TIDMZTF
RNS Number : 1065T
Zotefoams PLC
23 March 2021
Zotefoams plc
Preliminary Results (unaudited) for the Year Ended 31 December
2020
23 March 2021 - 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 2020.
"Solid operating profits and effective cash management, with
record second-half sales, demonstrates resilience and
flexibility."
Financial highlights
Statutory Before Before Statutory Statutory
exceptional exceptional
item(1) item(1)
2020 2019 Change 2019 Change
Revenue GBP82.7m GBP80.9m 2% GBP80.9m 2%
Operating profit GBP9.1m GBP9.1m nil GBP10.2m (10)%
Profit before tax GBP8.3m GBP8.8m (5)% GBP9.8m (15)%
Basic EPS 14.87p 14.91p nil 17.10p (13)%
Cash generated
from
operations GBP13.0m GBP10.7m 21% GBP11.8m 10%
Leverage ratio(2) 2.1x 2.0x - 2.0x -
Final dividend(3) 4.27p - - - -
(1) Exceptional item in 2019 of GBP1.1m relating to a pension
credit following a legal claim against the previous pension
advisors
(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 before exceptional items, adjusted for the impact of IFRS2
and IFRS16.
(3) Final dividend is subject to approval at the Company's
AGM
Results highlights
-- Delivered year-on-year revenue growth despite COVID-19 disruption
in most markets, driven by High Performance Products (HPP) footwear
and personal protective equipment (PPE) Polyolefin Foams sales:
- HPP sales up 13% to GBP30.0m (2019: GBP26.5m) and account
for 36% of Group revenue (2019: 33%)
- Polyolefin Foams sales at similar levels to the previous year
at GBP50.9m (2019: GBP51.4m)
- MuCell Extrusion LLC (MEL) revenue down 41% to GBP1.8m (2019:
GBP3.1m)
- Record six-month sales in H2 2020, overcoming the severe impacts
of COVID-19 in the first half
-- UK PPE sales and successful cost management demonstrates resilience
and flexibility of the business
-- Very strong cash performance, with year-end leverage ratio of
2.1x, down from 2.6x at mid-year and well within covenants
-- Dividends reinstated in October 2020, final dividend proposed
of 4.27p, modest UK government support fully repaid
Strategic progress
-- Poland plant commissioned in February 2021, representing the
final commitment of a multi-year capacity enhancement programme
-- Improved visibility in H2 2020 allowed for a return to investment
in the commercial and product development initiatives that will
enable development of the opportunity pipeline
-- Investing to develop and assess ReZorce(R) , a sustainable mono-material
barrier packaging solution
-- Manufacturing capacity in place to support future growth
David Stirling, Group CEO, said:
"I am pleased with how Zotefoams has performed in 2020, given
the COVID-19 impact on economies and supply chains globally. This
performance has been a result of decisive actions taken by our
management teams in prioritising staff welfare while ensuring our
facilities operated as required by our customers. Overall, I
believe our strategy is sound and the ability to realign our
business, to adapt to a rapidly changing environment, to manage our
cost base and investment profile demonstrates the flexibility of
our product range, capacity and people.
"We are experiencing a strong start to 2021, consistent with our
growth expectations, across the business as a whole. Our Polyolefin
Foams Business Unit is trading very strongly, buoyed by restocking
in some markets and the restarting of some previously delayed
projects. We do not anticipate any significant sales from PPE
programmes this year, which materially supported 2020's second half
trading. In our HPP Business Unit, demand for footwear products
continues at similar levels to the strong performance seen in the
second half of last year, while COVID-related factors continue to
impact aviation and the rate of growth in T-FIT(R) insulation
products.
"The operational environment is currently impacted by
Brexit-related changes and global trade imbalances, making it more
difficult and expensive to plan transportation, although we
anticipate that this will ease with time. We expect to recover
inflationary pressure, particularly in raw material pricing,
through price increases in the second quarter.
"Zotefoams demonstrated resilience and flexibility under very
difficult macroeconomic conditions in 2020, while continuing to
make good strategic progress and adding to its broad range of
exciting business opportunities. We expect to deliver significant
growth this year; however, our cost base will increase, reflecting
a return to more normalised levels of spending, the new Poland
facility coming on stream and selective investment to support our
best growth projects. The year has started strongly and, while we
are cautious on our short-term outlook given the on-going COVID-19
and logistics challenges, the Board remains confident about the
future prospects for our business."
Enquiries:
Zotefoams plc +44 (0) 208 664 1600
David Stirling, Group CEO
Gary McGrath, Group CFO
IFC Advisory (Financial PR &
IR) +44 (0) 203 934 6630
Graham Herring
Tim Metcalfe
Zach Cohen
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular
materials technology delivering optimal material solutions for the
benefit of society. Utilising a variety of unique manufacturing
processes, including environmentally friendly nitrogen expansion
for lightweight AZOTE(R) polyolefin and ZOTEK(R) high-performance
foams, Zotefoams sells to diverse markets worldwide. Zotefoams uses
its own cellular materials to manufacture T-FIT(R) advanced
insulation for demanding industrial markets. Zotefoams also owns
and licenses patented microcellular foam technology to reduce
plastic use in extrusion applications and for ReZorce(R)
mono-material recyclable barrier packaging.
Zotefoams is headquartered in Croydon, UK, with additional
manufacturing sites in Kentucky, USA and Brzeg, Poland (foam
manufacture), Oklahoma, USA (foam products manufacture and
conversion), Massachusetts, USA (MuCell Extrusion) and Jiangsu
Province, China (T-FIT).
www.zotefoams.com
AZOTE(R) , ZOTEK(R) , ReZorce(R) and T-FIT(R) are registered
trademarks of Zotefoams plc.
An introduction from our Chair
Resilience and flexibility
The response to the pandemic has demonstrated an effective
strategy delivered by a dedicated workforce and leveraging a
differentiated technology
Overview
While 2020 was of course dominated by the impact of the COVID-19
pandemic, Zotefoams demonstrated its resilience and flexibility in
successfully responding to the significant market, operational and
workplace challenges posed. COVID-secure working procedures were
introduced at each of its sites. Financial performance was robust,
with a strong second half recovery leading to revenue growth for
the year as a whole and we continued to make good strategic
progress despite these considerable challenges. It has been an
immense effort and, on behalf of the Board, I would like to record
my sincere gratitude to the leadership team and all their
colleagues across the Group who have worked safely, flexibly and
tirelessly to support all of our stakeholders during the year.
Strategic progress
In an extremely challenging year, we have nevertheless made good
strategic progress. In our High-Performance Products (HPP) business
we delivered excellent growth in footwear and made significant
headway in T-FIT (R) insulation, particularly in China, moderated
by COVID-19 related disruptions in Europe and India. We
commissioned our Poland manufacturing facility in February 2021,
which was the final part of a multi-year capacity improvement
programme adding 60% capacity to pre-2018 levels. As visibility
improved in H2 2020, we recommenced investment into the commercial
and product development initiatives that will enable us to develop
our pipeline of opportunities and accelerate future growth. We also
took decisive steps to assess and develop market entry plans for
ReZorce (R) mono-material barrier packaging solutions in key
application areas to capitalise on the significant opportunities
which exist for this technology.
The major market impact of COVID-19 was felt in our ZOTEK (R) F
foams business, which mostly supplies the aviation industry. Sales
more than halved this year; however, through a combination of new
application areas and recovery, we expect this business to return
to pre-pandemic growth rates in the medium term. We demonstrated
the resilience of our Polyolefin Foams business, supporting a new
personal protective equipment (PPE) application which offset
reduced demand in industrial markets brought on by the pandemic. We
continue to see structural growth prospects in this important
business unit, underpinned by the megatrends of environment,
regulation and demographics and facilitated by our new global
capacity.
Results
Group revenue was GBP82.7m, 2% above the previous year (2019:
GBP80.9m). Operating profit before exceptional item was in line
with the previous year at GBP9.1m (2019: GBP9.1m), with statutory
operating profit down 10% at GBP9.1m (2019: GBP10.2m). Basic
earnings per share before exceptional item was in line with the
previous year at 14.87p (2019: 14.91p) and basic earnings per share
was down 13% at 14.87p (2019: 17.10p).
The combination of our rapid response to the pandemic and the
successful execution of both new and existing opportunities in H2
2020 has demonstrated the financial resilience of Zotefoams'
business. We ended the year with a strong balance sheet and
leverage down to 2.1x from its peak level of 2.6x at the mid-year,
well within our covenants.
Dividend
The Board has a progressive dividend policy, recognising the
importance to our shareholders of the dividend as part of their
overall return. Given the extraordinary uncertainty at the time of
the COVID-19 outbreak, however, the Board did not recommend a final
dividend for the year ended 31 December 2019. As the ongoing impact
of the pandemic and our responses to mitigate it became clearer, a
more confident assessment of the Group's financial position and
future was taken at the half year end and resulted in the payment
of an interim dividend in October 2020 of 2.03p (2019: 2.03p). The
small amount of UK government financial support received in the
first half of the year was fully repaid in early August 2020. The
Board remains confident in the Group's future and is proposing a
final dividend of 4.27p (2019: nil) which, if approved, will be
paid on 1 June 2021 to shareholders on the register on 7 May
2021.
Sustainability
The Board is very focused on the growing importance of
sustainability and the evolving debate around the use of plastics
by society. It considers both in relation to the future desired
outcomes for all stakeholders. Accordingly, our strategy
incorporates the consideration of climate change in terms of
financial and operational impacts. Zotefoams' products are used
almost exclusively for permanent solutions and often form a
positive element of our customers' own sustainability agenda. They
are seldom used for single-use purposes which, understandably in
certain applications, has caused most public concern. Our MuCell
technology is focused on the reduction of plastic in society,
lowering carbon footprint and improving recyclability of packaging.
We believe that plastics, used appropriately, remain the optimal
solution both functionally and environmentally for our customers'
needs. We also recognise the importance of continuous improvement
around product development and operating efficiency to reduce the
Group's environmental impact. The Board has elevated sustainability
and climate change to be a new principal risk at Zotefoams and the
Group executive has been tasked with ensuring that both the
strategic and operational impact of sustainability is embedded
within decision making processes throughout the Group.
