REG - Zotefoams PLC - Preliminary Results
21/03/2023 07:00
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RNS Number : 5907T Zotefoams PLC 21 March 2023
Zotefoams plc
Preliminary Results (unaudited) for the Year Ended 31 December 2022
21 March 2023 - 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 2022.
"Strong sales growth and much improved margins generate record revenues and
profits ahead of initial expectations."
Financial highlights
2022 2021 Change
Group revenue £127.4m £100.8m +26%
Gross margin 30.4% 26.4% +400bps
Operating profit(1) £13.9m £8.1m +71%
Profit before tax (PBT)(1) £12.2m £7.0m +74%
Tax £2.2m £2.6m (16%)
Basic EPS(1) 20.61p 9.01p +129%
Cash generated from operations £23.0m £12.8m +80%
Net debt £27.8m £34.3m (19%)
Leverage ratio(2) 1.2x 2.1x -
Final dividend(3) 4.62p 4.40p +5%
( )
(1) This is a reported number under UK adopted IAS and is after the deduction
of amortisation of acquired intangibles amounting to £0.258m in 2022 and
£0.232m in 2021
(2) Leverage is that defined under the bank facility, with net debt at the end
of the period divided by the preceding 12 months' EBITDA, adjusted for the
impact of IFRS2 and IFRS16
(3) Final dividend is subject to approval at the May 2023 Annual General
Meeting
Results highlights
• Record Group revenue of £127.4m, with strong growth across all business units
- Polyolefin Foams sales up 25% to £70.1m (2021: £56.2m) or 21% in constant
currency
- High-Performance Products (HPP) sales up 29% to £54.4m (2021: £42.3m) or
16% in constant currency
- MuCell Extrusion sales up 23% to £2.8m (2021: £2.3m) or 13% in constant
currency
• Profit margins much improved
- Gross margin increased 400bps to 30.4%, with operating margin up 280bps to
10.9%
- Improved mix with faster relative growth in high-margin HPP and price rises
implemented successfully in Polyolefin Foams
- Absorbed £1.9m of continued investment in the ReZorce(®) mono-material
barrier packaging opportunity
- Strong cost management and operational execution
- Profit before tax up 74% to £12.2m, a Group record, with EPS up 129% to
20.61p
• Excellent cash generation
- 80% increase in cash generated from operations, with free cash flow of
£14.0m (2021: £3.9m)
- Net debt reduced from £34.3m to £27.8m, with year-end leverage ratio down
significantly to 1.2x
Strategic progress
• Rapid recovery in Polyolefin Foams margins through price increases
demonstrates strength of the product offering, and structural growth prospects
exist in this important business unit, underpinned by the megatrends of
environment, regulation and demographics and facilitated by the Group's
well-invested global capacity
• Further HPP growth in footwear products, where we have worked closely with our
partner to develop more long-term opportunities, good first steps to recovery
in aviation and strong signs that T-FIT insulation products are generating
increased recognition and interest
• Good progress in developing ReZorce, which offers society a truly circular
packaging solution using existing recycling infrastructure
David Stirling, Group CEO, said:
"2023 has started well, with demand for our AZOTE(®) polyolefin foam products
in line with the previous year but with higher revenue from price increases
implemented over the past twelve months. Sales of high-performance products
are showing strong growth in the first few months, mainly due to the timing of
shipments compared to the prior period. Sales across both businesses continue
to benefit from a stronger US dollar.
"The environment for input costs is less acute, with both energy and
polyolefin polymer prices reduced from the peaks seen last year but remaining
well above their long-term average. Prices for energy and energy-intensive
commodities such as nitrogen remain uncertain, with forward-market pricing at
a significant risk premium to spot. We are closely monitoring input costs and
our pricing in the polyolefin foams business in particular.
"Whilst uncertainty persists, we currently expect that, for the year as a
whole, polyolefin foams volumes will be at a similar level to last year, with
more challenging conditions in the UK and continental Europe offset by growth
in North America and other geographies. Our High-Performance Products business
should see further growth in footwear and continued strong growth in both our
ZOTEK(®) F and T-FIT(®) insulation products. Within our MEL business unit,
focus has progressed to commercialisation trials for ReZorce cartons.
"Overall, the Board remains confident about the future prospects for our
business".
Enquiries:
Zotefoams plc +44 (0) 208 664 1600
David Stirling, Group CEO
Gary McGrath, Group CFO
IFC Advisory (Financial PR & IR) +44 (0) 203 934 6630
Graham Herring
Tim Metcalfe
Zach Cohen
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular materials technology
delivering optimal material solutions for the benefit of society. Utilising a
variety of unique manufacturing processes, including environmentally friendly
nitrogen expansion for lightweight AZOTE(®) polyolefin and ZOTEK(®)
high-performance foams, Zotefoams sells to diverse markets worldwide.
Zotefoams uses its own cellular materials to manufacture T-FIT(®) advanced
insulation for demanding industrial markets. Zotefoams also owns and licenses
patented microcellular foam technology to reduce plastic use in extrusion
applications and for ReZorce(®) mono-material recyclable barrier packaging.
Zotefoams is headquartered in Croydon, UK, with additional manufacturing sites
in Kentucky, USA and Brzeg, Poland (foam manufacture), Oklahoma, USA (foam
products manufacture and conversion), Massachusetts, USA, Stilling, Denmark
(microcellular foam technology) and Jiangsu Province, China (T-FIT).
www.zotefoams.com (http://www.zotefoams.com)
AZOTE(®), ZOTEK(®), ReZorce(®) and T-FIT(®) are registered trademarks of
Zotefoams plc.
Zotefoams plc
An introduction from our Chair
Strong sales growth and improved margins generate record profits
alongside continued strategic delivery
Performance and results
2022 saw the Group record a second year of strong sales growth, up 26% on 2021
following a 22% increase in the previous year. This was driven by effective
pricing actions in Polyolefin Foams, a stronger US dollar and significant
High-Performance Products (HPP) volume increases across Footwear, ZOTEK(®) F
(primarily aviation) and T-FIT(®) insulation. A focused programme of price
increases was implemented in Polyolefin Foams to recover margin loss from the
severe input cost inflation that had materially impacted 2021 margins and that
continued in 2022. Group revenue for the year was £127.4m (2021: £100.8m)
and operating profit was 71% above the previous year at £13.9m (2021:
£8.1m), a record for the Group, with operating margins expanding from 8.1% to
10.9% despite a significant increase in MuCell losses as we continue to invest
in the ReZorce(®) circular packaging opportunity. Basic earnings per share
was up 129% at 20.61p (2021: 9.01p). The balance sheet remains strong, with
leverage significantly reduced during the year and ending at 1.2x (2021:
2.1x), the lowest it has been since 2018 when the Group embarked on its now
complete capacity expansion programme.
Strategic progress
Our strategy is focused on delivering strong and sustainable organic growth
and improved operational efficiencies. Zotefoams has a portfolio of
differentiated products based on unique and environmentally friendly
technology and intellectual property. We work with our partners to optimise
our materials for their needs and have developed a portfolio of
high-performance products that further enrich our product mix, adding more
value for customers and to our business. Alongside this, we have established
a diversified international manufacturing footprint to ensure there is
sufficient capacity to meet growing demand across a range of attractive end
markets. We seek to improve operating margins and returns through the
investment cycle. We are also pursuing a transformative opportunity at MuCell
Extrusion LLC with ReZorce, a mono-material barrier packaging solution which
can be used for beverage and food packaging, uses recycled materials and is
easy to recycle again (is "circular") using existing waste collection and
recycling infrastructure.
We have made good strategic progress this year. Our largest business unit,
Polyolefin Foams, converted the increased volumes of 2021 into improved
margins in 2022. We continue to see structural growth prospects in this
important business unit, underpinned by the megatrends of environment,
regulation and demographics and facilitated by our new global capacity. In our
HPP business, we delivered another year of strong growth in Footwear and
worked closely with our partner to develop further long-term opportunities.
