Zotefoams
plc
Preliminary Results
(unaudited) for the Year Ended 31 December 2023
19 March
2024 - 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
2023.
"Record profit alongside
significant investment in our ReZorce® recyclable
packaging solution."
Financial Highlights
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Foams4
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Group
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2023
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2022
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Change
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2023
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2022
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Change
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Revenue (£m)
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125.7
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124.6
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1%
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127.0
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127.4
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0%
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Gross margin (%)
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33.9%
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31.0%
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290
ppt
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32.3%
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30.4%
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190
ppt
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Operating profit1
(£m)
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19.5
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15.8
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23%
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15.1
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13.9
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9%
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Operating margin (%)
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15.5%
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12.7%
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280
ppt
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11.9%
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10.9%
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100
ppt
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Profit before tax1
(£m)
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17.2
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14.1
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22%
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12.8
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12.2
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5%
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Basic EPS1
(p)
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19.0
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20.6
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(8%)
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Net debt (£m)
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31.6
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27.8
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(13%)
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Leverage
ratio2
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1.2
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1.2
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0%
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Final dividend3
(p)
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4.90
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4.62
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6%
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1 This is a reported
number under UK adopted IAS and is after
the deduction of amortisation of acquired intangibles amounting to
£0.257m in 2023 and £0.258m in 2022
2 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
3 Final dividend is
subject to approval at the May 2024 Annual General
Meeting
4 Polyolefin Foams and
HPP Business Units only. This excludes MuCell Extrusion LLC (MEL)
which is incurring operating losses as it invests in ReZorce
mono-material barrier packaging
Strategic Progress
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·
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Good progress in both of the
Group's business areas, reflecting different stages of
development
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·
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Foams business
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- Record profit,
strongly ahead of previous year
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- Margin growth
through mix enrichment, efficiency and cost
control
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- Exclusivity
agreement with Nike extended to December 2029, first sales into
basketball category
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- Planned capital investment in
North America to support further organic growth
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·
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MEL/ReZorce®
mono-material barrier packaging
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- Joint
development agreement with a world-leading packager of
beverages
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- Multi award-winning development,
with significant technical and commercial progress in the
year
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- Preparing for market trial by
filling the first ReZorce cartons with fruit juice on
commercial-scale equipment
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- Key milestones in Q2 will enable
determination of optimal path to realise value
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Results highlights
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·
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Group revenue of £127.0m, in line
with record Group revenue in prior year
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·
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Record profits and continued
improvement in profit margins
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- Gross margin up 190 ppt to 32.3%
(33.9% excl. MEL)
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- Operating margin up 280 ppt to
15.5% excl. MEL and 100 ppt to 11.9% incl. MEL
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- Segment margin in Polyolefin
Foams up from 7% to 11%
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- Profit before tax excl. MEL up
22% to a record £17.2m
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- Profit before tax up 5% to
£12.8m after continued investment drives progress in our ReZorce
technology
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·
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Strong cash generation reinvested
in growth
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- £6.3m of inventory investment to
optimise capacity and in expectation of HPP growth
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- £5.5m cash outflow in MEL to
drive the ReZorce opportunity
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- Net debt at £31.6m while
year-end leverage ratio unchanged at 1.2x
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David Stirling, Group CEO, said:
"We have made a positive start to
2024, with overall sales ahead of the previous year's record first
quarter. Sales of HPP products have, thus far, been strongly ahead
of the prior year, with expectations for continued strength in H1
2024 and more muted growth after this, mainly linked to in-year
footwear demand patterns and underlying improvements in the markets
for aviation and T-FIT insulation products. To date, sales of
polyolefin foams are below the comparative period in the prior
year, with European customers particularly impacted by weaker
industrial demand, partially offset by more robust conditions in
North America. We are cautiously optimistic about the
underlying demand environment for polyolefin foams later in the
year, supported by a business focus on application-specific
initiatives to increase market share. Currently, polymer and energy
input prices remain relatively stable and therefore, other than in
non-footwear HPP where prices have increased based on raw material
price inflation experienced in 2023, we do not anticipate any
uplift in selling prices this coming year. Improved asset
utilisation, product mix and operational efficiency are our key
drivers of margin enhancement. In our MEL business unit, we
continue to make good progress against the commercialisation
objectives we have set for ReZorce, with some important milestones
expected to be reached in Q2. Investment to support this will
continue during 2024 as we determine the optimal pathway to
realising the opportunity presented by this technology. As a
result, and while we remain mindful of the uncertain economic
backdrop, 2024 is expected to be another year of good progress for
Zotefoams".
Enquiries:
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Zotefoams plc
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+44 (0) 208 664 1600
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David Stirling, Group
CEO
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Gary McGrath, Group CFO
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IFC Advisory (Financial PR & IR)
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+44 (0) 203 934 6630
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Graham Herring
Tim Metcalfe
Zach Cohen
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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®
polyolefin and ZOTEK® high-performance foams, Zotefoams
sells to diverse markets worldwide. Zotefoams uses its own cellular
materials to manufacture T-FIT® 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® 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, Stilling, Denmark
(microcellular foam technology) and Jiangsu Province, China
(T-FIT).
www.zotefoams.com
AZOTE®,
ZOTEK®, ReZorce® and T-FIT® are
registered trademarks of Zotefoams plc
Chair's statement
Lynn Drummond
Chair
A year of stepping up
Dear shareholders
2023 was a year of stepping up at
Zotefoams, marked by a significant increase in the profitability of
our foams business. We further solidified our partnership with Nike
through an extension of our exclusivity agreement and additionally,
we heightened our commitment to sustainability with increased
investment in our ReZorce® mono-material barrier
technology, which is now progressing to the market trial
phase.
Record profits
I am pleased to report that the Group achieved
record profits for the year, exceeding market expectations with a
profit before tax of £12.8m (2022: £12.2m) on revenues at a similar
level to the prior year. As we continue to deliver successfully on
our established autoclave technology strategy, following
significant capital investment across the UK, USA and Poland, we
are aware of the importance of differentiating between this
business, comprising the Polyolefin Foams and High-Performance
Products business units, and our high risk but potentially high
reward MuCell Extrusion (MEL) business unit, now primarily
dedicated to the development of the highly innovative ReZorce
technology. In 2023, our autoclave technology businesses generated
an impressive profit before tax increase of 22% to £17.2m (2022:
£14.1m) on revenues up 1%. Conversely, increased investment in the
ReZorce opportunity generated a loss of £4.4m (2022: £1.9m), on
lower revenues from the equipment/royalty part of the business, as
we head into the market testing phase following positive progress
in the development of our award-winning technology.
Board composition
2023 saw two changes in the composition of the
Board. I joined Zotefoams in early January and became Chair in May
2023, replacing Steve Good, who stepped down after nine years on
the Zotefoams Board. In September 2023, Malcolm Swift joined the
Board and took on the Chair of the Remuneration Committee,
replacing Alison Fielding, who departed on the same date. I would
like to offer my personal thanks to both colleagues for their
valuable support to me, as well as my thanks on behalf of everyone
connected to Zotefoams for their contributions to the Group. In
November 2023, we announced the planned retirement of David
Stirling, our Group CEO, after 26 years as a Board member and 23
years leading the business. David will leave behind him a growth
business with a clear strategy, strength in depth and exciting
opportunities. The recruitment process for David's replacement is
at an advanced stage and we look forward to updating shareholders
on this important evolution for the Group.
Dividend
The Board is proposing a final dividend of 4.90p
(2022: 4.62p) which, if approved by shareholders, would make a
total dividend for the year of 7.18p (2022: 6.80p), an increase
of 5.6%. This reflects the Board's continued confidence in the
Group's future and is in 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 3 June 2024 to shareholders on the
register on 3 May 2024.
Our people
Central to the Group's success is our talented,
diverse and collaborative team. The Board recognises that it is
this which makes Zotefoams a safe, great, enjoyable and fulfilling
place to work. With travel restrictions no longer in place across
all our geographies, we see how important and valuable direct
interaction is and how diversity of thought and the sharing or our
knowledge and expertise across locations accelerates realisation of
our Group strategy. We have been very mindful of the impact of the
ongoing high-cost environment on our staff and took appropriate pay
decisions during the year.
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. For the first time as Chair, I warmly welcome our new
employees, extend my gratitude to our colleagues who have helped
them integrate and thank all our hard-working people and their
supportive families who have helped the Group continue to make good
strategic progress.
Sustainability
Our purpose is to provide optimal material
solutions for the benefit of society, reflecting our belief that,
used appropriately, plastics are frequently the best solution
for the sophisticated, long-term applications typically delivered
by our customers. The Board is focused on the importance of
sustainability and our strategy incorporates the consideration of
climate change in terms of financial and operational impacts.
Further progress was made in 2023 towards our sustainability
targets.
Acting responsibly
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. We continue to
pay particular attention to the provision of a safe working
environment for our staff across all global locations and to the
empowerment of our employees. 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.
Looking to the future
Zotefoams is well positioned for the future with
well invested, differentiated assets, committed capable and
passionate people, and a clear strategy for delivering profitable
organic growth in a sustainable way. While we are mindful of
ongoing macroeconomic and geopolitical headwinds, we remain
confident about our future prospects for growth, margin
improvement, ROCE and cash generation.
Lynn Drummond
Chair
19 March 2024
Group CEO Review
David Stirling
Group CEO
Zotefoams has delivered record
profits through pricing, product mix and cost control in a year of
significant investment in our ReZorce® recyclable
packaging solution.
|
2023
|
United
Kingdom
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Continental
Europe
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North
America
|
Rest of
the world*
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Total
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|
Change %
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(13)%
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0%
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(7)%
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6%
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0%
|
|
Group revenue (£000's)
|
11,879
|
32,514
|
27,195
|
55,387
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126,975
|
|
%
of Group revenue
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9%
|
26%
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21%
|
44%
|
100%
|
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2022
|
|
|
|
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Group revenue (£000's)
|
13,702
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32,374
|
29,127
|
52,166
|
127,369
|
|
% of Group revenue
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11%
|
25%
|
23%
|
41%
|
100%
|
* Rest of the world comprises
China: £27.1m (2022: £30.0m) and other countries: £28.3m (2022:
£22.2m)
Overview
The business today has two
distinct elements: the manufacturing and sale of specialist foams,
which is well-established, profitable and growing; and ReZorce,
which is currently a development project moving into market
testing, with enormous potential and higher associated
risk.
Group revenue of £127.0m was at a
similar level to the previous year (2022: £127.4m), with lower
demand from industrial and construction markets, particularly in
Europe and Asia, offset by growth in footwear, medical and, to a
lesser extent, the aviation and automotive
markets.
Input costs, in particular
polyolefin raw materials and energy, declined from the record-high
prices experienced in 2022, allowing our margins to recover as
sales prices aligned with these input costs throughout the
period.