Governance and the Board
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. Due to COVID-19 there has been a
considerable increase in our interactions as a Board, which have
mainly taken place virtually in 2020. This year, we have paid
particular attention to the provision of a safe working environment
for our staff across all global locations and have maintained the
improved visibility and quality of safety performance data across
the business. We continue to support and empower our employees and
are meeting our commitment to enhancing the employee voice in the
boardroom through the position of J Carling as Board representative
for workforce engagement.
The process to refresh the non-executive membership of the Board
was completed in 2020. On 14 May 2020, we appointed C Wall and A
Fielding to the Board, with A Fielding assuming the role of Chair
of the Remuneration Committee. These changes have brought highly
relevant skillsets and experiences to the Board and both new Board
members have quickly amassed good knowledge of the business and its
strategy, despite the obstacles presented by COVID-19. A Bromfield
retired from the Board on 13 May 2020 after 6 years of invaluable
service; we wish her well.
The Board considers that it has fully applied all the principles
and provisions of the UK Corporate Governance Code during 2020.
Our people
We have always understood that our people are key to our
success. This year, the most difficult of years, has reinforced
this. Their contribution to the Group's success through their
dedication to each other, their adaptability to change, their
steadfastness during an uncertain H1 2020 and tireless commitment
in a very busy and demanding H2, has been inspiring. As the results
show, the leadership team responded swiftly and very capably to the
COVID-19 challenges, resolutely tackling short term issues while
not losing sight of the long term. It has been a great team effort
and I want to thank all of our employees for their considerable
efforts during the year.
The future
In 2020, Zotefoams delivered a strong response to the COVID-19
crisis, with good operating results and strategic progress in the
face of very challenging macroeconomic conditions. Looking ahead,
while the COVID-19 pandemic creates an uncertain environment, we
continue to benefit from a highly talented and committed workforce,
an attractive product portfolio and strong competitive positions in
our markets. We recently completed our investment programme to
significantly increase manufacturing capacity and, with a broad
range of exciting business opportunities, we remain confident about
our future prospects.
S P Good
Chair
22 March 2021
Group CEO's review
Solid operating profits and cash management following record
second-half sales
Zotefoams remains well positioned competitively and
environmentally. Our core materials offer improved product
performance using less material and MuCell Extrusion (MEL) licenses
technology specifically to reduce polymer usage
United Continental North Rest of
2020 Kingdom Europe America the World Total
------------------------- -------- ----------- -------- ---------- ------
Change % 48% (30)% (20)% 37% 2%
Group revenue (GBP000's) 19,106 17,856 17,629 28,061 82,652
% of Group revenue 23% 22% 21% 34% 100%
------------------------- -------- ----------- -------- ---------- ------
2019
Group revenue (GBP000's) 12,875 25,503 22,010 20,472 80,860
% of Group revenue 16% 32% 27% 25% 100%
------------------------- -------- ----------- -------- ---------- ------
I am pleased at how Zotefoams has performed in 2020 given the
COVID-19 impact on economies and supply chains globally. This
performance has been as a result of decisive actions taken by our
management teams in prioritising staff welfare while ensuring our
facilities operated as required by our customers. We had to contend
with high levels of uncertainty regarding the impacts of COVID-19
and the demand environment, particularly during the second quarter,
requiring us to manage costs and conserve cash to protect our
business. We also worked closely with customers to re-agree
priorities where practical which, in the main, reflected lower
levels of demand and requirements for much shorter lead times.
However, due to the wide variety of applications using our foams,
we had some notable successes in the second half including
supplying a significant volume of our Plastazote (R) polyolefin
foams for a UK-government personal protective equipment (PPE)
contract and, as anticipated, increasing sales of our ZOTEK (R) HPP
foams to Nike under our exclusive agreement for footwear.
Zotefoams' stated business purpose is "Optimal Materials for the
Benefit of Society" and we utilise unique technology to make what
we consider to be "best in class" foams for a variety of uses
aligned to global environmental, regulatory and demographic trends.
We firmly believe that plastic, our main raw material, is the
optimal material for the applications for which our products are
used. These are predominantly not single-use and often function for
many years as industrial and consumer durables in applications as
varied as medical devices, footwear, clean-room insulation, cars,
aircraft and marine buoyancy.
Over the past five years, Zotefoams has invested significant
capital in global capacity to grow our business. Our recently
opened facility in Poland, the completion of which was delayed to
2021 to better match anticipated demand and conserve cash,
completes this investment programme. The timing to achieve our
planned return on these investments has inevitably been extended by
the current economic climate and growing sales to improve asset
utilisation is our priority in the short term. An improved product
mix, with a higher proportion of sales from our more technical
ZOTEK HPP foams and T-FIT (R) insulation products, is expected to
be the main driver of improved profitability and returns in the
medium term.
Group revenue increased by 2% to GBP82.7m (2019: GBP80.9m) with
operating profit of GBP9.1m at a similar level to last year (2019:
GBP9.1m excluding the 2019 exceptional item related to the recovery
of pensions costs). Strong HPP footwear growth and sales for PPE in
Polyolefin Foams offset the broader COVID-19 related downturn in
most other markets. Profit before tax declined by 5% to GBP8.3m
(2019: GBP8.8m excluding the aforementioned 2019 exceptional item),
with less bank interest being capitalised in 2020 as debt financed
a lower level of capacity-enhancement projects still under
construction.
Net cash inflow from operations increased 10% to GBP13.0m (2019:
GBP11.8m). Excluding the exceptional item of 2019, net cash inflow
from operations increased 21%.
Strategy update
Zotefoams' strategy is to invest in flexible assets with the
capability to support the growth opportunities afforded by our
diverse, and often unique, products. As mentioned above, the timing
of capacity available from our investment programme has
unfortunately coincided with lower levels of current economic
activity. However, we are working hard to increase market share and
we expect benefits from an initial improvement in utilisation as
the macroeconomic environment improves, with further enhancement
from increasing proportions of higher margin business where we have
a strong business development pipeline.
Overall, we believe our strategy is sound and the ability to
realign our business, to adapt to a rapidly changing environment
and to manage our cost base and investment profile demonstrates the
flexibility of our product range, capacity and people.
While we rightly curtailed investment in some areas to manage
our costs and cash at a time of extreme uncertainty, we also
continued and even accelerated efforts in other areas. Footwear
products, T-FIT insulation and ReZorce (R) mono-material barrier
technology, which is part of our MEL business unit, have all
benefited from increased investment and all offer excellent
potential over, in order of sequence, the short to more
medium-term.
Sustainability remains a key consideration in developing and
implementing our strategy. Our core materials offer improved
product performance in durable solutions using less material than
competitors. MEL licenses technology specifically to reduce polymer
content and has now developed a fully recyclable, circular, barrier
packaging solution which we have trademarked ReZorce. The emergence
of what we see as a strongly negative public perception of plastic
is now becoming more nuanced beyond the environmental impact of
ill-considered, single-use plastic, used predominantly in consumer
packaging. Zotefoams' current markets are not immediately impacted
by this, as products using our foams are primarily integrated
components in larger systems or products (such as cars, planes,
footwear and medical parts) or used in the long-term storage of
items. They are very rarely used in consumer disposable items. Our
foams save weight and fuel in cars, trains and aircraft, save
energy by insulating and provide protection to people and goods.
Our products help our customers reduce emissions, lower energy
usage, improve fuel efficiency and comply with increasingly
stringent safety regulations. In common with other businesses, we
seek to minimise the use of natural resources through measures such
as reducing energy and polymer usage, which benefits the
environment and reduces our costs.
We believe Zotefoams has demonstrable credibility in reducing
the carbon footprint of our customers, but the world is changing
rapidly with different competitive solutions and redefinition of
requirements driven by preferences and regulation. We therefore
continue to develop both our product range and technology to
anticipate and react to these changes. We recognise the risk of not
meeting our stakeholder expectations on sustainability and have
reflected this in our key risks and uncertainties as a
consequence.
Capacity and investment
In the past six years, Zotefoams has invested GBP65.2m to
increase our global capacity by approximately 60% from 2017,
culminating in the completion of our facility in Poland in early
2021. A virtual tour of this facility can be found on the Group's
website. Based on our assessment of the opportunities afforded by
the underlying market for our products as well as an attractive
pipeline of opportunities, primarily within our HPP business unit,
we are now well-invested to deliver accelerated growth. When
determining our investment strategy we need to consider that our
capacity investments, which involve significant infrastructure and
bespoke machinery, take time to complete and are costly. The first
increment of capacity on any site requires disproportionately high
investment in infrastructure, but subsequent investment on the site
can then be made more cost-effectively and quickly. As markets
continue to recover, we will see returns move towards our target
levels and we consider that our Poland facility is well placed
geographically, giving confidence to our European customer base for
polyolefin foams post Brexit. Both the USA and Poland sites have
the option for further investment, allowing cost-effective capacity
increases on approximately an 18-month lead time. Although there is
no current expectation of major investment to increase capacity,
Zotefoams has the ability to react to structural increases in
demand for all its products.
POLYOLEFIN FOAMS, AZOTE (R)
Segment revenue GBP50.9m Change (1)% (2019: GBP51.4m)
Segment profit margin 9.5% (2019: 14.2%)
Segment profit GBP4.8m Change (34)% (2019: GBP7.3m)
Sales in Polyolefin Foams were broadly stable, although within
this there were significant variations by product and segment
year-on-year. Sales to our traditional polyolefin foam markets
(excluding PPE) fell by approximately 20%, with the largest falls
being experienced in aviation, automotive and in product protection
linked to trade shows and exhibitions. Geographically, Japan and
continental Europe, Germany in particular, were noticeably weaker
while overall sales to both the UK and North American markets fell
by around 11%, although sales in our North American construction
segment, served by our facility in Tulsa, OK, increased by 15%.