Additionally, the start of a post pandemic recovery in aviation resulted in
demand for ZOTEK(®) F technical foams growing strongly, with T-FIT(®)
insulation products also developing well as the brand continues to gain
traction. The long-term growth outlook for these HPP markets remains
compelling. We also made significant progress at MuCell Extrusion LLC with
ReZorce mono-material barrier packaging, investing significantly in its
development, running scale-up trials and commencing the search for a strategic
investor to allow full realisation of the technology's potential. Whilst
acknowledging that we are still at an early stage of commercial development,
this remains a high-reward opportunity and we expect to update stakeholders
on progress during 2023.
Dividend
The Board is proposing a final dividend of 4.62p (2021: 4.40p) which, if
approved by shareholders, would make a total dividend for the year of 6.80p
(2021: 6.50p), an increase of 5%. This reflects the Board's continued
confidence in the Group's future and is in line with its progressive dividend
policy, recognising the importance to our shareholders of the dividend as
part of their overall return. If approved, the final dividend will be paid on
2 June 2023 to shareholders on the register on 5 May 2023.
Our people
We know that our people are key to the Group's success and 2022 was another
year that highlighted their importance. While in most regions the impacts of
the pandemic have receded, this was not the case everywhere, with our China
staff particularly impacted by shutdown and significant travel restrictions.
Elsewhere, reduced restrictions have enabled the return of direct interactions
between teams in different locations after at least two years of forced
separation, and we see how important and valuable this is for the individuals
themselves and the Group as a whole. The spiralling cost environment has
placed challenges on our staff both from a work and a personal perspective
and, with regard to the latter, we implemented a number of mitigating
initiatives. High levels of business activity and a need to respond quickly
requires resilient and committed staff, and we have again experienced this in
our people, who have been outstanding and have ensured that the needs of
customers continue to be met.
Having the right people at Zotefoams, who understand and promote our culture,
act at all times with integrity, safety-consciousness and dedication and
possess the right knowledge and skills, continues to be critical to our future
success. I would like to welcome the new employees who have joined us around
the world during the past twelve months. I would also like to thank those who
have helped all our new colleagues integrate successfully and thank, once
again, all our hard-working employees and their supportive families who have
helped the Group continue to make good strategic progress during these very
challenging times.
Sustainability
Our purpose is to provide optimal material solutions for the benefit of
society, reflecting our belief that, used appropriately, plastics are
frequently the best solution for the sophisticated, long-term applications
typically delivered by our customers. The Board is focused on the importance
of sustainability and 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. Good progress
was made in 2022 towards our sustainability targets.
The Board and Chair succession
There were no changes to the experienced and engaged Board during the year. By
the time of the Annual General Meeting (AGM) in May 2023, however, I will have
been on the Zotefoams Board for almost nine years and it will be time for me
to step down. Doug Robertson, our Senior Independent Director, has led a
process to find my successor and in early January 2023 we appointed Dr Lynn
Drummond as a Non-Executive Director and Chair Designate. I am delighted to
welcome Lynn to the Board; she will take over as Chair after our AGM. On a
personal note, it has been a pleasure to serve on the Zotefoams Board and be
part of the exciting transformation and significant progress that the business
has made since I joined in 2014. I am confident this success will continue.
Governance
The Board leads an ongoing programme to ensure the highest standards of
corporate governance and integrity across the Group and has remained abreast
of developing governance standards. The Board's interactions and
communications with executive management continue to be excellent and, as a
result, the Board is well-placed to challenge, guide and support executive
management in the delivery of the growth strategy. During the year, we
continued to pay particular attention to the provision of a safe working
environment for our staff across all global locations and maintained the
improved visibility and quality of safety performance data across
the business. I thank all employees at Zotefoams for their efforts
throughout the year to identify and remove risks and keep each other safe. 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, Independent Non-Executive Director, as Board representative for
workforce engagement. The Board also acknowledges the benefits of diversity,
including that of gender and ethnicity, and is committed to setting an
appropriate tone from the top in all diversity and inclusion matters.
The Board considers that it has fully applied all the principles and
provisions of the UK Corporate Governance Code during 2022, with the exception
of Provision 38 in respect of the Company's pension contribution for the Group
CEO.
Looking to the future
Zotefoams is well positioned with well invested, differentiated assets and a
clear strategy for delivering profitable organic growth through the cycle. We
have committed, capable and passionate people and a strong pipeline of new
opportunities, and while we remain mindful of the uncertain external
environment, with high inflation, higher interest rates, the continued war in
Eastern Europe and remaining concerns over COVID-19 and its variants, we are
confident about our future prospects for growth, margin improvement and cash
generation.
S P Good
Chair
21 March 2023
Group CEO's review
Record revenue and profit with investment to capitalise on identified trends
and generate sustainable growth
2022 United Continental Europe North Rest of Total
Kingdom
America
the world*
Change % 27% 15% 46% 25% 26%
Group revenue (£000's) 13,702 32,374 29,127 52,166 127,369
% of Group revenue 11% 25% 23% 41% 100%
2021
Group revenue (£000's) 10,768 28,200 19,959 41,823 100,750
% of Group revenue 11% 28% 20% 41% 100%
* Rest of the world comprises China: £30.0m (2021: £28.4m) and other
countries: £22.2m (2021: £13.4m)
Overview
In 2022, Zotefoams grew significantly, delivering record revenue, profit and
earnings. The year was characterised by a continuation of trends seen in 2021:
input-cost inflation in energy, in particular, polymer and other manufacturing
costs as well as labour. Our effective response, to increase prices where
appropriate, was the main reason for increased revenue which also benefitted
from an improved sales mix and more favourable currency rates, both of which
aided profitability.
We continue to invest in our business, focused primarily on three clear
macro-trends: demographics, where an increasing population is evermore urban
and aging; regulation, often around the safety of people; and environment,
where optimising the use of scarce resources has become a global necessity.
Sustainability, along with health and safety, is embedded in everything we do
and, in 2022, we directed increased levels of investment to the development of
new products and markets for our T-FIT(®) technical insulation products and
to the reduction of waste and Scope 1 and 2 emissions from operations. We also
invested significantly in our ReZorce(®) mono-material barrier technology,
which is now transitioning from technical development to pre-market trials.
Group revenue increased 26% to £127.4m (2021: £100.8m), with operating
profit of £13.9m (2021: £8.1m) 71% above last year and 20% above our
previous best year (2018: £11.6m). Underlying growth in our business was
approximately 5% from an improved mix of products, while pricing actions and
exchange rate movements, principally a stronger US dollar, contributed
approximately a 21% increase in revenue. Overall volumes were at similar
levels to 2021, with another year of growth in footwear products and T-FIT
insulation, continued recovery in aviation and a good performance in
polyolefin foams in North America being offset by a decline in polyolefin
products in continental Europe. Profit before tax increased 74% to £12.2m,
(2021: £7.0m), with margin improvements in our Polyolefin Foams and HPP
business units, while losses in our Mucell Extrusion LLC business unit (MEL)
increased as we continue our investment in the ReZorce opportunity. See the
CFO review for the impacts of currency on performance and profitability.
Strategic update and progress
Zotefoams' strategy remains unchanged: to invest in flexible assets and
technology with the capability to support the organic growth opportunities
afforded by our diverse, and often unique, products. The results of this
investment, in development and/or capacity, typically take time to be realised
fully and this can create a short-term headwind for margins. However, we are
confident that our investment decisions are aligned to longer-term growth
trends and that our differentiated and diverse products generate good levels
of demand with pricing power over the economic cycle.
The investments we have made over the past five years have delivered increased
capacity which, following the main economic effects of COVID-19, is now
beginning to be used productively and is demonstrated in 2022 by very good
profit growth and an ability to deliver strong operating cashflow and reduced
leverage.
Our extrusion technology business, MEL, is demonstrating good progress in the
development of new, sustainable packaging technology through the ReZorce
mono-material barrier solution and is moving to commercialisation trials. To
help accelerate the opportunity, we acquired the net assets of Refour ApS
(Skandeborg, Denmark) for £0.3m in October and took on key members of the
Refour team. We are now seeking the right strategic investor to work with us
on this sustainable packaging opportunity.
Sustainability
Zotefoams products are typically sold into markets where they are used
multiple times, often for many years, and can be recycled at the end of life.