Our business strategy remains
focused on the long-term opportunity for differentiated,
market-leading foams and related products. This is underpinned by
three main beneficial macro-trends: demographics, where the global
population is more urban and ageing; regulation, often around the
safety of people; and environmental sustainability. Sustainability,
along with health and safety, is embedded within everything we
do.
Fundamental to our success and
goal of driving improving profitability is product-mix enrichment
and high levels of asset utilisation over the investment and
business cycles. We therefore invest in a portfolio of
opportunities across products, markets, geographies and aligned
technologies which have a spread of risk and return.
In 2023, we increased investment
in ReZorce mono-material barrier packaging
technology. Our focus is a market trial of beverage cartons
made from ReZorce substrate and filled with juice using
commercially available packaging equipment. We have made
substantial progress, with the filling trials scheduled to begin
imminently. There is strong commercial interest in ReZorce carton,
primarily due to its sustainability credentials.
Strategic update and progress
Zotefoams invests in assets and
technology with the capability to support the organic growth
opportunities afforded by its diverse and often unique products. As
global markets evolve, we identify business trends and emerging
technologies, assessing their impact on our own business and its
potential for growth. Our market knowledge, experience and customer
reach afford us insights into the emerging needs of many
industries. Zotefoams has the capability to design and manufacture
foams with specific attributes to meet these needs, and therefore
our portfolio of technologies, products and customers will evolve
over time, often in partnership along the supply chain. This
translates into an improving product mix, while in-year capacity
utilisation is more dependent on our own investment timing and the
economic cycle's impact on our customers.
The volatility seen in demand and
input prices over the past few years was alleviated somewhat in
2023, allowing better engagement with customers and alignment of
our product range with their developing requirements in a higher
priced environment. This "right product, right price" approach was
particularly evident in our Polyolefin Foams business, where many
customers realigned their purchasing decisions and the mix of
products changed, resulting in lower volumes and higher
profitability.
Our extrusion technology business,
MEL, is now substantially focused on ReZorce mono-material
barrier packaging, a recyclable and circular solution for beverage
cartons. The team's initial focus is on the market for
liquid-containing cartons. This is an enormous market
globally, offering retailers and consumers an efficient and
convenient solution for packing liquids such as fruit juice, milk
and increasingly other products such as dairy alternatives, water,
soup and even household cleaning products. We believe the ReZorce
solution offers a better alternative to current technologies: one
which has a lower carbon footprint, clear recyclability credentials
and which will use a high proportion of recycled materials in its
manufacture. Our technical ability to meet the packaging
requirements of sterility, low oxygen and moisture transmission and
packaging functionality has existed for some time now. Investment
in 2023 has primarily been focused on our ability to deliver this
solution all the way to the retailer and in July, a strategic
co-operation agreement was signed with a world-leading packager of
beverages to facilitate this. At the time of writing this report we
are preparing to fill 150,000 cartons, which will then be subject
to stringent sterility testing in preparation for a market trial
mid-year. Given the scale of the opportunity, we will be seeking a
strategic investing partner for ReZorce, a process which the Board
believes is best timed around this market trial. Key milestones
such as this trial will enable us to determine the optimal path to
realise value.
Sustainability
Zotefoams' products are typically
sold into markets where they are used multiple times, often for
many years, and can be recycled at the end of life. Their
insulation, longevity and light weight often form a positive
element of our customers' own sustainability agendas. In 2023,
there was a notable trend towards lighter foams in certain markets
in our Polyolefin Foams business, using less material, being less
expensive to manufacture and offering lower cost to our
customers.
Targets are in
place to manage our own Scope 1 and 2 emissions through the
reduction of energy consumption, material used in manufacturing
processes and waste. We met these internal targets for 2023,
reducing energy consumption and waste while increasing the
proportion of remaining waste recycled, often into new foams. The
core markets for our products are frequently where a "best in
class" foam delivers our stated purpose: optimal material solutions
for the benefit of society. Examples are performance and longevity
in industrial applications and consumer durables such as footwear,
medical devices, insulation for planes, cleanrooms, construction
and cars, as well as military and marine uses. We follow the
guidance provided by IAO 14021:2016 when making environmental
claims and, where appropriate, have products certified by
independent organisations when making claims such as those related
to recycled content. We have not yet set a net zero target, however
we are committed to specifically reviewing this during our 2024
Board strategy session.
In 2023, 85% of our revenue was
from products which are considered "green" based on a resource
efficiency definition where, during manufacture or use, they
provide a substantial increase in the efficiency of resources. This
includes all sales from MEL, which provides solutions for
increasing the efficiency of resource usage by reducing polymer
consumption. There were no sales for the ReZorce product during the
year, due to its stage of development, but its considerable
potential as a sustainable packaging solution is discussed in depth
in the MEL section below.
Polyolefin foams
Segment
revenue £67.6m; Change (4%); 2022 £70.1m
Segment profit margin 11.1%; 2022
7.0%
Segment profit £7.5m; Change 53%;
2022 £4.9m
In 2023, the Polyolefin Foams
business delivered much improved profitability against a backdrop
of lower sales volumes, improved pricing, lower polymer costs and
better cost management.
Sales declined 4%, with a 7%
volume drop partially offset by a 3% average price improvement.
Volumes globally were impacted by slower industrial markets
generally, although we experienced growth in some of our smaller,
more specialist segments, such as medical and aviation. All regions
were impacted by lower demand, particularly in the latter part of
the year. Pricing improvement was primarily a result of the
full-year impact of price increases implemented part-way through
2022. These benefited margins, as did some changes in product mix,
often to lower-cost products which can deliver cost savings to
customers while being less expensive to manufacture.
Regionally, demand patterns were
relatively consistent, with differences more apparent in the
specific applications for our foams. With high transportation costs
due to their bulk, most polyolefin foams are sold in Europe (62% of
segment sales, 2022: 62%) and North America (32% of segment sales,
2022: 31%) as these are efficiently served by our local
manufacturing capability in these regions. Polyolefin foams
are widely used in industrial and multiple-use consumer
applications due to their robustness and durability. The main
market segments are multiple-use packaging and protection, often in
the context of long-term storage solutions, construction, sport and
leisure, automotive, aviation, marine, military and healthcare. The
segments that performed relatively better during the year were
generally those still in recovery from previous years, for example
automotive, where improved demand in 2023 was in comparison to a
2022 that had represented the lowest level for many
years.
Our input costs are predominantly
polymers, labour and energy, with nitrogen, which we use as our
environmentally friendly blowing agent to expand the foams, largely
linked to the energy price.
The main polymers used in our
Polyolefin Foams business are low-density polyethylene (LDPE) and
other similar polyolefins. During the year, the price of LDPE in
Europe was trending around its long-term average, which was around
30% lower than the high prices experienced in 2022. LDPE pricing is
related to the pricing of its feedstock, ethylene, and the regional
supply vs demand balance. Overall, depressed industrial markets led
to an oversupply situation and, alongside lower ethylene feedstock
costs, this caused a fall in the polymer price in Europe, more
marked in the second half of the year. Generally, this high
correlation between industrial demand and polymer pricing provides
a natural hedge to volume increases or declines in the polyolefins
business.
Average prices for energy and
nitrogen, which have a much higher impact on polyolefin foams than
on the products within our HPP business unit, increased by an
average of around 8% compared to 2022 although there has been a
marked decrease in the volatility of pricing. We hedge energy costs
by fixing prices on a proportion of our expected usage up to 12
months in advance.
We manufacture polyolefin foams in
three facilities, with full-process manufacture in the UK and USA
and foam expansion, fabrication and logistics in Poland. An
increasing proportion of European business is served through our
Polish facility, which is now operating 24 hours, five days per
week.
Segment profit margin has grown to
11% of sales (2022: 7%) through improved efficiency and pricing
more aligned to input costs. We have delivered cost improvements,
most notably through waste reduction, including internal recycling
of polymer waste and logistics cost improvements alongside
incremental gains from continuous improvement in our UK facility.
In the USA, our factory has built on the efficiency gains delivered
in 2022, seeing gains in right-first-time quality and many other
aligned metrics such as waste. Globally, there is scope over time
for further improvement, primarily through improved asset
utilisation, operational efficiency and mix enrichment.
HPP (ZOTEK AND T-FIT)
Segment revenue £58.1m Change 7%
2022 £54.4m
Segment profit margin 26.5% 2022 28.1%
Segment profit £15.4m Change 1% 2022 £15.3m
Sales in our HPP business unit
grew 7% to £58.1m (2022: £54.4m). The main product groups are
Footwear, ZOTEK® fluoropolymer foams and T-FIT® technical
insulation. Overall volumes were 12% ahead of 2022, with a slight
adverse impact from currency and product mix. In Footwear, where we
have extended our exclusive arrangement with Nike, our materials
are primarily used in midsoles for running shoes but, in a new
development during the year, first sales were made into their
basketball segment. In 2023, sales grew 7% to £45.3m (2022:
£42.1m). This exclusive arrangement allows Zotefoams to work
closely with Nike on foam innovation related to their specific
needs as well as better align on supply chain, production
efficiency, scrap reduction and cost. Currently, there is almost
zero waste in this production process, with most scrap
re-incorporated into products within the Footwear supply chain.
Pricing to Nike, covered in our exclusive agreement which, in June
2023 was extended to 31 December 2029, reflects our material input
costs, production costs and efficiencies and foreign exchange
rates.
Other than footwear products, we
offer a range of foamed sheet materials to technically demanding
applications globally under the ZOTEK® brand. The main market is
aviation, where insulation and fire performance at minimal weight
is paramount, driven by safety and sustainability. Other markets
include space, healthcare, packaging, military and personal
protection. Zotefoams offers a variety of foams with specific
properties, delivered through a combination of raw material
selection and our unique foaming technology. Sales volumes of ZOTEK
F materials increased 9%, translating into a 6% value increase to
£6.5m (2022: £6.2m). We experienced high nput cost inflation in the most
common materials used, although this had relatively little profit
impact in the year as previously purchased inventory was consumed.
Pricing adjustments have been made, mostly effective from 2024, and
we recognise some associated risk due to these higher
prices.
ZOTEK foam sheet sales accounted
for 11% (2022: 11%) of HPP segment sales.
T-FIT insulation is made using
Zotefoams' own HPP products and is designed for clean processing
environments such as in pharmaceutical, biotech and food and drink
manufacture. Sales grew 1% to £5.9m (2022: £5.8m), and 6% in
constant currency. In China, one of the main markets, we delivered
sales growth in food processing but activity in the biotech and
pharmaceutical sector was slower, and we experienced a lower
success rate on some targeted larger projects. In India, sales grew
strongly, with good progress across our portfolio. Outside these
geographies, we are looking to improve our performance with
investment in staff and a renewed focus on our sales processes. We
manufacture common T-FIT insulation manufacturing products locally,
either at Zotefoams facilities or outsourced to trusted partners,
to support North American and European business, while our facility
in China supplies all other markets as well as the complete range
of product dimensions globally.