Offsetting the general market weakness were sales to our largest
UK customer for a UK government PPE contract for the NHS which
represented almost 19% of AZOTE revenues in 2020. This business was
substantially delivered between June and November and accounted for
almost 24% of AZOTE volume sold in the year. The specific foam
involved was a light-density variant of our Plastazote range which
has been used and cited in medical applications for many years,
helping our customer fast-track approval for their design.
Segment profit declined to GBP4.8m (2019: GBP7.3m), mainly as a
result of additional costs associated with the full-year operation
of new equipment in the UK and USA, costs substantially related to
the higher volumes of polyolefin foams and additional
administration costs, mostly committed to in 2019, around human
resources, finance, audit and IT. Our expectations are that
additional costs related to the Poland plant will burden segment
profit margin in the short term before higher plant utilisation
rates allow recovery in the medium term.
During the year, customers of our Polyolefin Foams business
operated with low inventory levels and an expectation of rapid and
flexible response times from Zotefoams. By supporting peak levels
of PPE demand with supply from our USA facility, we had sufficient
capacity to meet other customer needs from our UK facility. Our new
facility in Poland now brings further agility and capability in
continental Europe to support customers' growth.
In the latter part of the year, we experienced early, although
inconsistent, signs of recovery in demand. With low levels of
inventory in many sectors of the market, such an improvement in
demand, combined with the risk of supply disruptions linked to
Brexit, would normally have led to inventory increases through the
supply chain. While this was discussed with many customers,
increases in their inventory were typically not implemented due to
their priority of conserving cash in an environment of continued
economic uncertainty.
During the year, we continued to enhance our AZOTE product
portfolio, albeit at a slower pace than in previous years due to
our focus on short-term cash management. We developed recycled
foams containing internal process scrap, we improved our technical
capability to produce different densities of our Adapt product
range, which will mainly be made in Poland, and we worked closely
with large customers in automotive and retail to develop
application-specific AZOTE products to meet their particular needs.
All these developments are set to broaden Zotefoams' product range
further and offer good opportunities to grow market share by
aligning closely with market trends and customer needs.
HPP
Segment revenue GBP30.0m Change +13% (2019: GBP26.5m)
Segment profit margin 26.3% (2019: 24.3%)
Segment profit GBP7.9m Change +23% (2019: GBP6.4m)
HPP comprises ZOTEK (R) technical foams, which include foams for
footwear where we have an exclusive relationship with Nike, and
T-FIT (R) insulation products. These products are typically unique
or highly differentiated and designed to deliver specific
performance attributes, such as energy management, excellent fire
resistance or high-temperature performance to meet the exacting
needs of industries such as sports equipment, aviation, automotive,
biotech and pharmaceutical.
The HPP Business Unit accounted for 36% of Group sales in 2020
(2019: 33%).
Within this business unit there are currently three main end-use
applications: footwear, aviation and technical insulation. Footwear
grew strongly as expected, particularly in the second half, and now
accounts for 26% (2019: 16%) of Group revenue. This growth follows
close collaboration with Nike as product innovation from Zotefoams
is used on an increasing number of running shoe models. We continue
to work closely with Nike globally to ensure Zotefoams' development
efforts are clearly aligned with Nike's priorities. Sales of ZOTEK
F fluoropolymer foams, primarily for aviation applications, reduced
by 54% as Boeing, Airbus and airlines (where we supply foams for
interiors) significantly curtailed their activities due to
COVID-19. The supply chain for aviation typically has more
inventory than other markets and customers reducing inventory
levels exacerbated the decline in demand for Zotefoams materials in
the short term. T-FIT insulation products grew by 4% in the year,
which was significantly below our expectations and does not yet
reflect the strong uptick in interest and customer engagement we
are seeing. COVID-19 impacts were significant in holding back the
rate of growth in 2020 and resulted in substantial regional
variability. We grew our business in China by 60%; India, which had
been expected to perform well, was relatively flat with many
projects deferred; and sales in the EU, previously our largest
market, declined by 40%. As the disruption of the pandemic reduces,
we would expect T-FIT insulation demand to respond strongly,
underpinned by our clearly differentiated offering and the
accelerating structural growth drivers in the cleantech, biotech
and food safety sectors.
During 2020, as well as continuing our close co-operation on
footwear, we also continued technical and market development of our
unique ZOTEK foams range, mainly focused on the aviation and
automotive industries. Both are undergoing significant disruption
with travel patterns changing and sustainability pressures.
Zotefoams believes that its range of lightweight, insulating and
fire-retardant materials are ideally placed to help these
industries meet their challenges and capture new business. We have
therefore prioritised developing new foams focused on aviation
applications, despite the low current demand from this industry. We
have also put significant focus on market opportunities in ground
transportation, and e-vehicles in particular, using both our
existing product range and customer-specific product variants.
Current signs are positive on both these development approaches,
which form an integral part of our Group-wide portfolio of
opportunities.
MEL MuCell (R) ReZorce (R)
Segment revenue GBP1.8m Change (41)% (2019: GBP3.1m)
Segment loss before amortisation GBP1.2m Change +7% (2019:
GBP1.3m)
Segment loss after amortisation GBP1.4m Change +6% (2019:
GBP1.5m)
MuCell Extrusion LLC licenses microcellular foam technology and
sells related machinery. MEL's business model is to develop and
license intellectual property (IP). MuCell technology offers the
potential to reduce the plastic content of an article by around 15%
by injecting inert gas to displace plastic with microcellular
bubbles. Using similar technology, in 2019 the team at MEL
developed mono-material barrier packaging technology, which we have
branded ReZorce (R) .
MEL's development strategy was significantly negatively impacted
by COVID-19 during the year. An inability of our staff to travel to
customer sites and considerable reductions in discretionary
expenditure by potential customers led to a 64% fall in revenue
from equipment sales. Revenue from license fees, which we had
expected to increase, remained relatively stable year-on-year as a
result of mixed customer fortunes in the difficult economic
environment. Overall, activity at MEL retrenched from the beginning
of the pandemic, with a reduction in travel and development
reducing costs to such an extent that the segment loss after
amortisation was slightly below 2019.
Progress on our ReZorce pilot line was also deliberately slowed
in the short term, in common with much Group capital expenditure.
It is currently in its commissioning phase and forms a significant
element of our intention to accelerate development of the ReZorce
barrier technology. We have worked closely with external
consultants and packaging industry experts to help validate and
evaluate the ReZorce opportunity and strategy. As a result of this
work, we have commenced the next phase of a go-to-market evaluation
strategy focusing primarily on the beverage packaging market,
currently dominated by Tetrapak along with other multi-material
carton solution providers. This phase of evaluation is likely to be
substantially complete during the third quarter and involves
pivoting a substantial portion of our MEL team over the coming
months to be almost exclusively dedicated to ReZorce. The licensing
business of MEL, which is aimed at reducing customers' consumption
of plastic volumes, will continue to support existing licensees and
current projects but will not actively seek new customers at this
time, other than in a few cases where we have a readily
implementable solution. We currently expect the operating result
impact of this pivot to be broadly neutral over the year as we
believe the planned activities and additional costs associated with
this very specific targeted validation programme meet the criteria
for capitalisation. The potential market is large and facing
significant pressure to improve sustainability rapidly. Our ReZorce
product line can be made with significant recycled plastic content
and, as it is classified as a mono-material, can be readily
recycled to support a circular economy, putting sustainability at
the heart of our MEL development agenda.
Measuring strategic progress
The markets in which we operate are driven by global trends -
environment, regulation and demographics - which we believe offer
potential for high rates of market growth as well as opportunity
for our disruptive technology solutions. We measure strategic
progress on four metrics, all before exceptional items:
1. Sales in our HPP and MEL Business Units, which offer unique
disruptive products and solutions, together now account for 39%
(2019: 37%) of Group revenues with combined growth of 8%. The
unique benefits offered by these products, combined with a focus on
selling into structural growth niches, means that we expect strong
further growth in these product lines in the future.
2. Sales of our highly differentiated AZOTE polyolefin foam
products declined by 1%, against our target rate of twice global
GDP growth. Supply for a UK government PPE contract in the second
half approximately offset the weakness in most other markets during
the year. In a year where global GDP shrank considerably and our
home market suffered the worst drop in GDP for 300 years, I am
pleased that our business showed such resilience.
3. Group operating margin before exceptional item was 11.0%
(2019: 11.3%). Higher capital spending over the past few years has
increased our depreciation and reduced gross margin while asset
utilisation remains lower than anticipated due to the global
economic situation. The mix benefit of higher growth in our HPP
products provides a structural driver for margins over time. During
the year we did curtail certain operating costs and the negative
impact of changes in foreign exchange rates was lower than in
previous years. Overall, I am pleased that operating margin
remained stable and we were able to continue to invest for our
future as well as increase employment within the Group.
4. Group return on capital, which excludes large asset
investments not yet commissioned, declined to 9.0% (2019: 10.5%).
The Group has invested in a large capacity enhancement programme
over recent years, including significant expenditure in the
supporting infrastructure that will be sufficient to support
further capacity, if needed, at much lower incremental cost. The
committed large-scale increases in capacity ended with the
commissioning of our Poland facility early in 2021 and the Group is
well invested to support future growth. Capital spending is planned
to return to more normal, lower levels, broadly in line with
depreciation. The net assets of the business have increased
significantly and higher asset utilisation from increased sales
will be an important factor in delivering improvements in the
return on capital over the coming years. We believe Zotefoams'
investments are consistent with our strong portfolio of business
opportunities and support strong organic growth in line with our
stated strategic intent.
People
The top priority for Zotefoams is ensuring the health and safety
of employees and site visitors. The Board tolerance for risk is set
accordingly and health and safety is an agenda item at every Board
and Executive Committee meeting. We recognise that culture, and
specifically the behaviour of all employees, has a significant
impact on safety risk and performance. Management therefore has a
clear priority to ensure that safety behaviour and culture are
continuously improved across our business and we will not be
satisfied until we achieve our goal of no-one getting hurt while
working at Zotefoams.