They often form a positive element of our customer's own sustainability
agendas. In our foam manufacturing facilities, we have reduced waste while
increasing the proportion of waste recycled, and have developed
high-functioning foams with 30% recycled material content. The core markets
for our products are where a "best in class" foam delivers our stated purpose:
optimal material solutions for the benefit of society. Our products deliver
performance and longevity in industrial applications and consumer durables
such as footwear, medical devices, insulation for planes, cleanrooms,
construction and cars, as well as military and marine uses. In 2022, 85% of
our revenue was from products which are considered "green" based on a resource
efficiency definition where, during manufacture or use, they provide a
substantial increase in the efficiency of resources. This includes all sales
from MEL, which provides solutions for increasing the efficiency of resource
usage by reducing polymer consumption.
Within MEL, we continue to invest in our ReZorce mono-material barrier
packaging opportunity. The premise of our MuCell(®) technology is the
reduction of plastic in society and the exciting ReZorce solution, using this
technology, is a truly circular answer to very challenging targets set by
governments and brands in reducing their carbon footprint and increasing the
use of recycled materials. See MEL below for more details.
Good progress was made in 2022 towards our sustainability targets. An in-depth
analysis of the transitional risks arising from climate change provided useful
data relating to the short, medium and long-term impacts on the Group, which
are currently assessed as low risk. We continue to strive to develop
disclosures aligned with our shareholders' and stakeholders' expectations and
have been upgraded from an A score to an AA score (the second highest rating
achievable) by MSCI. We also made our first report to CDP in 2022.
Polyolefin Foams
Segment Revenue £70.1m (2021: £56.2m). Change 25%.
Segment Profit £4.9m (2021: £0.7m). Change 7x.
Segment Profit Margin 7.0% (2021: 1.2%).
In 2022, sales in Polyolefin Foams grew by 25% to £70.1m (2021: £56.2m).
Overall volumes were 1% below the previous year, with low and mid-single-digit
percentage growth in the UK and North America respectively, while volumes
declined 5% in continental Europe, our largest market and there were mixed
outcomes in other geographies.
Polyolefin foams are widely used in industrial and multiple-use consumer
applications due to their robustness and durability. The main market segments
are multiple-use packaging and protection, often used in long-term storage
solutions, construction, sport and leisure, automotive, aviation, marine,
military and healthcare. Customers for some specific applications were
negatively impacted by supply chain disruption, such as automotive, where
demand declined to the lowest level for many years, while most markets were
negatively impacted by high inflation of materials and energy costs as well as
labour shortages. Growth in other areas, such as construction and print
solutions, came from new applications which have been developed over the past
few years and, in the case of those in continental Europe, benefitted from the
proximity of certain customers to our facility in Poland.
Average selling prices increased 24%, which was primarily a result of price
increases but also a consequence of an improved mix and some net foreign
exchange benefit, with a stronger US dollar but weaker euro. In most areas,
multiple price increases have been implemented since Q2 2021 following input
cost inflation and, in 2022, we benefitted from the full-year impact of price
increases implemented in 2021 plus further increases in 2022, some of which
were implemented as a surcharge which remained in place throughout the year.
In European markets, energy, polymer and nitrogen pricing remain volatile but
may have overshot their long-run sustainable level.
The intent of these price increases is to recover the higher costs we are
experiencing but not to recover previous percentage margin levels, nor
position our pricing based on peak input costs. Finding the balance between
price adjustments and potential demand destruction in the current environment
remains an ongoing focus.
The main polymers used in our Polyolefin Foams business unit are low-density
polyethylene (LDPE) and other similar polyolefins. LDPE pricing has been
extremely volatile since reaching a long-time trough in early 2020 that was
linked to lower demand through the COVID-related economic slowdown. Since
then, it has risen rapidly due to a combination of factors, peaking in Europe
in May 2022 and recently trending lower but above its long-term average.
Current polymer pricing levels are in part due to high energy costs, which are
also indirectly impacting the costs of nitrogen and freight as well as having
a direct impact on Zotefoams. Direct costs of energy and nitrogen, which have
a much higher impact on our Polyolefin Foams business unit than on HPP,
increased by over 50% in the period.
In our UK and Poland facilities, good progress has been made on waste
reduction and energy efficiency and in Europe we commercially launched new
materials incorporating 30% recycled polymer following market testing during
development. In our Kentucky, USA facility, manufacturing yield efficiency
improved over the course of the year from the low levels experienced in 2021,
with specific actions planned for 2023 to continue this progress.
Segment profit margin has grown to 7% of sales, significantly better than last
year but with scope over time for further improvement primarily through
improved asset utilisation, operational efficiency and mix enrichment.
High-Performance Products
Segment Revenue £54.4m (2021: £42.3m). Change 29%.
Segment Profit £15.3m (2021 : £8.7m). Change 75%.
Segment Profit Margin 28.1% (2021: 20.6%).
Sales in our High-Performance Products ("HPP") business unit grew by 29% to
£54.5m (2021: £42.3m). The main product groups are footwear, ZOTEK(®)
fluoropolymer foams and T-FIT(®) technical insulation. Overall volumes were
12% ahead of 2021.
In footwear, where we have an exclusive arrangement with Nike, our materials
are primarily used in midsoles for running shoes. In 2022, sales grew by 25%
to £42.2m (2021: £33.9m). Since partnering with Nike in 2016, our business
has grown significantly through the use of Zotefoams materials on more shoe
models as well as through the growth experienced by Nike in the premium
running segment. We have continued to develop new and innovative foams and
improved our production efficiency, reducing cost, scrap and waste, most of
which is now reincorporated into products within the footwear supply chain.
Pricing to Nike recovers cost inflation, albeit with a lag, through our
contractual terms. Footwear products accounted for 77% (2021: 80%) of HPP
segment sales.
Other HPP foams are mainly used in aviation applications, where our ZOTEK F
materials offer unrivalled performance at very low weight. Outside aviation
our foams, including those made from nylon and elastomers, are used in
healthcare, packaging, military and personal protection. Sales volumes of
ZOTEK F materials increased by 17% and value increased by 48% to £6.2m (2021:
£4.2m) with a beneficial product mix from the improving aviation market and
the benefit of a stronger US dollar. Input-cost inflation in these materials
was less severe than in polyolefin foams and our pricing reflected this. These
applications accounted for 11% (2021: 12%) of HPP segment sales.
T-FIT insulation is made using Zotefoams' own HPP products and designed for
the most demanding internal environments, such as in pharmaceutical, biotech
and food and drink processing. Sales grew by 48% to £5.8m (2021: £3.9m). Our
main markets are China and India, where more new factories are being built,
although there is also an increase in construction activity in both Europe and
North America. Most of our T-FIT conversion from foams to tubes, which is low
capital-intensity, takes place in China but we have recently begun
manufacturing in Poland and have an outsourced manufacturing partner to serve
the North American market. T-FIT sales represent 11% (2021: 9%) of HPP segment
sales.
Segment profit increased to £15.3m (2021: £8.7m), a segment profit margin of
28.1% (2021: 20.6%). The segment margin recovered from a relatively low point
in the previous year, seeing the benefit of an improved product mix from
higher aviation revenue and a stronger US dollar in which almost all HPP
revenue is invoiced. We have expectations of further growth in our HPP
business and continue to focus our investment in new product development and
sales resources for T-FIT insulation, in line with these expectations.
MuCell Extrusion (MEL)
Segment Revenue £2.8m (2021: £2.3m). Change 23%.
Segment loss before amortisation of acquired intangibles* -£1.6m (2021: -£0.5m). Change 3x.
Segment loss after amortisation of acquired intangibles* -£1.9m (2021: -£0.7m).
*Amortisation of acquired intangibles: 2022: £258k, 2021: £232k.
MuCell(®) extrusion technology centres around combining high-pressure gas
with polymer, allowing a typical reduction of 15% of the material required.
Our business model, until recently, has been to manufacture and sell equipment
and license technology, with future income being a royalty stream based on the
polymer savings from existing products. Most of our customers are making
consumer packaging where our technology delivers a lower cost and lower
environmental footprint.
Over the past few years, we have worked further to extend this gas-injection
capability to new applications. This has led to the creation of a new platform
technology, branded ReZorce(®), which is mono-material barrier packaging.