T-FIT sales represent 10% (2022:
11%) of HPP segment sales.
Segment profit increased to £15.4m
(2022: £15.3m), a segment profit margin of 26.5% (2022: 28.1%).
Segment margin is slightly lower than the previous year due to
product mix changes and foreign exchange rate movements.
MEL/ReZorce
Aligned with a world-leading
packager of beverages and a retailer with leading-edge
sustainability ambition, we are preparing to fill the first ReZorce
cartons with fruit juice on commercial-scale equipment.
Over the past two years,
substantially all the activity in our MEL business unit has been
focused on the very significant opportunity in sustainable barrier
packaging. We have developed the ReZorce mono-material barrier
packaging technology to meet the needs of brands and retailers
seeking a more sustainable solution to food packaging that requires
protection from moisture and/or oxygen (hence the term "barrier
packaging"). Current barrier packaging systems require a
combination of different materials in the same pack. The carton
format of these systems is very effective and cost-efficient and
therefore widespread; however, it is often extremely difficult to
recycle and almost never circular. We have proven that our ReZorce
packaging system can provide the required barrier properties, is
easily recycled using common infrastructure available today and can
be made using a high proportion of recycled raw materials. Overall,
this solution offers a lower carbon footprint for commonly packaged
foodstuffs, in some cases a reduction of more than 50%, as well as
lower water and energy consumption, factors that are increasingly
important to the global sustainability agenda.
During 2023, our focus has been to
move from technical possibility to market reality. Many innovations
fail at this stage as implementation requires large investment or
change to adopt the new solution. With this in mind, we have worked
closely with existing industry players and in July 2023 signed a
development agreement with a world-leading packager of beverages.
Throughout the entire development process, we have considered the
likely barriers to implementation and have assembled a team of
industry experts with experience in downstream processes and
commercial norms to deliver our technology solution and related
intellectual property development. This team is augmented by a
US-based strategic adviser with dedicated packaging
expertise.
Revenue from our MEL business unit
declined 56% to £1.2m (2022: £2.8m), with
reduced equipment sales and reduced royalties affected by the
Group's focus on realising the ReZorce initiative, while the
segment loss widened to £4.1m (2022: £1.6m) before amortisation of
acquired intangibles, a direct result of the non-capitalised
investment to develop ReZorce technology. In addition to this, we
capitalised £2.8m (2022: £2.2m).
Capacity and investment
Zotefoams' manufacturing process
comprises three main stages: extrusion of a polymer sheet,
high-pressure gassing of this sheet with nitrogen and final
expansion in a lower-pressure environment. The infrastructure
around these processes is complex and costly and, therefore,
ideally supports multiple production vessels. Most products can be
made on multiple production lines, although some of our older
assets are less flexible.
In the UK, most investment is
focused on cost reduction and efficiency, linked to sustainability,
as well as on the replacement of older assets with upgraded
equipment. The UK site manufactures all HPP products and sends
partly finished polyolefin products for the final expansion process
to Poland, which is closer to many customers, reducing overall
transport costs and emissions.
In the USA, we see good potential
to increase sales and have therefore approved the purchase of a
second low-pressure autoclave, used for foam expansion, which will
increase capacity and reduce reliance on the current vessel which
was installed in 2000. Linked to this capacity increase, we are
upgrading some associated systems and increasing warehousing space.
The total cost of these investments is c. £10m, funded from
existing cash resources and expected to be incurred primarily
during 2024-25.
Our facilities in the USA and
Poland have the flexibility for further investment to support
longer-term growth.
Zotefoams is also investing in the
development of the ReZorce mono-material barrier packaging
technology, which is explained in more detail above.
Measuring strategic progress
Zotefoams products are sold into a
wide variety of applications globally. These markets are driven by
global trends - environment, regulation and demographics -
which we believe offer the potential for high rates of market
growth as well as an opportunity for our disruptive technology
solutions.
We assess progress on six
separate metrics. The first two metrics have been updated, to
better reflect the focus of our management team and align with the
business strategy:
|
1.
|
We intend, over time, to deliver an
improved mix of products. By this we mean improved profitability,
and a reasonable proxy is average selling price per m3
of foam, which is typically higher for HPP products. Adding
downstream processing such as T-FIT insulation products enhances
our margin, as does the cutting processes we perform for multiple
customers globally. These downstream operations are capital-light
and leverage our investment in foaming technology. We adjust our
HPP volumes to calculate a "capacity equivalent" to reflect the
often-extended processing times of these products. The adjusted
average selling price during 2023 improved by 2.7% compared with
the prior year.
|
|
2.
|
We seek to run at high-capacity
utilisation to optimise the returns from our assets. Asset
utilisation in the year improved by 2.6%, and is calculated using
the adjusted production volume, with the same mix adjustment
factors as used in the selling price calculation. Adjusted
production volumes, against which we calculate asset utilisation,
were 4% higher than adjusted sales volumes as we increased
inventory during the final quarter of the year in anticipation of
strong demand in the first few months of 2024. Efficiency gains in
manufacturing during the year added 2% to the effective capacity of
the Group.
|
|
3.
|
Group operating margin increased to
11.9% (2022: 10.9%). In constant currency, the operating margin was
12.1%. The full-year impact of price increases from 2022 and lower
input costs were augmented by improved efficiencies within
manufacturing, offset somewhat by an increase in technical, sales
and administration costs, some associated with the increased
investment in ReZorce. Excluding MEL/ReZorce, operating margin was
15.5% (2022: 12.7%) or 15.7% in constant currency.
|
|
4.
|
Group return on capital employed
improved to 10.3% (2022: 10.1%), with increased profitability of
the Polyolefin Foams and HPP business units offset by the increased
losses of MEL as noted above. Excluding MEL/ReZorce, return on
capital employed was 14.2% (2022: 12.0%). Working capital at the
year-end accounted for 45% of net assets (2022: 38%), with this
significant increase due primarily to investment in inventory in
anticipation of demand in Q1 2024 and higher raw material prices
for certain HPP products.
|
|
5.
|
Our approach to environmental
sustainability and climate change is paramount to our business. Led
by the Board and with an executive steering committee,
sustainability is embedded in decision making Group-wide. A
detailed ESG report is included within the Annual Report and
further information is available at www.zotefoams.com. Targets are linked to our bank financing arrangements, and
these are supplemented by internal targets in relation to other ESG
metrics. We have not yet set a "net zero" target as we believe that
detailed measurement of Scope 3 emissions reduction using our
products is complex and ever-changing, when compared to the
best-available alternative technology, while the validity of
offsetting arrangements are increasingly being challenged. However,
we are committed to specifically reviewing this during our annual
Board strategy session and the Executive team, through our Group
Sustainability Steering Committee, is evaluating the approach to
net zero.
|
|
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 specifically for
beverage cartons. With initial market trials imminent, we are
turning our focus to full-scale commercialisation and engagement
with potential strategic partners to facilitate this.
|
People
Our top priority 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. We
monitor both leading and lagging indicators to improve safety
performance and behaviours across the Group. At Board level, the
main safety metric in our business is reportable lost time
incidents and, regrettably, we had one such incident during the
year (2022: 2). In line with our policy, a full follow-up and
analysis with corrective actions was reviewed by the Board. Other
metrics, which record less severe incidents and absences, have now
been significantly below industry benchmarks for six years,
representing the time elapsed since we began using this form of
measurement, with measured incidents around one third of the rate
of comparable companies.
Employee engagement is another
priority and is delivered through clear communication of our
strategy, objectives and progress, which includes interactive
sessions and staff surveys to facilitate feedback. Employee
engagement activities included Group CEO "all-staff briefings"
across all regions with a Q&A session.
On behalf of the Board and my
executive colleagues, I would like to thank all Zotefoams employees
and their families for their support over the past year.
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 preliminary
results.
Current trading and outlook
"We have made a positive start to
2024, with overall sales ahead of the previous year's record first
quarter. Sales of HPP products have, thus far, been strongly ahead
of the prior year, with expectations for continued strength in H1
2024 and more muted growth after this, mainly linked to in-year
footwear demand patterns and underlying improvements in the markets
for aviation and T-FIT insulation products. To date, sales of
polyolefin foams are below the comparative period in the prior
year, with European customers particularly impacted by weaker
industrial demand, partially offset by more robust conditions in
North America. We are cautiously optimistic about the
underlying demand environment for polyolefin foams later in the
year, supported by a business focus on application-specific
initiatives to increase market share. Currently, polymer and energy
input prices remain relatively stable and therefore, other than in
non-footwear HPP where prices have increased based on raw material
price inflation experienced in 2023, we do not anticipate any
uplift in selling prices this coming year. Improved asset
utilisation, product mix and operational efficiency are our key
drivers of margin enhancement. In our MEL business unit, we
continue to make good progress against the commercialisation
objectives we have set for ReZorce, with some important milestones
expected to be reached in Q2. Investment to support this will
continue during 2024 as we determine the optimal pathway to
realising the opportunity presented by this technology. As a
result, and while we remain mindful of the uncertain economic
backdrop, 2024 is expected to be another year of good progress for
Zotefoams".
D
B Stirling
Group CEO
19 March 2024
Group CFO's review
Gary McGrath
Group CFO
A significant increase in profitability within
the foams business, as we fill our new capacity and enrich our
product mix. This is offset by increased costs in our
ReZorce® mono-material barrier packaging solution as we
reach late-stage development and market testing
|
Summary Group
P&L
|
|
|
|
|
|
|
|
Zotefoams
Group
|
|
Foams business units
only
|
|
|
|
|
|
2023
|
2022
|
Change
(%)
|
|
2023
|
2022
|
Change
(%)
|
|
|
Net revenue
|
127.0
|
127.4
|
0
|
|
125.7
|
124.6
|
1
|
|
|
Gross profit
|
41.1
|
38.7
|
6
|
|
42.5
|
38.6
|
10
|
|
|
Distribution and administrative
costs
|
(25.9)
|
(24.8)
|
(5)
|
|
(23.1)
|
(22.8)
|
(1)
|
|
|
Operating profit
|
15.11
|
13.9
|
9
|
|
19.5
|
15.8
|
23
|
|
|
Finance costs
|
(2.3)
|
(1.8)
|
(34)
|
|
(2.3)
|
(1.8)
|
(34)
|
|
|
Profit before tax
|
12.8
|
12.2
|
5
|
|
17.2
|
14.1
|
22
|
|
|
Tax
|
(3.6)
|
(2.2)
|
(62)
|
|
|
EPS
|
19.00
|
20.61
|
(8)
|
|
|
|
|
|
|
|
|
|
|
|
| |
1Adjusted for
rounding
Overview
Group revenue was broadly similar year-on-year
at £127.0m (2022: £127.4m), with £0.5m favourable currency impact.
