Borrowings divided by EBITDA (as per bank
facility agreement).
i) Loan Covenants
Under the terms of its borrowing facilities, the Group is
required to comply with the following financial covenants:
-- The ratio of Net Borrowings on the last day of the relevant period
to Earnings before interest, tax, depreciation and amortisation,
share of profit/(loss) from joint venture, equity-settled share-based
payments and exceptional items (EBITDA) shall not exceed 3.00:1.00
-- The ratio of EBITDA to Net Finance Charges is respect of the
relevant period shall not be less than 4.00:1.00
The Group has complied with these covenants throughout the
financial year.
2021 2020
GBP'000 GBP'000
---------------------------- -------- --------
Net borrowings 33,219 34,190
EBITDA 16,117 16,155
------------------------------ -------- --------
Net borrowings/EBITDA 2.06 2.12
------------------------------ -------- --------
Net finance charges 1,002 681
------------------------------ -------- --------
EBITDA/Net finance charges 16.08 23.72
------------------------------ -------- --------
Net borrowings comprise current and non-current interest-bearing
loans and borrowings of GBP41,275k, and cash and cash equivalents
of GBP8,055k. They do not include the impact of IFRS 16
"Leases".
EBITDA comprises:
2021 2020
GBP'000 GBP'000
------------------------------- -------- --------
Profit for the year 4,376 7,163
Depreciation and amortisation 7,624 6,746
Finance costs 1,105 846
Share of profit from joint
venture 20 (38)
Equity-settled share-based
payments 360 300
Taxation 2,632 1,138
16,117 16,155
------------------------------- -------- --------
Net finance charges comprise interest income of GBP11k and
finance costs expensed of GBP1,013k
The Group's objective is to maintain leverage below the Board's
appetite of 2.0. However, it has accepted an increase in this
ratio, while remaining below the covenant level, as the Group
invested in its capacity expansion programme. Subject to short-term
macro-economic and geopolitical volatility as well as any potential
longer-term strategic investments, it is expected to reduce quickly
back below the Board's appetite as capacity utilisation
improves.
The bank covenant definition does not include the impact of IFRS
16 "Leases", which would have moved the ratio from 2.06 to
2.13.
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END
FR BKDBQFBKDNNB
(END) Dow Jones Newswires
March 22, 2022 03:00 ET (07:00 GMT)
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