Certain products, such as food and drink, require their packaging to provide a
barrier to oxygen and moisture and this is typically delivered through a
combination of different materials in the same pack. It is very effective and
cost efficient and therefore widespread, however, often extremely difficult to
recycle and almost never circular. We have proven that our ReZorce packaging
system can provide the required barrier properties, is easily recycled using
common infrastructure available today and can be made using a high proportion
of recycled raw materials. Overall, this solution offers a lower carbon
footprint for commonly packaged foodstuffs, in some cases a reduction of more
than 50%. Our go-to-market plans are moving from technical development into
pre-market trials and the main challenge now is to prove the "downstream"
solution of turning ReZorce sheet into specific packaging formats, ideally
using existing infrastructure.
Revenue from our MEL business unit grew 23% to £2.8m (2021: £2.3m), while
the segment loss widened to £1.6m (2021: £0.5m) before amortisation of
acquired intangibles, a direct result of the non-capitalised investment to
develop ReZorce technology. In addition to this, we capitalised £1.4m (2021:
£1.0m) of operating costs and invested £0.8m (2021: £0.9m) in tangible
fixed assets. This included the acquisition of a full-scale extrusion line and
carton filling and packing line as well as some ancillary equipment in
Denmark, which now operates as a development centre within the MEL division
with scope to scale up for initial market launch.
The market opportunity for lower carbon footprint packaging is vast. Cartons
and pouches together generate revenues in excess of $40bn per annum. We
recognise that launching products into this market, which requires us to
overcome significant market and technical hurdles, is best done with a
strategic investor to mitigate the risk, ideally through a combination of
their own experience and financial investment. Late in 2022, we appointed a
USA-based advisor to facilitate the interactions with potential partners and
this engagement is progressing.
Capacity and investment
Zotefoams' manufacturing process comprises three main stages: extrusion of a
polymer sheet, high-pressure gassing of this sheet with nitrogen and final
expansion in a lower-pressure environment. The infrastructure around these
processes is complex and costly and, therefore, ideally supports multiple
production vessels.
Most products can be made on multiple production lines, although some of our
older assets are not capable of making all products we sell today. Our UK site
manufactures all HPP products and sends partly finished polyolefin products
for the final expansion process to Poland, which is closer to many customers,
reducing overall transport costs and emissions. Our site in Kentucky, USA is
well-placed geographically for its customer base and operates largely
independently of the other two foam manufacturing locations.
Following the high levels of capital invested prior to 2021, the majority of
investment in foams manufacturing over the past two years has been to improve
efficiency, replace aging equipment and address bottlenecks in production
processes. The foams business has sufficient capacity, with minimal
incremental investment, to deliver our growth plans for the foreseeable
future. Our facilities in the USA and Poland have the flexibility for
investment to support longer term growth.
Zotefoams also invested £2.3m (2021: £1.9m) in developing the ReZorce
mono-material barrier packaging technology, which is explained in more detail
above.
Measuring strategic progress
The markets in which we operate are driven by global trends - environment,
regulation and demographics - which we believe offer the potential for high
rates of market growth as well as opportunity for our disruptive technology
solutions. We assess progress on six separate metrics:
1. We expect our HPP business unit to offer higher growth rates and better
margins than Polyolefin Foams. Sales in our HPP business unit, which offers
unique disruptive products and solutions, now account for 43% (2021: 42%) of
Group revenues and recorded growth of 29% (16% in constant currency). The
unique benefits offered by these products, combined with market recovery in
aviation, offer good growth prospects. Margins in the period were 28% (2021:
21%), significantly better than the margins in our Polyolefin Foams business
unit
2. Sales of our highly differentiated AZOTE polyolefin foam products increased by
25% (22% in constant currency), against our target rate of twice global GDP
growth. While headline growth was significant, it was not underpinned by
increased volumes, which declined by 1%. 2022 was a year in which some
traditionally large polyolefin market segments, automotive in particular,
declined, while other areas grew considerably
3. Group operating margin increased to 10.9% (2021: 8.1%). Price rises were
implemented to recover input-cost inflation, which was the primary reason for
the reduced operating margin in 2021, and foreign exchange rates were
favourable in this period and unfavourable in the previous period. The
increased operating loss in MEL was a direct result of planned increased
investment to deliver the objectives of ReZorce barrier packaging. Excluding
MEL, operating margin was 12.7% (2021: 9.0%), or 11.2% in constant currency
4. Group return on capital improved to 10.1% (2021: 6.1%), largely as a result of
increased profitability of the Polyolefin Foams and HPP business units, partly
offset by the increased losses of MEL as noted above. The Group's average
capital employed increased only slightly by 2%, with depreciation less than
capital expenditure and little movement in total working capital, with
inventories level and increased receivables offsetting increased payables,
linked to higher selling prices and higher input costs respectively, and both
impacted by the stronger US dollar exchange rate
5. Our approach to environmental sustainability and climate change has been
clarified and improved in our business. The business now uses fully
sustainable (from renewables) electricity where available. We have made
significant progress in waste reduction and 84% of revenues are in
applications considered "green", as described in our ESG report. In March
2022, we incorporated clearly defined ESG targets, which have a small impact
on interest margin, in our bank refinancing arrangements and these are
supplemented by internal targets in relation to other ESG metrics
6. MEL has potentially disruptive technology to improve sustainability, primarily
in consumer packaging. We intend to invest within the Group's risk appetite to
develop and commercialise this technology, which at this time is focused on
ReZorce mono-material barrier packaging. This approach recognises that there
is a high "option value" for success associated with this higher risk profile.
We have made good progress in ReZorce development, acquired complementary
know-how and assets in a new entity in Denmark and begun the process to find
the right strategic investor to accelerate commercialisation.
People
The top priority for Zotefoams is ensuring the health and safety of employees
and site visitors. The Board tolerance for risk is set accordingly, with
health and safety an agenda item at every Board and Executive Committee
meeting.
The main safety metric in our business is reportable lost time incidents and,
regrettably, we had two such incidents during the year (2021: nil) from which
both individuals made a full recovery. In line with our policy, a full
follow-up and analysis with corrective actions was reviewed by the Board.
Other metrics, which record less severe incidents and absences, showed
significant improvement over the prior year and are significantly below
industry benchmarks, with measured incidents around one third of the rate of
comparable companies.
With eight physical locations globally and many more people working, at least
some of their time, from home, we work hard to ensure cohesion through a
common culture and clear communication of our strategy, objectives, progress
and challenges. Employee engagement activities included Group CEO "all-staff
briefings", which include a Q&A session, as well as employee surveys.
I would like to extend my thanks to my colleagues and to their families for
their support over the past year.
During 2022, Zotefoams employed an average of 518 people, 4% more than in
2021. Of these, approximately two thirds worked in production, with 15% in
distribution and marketing and the remainder in administration, including
finance, HR and IT, and technical or quality positions.
Forward-looking statements
Forward-looking statements have been made by the Directors in good faith
using information available up until the date they approved these preliminary
results. These forward-looking statements should be considered in light of
the continuing uncertainty surrounding the impacts of the COVID-19 virus and
the geopolitical environment, currently most impacted by the events in
Eastern Europe, on economic trends and business.
Current trading and outlook
2023 has started well, with demand for our AZOTE polyolefin foam products in
line with the previous year but with higher revenue from price increases
implemented over the past twelve months. Sales of high-performance products
are showing strong growth in the first few months, mainly due to the timing of
shipments compared to the prior period. Sales across both businesses continue
to benefit from a stronger US dollar.
The environment for input costs is less acute, with both energy and polyolefin
polymer prices reduced from the peaks seen last year but remaining well above
their long-term average. Prices for energy and energy-intensive commodities
such as nitrogen remain uncertain, with forward-market pricing at a
significant risk premium to spot. We are closely monitoring input costs and
our pricing in the polyolefin foams business in particular.
Whilst uncertainty persists, we currently expect that, for the year as a
whole, polyolefin foams volumes will be at a similar level to last year, with
more challenging conditions in the UK and continental Europe offset by growth
in North America and other geographies. Our High-Performance Products business
should see further growth in footwear and continued strong growth in both our
ZOTEK F and T-FIT insulation products. Within our MEL business unit, focus has
progressed to commercialisation trials for ReZorce cartons.
Overall, the Board remains confident about the future prospects for our
business.