Margin management in the Polyolefin foams business and a
challenging H2 2023 environment took revenue 4% and volumes 7%
below the previous year, while HPP revenue grew 7% on 12% volume
growth. Excluding MuCell Extrusion LLC (MEL), Group revenue grew 1%
to £125.7m (2022: £124.6m).
Operating profit for the year grew 9% to £15.1m
and profit before tax (PBT) increased 5% to a Group record of
£12.8m, after higher interest charges. The underlying foams
business, comprising the Polyolefin Foams and High-Performance
Foams business units, achieved a significant increase in PBT of 22%
to £17.2m (2022: £14.1m), while MEL losses increased to £4.4m
(2022: £1.9m).
Basic earnings per share fell 8% to 19.00p as a
result of the higher tax charge of £3.6m (2022: £2.2m), which
reflects the increase in corporation tax in the UK that took effect
from 1 April 2023 and the mix of profits across Group entities.
Currency movements negatively impacted PBT by £0.5m.
Return on capital employed (ROCE, see below for
definition) increased to 10.3% (2022: 10.1%). Excluding MEL, which
is generating losses as the Group invests in ReZorce, but with
continued investment contingent on progress and expected outcome,
ROCE increased to 14.2% (2022: 12.0%).
The Group's balance sheet at 31 December
2023 remains strong, with the leverage multiple (calculated as a
multiple of net debt to EBITDA using definitions under the
bank facility agreement, see section "Debt facility") unchanged at
1.2x (31 December 2022: 1.2x) and financial headroom of £19.4m (31
December 2022: £22.9m). This is after a £1.7m (7%) increase
in EBITDA to £24.7m (2022: £23.0m), increased investment in
working capital of £11.1m (2022: £0.3m), see "cash flow" below,
capital expenditure of £8.5m (2022: £7.1m) and total dividends of
£3.4m (2022: £3.2m).
Revenue performance
Polyolefin Foams business unit sales fell 4% to
£67.6m (2022: £70.1m) and at constant currency, by 5% to £66.7m.
This reflects a drive to maintain margins through close
collaboration with customers and identify the right product for the
right application, including promotion of the Group's recycled
EcoZote® foam range. European revenues grew 2% and US
revenues were unchanged, while the UK declined 18% as key customers
reduced inventory. HPP sales increased 7% to £58.1m (2022: £54.4m)
and by 8%, to £58.6m, at constant currency. Footwear is the largest
application within HPP and revenue in this market grew a further 7%
to £45.3m (2022: £42.1m), resulting in this business division
accounting for 36% of Group sales (2022: 33%). ZOTEK F
fluoropolymer foam sales closed the year 6% up at £6.5m (2022:
£6.2m), still significantly below the 2019 peak of £10.0m as the
recovery in aviation continues. T-FIT advanced insulation sales
growth stalled at £5.9m (2022: £5.8m), with a downturn in demand in
China following the withdrawal of support for the pharmaceutical
industry by the country's government fully offset by very strong
growth in India. MEL sales fell sharply during the year, by £1.6m
to £1.2m (2022: £2.8m), with reduced equipment sales and reduced
royalties impacted by the Group's focus on realising the ReZorce
mono-material barrier packaging initiative.
Revenue by segment (£m)
|
|
2023
Reported
|
2023
Adjusted1
|
2022
Reported
|
Net change
%
|
|
|
Reported
|
Adjusted
|
|
Polyolefin Foams
|
67.6
|
66.7
|
70.1
|
(4)
|
(5)
|
|
UK
|
10.9
|
10.9
|
13.2
|
(18)
|
(18)
|
|
Europe
|
30.7
|
30.0
|
30.2
|
2
|
(1)
|
|
USA
|
22.5
|
22.4
|
22.4
|
0
|
0
|
|
Rest of the world
|
3.5
|
3.4
|
4.3
|
(17)
|
(19)
|
|
HPP
|
58.1
|
58.6
|
54.4
|
7
|
8
|
|
Footwear
|
45.3
|
45.3
|
42.1
|
7
|
7
|
|
ZOTEK® F
|
6.5
|
6.7
|
6.2
|
6
|
9
|
|
T-FIT®
|
5.9
|
6.1
|
5.8
|
1
|
6
|
|
Other
|
0.4
|
0.5
|
0.3
|
-
|
-
|
|
Group excluding MEL
|
125.7
|
125.3
|
124.6
|
1
|
1
|
|
MEL
|
1.2
|
1.3
|
2.8
|
(56)
|
(54)
|
|
Group
|
127.02
|
126.6
|
127.4
|
0
|
(1)
|
1 Constant currency,
adjusting 2023 values to 2022 rates. See exchange rates
table.
2 Adjusted for
rounding.
|
Revenue by market (%)
|
|
|
|
2023
|
2022
|
|
Sports and leisure
|
39
|
37
|
|
Product protection
|
22
|
23
|
|
Building and
construction
|
12
|
13
|
|
Transportation*
|
11
|
12
|
|
Industrial
|
5
|
6
|
|
Medical
|
6
|
5
|
|
Other
|
5
|
4
|
* Within the transportation segment, aviation
represented 6.4% (2022: 7.6%) and automotive 5.0% (2022: 4.8%) of
Group revenue.
Gross profit
Gross margin increased to 32.3% (2022: 30.4%),
representing an increase of £2.3m in absolute terms to £41.1m.
Excluding MEL, gross margin was 33.9% (2022: 31.0%), or a £4.0m
increase in absolute terms.
The Polyolefin Foams business unit in the UK and
Europe focused on maintaining the operating margins it was
achieving by the end of the previous year, which came after a
number of price increases had been implemented to offset the rapid
cost inflation experienced across most inputs. While raw material
costs reverted to more normal levels during 2023, the inflationary
effects of almost every other input cost, including labour, offset
much of the benefit. Energy costs held at historic high levels,
amounting to £8.0m in the year (2022: £7.3m), after having been
£4.8m in 2021. Labour costs rose significantly, with the annual pay
increase in the UK, the largest employer across the Group, being 7%
to help alleviate the cost-of-living crisis. Margin management for
the business unit included working closely with our customers to
find the optimal product at the optimal price point for the
customer's need. The US business focused on and succeeded in
identifying and implementing operational efficiencies, with the
support of a stronger local team and increased collaboration with
the UK-based team.
|
Distribution and administrative costs
breakdown
|
|
|
2023
|
2022
|
Change (%)
|
|
Distribution costs
|
7.9
|
8.0
|
1
|
|
Administrative costs excluding
hedging movements
|
17.7
|
15.0
|
(19)
|
|
Hedging movements
|
0.3
|
1.8
|
84
|
|
Administrative costs
|
18.0
|
16.8
|
(7)
|
|
Distribution and administrative costs
|
25.9
|
24.8
|
(5)
|
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 in, and prioritise, technical,
sales-focused and administrative resources to create, execute and
manage this growth.
Included within distribution costs in the
consolidated income statement are sales, marketing and warehousing
expenses. These costs decreased by £0.1m, or 1%, to £7.9m (2022:
£8.0m) during the year, with lower offsite warehousing costs
offsetting inflationary costs such as labour. 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 increased in
2023 by £1.2m, or 7%, to £18.0m (2022: £16.8m). However, after
stripping out foreign exchange effects, which generated a movement
of £0.3m (2022: £1.8m), these administrative costs increased by
19%, or £2.7m, to £17.7m (2022: £15.0m), with £0.9m of the increase
related to the Group's investment in its ReZorce technology and the
majority of the rest related to labour additions and cost
increases. See "Currency review" below 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 2023, central plc costs were
£3.1m (2022: £2.5m).
Operating profit
Operating profit was £15.1m, 9% above 2022
(£13.9m) and the operating margin increased to 11.9% from 10.9%.
Operating profit of the foams business alone, excluding MEL, was
£19.5m, 23% above 2022 (£15.8m) and the operating margin increased
to 15.5% from 12.7%.
Finance costs
Gross finance costs for the year increased 40%
to £2.5m (2022: £1.8m) and include £0.1m (2022: £0.1m) of interest
on the Defined Benefit Pension Scheme obligation. This increase
reflects the rise during the year in US dollar and euro
base rates, which are the currencies in which the Group's debt
obligations are held, while the prior year comparative included
£0.3m related to unamortised costs of the previous banking
facility, replaced in March 2022. Net finance costs, after
finance income, increased 34% to £2.3m (2022: £1.8m).
Profit before tax
Profit before tax increased 5% to £12.8m (2022:
£12.2m). The foams business increased 22% to £17.2m (2022: £14.1m),
while the MEL loss increased to £4.4m (2022: £1.9m).
Profit by segment (£m)
|
|
2023
Reported
|
2023
Adjusted*
|
2022
Reported
|
Net change
%
|
|
|
Reported
|
Adjusted
|
|
Polyolefin Foams
|
7.5
|
7.0
|
4.9
|
52
|
42
|
|
HPP
|
15.4
|
16.1
|
15.3
|
1
|
5
|
|
MEL
|
(4.4)
|
(4.3)
|
(1.9)
|
(130)
|
(127)
|
|
Subtotal Business units
|
18.5
|
18.8
|
18.3
|
1
|
2
|
|
Central costs
|
(3.1)
|
(3.1)
|
(2.5)
|
(22)
|
(22)
|
|
Hedging
|
(0.3)
|
-
|
(1.8)
|
-
|
-
|
|
Finance costs
|
(2.3)
|
(2.3)
|
(1.8)
|
(34)
|
(32)
|
|
Subtotal Other
|
(5.7)
|
(5.4)
|
(6.1)
|
(7)
|
(12)
|
|
Group excluding MEL
|
17.2
|
17.7
|
14.1
|
22
|
25
|
|
Group
|
12.8
|
13.4
|
12.2
|
5
|
9
|
* Constant currency, adjusting 2023 values to
2022 rates. See exchange rates table above.
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars
and euros. The exchange rates used to translate the key flows and
balances were:
|
|
2023
|
2022
|
|
Average
|
Closing
|
Average
|
Closing
|
|
Euro/sterling
|
1.150
|
1.150
|
1.173
|
1.129
|
|
US dollar/sterling
|
1.243
|
1.271
|
1.238
|
1.204
|
While movements in foreign exchange rates can
have a significant impact on Group results, the impact in 2023 was
limited. During the year, the sterling average exchange rate
year-on-year against the US dollar strengthened by 0.4% and the
sterling average exchange rate against the euro weakened by 2.0%.
The sterling spot rate against the US dollar from 31 December
2022 to 31 December 2023 strengthened by 5.6%, while the sterling
spot rate against the euro from 31 December 2022 to 31 December
2023 strengthened by 1.9 %.
Zotefoams is a predominantly UK-based exporter
which invoices in local currency with the exception of Asia, where
all business is invoiced in US dollars. In 2023, approximately 92%
of sales (2022: approximately 90%) were denominated in currencies
other than sterling, mostly US dollars or euros. While operating
costs at the Croydon, UK, site are incurred in sterling, the main
raw materials for polyolefin foams used for production in the UK
are euro-denominated and US subsidiary production and operating
costs, most other subsidiaries' staff and operating costs and some
HPP raw materials are US dollar-denominated. Poland operating costs
are incurred in zloty. The Group uses forward exchange contracts to
hedge up to 80% of its forecast net cash flows over the following
twelve months that are subject to US dollar and euro transaction
risk.