During 2020, managing our workforce's wellbeing during COVID-19
was a significant challenge. Fortunately, most of our operations
allow social distancing, non-production staff benefit from good IT
systems and were able to work from home and, therefore, other than
a few short breaks to assess the impact on our business and
implement safe-working systems, our facilities were able to work
substantially as normal. While we called upon the UK government's
furlough scheme during H1 2020, the small amount of support we
received was fully repaid in early Q3 2020 and no further support
was sought. Furthermore, performance during the year and our
expectations for the future rendered it unnecessary to make any
pandemic-related job losses, restructurings or salary reductions
and, additionally, we enhanced sick pay for those who were
vulnerable and self-solating under COVID-19 guidelines.
The main safety metric across our business is reportable lost
time incidents and, regrettably, we had one such incident at our
Croydon facility during the year (2019: 1). In line with our
policy, a full follow-up and analysis with corrective actions was
reviewed by the Board.
At the end of 2020, the Zotefoams Group employed 474 people, an
increase of 4% (2019: 454). Of these, 222 or 47% have been employed
for less than two years. With such a high proportion of new
employees to integrate, developing our organisational capability
and culture globally is essential to delivering our strategy and in
times of COVID social distancing this is particularly challenging.
However, I believe we have a strong management team, clear
direction and the right balance between control and autonomy to
deliver our strong portfolio of opportunities in a challenging
environment.
Forward-looking statements
Forward-looking statements have been made by the Directors in
good faith using information available up until the date they
approved these financial statements. These forward-looking
statements should be considered in light of the continuing
uncertainty surrounding the impacts of the COVID-19 virus on
economic trends and business.
Current trading and outlook
We are experiencing a strong start to 2021, consistent with our
growth expectations, across the business as a whole. Our Polyolefin
Foams business unit is trading very strongly, buoyed by restocking
in some markets and the restarting of some previously delayed
projects. We do not anticipate any significant sales from PPE
programmes this year, which materially supported 2020's second half
trading. In our HPP business unit, demand for footwear products
continues at similar levels to the strong performance seen in the
second half of last year, while COVID-related factors continue to
impact aviation and the rate of growth in T-FIT(R) insulation
products.
The operational environment is currently impacted by
Brexit-related changes and global trade imbalances, making it more
difficult and expensive to plan transportation, although we
anticipate that this will ease with time. We expect to recover
inflationary pressure, particularly in raw material pricing,
through price increases in the second quarter.
Zotefoams demonstrated resilience and flexibility under very
difficult macroeconomic conditions in 2020, while continuing to
make good strategic progress and adding to its broad range of
exciting business opportunities. We expect to deliver significant
growth this year; however, our cost base will increase, reflecting
a return to more normalised levels of spending, the new Poland
facility coming on stream and selective investment to support our
best growth projects. The year has started strongly and, while we
are cautious on our short-term outlook given the on-going COVID-19
and logistics challenges, the Board remains confident about the
future prospects for our business.
D B Stirling
Group CEO
22 March 2021
Group CFO's review
Resilient performance and a strong balance sheet
Successful management of a difficult H1 2020 and a return to
growth in H2 2020 demonstrates the strength of the Group's product
offering
Overview
H1 2020 was a challenging period for Zotefoams as COVID-19 took
hold across the world and reduced business activity. During this
period, Zotefoams introduced and successfully implemented a range
of cost and cash saving measures to protect the balance sheet while
the impacts of the pandemic remained highly uncertain. In contrast,
H2 2020 returned a record six-month sales performance for the
Group, with successful delivery of AZOTE (R) polyolefin foam to a
key customer supplying the UK government with personal protective
equipment (PPE) for the NHS and growth in footwear as expected.
This allowed the Group in August to return the low amounts of
government support it had received in Q2, reinstate a dividend and
recommence operating cost investment in support of future growth.
The Group ended the year in a strong financial position, as
reflected by year-end leverage (net debt to EBITDA) close to 2x,
having been 2.6x at 30 June 2020, and liquidity headroom of
GBP19.2m.
Group revenue for the year increased by 2% to GBP82.7m (2019:
GBP80.9m). High-Performance Products (HPP) had another very strong
year, growing 13% to GBP30.0m (2019: GBP26.5m) and Polyolefin Foams
held firm at GBP50.9m, just 1% below the previous year (2019:
GBP51.4m), demonstrating resilience in a very difficult trading
environment, while MuCell Extrusion LLC (MEL) sales fell to GBP1.8m
(2019: GBP3.1m). Constant currency variances were immaterial across
all business units. Operating profit before exceptional item was
maintained at GBP9.1m (2019: GBP9.1m), while operating profit was
down 10% at GBP9.1m (2019: GBP10.2m) following a previous year
pension credit of GBP1.1m recorded as an exceptional item.
Zotefoams invested a further GBP6.9m during the year in its
final major capacity expansion project, a new manufacturing
facility in Poland. Delayed slightly by close cash management and
travel restrictions imposed by COVID-19, the facility started up in
February 2021, on budget.
At 31 December 2020, net debt under IFRS was GBP35.6m (2019:
GBP31.9m) and leverage (net debt to EBITDA) was 2.2x (2019: 2.1x).
While cash generated from operations increased by 10% to GBP13.0m
(2019: GBP11.8m), or by 21% when excluding the 2019 exceptional
item, the Group's investment programme was the main driver behind
the Group requiring to draw down on its debt facilities, as
expected. Under the definition of the bank facility agreement,
which adjusts net debt for the impact of IFRS 2 and IFRS 16,
leverage was 2.1x (2019: 2.0x) against a covenant of 3.0x, down
from 2.6x at mid-year against a covenant of 4.0x.
Group revenue
Group revenue increased by 2% to GBP82.7m (2019: GBP80.9m).
Polyolefin Foams business unit sales decreased 1% versus 2019,
with a year-on-year decline of 23% in H1 followed by an increase of
28% in H2. Excluding the PPE-related sales in H2, which we largely
consider to be a one-off opportunity, annual sales of polyolefin
foams decreased 20%, reflecting the significant adverse change in
demand conditions across a range of our markets as a result of
COVID-19. With the exception of the UK, where the PPE sales were
made and where growth was 84% in the year, all regions were heavily
impacted by the pandemic: Europe declined 27%, the USA declined 11%
and the ROW declined 35%.
HPP sales increased 13%. Footwear is the largest application
currently within HPP and revenue in this market grew 68% versus
2019, reflecting significant increases in the sales run rate in H2,
as expected and previously communicated, following an increase in
the number of shoe models using the Group's foam. After a solid H1,
ZOTEK F fluoropolymer foam sales fell significantly in H2,
primarily as a result of the well-publicised and visible impact of
COVID-19 on the aviation industry. ZOTEK F sales ended the year 54%
down versus 2019. T-FIT (R) advanced insulation sales grew 4%
(2019: 33%), with significant growth in China offset by much lower
sales in Europe related to COVID-19.
MEL sales suffered heavily during 2020, the business being the
most reliant on international travel and direct customer engagement
to secure equipment sales and support installation of the
technology. Despite firm royalty revenues, sales fell by 41% to
GBP1.8m.
Revenue by market
(%) 2020 2019
-------------------------- ---- ----
Product protection 21 29
-------------------------- ---- ----
Transportation 12 22
-------------------------- ---- ----
Sports and leisure 29 20
-------------------------- ---- ----
Building and construction 12 12
-------------------------- ---- ----
Industrial 7 9
-------------------------- ---- ----
Medical 16 6
-------------------------- ---- ----
Other 3 2
-------------------------- ---- ----
* Within the transportation segment, aviation represented 6.5%
(2019: 15%) and automotive 5.5% (2019: 7%) of Group revenue.
Gross margin
Gross margin decreased to 33.6% (2019: 35.4%). Group revenue
grew in the period, the share of footwear sales increased, average
LDPE polymer prices declined and the UK site was successful in
flexing direct labour costs in H1 to match lower production
volumes. However, this was more than offset by the mix effect of 7%
higher polyolefin foam volumes at lower average prices to supply
PPE equipment, the sharp decline in higher margin ZOTEK F sales and
a GBP1.0m increase in Group depreciation and amortisation following
completion of the UK and US capacity expansion projects. As the
Group returns to its expected growth rates, the product mix
improves, ZOTEK F sales recover, T-FIT technical insulation sales
grow and capacity utilisation improves to leverage the recent
investment programme, we expect to rebuild gross margins.
Distribution and administrative costs
The Group has a clear expansion strategy, founded on proprietary
cellular materials technology linked to longer-term demand growth
in our chosen markets. Organic growth with a portfolio of unique
and highly differentiated products requires that we invest actively
in, and reprioritise where needed, technical, sales-focused and
administrative resources to create, execute and manage this growth.
During the year, in order to manage the uncertainties of COVID-19,
operating cost investment into these growth drivers was postponed,
restarting later in the year. Marketing and travel costs fell to
very low levels, discretionary spend was tightly controlled, new
hires were delayed and, where possible, leavers were not
immediately replaced. These measures helped offset the natural
increase in costs as a result of the full year impact of staff
additions during 2019.
Included within distribution costs in the consolidated income
statement are warehousing and sales and marketing expenses. These
costs decreased by 15% to GBP6.8m (2019: GBP8.0m) during the year,
mostly reflecting reduced Group marketing spend, delayed hiring or
replacement of sales personnel at Zotefoams USA and at MEL and
lower travel-related expenditure. Included within administrative
expenses before exceptional item 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 2020 by GBP0.4m, or 3%, to GBP11.9m (2019: GBP11.5m).
Expenditure unrelated to foreign exchange movements increased by
GBP1.5m, reflecting the strengthening of the Finance and HR
functions, most of the hiring or commitments having taken place in
2019, increased audit and tax charges, increased IT support costs,
including full year costs of certain expenditure capitalised during
the 2019 ERP system upgrade, and adminstrative costs in Poland.
Offsetting this was a reduction in the combined loss from foreign
exchange hedging contracts and foreign exchange translation
movements to GBP0.3m (2019: net loss GBP1.4m).
The business unit results do not include central plc costs,
which are not considered to be segment specific. In 2020, central
plc costs were GBP1.9m (2019: GBP1.7m).
Exceptional item
In 2019, the Company was successful in a claim against the
previous advisers to the DB Scheme following legal advice that the
linkage to future increases in salary had not been properly broken.