D B Stirling
Group CEO
21 March 2023
Group CFO's review
2022 was a strong year for Zotefoams, with high revenue growth generated from
HPP volumes and polyolefin price increases leading to significantly improved
margins despite continued cost inflation. Strong cash generation, coupled with
favourable FX movements, saw leverage fall to its lowest point since 2018
Overview
Group revenue for the year increased 26% to £127.4m (2021: £100.8m).
High-Performance Products (HPP) sales increased 29%, with good volume growth
in Footwear, ZOTEK(®) fluoropolymers and T-FIT(®) technical insulation and a
foreign currency tailwind, while Polyolefin Foams sales rose 25%, led by price
increases, experiencing growth in all geographical markets and major
application groupings with the notable exception of automotive. MuCell
Extrusion LLC (MEL) sales grew 23%, despite the ongoing refocus of resources
on our ReZorce(®) mono-material barrier packaging opportunity. In constant
currency, Group revenue grew 19% to £119.8m, with an additional
favourable currency impact in the year of £7.6m, the result of the US dollar
averaging 10% higher against sterling.
Operating profit increased 71% to £13.9m (2021: £8.1m). Raw material costs
rose further in H1 2022 before receding slightly from their peak early in the
second half of the year; however, energy prices began to surge from early in
the year, led by concerns related to Russian supply as the impacts of the war
in Ukraine unfolded. Other key input costs, such as nitrogen, also increased
significantly. Multiple rounds of price increases in Polyolefin Foams,
together with smaller increases in HPP, where polymer prices were more stable,
were implemented early in the year to recover margins. Gross margin increased
46% to £38.7m (2021: £26.6m), also supported by a favourable US dollar
exchange rate, and the gross margin percentage improved by 400 basis points to
30.4% (2021: 26.4%). Distribution and administrative costs increased 35% to
£24.8m (2021: £18.4m), with £3.0m of the movement related to hedging
differences year-on-year and much of the remaining increase related to higher
performance-related bonus and stock option costs reflective of the strong
results. Net finance costs were £1.8m (2021: £1.1m), following increases in
dollar and euro base rates as well as a £0.3m write-down of refinancing costs
from the Group's previous bank facility. Profit before tax increased 74% to
£12.2m (2021: £7.0m). After deducting taxation of £2.2m (2021: £2.6m),
which reflects a return to a normalised charge after a previous year which
included a £1.0m deferred tax accrual related to the increase in the
Corporation Tax rate from 19% to 25% and a £1.0m deferred tax charge related
to an earlier year tax credit, basic earnings per share was up 129% at 20.61p
(2021: 9.01p). In constant currency, profit before tax was £9.7m with an
additional favourable currency impact of £2.5m.
The Group reports a strong balance sheet at 31 December 2022, with net debt
down £6.5m to £27.8m (31 December 2021: £34.3m) and the leverage multiple
(net debt to EBITDA, using definitions under the bank facility agreement, see
section 'Debt facility') falling to 1.2 (31 December 2021: 2.1). This was
realised after a £6.9m (43%) increase in EBITDA to £23.0m (2021: £16.1m),
strong cash generation with net cash flows generated from operations of
£23.0m (2021: £12.8m), capital expenditure of £7.0m (2021: £7.0m), and
total dividends of £3.2m (2021: £3.1m).
Revenue performance
Revenue by segment £m
2022 2022 2021 Net change %
Reported Adjusted(1) Reported
Reported Adjusted
Polyolefin Foams 70.1 68.1 56.2 25 21
- UK 13.2 13.2 10.4 27 27
- Europe 30.2 30.7 26.1 16 18
- USA 22.4 20.1 16.1 39 25
- Rest of World 4.3 4.1 3.6 19 14
HPP 54.4 49.1 42.3 29 16
- Footwear 42.1 37.8 33.9 25 12
- ZOTEK® F 6.2 5.5 4.2 48 33
- T-FIT® 5.8 5.5 3.9 48 41
- Other 0.3 0.3 0.3 - -
MEL 2.8 2.6 2.3 23 13
Group 127.4(2) 119.8 100.8 26 19
(1) Constant currency, adjusting 2022 values to 2021 rates. See exchange
rates table.
(2) Adjusted for rounding.
Revenue by market (%)
2022 2021
Sports and leisure 37 37
Product protection 23 26
Building and construction 13 11
Transportation 12 10
Industrial 6 7
Medical 5 5
Other 4 4
Within the transportation segment, aviation represented 7.6% (2021: 4.5%)
and automotive 4.8% (2021: 5.8%) of Group revenue. These two markets remain
well below their pre-pandemic levels and in 2019 were 15.0% and 7.0%
respectively.
Polyolefin Foams business unit sales grew 25% to £70.1m (2021: £56.2m). In
constant currency, sales grew 21% to £68.1m. This reflects a consolidation of
the volume growth achieved in 2021, mix enrichment and a number of price
increases in H1 2022 to help recover margins following the significant cost
inflation of 2021 which continued into 2022. The UK and USA regions
experienced very strong sales growth, up 30% and 39% respectively, while
Europe increased 14% and the Rest of the world increased 23%. All application
markets performed well, except for automotive, which continued to suffer from
industry-specific challenges and mostly impacted Europe.
HPP sales increased 29% to £54.4m (2021: £42.3m). In constant currency,
sales grew 16% to £49.1m. Footwear is the largest application within HPP and
revenue in this market grew a further 25% to £42.1m (2021: £33.9m), with
Zotefoams products on more shoe platforms, resulting in this business division
accounting for 33% of Group sales (2021: 34%). ZOTEK F fluoropolymer foam
sales closed the year 48% up at £6.2m (2021: £4.2m), still £4.8m below our
2019 peak of £10.0m, signalling the start of a recovery in the aviation
industry after two years impacted by COVID-19. T-FIT advanced insulation sales
also grew 48% to £5.8m (2021: £3.9m), with strong growth in China despite
continued challenges from the country's strict COVID-19 controls during the
year, which included a five-week shutdown of our local facility in H1 2022.
MEL sales growth remains constrained by the current strategy to focus on
existing customers and redirect resources to the ReZorce mono-material barrier
packaging initiative. Despite this, sales grew by 23% to £2.8m (2021:
£2.3m), with negligible impact in absolute terms from currency.
Gross profit
Gross margin increased to 30.4% (2021: 26.4%), representing an increase of
£12.1m in absolute terms from £26.6m to £38.7m. Multiple sales price
increases were implemented in the Polyolefin Foams business in H1 2022 to help
recover lost margins resulting mostly from raw material increases in 2021 and,
additionally in 2022, from escalating energy (with fewer hedges due to the
high forward pricing quotes), nitrogen and people costs. Energy costs
increased from £4.8m in 2021 to £7.3m in 2022. Smaller price increases were
implemented in HPP to offset rising material costs of these speciality
polymers, while increased volumes in the business unit also drove operational
gearing. Freight availability and pricing improved in the year. The reduced
strength in sterling, mostly compared to the US dollar and in particular in
HPP, where most sales are denominated in US dollars, significantly benefitted
gross margin by £4.9m, with some of the impact offset by the Group's hedging
strategy, the outcome of which appears below under administrative costs in
line with accounting standards.
Distribution and administrative costs
2022 2021 Change (%)
Distribution costs 8.0 7.3 10
Administrative costs excluding hedging movements 15.0 12.3 22
Hedging movements 1.8 -1.2 -
Administrative costs 16.8 11.1 51
Distribution and Administrative costs 24.8 18.4 35
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.
Included within distribution costs in the consolidated income statement are
sales, marketing and warehousing expenses. These costs increased by £0.7m, or
10%, to £8.0m (2021: £7.3m) during the year, mostly reflecting increased
marketing spend, HPP hirings for planned future growth and increased sales
activity, offset by optimisation of the UK site to reduce offsite warehousing
costs. Included within administrative expenses are technical development,
finance, information systems and administration costs as well as the impact
of foreign exchange hedges maturing in the period and non-cash foreign
exchange translation expenses. These costs increased in 2022 by £5.7m, or
51%, to £16.8m (2021: £11.1m). However, after stripping out foreign exchange
movements, which generated a movement of £3.0m, these administrative costs
increased by 22%, or £2.7m, to £15.0m (2021: £12.3m), mostly related to
£1.8m of additional bonus and stock option costs reflecting the significant
improvement in performance in the year, while also reflecting increased
investment in finance and IT in the UK and staff outside the UK. See 'Currency
review', below for further information and context around foreign exchange
movements.