The Group recorded a gain on forward exchange
contracts in the year of £0.2m (2022 loss: £2.9m).
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 recent capacity expansion projects. 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. The Group also has
a fast-growing HPP business, which is mostly invoiced from the UK
in US dollars, which adds to its exposure to foreign
currency-denominated net assets and is accounted for in the same
way as above. While FX exposure is partly mitigated by the forward
currency contracts, risk remains based on the amount of forecast
exposure not hedged, in line with Group policy, and the fact that
there is a timing difference between the recording of accounts
receivable and cash received. This timing difference is managed by
further hedging activities, but their effectiveness is subject to
the accuracy of forecasting cash receipts. The Group recorded a
translation loss in the year of £0.5m (2022 gain:
£1.0m).
Currency movements during the year positively
impacted Group revenue by £0.5m (2022: £7.6m positive impact). They
negatively impacted operating costs by £0.7m (2022: £3.2m negative
impact), resulting in a net negative impact of £0.2m (2022:
positive impact £4.3m) before hedging. After deducting the net
hedging loss of £0.3m (2022: loss of £1.8m), the currency net
negative impact on profit before tax for the year was £0.5m (2022:
positive impact £2.5m).
We recognise that one of our principal risks is
our exposure to foreign currency fluctuations, particularly the US
dollar, which we will aim to manage through hedging strategies.
Based on 2023 and with respect to transaction risk, it is estimated
that for every one percentage point movement in the US
dollar/sterling rate, profit moves by £0.6m unhedged and £0.2m
hedged. In the year, it is assumed that the transaction risk from
euro/sterling movements continues to be substantially naturally
hedged, with the risk arising on sales revenues offset by the
opportunity on 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.
Taxation charge and earnings
per share
The tax charge for the year is £3.6m (2022:
£2.2m). The effective tax rate for the year is 28.0% (2022: 18.1%)
and the Group's weighted average corporate tax rate for the year is
24.8% (2022: 19.5%). The tax charge reflects the increase in the UK
corporation tax rate to 25% that took force on 1 April 2023 and the
Group's prudent approach to not recognising tax losses in its US
subsidiaries (that are driven by MEL).
Impacted by the tax charge and despite increased
PBT, basic earnings per share was 19.00p (2022: 20.61p), a decrease
of 8%. Diluted earnings per share was 18.55p (2022:
20.20p).
ReZorce
The ReZorce 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 the use of recycled content in their packaging, putting
sustainability at the heart of our MEL development agenda. During
the year, Zotefoams continued its investment in this opportunity.
In line with IAS 38 'Intangible assets', £2.5m (2022: £1.4m) was
invested in labour and other directly attributable costs and
capitalised. The Group also invested £0.3m (2022: £0.8m) during the
year to purchase and develop equipment, which has been recorded
under tangible assets. In total, capitalised investment in ReZorce
amounted to £2.8m during 2023 (2022: £2.2m), and the net book value
at 31 December 2023 of amounts capitalised over the life of the
project amounts to £6.8m (2022: £4.7m). In addition to the
investment capitalised and driven by the focus on ReZorce and
developments and progress made during the year, MEL reported a loss
before tax of £4.4m (2022: £1.9m). The total cash outflow from MEL
in the year amounted to £5.5m (2022: £3.9m).
The Board does not currently consider any of
these assets to be impaired, given the progress made in technical
development, the signing of a joint development agreement with a
global packaging company and the contributions this is making to
progress, the preparations under way for an imminent in-store trial
at a recognised supermarket chain in northern Europe, the assessed
size of the commercial opportunities, and the Board's continuing
commitment to the initiative.
Capital allocation
The discipline with which a company
allocates capital is a key determinant of growth and sustained
financial returns. The Board is actively engaged in this process.
Zotefoams focuses on achievable sustainable profit growth by
investing and developing its business in the following
ways:
Capital
expenditure in foam manufacturing
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, sustainability credentials 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. Outside significant capacity-related investments, the
Group also invests to maintain its capital-intensive assets,
mindful of the risk of operational disruption and
opportunities to improve energy efficiency and further reduce
health and safety risk, particularly at the older UK facility. The
annual and five-year capital requirements planning outcomes, as
well as progress against them, are reviewed by the Board and
individual projects of a certain expenditure level require Board
approval beyond that given in the normal annual Budget
cycle.
Zotefoams targets improvements in the Group's
return on capital over the investment cycle, while recognising the
short-term impact on the return of sizeable capital investments
during their construction and early operations phases, where they
initially run at lower utilisation and mix optimisation 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, which
we commissioned in 2018, or the most recent investment in foam
manufacturing at the Poland site, commissioned in 2021, 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.
Research and
development
Zotefoams is an innovator in advanced technical
foams and pursues a strategy to continuously develop a portfolio of
products that leverages its unique technology. Dedicated teams
actively pursue raw material and new product development
opportunities that further the technical performance and
sustainability attributes of the product portfolio. Performance is
reviewed at quarterly risk and opportunity steering committees
which include the Executive team, and the Director of Technology
and Development engages frequently with the Board.
The Group is currently pursuing, and investing
significantly behind, a transformative mono-material barrier
packaging solution through its MEL business unit, branded as
ReZorce. In this pre-revenue development phase, overall capital
returns are diluted as a result of both the operating profit charge
as well as the capital investments made, but the initiative offers
significant potential if the technology is adopted.
Working capital
The business requires investment in
working capital to achieve high levels of customer service and
targeted margins. Customer payment terms reflect the competitive
environment of each of the geographical and industrial markets in
which the Group plays, as well as historical terms with long-term
customers who have been integral to growth over the past 1-2
decades. Inventory levels reflect the value of the raw materials,
the length of the supply chain and the volume of inventory required
to achieve targeted customer satisfaction levels. Growing beyond
the space-restricted site in the UK, as well as growing HPP at a
faster rate than Polyolefin Foams and where supply chains are
longer, technical testing is required, the customer is often more
strategic, and raw material purchase costs are significantly
higher, is increasing the investment required in inventory. The
Group's main suppliers are either large multinational polymer
manufacturers or energy companies, where the ability to negotiate
credit terms is limited. The Board receives monthly financial
updates, which include performance on working capital against the
annual budget and the quarterly forecasts, both of which are
reviewed and approved by the Board.
Dividend
The Board has a progressive
dividend policy, recognising the importance to our shareholders of
the dividend as part of their overall return while ensuring
sufficient capital and liquidity to pursue its growth ambition. A
minimum earnings cover of 2x is targeted. The Board regularly
reviews this policy as the Group grows and capital expenditure
demands a lower share of the cash generated.
Non-organic growth
The Group's strategy focuses on
leveraging its unique technology, filling assets and enriching the
product sales mix. While it is open to non-organic opportunities,
it has not pursued them in the past. This may change with the
availability of capital from a growing business with reducing debt,
the long lead-time associated with major capacity expansion, and
the ambition to maintain a rate of growth that generates high
shareholder returns.
Recent investment in
capacity
Starting in 2015 with a programme
to add the first and second stages of the Zotefoams manufacturing
process into the USA, continuing with the addition of HPP capacity
in the UK to support the Footwear opportunities and ending with the
commissioning of the Brzeg, Poland, manufacturing facility in 2021,
Zotefoams experienced a period of high capital investment. Over
this period, we invested £91.4m in property, plant and equipment,
of which £67.1m, or 73%, was directed to growth. With this
programme complete, and over the medium term, the Group expects to
return to levels of capital expenditure more in line with
depreciation.
Return on capital employed
(ROCE)
Zotefoams defines the return on capital employed
(ROCE), which is a non-IFRS measure, 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 2023, the Group's ROCE increased to 10.3%
(2022: 10.1%), mostly reflecting improved profitability in
the year. Excluding MEL, which is incurring significant
discretionary losses as we invest in a significant opportunity that
could generate very high future returns, ROCE increased to 14.2%
(2022: 12.0%). Before the increase in the capital base that
resulted from our investments in the UK, USA and Poland, the
additional operating costs arising from their operation, and the
start of investment in ReZorce, ROCE was 16.5% (2018). Business
growth, with this increased capacity matched by improved
utilisation and mix enrichment, is expected to improve ROCE
beyond that previously achieved, excluding the outcome of the
ReZorce project which it is not possible to quantify at the current
stage of its development.
Dividend
The Directors are proposing a final dividend of
4.90p (2022: 4.62p), which would be payable on 3 June 2024 to
shareholders on the Company register at the close of business
on 3 May 2024. The ex-dividend date will be 2 May 2024. Taken with
the interim dividend of 2.28p (2022: 2.18p), this would bring the
total dividend for the year to 7.18p (2022: 6.80p) and would
represent a dividend cover of 2.6 times (2022: 3.0
times).
Cash flow
Summary cash
flow
|
|
2023
|
2022
|
|
Profit before tax
|
12.8
|
12.2
|
|
Depreciation and
amortisation
|
8.2
|
8.2
|
|
Other
|
3.1
|
3.7
|
|
Net cash from operations before provisions and investment in
working capital
|
24.1
|
24.1
|
|
Employee defined benefit
contributions
|
(0.9)
|
(0.8)
|
|
Working capital movement
|
(11.1)
|
(0.3)
|
|
Receivables
|
(3.8)
|
(4.8)
|
|
Inventory
|
(6.3)
|
0.4
|
|
Payables
|
(1.0)
|
4.1
|
|
Cash generated from operations
|
12.1
|
23.0
|
|
Interest paid
|
(2.1)
|
(1.3)
|
|
Taxation paid
|
(2.2)
|
(0.7)
|
|
Investments in intangible
assets
|
(2.7)
|
(1.7)
|
|
Investments in tangible
assets
|
(5.8)
|
(5.4)
|
|
Dividends
|
(3.4)
|
(3.2)
|
|
Movement in finance
obligations
|
0.4
|
(7.8)
|
|
Lease payments
|
(0.8)
|
(0.4)
|
|
Other
|
0.1
|
-
|
|
Movement in cash and cash equivalents
|
(4.2)
|
2.5
|
The Group is by its nature highly cash
generative and, this year, net cash from operations before
investment in working capital and provisions was £24.1m, in line
with the previous year (2022: £24.1m). This includes an additional
£1.4m tax charge as well as the increased loss in MEL of £2.5m as
we progress to in-store trials in H1 2024. Out of this, £11.1m
(2022: £0.3m) was reinvested in working capital. Trade and other
receivables increased £3.8m (2022: increased £4.8m), reflecting
increased sales in November and December against the previous year
and the year-end timing of certain sizeable Footwear customer
receipts. Inventories increased £6.3m (2022: decreased £0.4m), with
£2.2m reflecting a strategic build of footwear and European
polyolefin foam to capitalise on available capacity in H2 2023 and
in anticipation of high levels of capacity utilisation in 2024. It
also reflected a significant increase in ZOTEK® F
inventory value as a result of a near doubling of unit purchase
price during the year. Trade and other payables decreased £1.0m
(2022: increased £4.1m) reflecting general payment timings.