The Company was awarded GBP1.1m, including GBP0.1m of expenses,
following mediation and recorded this as an operating exceptional
item in the income statement.
Operating profit
Operating profit before exceptional item was GBP9.1m, in line
with 2019 (GBP9.1m). Operating profit was GBP9.1m (2019:
GBP10.2m).
Finance costs
The total interest charge for the year increased to GBP0.9m
(2019: GBP0.5m) and includes GBP0.2m (2019: GBP0.2m) of interest on
the Company's Defined Benefit Scheme (the "DB Scheme") pension
obligation. The Group capitalised GBP0.6m (2019: GBP0.9m) of
interest in relation to the financing of its capacity enhancement
projects still under construction, a reduction following completion
of the USA and UK projects in the previous year.
Profit before tax
Profit before tax and exceptional item decreased by 5% to
GBP8.3m (2019: GBP8.8m). Profit before tax decreased by 15% to
GBP8.3m (2019: GBP9.8m).
Currency review
Movements in foreign exchange rates can have a significant
impact on results. During the year, while there continued to be a
high level of volatility in exchange rates, the sterling average
exchange rate year-on-year against the US dollar weakened by only
1% and the sterling average exchange rate against the euro did not
move. The sterling spot rate against the US dollar from 31 December
2019 to 31 December 2020 strengthened by 4% and the sterling spot
rate against the euro from 31 December 2019 to 31 December 2020
weakened by 6%.
Zotefoams is a predominantly UK-based exporter which invoices
mostly in local currency. In 2020, approximately 79% of sales
(2019: approximately 87%) were denominated in currencies other than
sterling, mostly US dollars or euros. Most operating costs are
incurred in sterling, other than the main raw materials for
polyolefin foams used for production in the UK, which are
euro-denominated, US subsidiary production and operating costs,
other subsidiaries' staff and operating costs and some HPP raw
materials, which are US dollar-denominated. The Group therefore
uses forward exchange contracts to hedge its foreign currency
transaction risk. The Group generated a net loss on forward
exchange contracts of GBP0.1m (2019 loss: GBP0.9m).
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 capacity expansion
projects. It also has a growing footwear business, which is
invoiced from the UK in US dollars, adding to its exposure to
foreign currency denominated net assets. This translation exposure
is mitigated, where possible, through an offset with same-currency
liabilities, primarily through borrowing in the relevant currency.
Every month, these foreign currency denominated intercompany net
positions, despite being cash neutral, require to be translated by
Zotefoams plc on a mark to market basis and the movement taken to
the Company income statement. This treatment also applies to the
non-sterling accounts receivable balances held on the Company's
balance sheet, the impact of which should reverse through forward
currency contracts, but is subject to the timing difference between
the recording of accounts receivable and cash received. In the
year, the Group recorded a translation loss in the income statement
of GBP0.2m (2019 loss: GBP0.5m).
Currency movements during the year negatively impacted Group
revenue by GBP0.1m (2019: GBP2.0m positive impact). They also
negatively impacted operating costs by GBP0.1m (2019: GBP0.9m
negative impact), resulting in a net negative impact of GBP0.2m
(2019: benefit GBP1.1m) before hedging. The combined impact on the
income statement of transactional and translational foreign
currency movements was a charge of GBP0.3m (2019: charge of
GBP1.4m), resulting in a net currency negative impact for the year
of GBP0.6m (2019: negative impact GBP0.3m).
We expect growth to come mainly from outside the UK and
recognise that one of our principal risks is our exposure to
foreign currency fluctuations, particularly in the US dollar. With
respect to transactional risk, the Group's faster growth outside
the UK will increase exposure, but will continue to be mitigated
through forward exchange contract hedging activities, which cover a
defined portion of the anticipated exposure over a rolling 18-month
period. With respect to translation risk, the Group's major
committed capacity investments are now complete and intercompany
debt and intercompany trading balances are expected to have peaked.
They will begin to fall as cash flows from those subsidiaries are
used to pay back these positions, all of which reduce exposure. Our
investment in overseas operating locations will also contribute to
an effective natural hedge against currency fluctuation. We
recognise, however, that inherent risk will remain. Based on 2020,
it is estimated that, with respect to transaction risk and for
every one percentage point movement in the US dollar/sterling rate,
profit moves by GBP0.25m unhedged and GBP0.08m hedged. In the year,
it is assumed that the transaction risk from euro/sterling
movements continues to be substantially naturally hedged, with
sales revenues offset by costs, primarily related to raw material
purchases and certain further processing costs.
The Group does not currently hedge for the translation of its
foreign subsidiaries' assets or liabilities. The foreign currency
hedging policy is kept under regular review and is formally
approved by the Board on an annual basis.
Tax and earnings per share
The effective tax rate for the year before exceptional item is
13.7% (2019: 18.2%), which is below the Group's weighted average
corporate tax rate for the year of 19.7% (2019: 18.7%). The
effective tax rate for the year is 13.7% (2019: 16.2%). The lower
effective tax rate for the year arises primarily from an adjustment
for overpayments made in previous years and research and
development tax credits. Net income tax paid during the year was
GBP1.1m (2019: GBP2.3m).
Basic earnings per share before exceptional item was 14.87p
(2019: 14.91p), in line with the previous year. Basic earnings per
share was 14.87p (2019: 17.10p), a reduction of 13%, reflecting the
impact of the successful litigation claim against the previous
pension scheme advisors on the 2019 figure.
Currency impact on business segments in 2020
Currency had negligeable impact on the Group's performance
Group revenue GBPm
Net change %
----------------- --------- ---------- --------- ------------------
2020 2020 2019
Reported Adjusted* Reported Reported Adjusted
----------------- --------- ---------- --------- -------- --------
Polyolefin Foams 50.9 50.9 51.4 (1) (1)
HPP 30.0 30.2 26.5 13 14
MEL 1.8 1.8 3.1 (44) (44)
Eliminations (0.1) (0.1) (0.1) - -
Group 82.7 82.8 80.9 2 2
----------------- --------- ---------- --------- -------- --------
* Constant currency, adjusting 2020 values to 2019 rates.
Exchange rates
Zotefoams transacts significantly in euros and US dollars. The
exchange rates used to translate the key flows and balances
were:
2020 2019
---------------------------- ---- ----
GBP to euro - average 0.88 0.88
GBP to euro - year-end spot 0.90 0.85
GBP to USD - average 0.78 0.79
GBP to USD - year-end spot 0.73 0.76
----------------------------- ---- ----
Dividend
The Board has a progressive dividend policy, recognising the
importance to our shareholders of the dividend as part of their
overall return. In August 2020, the Board announced its decision to
reinstate a dividend, having fully repaid the small amount of
Government support it had received. This followed its previous
decision not to recommend a final dividend for 2019, ordinarily
payable in May 2020, as a result of the extraordinary uncertainty
posed by the COVID-19 outbreak at that time. With continuing
confidence in the Group's future prospects and financial position,
the Directors are now proposing a final dividend of 4.27p (2019:
nil), which would be payable on 1 June 2021 to shareholders on the
Company register at the close of business on 7 May 2021. Taken with
the interim dividend of 2.03p (2019: 2.03p) this would bring the
total dividend for the year to 6.30p and would represent a dividend
cover of 2.4 times (2019: 8.4 times).
Cash flow, investment and net debt
Net cash inflow from operations before investment in working
capital increased 4% to GBP16.1m (2019: GBP15.4m). Without the 2019
award of GBP1.1m following successful litigation specific to the DB
Scheme, see Exceptional item above and Post-employment benefits
below, net cash inflow from operations before investment in working
capital increased 12%, demonstrating the strong cash-generative
potential of the business. GBP2.4m (2019: GBP1.9m) of this was
re-invested in working capital. Trade and other receivables reduced
by GBP1.2m (2019: reduced GBP2.7m), reflecting strong cash recovery
and a reduction in overdue balances to below 0.5%. Inventories
increased by GBP4.5m (2019: increased GBP0.9m). Higher footwear
demand, Brexit-related polyolefin foams contingency stock and T-FIT
technical insulation inventory build for H1 2021 drive this
increase. The change in mix also impacts value, with HPP raw
materials being significantly more expensive than their polyolefin
counterparts and their uniqueness requiring higher inventory
levels. Trade and other payables increased GBP1.0m (2019: decreased
GBP3.7m), with higher purchases to support anticipated Q1 2021
demand offset by more punctual supplier payments. 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
GBP13.0m (2019: GBP11.8m), up 10%.
During the year, the Group paid interest of GBP1.1m, of which it
capitalised GBP0.6m (2019: paid interest of GBP1.0m, of which it
capitalised GBP0.9m) on qualifying assets under IAS 23
"Capitalisation of Borrowing Costs". The interest paid has been
split between operating activities of GBP0.5m (2019: GBP0.1m) and
investing activities of GBP0.6m (2019: GBP0.9m) to reflect the
Group's utilisation of the interest paid. Taxation paid during the
year amounted to GBP1.1m (2019: GBP2.3m), the reduction being a
result of lower 2019 payments including those for Q3 and Q4 2018
and payments on account for Q1 and Q2 2019 based on higher profit
expectations at the time.
Zotefoams' property, plant and equipment capital expenditure was
largely focused on capacity expansion, with total expenditure
including capitalised interest of GBP13.0m (2019: GBP24.4m). This
follows investments of GBP72.4m in the previous five years. The
2020 expenditure was almost entirely related to projects begun in
2019, with other expenditure minimised or eliminated in line with
tight cash control in the face of the COVID-19 pandemic. GBP6.9m of
this year's capital expenditure was directed to the Poland
manufacturing facility, which was commissioned in February 2021 and
is now expanding products delivered from the UK and USA plants. A
small amount of capital investment is outstanding in Poland, to be
completed during 2021, and certain expenditure on our ReZorce (R)
barrier technology development is expected to be capitalised in
line with accounting standards. Other than this, we expect capital
expenditure to return to levels more in line with the Group's
depreciation charge. The Group also invested GBP0.3m (2019:
GBP0.9m) in intangible assets, with the higher 2019 amount relating
to an upgrade of the Group's Microsoft AX ERP system to the latest
version.