The business unit results do not include central plc costs, which are not
considered to be segment specific. Neither do they include hedging movements.
In 2022, central plc costs were £2.5m (2021: £1.8m), the growth mostly due
to bonus and stock option charges following a strong year.
Operating profit
Operating profit was £13.9m, 71% above 2021 (£8.1m). The operating margin
increased from 8.1% to 10.9%.
Finance costs
The total interest charge for the year increased to £1.8m (2021: £1.1m) and
includes £0.1m (2021: £0.1m) of interest on the Defined Benefit Scheme
pension obligation. This increase reflects the rise during the year in US
dollar and euro base rates, which are the currencies in which the Group's debt
obligations are held, as well as £0.3m related to unamortised costs related
to the previous banking facility which was replaced in March 2022.
Profit before tax
Profit before tax increased 74% to £12.2m (2021: £7.0m).
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars and euros. The exchange rates
used to translate the key flows and balances were:
2022 2021
Average Closing Average Closing
Euro/sterling 1.173 1.129 1.163 1.192
US dollar/sterling 1.238 1.204 1.376 1.351
Movements in foreign exchange rates can have a significant impact on results.
During the year, the sterling average exchange rate year-on-year against the
US dollar weakened by 10% and the sterling average exchange rate against the
euro strengthened by 1%. The sterling spot rate against the US dollar from 31
December 2021 to 31 December 2022 weakened by 11%, while the sterling spot
rate against the euro from 31 December 2021 to 31 December 2022 weakened by
5%.
Zotefoams is a predominantly UK-based exporter which invoices mostly in local
currency. In 2022, approximately 90% of sales (2021: approximately 90%) were
denominated in currencies other than sterling, mostly US dollars or euros.
Most operating costs are incurred in sterling, other than the main raw
materials for polyolefin foams used for production in the UK, which are
euro-denominated, US subsidiary production and operating costs, most other
subsidiaries' staff and operating costs and some HPP raw materials, which are
all US dollar-denominated. Poland operating costs are incurred in zloty. The
Group uses forward exchange contracts to hedge two-thirds of its forecast net
cashflows over the following twelve months that are subject to US dollar and
euro transaction risk. The Group recorded a loss on forward exchange
contracts in the year of £2.9m (2021 gain: £1.3m).
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. This translation exposure
is mitigated, where possible, through an offset with same-currency
liabilities, primarily through borrowing in the relevant currency. Every
month, these foreign currency-denominated intercompany net positions, despite
being cash neutral, require to be translated by Zotefoams plc on a mark to
market basis and the movement taken to the Company income statement. The Group
also has a fast-growing HPP business, which is mostly invoiced from the UK in
US dollars, which adds to its exposure to foreign currency denominated net
assets and is accounted for in the same way as above. While FX exposure is
partly mitigated by the forward currency contracts, risk remains based on the
amount of forecast exposure not hedged, in line with Group policy, and the
fact that there is a timing difference between the recording of accounts
receivable and cash received. This timing difference is tackled by further
hedging activities, but their effectiveness is subject to the accuracy of
forecasting cash receipts. The Group recorded a translation gain in the year
of £1.0m (2021 loss: £0.1m).
Currency movements during the year positively impacted Group revenue by £7.6m
(2021: £4.1m negative impact). They negatively impacted operating costs by
£3.2m (2021: £2.4m positive impact), resulting in a net positive impact of
£4.3m (2021: negative impact £1.7m) before hedging. After deducting the net
hedging loss of £1.8m (2021: gain of £1.2m), the net currency positive
impact for the year was £2.5m (2021: negative impact £0.5m).
We expect growth to be denominated in currency other than sterling and
recognise that one of our principal risks is our exposure to foreign currency
fluctuations, particularly the US dollar, which we will aim to manage through
hedging strategies. Based on 2022 and with respect to transaction risk, it is
estimated that for every one percentage point movement in the US
dollar/sterling rate, profit moves by £0.4m unhedged and £0.1m hedged. In
the year, it is assumed that the transaction risk from euro/sterling
movements continues to be substantially naturally hedged, with the risk
arising on sales revenues offset by that on costs, primarily related to raw
material purchases and certain further processing costs.
The Group does not currently hedge for the translation of its foreign
subsidiaries' assets or liabilities. The foreign currency hedging policy is
kept under regular review and is formally approved by the Board on an annual
basis.
Currency impact on business segment profitability in 2022
Currency had a £7.6m positive impact on the Group's sales performance. See
above.
Segment profit £m
2022 2022 Net change %
Reported Adjusted*
2021 Reported Adjusted
Reported
Polyolefin Foams 4.9 4.6 0.7 - -
HPP 15.3 11.0 8.7 75 26
MEL (1.9) (1.7) (0.7) - -
Subtotal 18.3 14.0 8.7 110 60
Other (6.1) (4.3) (1.7) - -
- Central costs (2.5) (2.5) (1.8) 44 44
- Hedging (1.8) - 1.2 - -
- Interest (1.8) (1.8) (1.1) 59 59
Group 12.2 9.7 7.0 74 39
* Constant currency, adjusting 2022 values to 2021 rates. See exchange rates
table above.
Taxation charge and earnings per share
The tax charge for the year is £2.2m (2021: £2.6m). The effective tax rate
for the year is 18.1% (2021: 37.6%), which is a return to a rate similar to
the Group's weighted average corporate tax rate for the year of 19.5% (2021:
19.0%). In the previous year, the higher effective tax rate for the year arose
primarily from an increase in the deferred tax charge of £1.0m that followed
the substantive enactment of a decision to increase UK Corporation Tax rates
to 25% in 2023, a prudent approach to recognising overseas tax losses as a
deferred income tax asset amounting to £0.4m and a lower profit before tax
for the year of £7.0m.
Basic earnings per share was 20.61p (2021: 9.01p), an increase of 129%.
Diluted earnings per share was 20.20p (2021: 8.87p).
ReZorce
ReZorce(®) technology being developed by MEL offers brand owners the ability
to significantly reduce their carbon footprint and also help meet their
pledges on both recycling and the use of recycled content in their packaging,
putting sustainability at the heart of our MEL development agenda. During the
year, Zotefoams continued its investment in this opportunity. In line with IAS
38 "Capitalisation of Development Costs", labour amounting to £0.4m (2021:
£0.4m) was redirected from MEL to ReZorce and capitalised, and a further
£1.0m (2021: £0.6m) was invested in additional, directly attributable costs,
and capitalised. The Group also invested £0.8m (2021: £0.9m) during the year
to purchase and develop equipment, which has been recorded under tangible
assets. This amount includes the acquisition of the net assets of Refour ApS
(Skandeborg, Denmark) for £0.3m, which, together with key members of the
Refour team, is expected to accelerate the development of ReZorce across a
wide variety of applications. In total, capitalised investment in ReZorce
amounted to £2.2m during 2022 (2021: £1.9m) and is £4.7m cumulatively over
the life of the project, which will be amortised in line with Group policies,
if successful, or be fully impaired, if not, in line with
accounting standards. The Board does not currently consider any of these
assets to be impaired, given the progress made in development, the commercial
opportunities that exist, the current search for a strategic investor and the
Board's continuing commitment to the initiative. MEL also reported a loss
before tax of £1.9m (2021: £0.7m), the movement driven by our focus on the
ReZorce opportunity.
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, sustainability credentials and expected
returns. Confidence in the Group's developing portfolio of HPP opportunities
is a significant consideration in determining the timing of certain
investments, while the strategic importance of maintaining growth in the
profitable Polyolefin Foams business, the Group's largest volume product
range, informs the decision to increase total Group capacity versus relying
solely on mix enrichment. Outside of significant capacity-related
investments, the Group also invests to maintain its capital-intensive assets,
mindful of opportunities to improve energy efficiency and further reduce
health and safety risk, particularly at the older UK facility.