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 significantly lower than the previous year at £12.1m
(2022: £23.0m).
During the year, the Group paid interest on its
borrowings of £2.1m (2022: £1.3m), reflecting increased base rates
on similar average debt levels across much of the year. Net
taxation paid during the year, net of refunds, amounted to £2.2m
(2022: £0.7m), reflecting higher profits at the Company alongside
an increased corporation tax rate, and compared against a 2022 tax
credit of £0.8m from a tax computation refund and capital allowance
recovery from previous years.
Zotefoams' property, plant and
equipment capital expenditure remained at a lower level than in
recent history, as expected, following several years of capacity
expansion, with total expenditure of £5.8m (2022: £5.4m).
Expenditure was split across several categories, the most
significant being 41% on essential replacement and 26% on capacity
expansion. ESG initiatives were a key component of capital
expenditure in the year with 65% of expenditure offering benefits
through improved energy efficiency, safety or reduced
waste. Geographically, 68% was directed to our Croydon, UK
plant and 18% to our Walton, USA plant.
The Group also invested £2.7m (2022: £1.7m) in
intangible assets, almost entirely related to MEL patents and
capitalised development costs for ReZorce. The combined investment
of £8.5m (2022: £7.1m), is in line with the Group's combined
depreciation and amortisation charge (2023: £8.2m).
After dividends paid in the year amounting to
£3.4m (2022: £3.2m) and lease payments of £0.8m (2022: £0.5m),
closing net debt rose 14% to £31.6m (2022: £27.8m). At the year
end, the Group remains comfortably within its bank facility
covenants, with a multiple of EBITDA to net finance charges of
11.2 (2022: 13.7), against a covenant minimum of 4 (2022: 4), and
net debt to EBITDA (leverage) multiple of 1.2 (2022: 1.2),
against a covenant of 3.5 (2022: 3.5). See "Debt facility" for a
definition of leverage and information on the Group's bank
facility arrangements.
Debt facility
The Group's gross finance facilities with
Handelsbanken and NatWest comprise a £50.0m multi-currency
revolving credit facility with a £25.0m accordion, a renewal date
of March 2027, an interest rate ratchet and includes a small
element related to the achievement of sustainability targets. The
facility has two covenants: a finance cost covenant with a multiple
of 4.0 and a leverage covenant with a multiple of 3.5.
At 31 December 2023, 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 £19.4m (2022: £22.9m).
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-term 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 covenants definition
Net debt to EBITDA ratio (Leverage)
|
£m
|
2023
|
2022
|
|
£m
|
2023
|
2022
|
|
Profit after tax
|
9.2
|
10.0
|
|
Net debt per IFRS
|
31.6
|
27.8
|
|
Adjusted for:
|
|
|
|
IFRS 16 leases
|
(1.3)
|
(1.0)
|
|
Depreciation and
amortisation
|
8.2
|
8.2
|
|
Finance leases pre-1 January
2019
|
-
|
-
|
|
Finance costs
|
2.5
|
1.8
|
|
Roundings
|
(0.1)
|
-
|
|
Finance income
|
(0.2)
|
(0.1)
|
|
Net debt per bank
|
30.2
|
26.8
|
|
Share of result from joint
venture
|
-
|
-
|
|
|
|
|
|
Equity-settled share-based
payments
|
1.3
|
0.8
|
|
|
|
|
|
Taxation
|
3.6
|
2.2
|
|
|
|
|
|
Roundings
|
0.1
|
0.1
|
|
|
|
|
|
EBITDA
|
24.7
|
23.0
|
|
Leverage per bank
|
1.2
|
1.2
|
EBITDA to net finance charges
ratio
|
£m
|
2023
|
2022
|
|
£m
|
2023
|
2022
|
|
EBITDA, as above
|
24.7
|
23.0
|
|
Finance costs
|
2.5
|
1.8
|
|
|
|
|
|
Finance income
|
(0.2)
|
(0.1)
|
|
|
|
|
|
Share of result from joint
venture
|
-
|
-
|
|
EBITDA to net
finance charges
|
11.2
|
13.7
|
|
Net finance charges
|
2.3
|
1.7
|
Post-employment benefits
The Company operates a UK-registered trust-based
defined benefit pension scheme, ("DB Scheme"), that provides
defined benefits. Pension benefits are linked to the members' final
pensionable salaries and service at their retirement (or date of
leaving if earlier). The DB Scheme was closed to new members in
2001, as was the link to future accrual of salary in 2005.
Inconsistencies in the way the DB Scheme's link to future accrual
of salary was closed in 2005 were rectified in 2019. There are
three categories of pension scheme members:
· deferred members with
salary linkage: current employees of the Company who have not
consented to the break in their salary linkage;
· deferred members:
former and current employees of the Company not yet in receipt of
pension; and
· pensioner members: in
receipt of pension.
The last full actuarial valuation of the ("DB
Scheme") took place as at 5 April 2020. On a Statutory Funding
Objective basis, a deficit was calculated for the DB Scheme of
£7.7m (previous triennial valuation: £4.2m). As a result, the
Company agreed with the Trustees to make contributions to the DB
Scheme of £643,200 p.a, beginning 1 July 2021, to meet the
shortfall by 31 October 2026 (previously 31 October 2026), up from
£492,000 p.a. previously. In addition, the Company pays the ongoing
DB Scheme expenses of £216,000 per annum (previously £180,000 p.a.)
to cover death-in-service insurance premiums, the expenses of
administering the DB Scheme and Pension Protection Fund levies
associated with the Scheme.
In line with the requirement to have a
triennial valuation, a formal actuarial valuation is being carried
out for the Trustees as at 5 April 2023 and, once finalised, the
contributions may change.
The defined benefit obligation is valued by
projecting the best estimate of the future benefit from the outlay
of monies (allowing for future salary increases for deferred
members with salary linkage, revaluation to retirement for deferred
members and annual pension increases for all members) and then
discounting to the balance sheet date. The majority of benefits
receive increases linked to inflation (subject to a cap of no more
than 5% p.a.). The valuation method used is known as the Projected
Unit Method. The approximate overall duration of the Scheme's
defined benefit obligation as at 31 December 2023 was around 12
years. The net IAS 19 deficit on the DB Scheme decreased by £0.6m
to £2.7m as at 31 December 2023 (2022: £3.3m) and represents
2.3% (2022: 3.0%) of consolidated net assets. The
value of the defined benefit obligation at the year-end increased
by £0.4m from £26.1m in 2022 to £26.5m in 2023 but was
more than offset by the actual investment return achieved on the
assets, which grew £1.0m from £22.8m in 2022 to £23.8m in 2023.
Zotefoams does not consider its pension scheme to be a key risk to
its ability to achieve its strategic objectives due to the
immaterial share of net assets that the deficit represents.
Mitigation of further risk is expected to come from our growth
expectations and the continued focus by the Trustees on a
lower-risk strategy to meet the DB Scheme's deficit.
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 its available debt facilities, have a reasonable
expectation that the Group has adequate resources to continue in
operational existence for the next twelve months following the date
of approval of the financial statements. The Directors have also
continued to draw 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 the Annual
Report.
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
19 March 2024
Consolidated income statement
For the year ended 31 December
2023
|
|
Note
|
2023
£'000
|
2022
£'000
|
|
Revenue
|
2
|
126,975
|
127,369
|
|
Cost of sales
|
|
(85,920)
|
(88,639)
|
|
Gross profit
|
|
41,055
|
38,730
|
|
Distribution costs
|
|
(7,927)
|
(8,037)
|
|
Administrative expenses
|
|
(17,993)
|
(16,762)
|
|
Operating profit
|
|
15,135
|
13,931
|
|
Finance costs
|
|
(2,540)
|
(1,814)
|
|
Finance Income
|
|
191
|
56
|
|
Share of profit/(loss) from joint
venture
|
|
54
|
50
|
|
Profit before income tax
|
|
12,840
|
12,223
|
|
Income tax expense
|
|
(3,598)
|
(2,217)
|
|
Profit for the year
|
|
9,242
|
10,006
|
|
Profit attributable to:
|
|
|
|
|
Equity holders of the
Company
|
|
9,242
|
10,006
|
|
|
|
9,242
|
10,006
|
|
Earnings per share:
|
|
|
|
|
Basic (p)
|
|
19.00
|
20.61
|
|
Diluted (p)
|
|
18.55
|
20.20
|
Consolidated statement of comprehensive
income
For the year ended 31 December
2023
|
|
|
2023
£'000
|
2022
£'000
|
|
Profit for the year
|
|
9,242
|
10,006
|
|
Other comprehensive income
|
|
|
|
|
Items that will not be reclassified to profit or
loss
|
|
|
|
|
Actuarial (losses)/gains on defined
benefit pension schemes
|
|
(88)
|
584
|
|
Tax relating to items that will not
be reclassified
|
|
22
|
(146)
|
|
Total items that will not be reclassified to profit or