After dividends paid in the year amounting to GBP1.0m (2019:
GBP3.0m), repayments of GBP1.5m (2019: GBP1.5m) in relation to the
GBP7.5m sterling term loan, payable in equal quarterly instalments,
and the inclusion of GBP1.4m (2019: GBP1.2m) of lease liabilities
in accordance with IFRS 16, closing net debt was GBP35.6m (2019:
GBP31.9m). Under the definition of the bank facility agreement,
which adjusts for the impact of IFRS 2 and IFRS 16, net debt was
GBP34.2m (2019: GBP30.7m). At the year end, the Group remains
comfortably within its bank facility covenants, with a ratio of
EBITDA to net finance charges of 24 (2019: 73), against a covenant
minimum of 4, and net debt to EBITDA (leverage) of 2.1x (2019:
2.0x), against a covenant of 3.0x. We expect to remain within
revised covenant levels going forward.
Investments
Given the capital-intensive nature of the Zotefoams business,
long lead times for key equipment and the importance of operational
gearing, investment decisions require significant planning and are
made with a clear assessment of strategic fit, risk, risk appetite
and expected returns. Confidence in the Group's developing
portfolio of HPP opportunities is a significant consideration in
determining the timing of certain investments, while the strategic
importance of maintaining growth in the profitable Polyolefin Foams
business, the Group's largest volume product range, informs the
decision to increase total Group capacity versus relying solely on
mix enrichment.
Zotefoams targets improvements in the Group's return on capital
over the investment cycle, while recognising the short-term impact
on this return during construction and operating initially at lower
utilisation levels. When Zotefoams embarks on investment in a major
expansion or new location, such as installation of extrusion and
high-pressure capability at our existing Kentucky, US site or the
most recent investment in foam manufacturing at the Poland site, we
take into account the importance of scale and dilution of heavy
infrastructure cost over a (future) second or third line. As such,
the first step is invariably more dilutive to capital return than
any subsequent investments.
Zotefoams defines the return on capital employed (ROCE) as
operating profit before exceptional items divided by the average
sum of its equity, net debt and other non-current liabilities. This
measure excludes acquired intangible assets and their amortisation
costs. We also exclude significant capacity investments under
construction until they enter production. We do not attempt to
adjust for the first phase inefficiencies as mentioned above. In
2020, the return on capital employed decreased to 9.0% (2019:
10.5%). The cause of this movement is two-fold. Impacting the
numerator, operating profit was lower than previously anticipated,
mainly as a result of well-publicised macroeconomic challenges
related to COVID-19, which reduced asset utilisation. Impacting the
denominator has been the increasing capital base following the
completion of our investments in the UK and the USA. If the
capacity investment still under construction, namely our Poland
manufacturing facility, were also included, the return on capital
employed reduced to 7.1% from 8.1% in 2019.
Investing in growth (GBPm)
2015 2016 2017 2018 2019 2020 Total
------------------------------ ---- ---- ---- ---- ------ ---- -----
Growth capital 6.1 6.9 7.8 12.8 19.8 10.3 63.7
Capitalised interest - - - - 0.9 0.6 1.5
Maintenance capital 2.6 5.2 3.6 3.0 3.7 2.1 20.2
------------------------------ ---- ---- ---- ---- ------ ---- -----
Total investment in property,
plant and equipment 8.7 12.1 11.4 15.8 24.4 13.0 85.4
------------------------------ ---- ---- ---- ---- ------ ---- -----
Post-employment benefits
As previously reported, the Company provided GBP1.3m in its 2017
income statement for potential additional liabilities in its DB
Scheme following legal advice received by the pension trustees and
a calculation by the actuaries. This was based on the legal opinion
that the DB Scheme was properly closed to future accrual of service
in 2005, but the linkage with future increases in salary had not
been broken. The Company recorded this as an operating exceptional
item in the income statement, together with a small accrual to take
steps to break this link. The action to break the link was
completed in 2018. In 2019, the Company was successful in a claim
against the advisers of both the Company and the Trustees and was
awarded GBP1.1m following mediation, which it recorded as an
exceptional item in the income statement. After deduction of costs
incurred by the Company, the net award of GBP0.9m was transferred
into the DB Scheme to help fund its deficit.
A full actuarial valuation of the DB Scheme is scheduled as at 5
April 2020, in line with the requirement to have a triennial
valuation. As at the date of this report, the final outcome is
still pending. The previous triennial valuation was completed as at
5 April 2017, on a Statutory Funding Objective basis, and
calculated a deficit for the Pension Scheme of GBP4.2m. As a
result, the Company agreed with the Trustees to make contributions
to the DB Scheme of GBP43,300 per month to meet the shortfall by 31
October 2026, up from GBP41,000 per month previously. In addition,
the Company pays the ongoing DB Scheme expenses of GBP15,000 per
month (previously GBP10,600 per month) to cover death-in-service
insurance premiums, the expenses of administering the Scheme and
Pension Protection Fund levies.
The net IAS19 deficit on the DB Scheme increased by GBP1.9m to
GBP8.9m as at 31 December 2020 (2019: GBP6.9m). The main factor
contributing to this increase was the change in assumptions, which
has significantly increased the value of the defined benefit
obligation. This is primarily due to a lower discount rate
following falls in corporate bond yields over the year. However,
this was slightly offset by the actual investment return achieved
on the assets being higher than expected. The deficit is the net
total of GBP31.9m (2019: GBP29.6m) of assets and GBP40.8m (2019:
GBP36.5m) of liabilities and represents 9.4% (2019: 7.7%) of total
consolidated net assets. Zotefoams does not consider its pension
scheme to be a key risk to its ability to achieve its strategic
objectives. Mitigation of further risk is expected to come from our
growth expectations and the refocus by the pension Trustees on a
lower-risk strategy to meet the DB Scheme's deficit shortfall.
Going concern
At 31 December 2020, the Group's gross finance facilities were
GBP53.8m (2019: GBP55.2m), comprising a multi-currency term loan of
GBP25.0m, a multi-currency revolving credit facility of GBP25.0m
and a remaining balance of GBP3.8m (2019: GBP5.2m) of a further
GBP7.5m sterling annually renewable term loan, repayable in equal
quarterly instalments. The bank facility is for a five-year period
and expires in May 2023. At the date of the statement of financial
position, GBP10.7m was undrawn on the facility (2019: GBP17.7m). At
the same date, the Group also held GBP8.5m (2019: GBP6.7m) of cash
and cash equivalents. The facility is subject to two covenants,
which are tested semi-annually: net debt to EBITDA (leverage) and
EBITDA to net finance charges.
The Directors believe that the Group is well placed to manage
its business risks and, after making enquiries including a review
of forecasts and predictions, taking account of reasonably possible
changes in trading performance and considering the existing banking
facilities, have a reasonable expectation that the Group has
adequate resources to continue in operational existence for the
next 12 months following the date of approval of the financial
statements. The Directors have also drawn upon the experiences of
2020 and the Group's success in reacting to the challenges of
COVID-19 through its safety protocols and cost and cash management,
all of which could be replicated in a similar scenario.