Zotefoams targets improvements in the Group's return on capital over the
investment cycle, while recognising the short-term impact on the return of
sizeable capital investments during their construction and early operations
phases, where they initially run at lower utilisation and mix optimisation
levels. When Zotefoams embarks on investment in a major expansion or new
location, such as the installation of extrusion and high-pressure capability
at our existing Kentucky, USA site, which we commissioned in 2018, or the most
recent investment in foam manufacturing at the Poland site, commissioned in
2021, we take into account the importance of scale and dilution of heavy
infrastructure cost over a (future) second or third line. As such, the first
step is invariably more dilutive to capital return than any subsequent
investments.
Zotefoams is also pursuing a transformative mono-material barrier packaging
solution through its MEL business unit, branded as ReZorce. In this
pre-revenue development phase, overall capital returns are diluted as a result
of both the operating profit charge as well as the capital investments made
but the initiative offers significant potential if the technology is adopted.
Definition of ROCE and 2022 outcome
Zotefoams defines the return on capital employed (ROCE), which is a non IFRS
measure, as operating profit before exceptional items divided by the average
sum of its equity, net debt and other non-current liabilities. This measure
excludes acquired intangible assets and their amortisation costs. We also
exclude significant capacity investments under construction until they enter
production. We do not attempt to adjust for the first phase inefficiencies as
mentioned above.
In 2022, the Group's return on capital employed increased to 10.1% (2021:
6.1%), mostly reflecting improved profitability in the year. The main cause of
a reduction in ROCE since 2018, when the Group generated a ROCE of 16.5%, is
the increase in the capital base following the completion of our investments
in the UK, USA and Poland and the additional operating costs arising from
their operation, which is expected during this stage of the investment cycle.
Business growth, with this increased capacity matched by improved utilisation
and mix enrichment, is expected to improve ROCE beyond that previously
achieved.
Investment in growth-generating tangible assets (£m)
2015 2016 2017 2018(1) 2019(2) 2020 2021(3) 2022 Total
Growth capital 6.1 6.9 7.8 12.8 19.8 10.3 3.4 1.6 68.7
Capitalised interest - - - - 0.9 0.6 - - 1.5
Maintenance capital 2.6 5.2 3.6 3.0 3.7 2.1 2.6 3.8 26.6
Total investment in property, plant and equipment 8.7 12.1 11.4 15.8 24.4 13.0 6.0 5.4 96.8
(1) Commissioning of USA first high pressure vessel, infrastructure and
ancillaries
(2) Commissioning of USA second high pressure vessel and UK high-temperature
low-pressure autoclaves, infrastructure and ancillaries
(3) Commissioning of Poland infrastructure and high-temperature low-pressure
autoclave
Dividend
The Board has a progressive dividend policy, recognising the importance to
our shareholders of the dividend as part of their overall return. The
Directors are proposing a final dividend of 4.62p (2021: 4.40p), which would
be payable on 2 June 2023 to shareholders on the Company register at the close
of business on 5 May 2023. The ex-dividend date will be 4 May 2023. Taken with
the interim dividend of 2.18p (2021: 2.10p), this would bring the total
dividend for the year to 6.80p (2021: 6.50p) and would represent a dividend
cover of 3.7 times (2021: 1.4 times).
Cash flow
The Group is highly cash generative, and this was a particularly strong year,
with net cash from operations before investment in working capital and
provisions of £24.1m, up 46% on the previous year (2021: £16.5m). Out of
this, £0.3m (2021: £2.9m) was then re-invested in working capital. Trade and
other receivables increased by £4.8m (2021: increased £1.6m), reflecting
greatly increased sales in November and December versus the previous year and
certain overdues in the USA which have since been recovered or are being
effectively managed. Outside of the USA, our overdues continue to remain very
low. Inventories decreased just £0.4m, (2021: increased £2.8m), with
increased footwear raw materials required to match demand offset by a
depletion of fluoropolymer inventory for ZOTEK F, which will be replenished in
2023, as demand improves post COVID-19. Trade and other payables increased
£4.1m (2021: increased £1.5m), with a £1.4m increase due to higher purchase
costs and timing of purchases, a further £1.6m related to the higher 2022
bonus accrual and approximately £0.7m related to utilities and insurance
accruals. Zotefoams recognises the importance of its supplier relationships
and has improved its performance with respect to honouring agreed payment
terms. As a result of all of the above, cash generated from operations was
significantly higher than the previous year at £23.0m (2021: £12.8m).
During the year, the Group paid interest on its borrowings of £1.3m (2021:
£0.8m), reflecting increases in base rates. Net taxation paid during the year
amounted to £0.7m (2021: £1.1m). The Company received a refund of £0.5m in
relation to the 2020 tax computation and also recovered £0.3m following a
review of its capital allowances on its 2019 building expenditure in Croydon.
Zotefoams' property, plant and equipment capital expenditure remained at a
lower level than in recent history, as expected, following several years of
capacity expansion, with total expenditure of £5.4m (2021: £6.0m).
Expenditure was split broadly across all categories, the most significant
being 29% on ESG initiatives, 21% on essential replacement and 16% on product
development; geographically, 58% was directed to our Croydon, UK plant and 19%
to our Walton, USA plant. Product development included the acquisition of the
net assets of Refour ApS (Skandeborg, Denmark), amounting to £0.3m, to
support the ReZorce opportunity in MEL. The Group also invested £1.7m (2021:
£1.1m) in intangible assets, almost entirely related to MEL patents and
capitalised development costs for ReZorce. The combined investment of £7.0m
(2021: £7.0m) is slightly below what we expect to invest, on a normal basis,
which is a level in line with the Group's combined depreciation and
amortisation charge (2022: £8.2m, 2021: £7.6m).
After dividends paid in the year amounting to £3.2m (2021: £3.1m) and lease
payments of £0.5m (2021: £0.5m), closing net debt fell to £27.8m (2021:
£34.3m). At the year end, the Group remains comfortably within its bank
facility covenants, with a multiple of EBITDA to net finance charges of 13.7
(2021: 16.1), against a covenant minimum of 4 (2021: 4), and net debt to
EBITDA (leverage) multiple of 1.2 (2021: 2.1), against a covenant of 3.5
(2021: 3.0). See 'Debt facility' for a definition of leverage and information
on the Group's renewal of its refinancing arrangements in March 2022.
Debt facility
At 31 December 2022, the Group's gross finance facilities were £50.0m (2021:
£47.3m), consisting entirely of a multi-currency term loan. At 31 December
2021, the Group's gross finance facilities consisted of a multi-currency term
loan of £20.0m, a multi-currency revolving credit facility of £25.0m and a
remaining balance of £2.3m of a further £7.5m sterling annually renewable
term loan, repayable in equal quarterly instalments. In March 2022, the Group
completed a retender of its debt facility and selected Handelsbanken and
NatWest, the incumbents, to continue as its lenders. Under the terms of the
new facility, the Group's gross finance facility now comprises a £50m
multi-currency revolving credit facility with a £25m accordion, on a 4+1
tenor, with an interest rate ratchet on slightly improved terms to the
previous facility and including a small element related to the achievement of
sustainability targets. The finance cost and leverage covenants remain
in place, with the former remaining at a multiple of 4 and the latter
increasing to 3.5 from 3.0. In January 2023, the Group successfully extended
the facility by a year in line with the term option, resulting in a revised
end term date of March 2027.
At 31 December 2022, headroom, which we define as the combination of amount
undrawn on the facility and cash and cash equivalents disclosed on the
Statement of Financial Position, amounted to £22.9m (2021: £13.4m).
Zotefoams defines EBITDA as profit for the year before tax, adjusted for
depreciation and amortisation, net finance costs, the share of profit/loss
from its joint venture and equity-settled share-based payments. Net debt
comprises short and long-term loans less cash and cash equivalents and is
adjusted from IFRS by the impacts of IFRS 2 and IFRS 16 under the bank
facility definition.