loss
|
|
(66)
|
438
|
|
Items that may be reclassified subsequently to profit or
loss
|
|
|
|
|
Foreign exchange translation
(losses)/gains on investment in foreign subsidiaries
|
|
(1,885)
|
3,681
|
|
Change in fair value of hedging
instruments
|
|
1,712
|
(3,025)
|
|
Hedging (losses)/gains reclassified
to profit or loss
|
|
(192)
|
2,865
|
|
Tax relating to items that may be
reclassified
|
|
(575)
|
185
|
|
Total items that may be reclassified subsequently to profit or
loss
|
|
(940)
|
3,706
|
|
Other comprehensive income for the year, net of
tax
|
|
(1,006)
|
4,144
|
|
Total comprehensive income for the year
|
|
8,236
|
14,150
|
|
Total comprehensive income attributable to:
|
|
|
|
|
Equity holders of the
Company
|
|
8,236
|
14,150
|
|
Total comprehensive income for the year
|
|
8,236
|
14,150
|
Consolidated statement of financial position
As at 31 December 2023
|
|
Note
|
2023
£'000
|
2022
£'000
|
|
Non-current
assets
|
|
|
|
|
Property, plant and equipment
|
3
|
91,743
|
94,295
|
|
Right-of-use assets
|
|
1,272
|
939
|
|
Intangible assets
|
|
9,418
|
7,774
|
|
Investment in joint venture
|
|
207
|
153
|
|
Trade and other receivables
|
|
70
|
122
|
|
Deferred tax assets
|
|
435
|
410
|
|
Total
non-current assets
|
|
103,145
|
103,693
|
|
Current
assets
|
|
|
|
|
Inventories
|
|
31,904
|
26,139
|
|
Trade and other receivables
|
|
33,002
|
29,447
|
|
Derivative financial instruments
|
|
1,264
|
486
|
|
Cash and cash equivalents
|
|
6,294
|
10,594
|
|
Total current
assets
|
|
72,464
|
66,666
|
|
Total
assets
|
|
175,609
|
170,359
|
|
Current
liabilities
|
|
|
|
|
Trade and other payables
|
|
(12,953)
|
(13,500)
|
|
Derivative financial instruments
|
|
(28)
|
(1,550)
|
|
Current tax liability
|
|
(1,078)
|
(226)
|
|
Lease liabilities
|
|
(507)
|
(509)
|
|
Interest-bearing loans and
borrowings
|
4
|
(36,527)
|
(37,446)
|
|
Total current
liabilities
|
|
(51,093)
|
(53,231)
|
|
Non-current
liabilities
|
|
|
|
|
Lease liabilities
|
|
(827)
|
(454)
|
|
Deferred tax liabilities
|
|
(5,270)
|
(3,846)
|
|
Post-employment benefits
|
|
(2,656)
|
(3,290)
|
|
Total
non-current liabilities
|
|
(8,753)
|
(7,590)
|
|
Total
liabilities
|
|
(59,846)
|
(60,821)
|
|
Total net
assets
|
|
115,763
|
109,538
|
|
Equity
|
|
|
|
|
Issued share capital
|
5
|
2,442
|
2,431
|
|
Share premium
|
5
|
44,178
|
44,178
|
|
Own shares held
|
|
(12)
|
(5)
|
|
Capital redemption reserve
|
|
15
|
15
|
|
Translation reserve
|
|
4,024
|
5,909
|
|
Hedging reserve
|
|
660
|
(285)
|
|
Retained earnings
|
|
64,456
|
57,295
|
|
Total
equity
|
|
115,763
|
109,538
|
Consolidated statement of cash flows
For the year ended 31 December
2023
|
|
|
2023
£'000
|
2022
£'000
|
|
Cash flows
from operating activities
|
|
|
|
|
Profit for the year
|
|
9,242
|
10,006
|
|
Adjustments for:
|
|
|
|
|
Depreciation and amortisation
|
|
8,217
|
8,245
|
|
Loss on disposal of assets
|
|
4
|
283
|
|
Finance costs
|
|
2,349
|
1,758
|
|
Share of profit from joint venture
|
|
(54)
|
(50)
|
|
Net exchange differences
|
|
(641)
|
871
|
|
Equity-settled share-based payments
|
|
1,335
|
809
|
|
Taxation
|
|
3,598
|
2,217
|
|
Operating
profit before changes in working capital and
provisions
|
|
24,050
|
24,139
|
|
Increase in trade and other
receivables
|
|
(3,774)
|
(4,818)
|
|
(Increase)/decrease in inventories
|
|
(6,279)
|
401
|
|
(Decrease)/increase in trade and other
payables
|
|
(1,027)
|
4,119
|
|
Employee defined benefit
contributions
|
|
(859)
|
(859)
|
|
Cash generated
from operations
|
|
12,111
|
22,982
|
|
Interest paid
|
|
(2,082)
|
(1,255)
|
|
Income taxes paid, net of refunds
|
|
(2,248)
|
(659)
|
|
Net cash flows
generated from operating activities
|
|
7,781
|
21,068
|
|
Cash flows
from investing activities
|
|
|
|
|
Interest received
|
|
191
|
56
|
|
Purchases of intangibles
|
|
(2,739)
|
(1,724)
|
|
Purchases of property, plant and
equipment
|
|
(5,744)
|
(5,368)
|
|
Net cash used
in investing activities
|
|
(8,292)
|
(7,036)
|
|
Cash flows
from financing activities
|
|
|
|
|
Repayment of borrowings
|
|
(1,231)
|
(50,883)
|
|
Proceeds from borrowings
|
|
1,609
|
43,044
|
|
Payment of principal portion of lease
liabilities
|
|
(753)
|
(499)
|
|
Dividends paid to equity holders of the
Company
|
|
(3,350)
|
(3,188)
|
|
Net cash used
in from financing activities
|
|
(3,725)
|
(11,526)
|
|
Net (decrease)/increase in cash and cash
equivalents
|
|
(4,236)
|
2,506
|
|
Cash and cash
equivalents at 1 January
|
|
10,594
|
8,055
|
|
Exchange (losses)/gains on cash and cash
equivalents
|
|
(64)
|
33
|
|
Cash and cash
equivalents at 31 December
|
|
6,294
|
10,594
|
Consolidated statement of changes in equity
For the year ended 31 December
2023
|
|
|
Share
capital
|
Share
premium
|
Own
shares held
|
Capital
redemption reserve
|
Translation reserve
|
Hedging
reserve
|
Retained
earnings
|
Total
equity
|
|
|
|
£`000
|
£`000
|
£`000
|
£`000
|
£`000
|
£`000
|
£`000
|
£`000
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2022
|
|
2,431
|
44,178
|
(10)
|
15
|
2,228
|
(310)
|
49,243
|
97,775
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
10,006
|
10,006
|
|
Other Comprehensive Income for the year
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation gains on
investment in subsidiaries
|
|
-
|
-
|
-
|
-
|
3,681
|
-
|
-
|
3,681
|
|
Change in fair value of hedging
instruments recognised in other comprehensive income
|
|
-
|
-
|
-
|
-
|
-
|
(3,025)
|
-
|
(3,025)
|
|
Reclassification to income statement
- administrative expenses
|
|
-
|
-
|
-
|
-
|
-
|
2,865
|
-
|
2,865
|
|
Tax relating to effective portion of
changes in fair value of cash flow hedges, net of
recycling
|
|
-
|
-
|
-
|
-
|
-
|
185
|
-
|
185
|
|
Actuarial gain on defined benefit
pension scheme
|
|
-
|
-
|
-
|
-
|
-
|
-
|
584
|
584
|
|
Tax relating to actuarial gain on
defined benefit pension scheme
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(146)
|
(146)
|
|
Total comprehensive income for the year
|
|
-
|
-
|
-
|
-
|
3,681
|
25
|
10,444
|
14,150
|
|
Transactions with owners of the Parent:
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
-
|
-
|
5
|
-
|
-
|
-
|
(5)
|
-
|
|
Equity-settled share-based payments
net of tax
|
|
-
|
-
|
-
|
-
|
-
|
-
|
801
|
801
|
|
Dividends paid
|
6
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,188)
|
(3,188)
|
|
Total transactions with owners of the
Parent
|
|
-
|
-
|
5
|
-
|
-
|
-
|
(2,392)
|
(2,387)
|
|
Balance as at 31 December 2022
|
|
2,431
|
44,178
|
(5)
|
15
|
5,909
|
(285)
|
57,295
|
109,538
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as at 1 January 2023
|
|
2,431
|
44,178
|
(5)
|
15
|
5,909
|
(285)
|
57,295
|
109,538
|
|
Profit for the year
|
|
-
|
-
|
-
|
-
|
-
|
-
|
9,242
|
9,242
|
|
Other Comprehensive Income for the year
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange translation losses
on investment in subsidiaries
|
|
-
|
-
|
-
|
-
|
(1,885)
|
-
|
-
|
(1,885)
|
|
Change in fair value of hedging
instruments recognised in other comprehensive income
|
|
-
|
-
|
-
|
-
|
-
|
1,712
|
-
|
1,712
|
|
Reclassification to income statement
- administrative expenses
|
|
-
|
-
|
-
|
-
|
-
|
(192)
|
-
|
(192)
|
|
Tax relating to effective portion of
changes in fair value of cash flow hedges, net of
recycling
|
|
-
|
-
|
-
|
-
|
-
|
(575)
|
-
|
(575)
|
|
Actuarial loss on defined benefit
pension scheme
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(88)
|
(88)
|
|
Tax relating to actuarial loss on
defined benefit pension scheme
|
|
-
|
-
|
-
|
-
|
-
|
-
|
22
|
22
|
|
Total comprehensive income for the year
|
|
-
|
-
|
-
|
-
|
(1,885)
|
945
|
9,176
|
8,236
|
|
Transactions with owners of the Parent:
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
|
-
|
-
|
4
|
-
|
-
|
-
|
(4)
|
-
|
|
Proceeds of shares issued, net of
expenses
|
|
11
|
-
|
(11)
|
-
|
-
|
-
|
-
|
-
|
|
Equity-settled share-based payments
net of tax
|
|
-
|
-
|
-
|
-
|
-
|
-
|
1,339
|
1,339
|
|
Dividends paid
|
6
|
-
|
-
|
-
|
-
|
-
|
-
|
(3,350)
|
(3,350)
|
|
Total transactions with owners of the
Parent
|
|
11
|
-
|
(7)
|
-
|
-
|
-
|
(2,015)
|
(2,011)
|
|
Balance as at 31 December 2023
|
|
2,442
|
44,178
|
(12)
|
15
|
4,024
|
660
|
64,456
|
115,763
|
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 2022. Whilst
the financial information included in this announcement has been
computed in accordance with the recognition and measurement
requirements of UK adopted international accounting standards ("UK
adopted IAS") and as applied in accordance with the provisions of
the Companies Act 2006, this announcement does not itself contain
sufficient disclosures to comply with UK adopted IAS.