After due consideration of the range and likelihood of potential
outcomes, the Directors continue to adopt the going concern basis
of accounting in preparing 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
22 March 2021
Consolidated income statement
For the year ended 31 December 2020
2020 2019
Note GBP'000 GBP'000
Revenue 2 82,652 80,860
Cost of sales (54,874) (52,270)
-------------------------------------------- ----- -------------------- ---------------
Gross profit 27,778 28,590
Distribution costs (6,793) (8,008)
Administrative expenses before exceptional
item (11,876) (11,481)
Exceptional item 3 - 1,050
Total administrative expenses (11,876) (10,431)
-------------------------------------------- ----- -------------------- ---------------
Operating profit 9,109 10,151
-------------------------------------------- ----- -------------------- ---------------
Operating profit before exceptional item 9,109 9,101
-------------------------------------------- ----- -------------------- ---------------
Finance costs (872) (462)
Finance income 26 50
Share of profit from joint venture 38 72
-------------------------------------------- ----- -------------------- ---------------
Profit before income tax 8,301 9,811
Profit before income tax and exceptional
item 8,301 8,761
Income tax expense (1,138) (1,594)
-------------------------------------------- ----- -------------------- ---------------
Profit for the year 7,163 8,217
Profit for the year before exceptional
item 7,163 7,167
-------------------------------------------- ----- -------------------- ---------------
Profit attributable to:
Equity holders of the Company 7,163 8,217
-------------------------------------------- ----- -------------------- ---------------
7,163 8,217
Earnings per share:
Basic (p) 14.87 17.10
-------------------------------------------- ----- -------------------- ---------------
Diluted (p) 14.63 16.84
-------------------------------------------- ----- -------------------- ---------------
Consolidated statement of comprehensive income
For the year ended 31 December 2020
2020 2019
Note GBP'000 GBP'000
-----------------------------------------------------
Profit for the year 7,163 8,217
------------------------------------------------------------- -------- --------
Other comprehensive income
Items that will not be reclassified to profit
or loss
Actuarial losses on defined benefit pension
schemes (2,460) (319)
Tax relating to items that will not be reclassified 467 54
------------------------------------------------------------- --------
Total items that will not be reclassified
to profit or loss (1,993) (265)
------------------------------------------------------------- -------- --------
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation losses on investment
in foreign subsidiaries (583) (1,146)
Change in fair value of hedging instruments 952 (349)
Hedging gains reclassified to profit or loss 82 939
Tax relating to items that may be reclassified (256) (101)
Total items that may be reclassified subsequently
to profit or loss 195 (657)
------------------------------------------------------------- -------- --------
Other comprehensive income for the year,
net of tax (1,798) (922)
------------------------------------------------------------- -------- --------
Total comprehensive income for the year 5,365 7,295
------------------------------------------------------------- -------- --------
Total comprehensive income attributable to:
Equity holders of the Company 5,365 7,295
-------------------------------------------------------------
Total comprehensive income for the year 5,365 7,295
------------------------------------------------------------- -------- --------
Consolidated statement of financial position
As at 31 December 2020
2020 2019
Notes GBP'000 GBP'000
--------------------------------------- ---------- ------------------------- -----------------
Non-current assets
Property, plant and equipment 7 92,925 85,652
Right-of-use assets 1,397 1,207
Intangible assets 5,888 6,614
Investments in joint venture 183 145
Trade and other receivables 54 166
Deferred tax assets 509 327
---------------------------------------
Total non-current assets 100,956 94,111
--------------------------------------- ---------- ------------------------- -----------------
Current assets
Inventories 23,033 18,604
Trade and other receivables 22,150 23,315
Derivative financial instruments 1,580 332
Cash and cash equivalents 8,503 6,656
--------------------------------------- ---------- ------------------------- -----------------
Total current assets 55,266 48,907
--------------------------------------- ---------- ------------------------- -----------------
Total assets 156,222 143,018
--------------------------------------- ---------- ------------------------- -----------------
Current liabilities
Trade and other payables (7,851) (6,831)
Derivative financial instruments (53) (134)
Current tax liability (101) (261)
Lease liabilities (420) (369)
Interest-bearing loans and borrowings 6 (23,430) (15,717)
Total current liabilities (31,855) (23,312)
--------------------------------------- ---------- ------------------------- -----------------
Non-current liabilities
Lease liabilities (986) (836)
Interest-bearing loans and borrowings 6 (19,263) (21,630)
Deferred tax liabilities (891) (674)
Post-employment benefits (8,851) (6,926)
--------------------------------------- ---------- ------------------------- -----------------
Total non-current liabilities (29,991) (30,066)
--------------------------------------- ---------- ------------------------- -----------------
Total liabilities (61,846) (53,378)
--------------------------------------- ---------- ------------------------- -----------------
Total net assets 94,376 89,640
--------------------------------------- ---------- ------------------------- -----------------
Equity
Issued share capital 5 2,431 2,415
Share premium 5 44,178 44,178
Own shares held (23) (9)
Capital redemption reserve 15 15
Translation reserve 2,324 2,907
Hedging reserve 909 131
Retained earnings 44,542 40,003
--------------------------------------- ---------- ------------------------- -----------------
Total equity 94,376 89,640
--------------------------------------- ---------- ------------------------- -----------------
Consolidated statement of cash flows
For the year ended 31 December 2020
2020 2019
Note GBP'000 GBP'000
---------------------------------------------- ----- -------------------- -------------------
Cash flows from operating activities
Profit for the year 7,163 8,217
Adjustments for:
Depreciation and amortisation 6,747 5,769
Disposal of assets 7 40 77
Finance costs 846 412
Share of profit from joint venture (38) (72)
Net exchange differences (133) (999)
Equity-settled share-based payments 300 391
Taxation 1,137 1,594
---------------------------------------------- ----- -------------------- -------------------
Operating profit before changes in working
capital and provisions 16,062 15,389
Decrease in trade and other receivables 1,199 2,659
Increase in inventories (4,536) (883)
Increase/(decrease) in trade and other
payables 980 (3,720)
Employee defined benefit contributions (700) (1,674)
---------------------------------------------- ----- -------------------- -------------------
Cash generated from operations 13,005 11,771
Interest paid (456) (88)
Income taxes paid, net of refunds (1,113) (2,334)
---------------------------------------------- ----- -------------------- -------------------
Net cash flows generated from operating
activities 11,436 9,349
---------------------------------------------- ----- -------------------- -------------------
Cash flows from investing activities
Interest received 26 50
Interest paid (604) (933)
Purchases of intangibles (346) (914)
Purchases of property, plant and equipment (12,363) (23,473)
Net cash used in investing activities (13,287) (25,270)
---------------------------------------------- ----- -------------------- -------------------
Cash flows from financing activities
Proceeds from options exercised and issue
of share capital - 92
Repayment of borrowings (8,053) (3,829)
Proceeds from borrowings 13,180 22,578
Principal elements of lease payments (433) (343)
Dividends paid to equity holders of the
Company (977) (2,973)
---------------------------------------------- ----- -------------------- -------------------
Net cash generated from financing activities 3,717 15,525
---------------------------------------------- ----- -------------------- -------------------
Net increase/(decrease) in cash and cash
equivalents 1,866 (396)
Cash and cash equivalents at 1 January 6,656 7,073
Exchange losses on cash and cash equivalents (19) (21)
---------------------------------------------- ----- -------------------- -------------------
Cash and cash equivalents at 31 December 8,503 6,656
---------------------------------------------- ----- -------------------- -------------------
Consolidated statement of changes in equity
For the year ended 31 December 2020
Own Capital
Share Share shares redemption Translation Hedging Retained Total
capital premium held reserve reserve reserve earnings equity
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Balance as at 1 (358
January 2019 Note 2,415 44,178 (21) 15 4,053 ) 34,799 85,081
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Profit for the
year - - - - - - 8,217 8,217
Foreign exchange
translation
gains on
investment in
subsidiaries - - - - (1,146) - - (1,146)
Change in fair
value of hedging
instruments
recognised in
other
comprehensive
income - - - - - (349) - (349)
Reclassification
to income
statement -
administrative
expenses - - - - - 939 - 939
Tax relating to
effective
portion of
changes in fair
value of cash
flow hedges,
net of recycling - - - - - (101) - (101)
Actuarial loss on
defined
benefit pension
scheme - - - - - - (319) (319)
Tax relating to
actuarial
loss on defined
benefit pension
scheme - - - - - - 54 54
Total
comprehensive
income
for the year - - - - (1,146) 489 7,952 7,295
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Transactions with
owners
of the Parent:
Options exercised - - 12 - - - 80 92
Equity-settled
share-based
payments net of
tax - - - - - - 145 145
Dividends paid 4 - - - - - - (2,973) (2,973)
Total
transactions
with owners
of the Parent - - 12 - - - (2,748) (2,736)
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Balance as at 31
December
2019 2,415 44,178 (9) 15 2,907 131 40,003 89,640
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Balance as at 1
January 2020 2,415 44,178 (9) 15 2,907 131 40,003 89,640
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Profit for the
year - - - - - - 7,163 7,163
Foreign exchange
translation
losses on
investment in
subsidiaries - - - - (583) - - (583)
Change in fair
value of hedging
instruments
recognised in
other
comprehensive
income - - - - - 952 - 952
Reclassification
to income
statement -
administrative
expenses - - - - - 82 - 82
Tax relating to
effective
portion of
changes in fair
value of cash
flow hedges,
net of recycling - - - - - (256) - (256)
Actuarial loss on
defined
benefit pension
scheme - - - - - - (2,460) (2,460)
Tax relating to
actuarial
loss on defined
benefit pension
scheme - - - - - - 467 467
Total
comprehensive
income
for the year - - - - (583) 778 5,170 5,365
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Transactions with
owners
of the Parent:
Options exercised - - 2 - - - (2) -
Proceeds of
shares issued,
net of expenses 5 16 - (16) - - - - -
Equity-settled
share-based
payments net of
tax - - - - - - 348 348
Dividends paid 4 - - - - - - (977) (977)
Total
transactions
with owners
of the Parent 16 - (14) - - - (631) (629)
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
Balance as at 31
December
2020 2,431 44,178 (23) 15 2,324 909 44,542 94,376
------------------ ----- --------- --------- -------- ------------ ------------ --------- ---------- --------
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 2019. Whilst the financial
information included in this announcement has been computed in
accordance with the recognition and measurement requirements of
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No.
1606/2002 as it applies in the European Union, this announcement
does not itself contain sufficient disclosures to comply with
IFRS.
The information for the year ended 31 December 2020 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 2019 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 2020 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 2019 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.
Turnover in the segment is currently mainly derived from products
manufactured from three main polymer types: PVDF fluoropolymer,
polyamide (nylon) and thermoplastic elastomers. Foams are sold
under the brand name ZOTEK (R) , while technical insulation
products manufactured from certain materials are branded as T-FIT
(R) .
MuCell Extrusion LLC ('MEL'): licenses microcellular foam
technology and sells related machinery.
Inter-segment
Polyolefin Foams HPP MEL eliminations Consolidated
-------------------- ------------------- ------------------ ----------------------- --------------------
2020 2019 2020 2019 2020 2019 2020 2019 2020 2019
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Group revenue 50,904 51,363 30,016 26,477 1,813 3,097 (81) (77) 82,652 80,860
Segment
profit/(loss)
pre-amortisation 4,836 7,301 7,907 6,430 (1,184) (1,270) - - 11,559 12,461
Amortisation of
acquired intangible
assets - - - - (262) (276) - - (262) (276)
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Segment
profit/(loss) 4,836 7,301 7,907 6,430 (1,446) (1,546) - - 11,297 12,185
Foreign exchange
(losses)/gains - - - - - - - - (300) (1,405)
Unallocated central
costs - - - - - - - - (1,888) (1,679)
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Operating profit
before exceptional
items 9,109 9,101
Financing costs - - - - - - - - (872) (462)
Financing income - - - - - - - - 26 50
Share of
profit/(loss) from
joint venture 38 72 - - - - - - 38 72
Taxation (before
exceptional items) - - - - - - - - (1,138) (1,594)
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Profit for the year
(before exceptional
items) 7,163 7,167
Segment assets 106,792 100,497 41,046 34,088 7,875 8,106 - - 155,713 142,691
Unallocated assets - - - - - - - - 509 327
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Total assets 156,222 143,018
Segment liabilities (46,676) (44,530) (13,234) (7,254) (944) (659) - - (60,854) (52,443)
Unallocated
liabilities - - - - - - - - (992) (935)
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Total liabilities (61,846) (53,378)
Depreciation of PPE 4,478 4,009 813 703 115 83 - - 5,406 4,795
Depreciation of
right-of-use assets 307 268 71 43 36 - - - 414 311
Amortisation 494 344 153 55 279 264 - - 926 663
Capital expenditure:
Property, plant and
equipment (PPE) 9,928 21,222 2,401 3,475 447 139 - - 12,776 24,836
Right of use assets 13 804 3 126 623 - - - 639 930
Intangible assets 89 611 22 97 235 206 - - 346 914
--------------------- --------- --------- --------- -------- -------- -------- -------- ------------- --------- ---------
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis
but operate from UK, US and Asian locations. In presenting
information on the basis of geographical segments, segmental
revenue is based on the geographical location of customers. Segment
assets are based on the geographical location of assets.