The information for the year ended
31 December 2023 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 2022 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 2023 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 2022 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:
polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and
thermoplastic elastomers. Foams are sold under the brand name
ZOTEK®, while technical insulation products manufactured
from certain materials are branded as T-FIT®.
|
|
·
|
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®.
|
|
|
Polyolefin Foams
|
|
HPP
|
|
MEL
|
|
Consolidated
|
|
2023
£'000
|
2022
£'000
|
|
2023
£'000
|
2022
£'000
|
|
2023
£'000
|
2022
£'000
|
|
2023
£'000
|
2022
£'000
|
|
Group revenue
|
67,596
|
70,123
|
|
58,132
|
54,439
|
|
1,247
|
2,807
|
|
126,975
|
127,369
|
|
Segment profit/(loss)
pre-amortisation of acquired intangibles
|
7,455
|
4,883
|
|
15,418
|
15,321
|
|
(4,098)
|
(1,634)
|
|
18,775
|
18,570
|
|
Amortisation of acquired intangible
assets
|
-
|
-
|
|
-
|
-
|
|
(257)
|
(258)
|
|
(257)
|
(258)
|
|
Segment profit/(loss)
|
7,455
|
4,883
|
|
15,418
|
15,321
|
|
(4,355)
|
(1,892)
|
|
18,518
|
18,312
|
|
Foreign exchange losses
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(296)
|
(1,844)
|
|
Unallocated central costs
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(3,087)
|
(2,537)
|
|
Operating profit
|
|
|
|
|
|
|
|
|
|
15,135
|
13,931
|
|
Financing costs
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(2,540)
|
(1,814)
|
|
Financing income
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
191
|
56
|
|
Share of profit from joint
venture
|
54
|
50
|
|
-
|
-
|
|
-
|
-
|
|
54
|
50
|
|
Taxation
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(3,598)
|
(2,217)
|
|
Profit for the year
|
|
|
|
|
|
|
|
|
|
9,242
|
10,006
|
|
Segments assets
|
110,374
|
116,426
|
|
50,456
|
40,358
|
|
14,344
|
13,165
|
|
175,174
|
169,949
|
|
Unallocated assets
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
435
|
410
|
|
Total assets
|
|
|
|
|
|
|
|
|
|
175,609
|
170,359
|
|
Segment liabilities
|
(37,631)
|
(39,814)
|
|
(14,363)
|
(15,508)
|
|
(1,504)
|
(1,427)
|
|
(53,498)
|
(56,749)
|
|
Unallocated liabilities
|
-
|
-
|
|
-
|
-
|
|
-
|
-
|
|
(6,348)
|
(4,072)
|
|
Total liabilities
|
|
|
|
|
|
|
|
|
|
(59,846)
|
(60,821)
|
|
Depreciation of PPE
|
5,189
|
5,422
|
|
1,122
|
1,079
|
|
532
|
369
|
|
6,843
|
6,870
|
|
Depreciation of right-of-use
assets
|
422
|
306
|
|
92
|
70
|
|
204
|
156
|
|
718
|
532
|
|
Amortisation
|
223
|
386
|
|
101
|
144
|
|
332
|
312
|
|
656
|
842
|
|
Capital expenditure:
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment
(PPE)
|
4,619
|
3,584
|
|
1,421
|
888
|
|
343
|
785
|
|
6,383
|
5,257
|
|
Intangible assets
|
118
|
112
|
|
56
|
43
|
|
2,565
|
1,569
|
|
2,739
|
1,724
|
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a
worldwide basis but operate from UK, USA, European 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
Kingdom
£'000
|
Continental Europe
£'000
|
North
America
£'000
|
Rest
of
the world
£'000
|
Total
£'000
|
|
For
the year ended 31 December 2023
|
|
|
|
|
|
|
Group revenue from external customers
|
11,879
|
32,514
|
27,195
|
55,387
|
126,975
|
|
Non-current assets
|
42,745
|
19,815
|
39,697
|
246
|
102,503
|
|
Capital expenditure - PPE
|
4,393
|
524
|
1,464
|
2
|
6,383
|
|
For the year ended 31 December
2022
|
|
|
|
|
|
|
Group revenue from external
customers
|
13,702
|
32,374
|
29,127
|
52,166
|
127,369
|
|
Non-current assets
|
41,951
|
20,943
|
39,869
|
367
|
103,130
|
|
Capital expenditure - PPE
|
3,057
|
559
|
1,618
|
23
|
5,257
|
3.
Property, plant and equipment
Group
|
|
Land and
buildings
|
Plant and
equipment
|
Fixtures
and fittings
|
Under
construction
|
Total
|
|
|
£'000
|
£'000
|
£'000
|
£'000
|
£'000
|
|
Cost
|
|
|
|
|
|
|
Balance at 01 January 2022
|
45,776
|
110,791
|
3,871
|
4,466
|
164,904
|
|
Additions
|
13
|
441
|
37
|
4,766
|
5,257
|
|
Transfers
|
346
|
5,699
|
196
|
(6,241)
|
-
|
|
Disposals
|
(535)
|
(3,336)
|
(683)
|
-
|
(4,554)
|
|
Effect of movement in foreign
exchange
|
1,798
|
4,996
|
141
|
57
|
6,992
|
|
At 31 December 2022
|
47,398
|
118,591
|
3,562
|
3,048
|
172,599
|
|
At 1 January 2023
|
47,398
|
118,591
|
3,562
|
3,048
|
172,599
|
|
Additions
|
8
|
77
|
93
|
6,205
|
6,383
|
|
Disposals
|
-
|
(941)
|
(194)
|
(44)
|
(1,179)
|
|
Effect of movement in foreign
exchange
|
(793)
|
(2,451)
|
(73)
|
(91)
|
(3,408)
|
|
At
31 December 2023
|
46,613
|
115,276
|
3,388
|
9,118
|
174,395
|
|
Accumulated depreciation
|
|
|
|
|
|
|
Balance at 01 January 2022
|
14,160
|
56,361
|
2,982
|
-
|
73,503
|
|
Depreciation charge
|
1,374
|
5,176
|
320
|
-
|
6,870
|
|
Disposals
|
(521)
|
(3,139)
|
(680)
|
-
|
(4,340)
|
|
Effect of movement in foreign
exchange
|
640
|
1,521
|
110
|
-
|
2,271
|
|
At 31 December 2022
|
15,653
|
59,919
|
2,732
|
-
|
78,304
|
|
At 1
January 2023
|
15,653
|
59,919
|
2,732
|
-
|
78,304
|
|
Depreciation charge
|
1,737
|
4,862
|
244
|
-
|
6,843
|
|
Disposals
|
-
|
(984)
|
(191)
|
-
|
(1,175)
|
|
Effect of movement in foreign
exchange
|
(331)
|
(925)
|
(64)
|
-
|
(1,320)
|
|
At
31 December 2023
|
17,059
|
62,872
|
2,721
|
-
|
82,652
|
|
Net
book value
|
|
|
|
|
|
|
At 1 January 2022
|
31,616
|
54,430
|
889
|
4,466
|
91,401
|
|
At 31 December 2022 and 1 January
2023
|
31,745
|
58,672
|
830
|
3,048
|
94,295
|
|
At
31 December 2023
|
29,554
|
52,404
|
667
|
9,118
|
91,743
|
4.
Interest-bearing loans and borrowings
|
|
|
Group
|
|
Company
|
|
2023
£'000
|
2022
£'000
|
|
2023
£'000
|
2022
£'000
|
|
Current bank borrowings
|
|
36,527
|
37,446
|
|
36,527
|
37,446
|
In March 2022, the Group completed a debt
refinancing and selected Handelsbanken and NatWest, the incumbents,
to continue as its lenders. Under the terms of the new facility,
secured against the property, plant and equipment and trade
receivables, the Group's gross finance facility consists of a £50m
multi-currency revolving credit facility with a £25m accordion.
With a 4+1 tenor, the extending year option was taken up in January
2023.
At the end of the financial year, the Group has
utilised £36.5m (31 December 2022: £37.4m) of its multi-currency
revolving credit facility of £50m. The total amount of £36.5m,
repayable on the last day of each loan interest period, which is of
either a three- or six-month duration, is net of £0.4m origination
fees paid up front and being amortised over four years. The Group
has headroom of £19.4m, being £6.3m cash and cash equivalents, and
the undrawn facility of £13.1m, being the facility of £50m less the
drawn-down balance of £36.5m, less the £0.4m origination
fees.
The interest rates on the debt facility ranged
between 3.70% and 6.60% in 2023 (2022: between 1.60% and
6.00%).
5.
Issued share capital
Issued, allotted and fully paid
ordinary shares of 5p each:
|
|
Number of
shares
|
Par
value
|
Share
premium
|
Total
|
|
|
|
£'000
|
£'000
|
£'000
|
|
At 1 January 2022 and 31 December
2022
|
48,621,234
|
2,431
|
44,178
|
46,609
|
|
Share issue to Employee Benefit
Trust
|
225,000
|
11
|
-
|
11
|
|
At
31 December 2023
|
48,846,234
|
2,442
|
44,178
|
46,620
|
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.
6.
Dividends and earnings per share
|
|
2023
|
2022
|
|
£'000
|
£'000
|
|
Prior year final dividend of 4.62p
(2022: 4.40p) per 5.0p ordinary share
|
2,243
|
2,131
|
|
Interim dividend of 2.28p (2022:
2.18p) per 5.0p ordinary share
|
1,107
|
1,057
|
|
Dividends paid during the
year
|
3,350
|
3,188
|
The proposed final dividend for the year ended
31 December 2023 of 4.90p per share (2022: 4.62p) is subject to
approval by shareholders at the AGM and has not been recognised as
a liability in these financial statements. The proposed dividend,
which would be payable on 3 June 2024 to shareholders on the
Company register at the close of business on 3 May 2024, would
amount to £2,382k if paid to shareholders who are on the Company
register as at 31 December 2023
Earnings per
ordinary share
Earnings per ordinary share is calculated by
dividing consolidated profit after tax attributable to equity
holders of the Company of £9,242k (2022: £10,006k) by the weighted
average number of shares in issue during the year and excluding own
shares held by the EBT which are administered by independent
trustees. The number of shares held in the trust at 31 December
2023 was 244,286 (2022: 107,130). 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".
|
|
2023
|
2022
|
|
Weighted average number of ordinary
shares in issue
|
48,643,755
|
48,551,379
|
|
Adjustments for share
options
|
1,161,180
|
987,750
|
|
Diluted number of ordinary shares
issued
|
49,804,935
|
49,539,129
|
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).
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 3.50:1.00 (until 9 March 2022, 3.00:1.00,
under the terms of the previous debt facility).
|
|
·
|
The ratio of EBITDA to net finance
charges in 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.
|
|
As at
31 December 2023
£'000
|
As at
31 December 2022
£'000
|
|
Net borrowings
|
30,233
|
26,852
|
|
EBITDA
|
24,687
|
22,985
|
|
Net borrowings/EBITDA
|
1.22
|
1.17
|
|
Net finance charges
|
2,212
|
1,682
|
|
EBITDA/Net finance
charges
|
11.16
|
13.67
|
Net borrowings comprise current and
non-current interest-bearing loans and borrowings of £36,527k and
cash and cash equivalents of £6,294k.
EBITDA comprises:
|
|
|
2023
£'000
|
2022
£'000
|
|
Profit for the year
|
|
9,242
|
10,006
|
|
Depreciation and
amortisation
|
|
8,217
|
8,245
|
|
Finance costs
|
|
2,349
|
1,758
|
|
Share of profit from joint
venture
|
|
(54)
|
(50)
|
|
Equity-settled share-based
payments
|
|
1,335
|
809
|
|
Taxation
|
|
3,598
|
2,217
|
|
|
|
24,687
|
22,985
|
Net finance charges comprise interest income of
£191k and finance costs expensed of £2,403k, which excludes pension
interest.
The Group's objective is to maintain leverage
below the Board's appetite of 2.0. However, it is prepared to
accepted increases in this ratio at times of sizeable,
capacity-related, capital expenditure to support continued growth.
Subject to short-term macro-economic and geopolitical volatility,
this is always expected to reduce quickly back below the Board's
appetite, and to significantly lower levels, as capacity
utilisation improves.
The bank covenant definition does not include
the impact of IFRS 16 "Leases", which would have moved the ratio
from 1.22 to 1.28.