United Continental North Rest Total
Kingdom Europe America of the
world
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------- --------- ------------ --------- -------- --------
For the year ended 31 December
2020
Group revenue from external
customers 19,106 17,856 17,629 28,061 82,652
Non-current assets 44,343 21,050 34,351 520 100,264
Capital expenditure - PPE 4,090 7,095 1,423 168 12,776
-------------------------------- --------- ------------ --------- -------- --------
For the year ended 31 December
2019
Group revenue from external
customers 12,875 25,503 22,010 20,472 80,860
Non-current assets 44,231 13,038 35,908 462 93,639
Capital expenditure - PPE 7,239 12,069 5,380 148 24,836
-------------------------------- --------- ------------ --------- -------- --------
3. Exceptional item
2020 2019
GBP'000 GBP'000
------------------------------------------- --------- --------
Settlement income relating to legal claim - 1,050
------------------------------------------- --------- --------
In the prior year, the Company was successful in a claim against
the previous advisors to the Defined Benefit Pension Scheme (the
"DB Scheme"), following legal advice that the linkage to future
increases in salary had not been properly broken. The Company was
awarded GBP1,050k following mediation and has recorded this as an
operating exceptional item in the income statement. Of this amount,
GBP941k was repaid to the DB Scheme and GBP109k expenses reimbursed
to the Company.
4. Dividends and earnings per share
2020 2019
-----------------------------------------
GBP'000 GBP'000
----------------------------------------- -------- --------
Prior year final dividend of nil (2019:
4.15p) per 5.0p ordinary share - 1,996
Interim dividend of 2.03p (2019: 2.03p)
per 5.0p ordinary share 977 977
----------------------------------------- -------- --------
Dividends paid during the year 977 2,973
----------------------------------------- -------- --------
The proposed final dividend for the year ended 31 December 2020
of 4.27p per share (2019: nil) is subject to approval by
shareholders at the AGM and has not been recognised as a liability
in these financial statements. The proposed dividend would amount
to GBP2,057k if paid to all shareholders on the Company register at
the close of business on 7 May 2021.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing
consolidated profit after tax attributable to equity holders of the
Company of GBP7,163k (2019: GBP8,217k) by the weighted average
number of shares in issue during the year, excluding own shares
held by the EBT, which are administered by independent trustees.
The number of shares held in the trust at 31 December 2020 was
459,201 (2019: 178,395). 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.
2020 2019
-------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue 48,186,077 48,054,819
Adjustments for share options 779,660 752,321
-------------------------------------------- ----------- -----------
Diluted number of ordinary shares issued 48,965,737 48,807,140
-------------------------------------------- ----------- -----------
5. Issued share capital
Issued, allotted and fully paid ordinary shares of 5p each:
Number Par Share
of shares value premium Total
GBP'000 GBP'000 GBP'000
--------------------------------------- ----------- -------- --------- --------
At 1 January 2019 and 31 December
2019 48,301,234 2,415 44,178 46,593
--------------------------------------- ----------- -------- --------- --------
Opening balance 1 January 2020 48,301,234 2,415 44,178 46,593
Share issue to Employee Benefit Trust 320,000 16 - 16
Closing balance 31 December 2020 48,621,234 2,431 44,178 46,609
--------------------------------------- ----------- -------- --------- --------
The holders of ordinary shares are entitled to receive dividends
as declared from time to time and are entitled, on a poll, to one
vote per share at meetings of the Company.
6. Interest-bearing loans and borrowings
Group Company
----------------------------- -------- -------- -------- --------
2020 2019 2020 2019
-----------------------------
GBP'000 GBP'000 GBP'000 GBP'000
----------------------------- -------- -------- -------- --------
Current bank borrowings 23,430 15,717 23,430 15,717
Non-current bank borrowings 19,263 21,630 19,263 21,630
------------------------------ -------- -------- -------- --------
42,693 37,347 42,693 37,347
----------------------------- -------- -------- -------- --------
In May 2018 the Group completed a debt refinancing to enable it
to continue to grow capacity and meet its expected demand growth.
These facilities are secured against the property, plant and
equipment and trade receivables of the Group. The total facility of
GBP53.8m comprises a GBP25m multi-currency term loan, repayable in
two equal instalments of GBP5m during year four and year five, with
the remainder at the end of year five, a GBP25m multi-currency
revolving credit facility, repayable on demand and a further
GBP3.8m sterling term loan, renewable annually and repayable over
five years in equal quarterly repayments over the term. The
negotiated facility also includes a GBP25m accordion feature to
provide additional flexibility to pursue further investment
opportunities in the future.
At the end of the financial year, the Group has utilised GBP25m
($27.3m and GBP4.5m) of the multi-currency term loan, GBP14.8m
(EUR16.5m) of the revolving facility and has an outstanding GBP3.8m
on the sterling term loan. The total amount of GBP42.7m above is
net of GBP0.4m loan origination fees paid upfront, being amortised
over the period of the loan.
7. Property, plant and equipment
Group
Land Plant Fixtures Under
and buildings and equipment and fittings construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------------------- --------------- --------------- -------------- -------------- --------
Cost
Balance at 1 January 2019 18,984 80,813 3,297 22,722 125,816
Additions 8 744 172 23,912 24,836
Disposals - (77) (16) - (93)
Transfers 12,383 3,364 496 (16,243) -
Effect of movement in foreign
exchange (300) (870) (34) (859) (2,063)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2019 31,075 83,974 3,915 29,532 148,496
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 1 January 2020 31,075 83,974 3,915 29,532 148,496
Additions 159 720 115 11,782 12,776
Disposals - (51) (2) - (53)
Transfers 1,857 15,866 36 (17,759) -
Effect of movement in foreign
exchange (298) (1,472) (33) 1,178 (625)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2020 32,793 99,037 4,031 24,733 160,594
------------------------------- --------------- --------------- -------------- -------------- --------
Accumulated depreciation
Balance at 1 January 2019 10,961 45,441 2,113 - 58,515
Depreciation charge for the
year 657 3,784 354 - 4,795
Disposals - (8) (8) - (16)
Effect of movement in foreign
exchange (147) (281) (22) - (450)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2019 11,471 48,936 2,437 - 62,844
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 1 January 2020 11,471 48,936 2,437 - 62,844
Depreciation charge for the
year 1,277 3,642 487 - 5,406
Disposals - (13) - - (13)
Effect of movement in foreign
exchange (170) (370) (28) - (568)
------------------------------- --------------- --------------- -------------- -------------- --------
Balance at 31 December 2020 12,578 52,195 2,896 - 67,669
------------------------------- --------------- --------------- -------------- -------------- --------
Net book value
At 1 January 2019 8,023 35,372 1,184 22,722 67,301
------------------------------- --------------- --------------- -------------- -------------- --------
At 31 December 2019 and 1
January 2020 19,604 35,038 1,478 29,532 85,652
------------------------------- --------------- --------------- -------------- -------------- --------
At 31 December 2020 20,215 46,842 1,135 24,733 92,925
------------------------------- --------------- --------------- -------------- -------------- --------
8. Financial instruments and financial risk management
Capital management
The Group's objectives, when managing capital, are to safeguard
the Group's 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, sell assets or manage
investment expenditure to reduce debt.
The Group monitors capital on the basis of the following
leverage ratio: Net Borrowings divided by previous twelve months
EBITDA (as per bank facility agreement).
Loan Covenants
Under the terms of the major borrowing facilities, the Group is
required to comply with the following financial covenants:
-- The ratio of Net Borrowings on the last day of the relevant
period to Earnings before interest, tax, depreciation and
amortisation, share of profit/(loss) from joint venture,
equity-settled share-based payments and exceptional items (EBITDA)
shall not exceed 3.00:1.00
-- The ratio of EBITDA to Net Finance Charges 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 As at 31
December December
2020 2019
GBP'000 GBP'000
---------------------------- ---------- ----------
Net borrowings 34,190 30,691
EBITDA 16,156 15,261
------------------------------ ---------- ----------
Net borrowings/EBITDA 2.12 2.01
------------------------------ ---------- ----------
Net finance charges 681 209
------------------------------ ---------- ----------
EBITDA/Net finance charges 23.72 73.16
------------------------------ ---------- ----------
Net borrowings comprise of current and non-current
interest-bearing loans and borrowings of GBP42,693k, as per note 6,
and cash and cash equivalents of GBP8,503k.
EBITDA comprises of:
2020 2019
GBP'000 GBP'000
------------------------------- ---------------------- --------
Profit for the year 7,163 8,217
Depreciation and amortisation 6,747 5,769
Finance costs 846 412
Share of profit from joint
venture (38) (72)
Equity-settled share-based
payments 300 391
Taxation 1,138 1,594
Exceptional item - (1,050)
--------------------------------- ---------------------- --------
16,156 15,261
------------------------------- ---------------------- --------
Net finance charges comprise of interest income of GBP26k and
finance costs expensed of GBP707k.
The Group's objective is to maintain leverage below the Board's
appetite of 2.0. However, it has accepted that this ratio will
increase as the Group's capacity expansion programme completes,
while remaining below the covenant level. This is expected to
reduce quickly back below the Board's appetite as this new capacity
gets utilised.
The bank covenant definition does not include the impact of IFRS
16 "Leases", which would have moved the ratio from 2.12 to
2.20.
9. Changes in Accounting Estimate
Following a review of the Group's assets, the Directors believe
it appropriate to increase the estimated useful life of a number of
items within plant and machinery from 15 years to 20 years. This
change has resulted in a depreciation expense GBP881k lower than
under the previous estimate. A similar impact is anticipated in
future accounting periods.
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END
FR SEMESEEFSEID
(END) Dow Jones Newswires
March 23, 2021 03:00 ET (07:00 GMT)
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