Group banking covenants definition
Net debt to EBITDA ratio (Leverage)
£m 2022 2021 £m 2022 2021
Profit after tax 10.0 4.4 Net debt per IFRS 27.8 34.3
Adjusted for: IFRS 16 leases (1.0) (1.1)
Depreciation and amortisation 8.2 7.6 Finance leases pre-1 January 2019 - -
Finance costs 1.8 1.1
Finance income (0.1) - Net debt per bank 26.8 33.2
Share of result from joint venture - -
Equity-settled share-based payments 0.8 0.4
Taxation 2.2 2.6
Roundings 0.1 -
EBITDA 23.0 16.1 Leverage ratio per bank 1.2 2.1
EBITDA to net finance charges ratio
£m 2022 2021 £m 2022 2021
EBITDA, as above 23.0 16.1 Finance costs 1.8 1.1
Finance income (0.1) -
Share of result from joint venture - -
EBITDA to net finance charges ratio 13.7 16.1 Net finance charges 1.7 1.1
Post-employment benefits
The Company operates a UK registered trust-based pension scheme, the Zotefoams
Pension Scheme (the Scheme), that provides defined benefits. Pension benefits
are linked to the members' final pensionable salaries and service at their
retirement (or date of leaving if earlier). The Scheme was closed to new
members in 2001, as was the link to future accrual of salary in 2005.
Inconsistencies in the way the Scheme's link to future accrual of salary was
closed in 2005 were rectified in 2019. There are three categories of pension
scheme members:
• Deferred members with salary linkage: current employees of the Company who
have not consented to the break in their salary linkage;
• Deferred members: former and current employees of the Company not yet in
receipt of pension; and
• Pensioner members: in receipt of pension.
The last full actuarial valuation of the Defined Benefit Scheme ('DB Scheme')
took place as at 5 April 2020, in line with the requirement to have a
triennial valuation. On a Statutory Funding Objective basis, a deficit was
calculated for the DB Scheme of £7.7m (previous triennial valuation: £4.2m).
As a result, the Company agreed with the Trustees to make contributions to the
DB Scheme of £643,200 per annum, beginning 1 July 2021, to meet the shortfall
by 31 October 2026 (previously 31 October 2026), up from £492,000 per annum
previously. In addition, the Company pays the ongoing DB Scheme expenses of
£216,000 per annum (previously £180,000 per annum) to cover death-in-service
insurance premiums, the expenses of administering the DB Scheme and Pension
Protection Fund levies.
The net IAS 19 deficit on the DB Scheme decreased by £1.4m to £3.3m as at 31
December 2022 (2021: £4.7m) and represents 3.0% (2021: 4.8%) of consolidated
net assets. The main factor leading to the improvement was a change in the
discount rate assumption to 4.80% (2021: 1.80%) following an increase in
corporate bond yields over the year. The value of the defined benefit
obligation at the year-end fell from £38.8m in 2021 to £26.1m in 2022,
driven by this changed assumption. However, this was partially offset by the
actual investment return achieved on the assets being lower than that required
to match the expected increase in defined benefit obligations over the year
(the market value of assets fell from £34.1m in 2021 to £22.8m in 2022) and
higher than expected price inflation. Zotefoams does not consider its pension
scheme to be a key risk to its ability to achieve its strategic objectives due
to the immaterial share of net assets that the deficit represents. Mitigation
of further risk is expected to come from our growth expectations and the
continued focus by the Trustees on a lower-risk strategy to meet the DB
Scheme's deficit shortfall.
Going concern
The Directors believe that the Group is well placed to manage its business
risks and, after making enquiries including a review of forecasts and
predictions, taking account of reasonably possible changes in trading
performance and its available debt facilities, have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the next twelve months following the date of approval of the financial
statements. The Directors have also continued to draw upon the experiences of
2020 and the Group's success in reacting to the challenges of COVID-19 through
its safety protocols and cost and cash management, all of which could be
replicated in a similar scenario.
After due consideration of the range and likelihood of potential outcomes, the
Directors continue to adopt the going concern basis of accounting in preparing
the preliminary results.
Financial risk management
The main financial risks of the Group relate to funding and liquidity,
credit, interest rate fluctuations and currency exposures.
G C McGrath
Group CFO
21 March 2023
Consolidated income statement
For the year ended 31 December 2022
Note 2022 2021
£'000
£'000
Revenue 2 127,369 100,750
Cost of sales (88,639) (74,184)
Gross profit 38,730 26,566
Distribution costs (8,037) (7,316)
Administrative expenses (16,762) (11,117)
Operating profit 13,931 8,133
Finance costs (1,814) (1,116)
Finance income 56 11
Share of profit/(loss) from joint venture 50 (20)
Profit before income tax 12,223 7,008
Income tax expense (2,217) (2,632)
Profit for the year 10,006 4,376
Profit attributable to:
Equity holders of the Company 10,006 4,376
10,006 4,376
Earnings per share:
Basic (p) 20.61 9.01
Diluted (p) 20.20 8.87
Consolidated statement of comprehensive income
For the year ended 31 December 2022
2022 2021
£'000
£'000
Profit for the year 10,006 4,376
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit pension schemes 584 3,517
Tax relating to items that will not be reclassified (146) (444)
Total items that will not be reclassified to profit or loss 438 3,073
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation gains/(losses) on investment in foreign 3,681 (96)
subsidiaries
Change in fair value of hedging instruments (3,025) (344)
Hedging gains/(losses) reclassified to profit or loss 2,865 (1,251)
Tax relating to items that may be reclassified 185 376
Total items that may be reclassified subsequently to profit or loss 3,706 (1,315)
Other comprehensive income for the year, net of tax 4,144 1,758
Total comprehensive income for the year 14,150 6,134
Total comprehensive income attributable to:
Equity holders of the Company 14,150 6,134
Total comprehensive income for the year 14,150 6,134
Consolidated statement of financial position
As at 31 December 2022
Note 2022 2021
£'000
£'000
Non-current assets
Property, plant and equipment 3 94,295 91,401
Right-of-use assets 939 1,104
Intangible assets 7,774 6,224
Investment in joint venture 153 163
Trade and other receivables 122 11
Deferred tax assets 410 492
Total non-current assets 103,693 99,395
Current assets
Inventories 26,139 25,954
Trade and other receivables 29,447 24,338
Derivative financial instruments 486 173
Cash and cash equivalents 10,594 8,055
Total current assets 66,666 58,520
Total assets 170,359 157,915
Current liabilities
Trade and other payables (13,500) (9,242)
Derivative financial instruments (1,550) (600)
Current tax liability (226) (83)
Lease liabilities (509) (486)
Interest-bearing loans and borrowings 4 (37,446) (26,564)
Total current liabilities (53,231) (36,975)
Non-current liabilities
Lease liabilities (454) (643)
Interest-bearing loans and borrowings 4 - (14,710)
Deferred tax liabilities (3,846) (3,155)
Post-employment benefits (3,290) (4,657)
Total non-current liabilities (7,590) (23,165)
Total liabilities (60,821) (60,140)
Total net assets 109,538 97,775
Equity
Issued share capital 5 2,431 2,431
Share premium 5 44,178 44,178
Own shares held (5) (10)
Capital redemption reserve 15 15
Translation reserve 5,909 2,228
Hedging reserve (285) (310)
Retained earnings 57,295 49,243
Total equity 109,538 97,775
Consolidated statement of cash flows
For the year ended 31 December 2022
2022 2021
£'000
£'000
Cash flows from operating activities
Profit for the year 10,006 4,376
Adjustments for:
Depreciation and amortisation 8,245 7,624
Disposal of assets 283 53
Finance costs 1,758 1,105
Share of (profit)/loss from joint venture (50) 20
Net exchange differences 871 376
Equity-settled share-based payments 809 360
Taxation 2,217 2,632
Operating profit before changes in working capital and provisions 24,139 16,546
Increase in trade and other receivables (4,818) (1,636)
Decrease/(increase) in inventories 401 (2,843)
Increase in trade and other payables 4,119 1,506
Employee defined benefit contributions (859) (779)
Cash generated from operations 22,982 12,794
Interest paid (1,255) (789)
Income taxes paid, net of refunds (659) (1,087)
Net cash flows generated from operating activities 21,068 10,918
Cash flows from investing activities
Interest received 56 11
Interest paid - (32)
Purchases of intangibles (1,724) (1,069)
Proceeds from disposal of property, plant and equipment - 88
Purchases of property, plant and equipment (5,368) (6,002)
Net cash used in investing activities (7,036) (7,004)
Cash flows from financing activities
Proceeds from exercise of share options - 40
Repayment of borrowings (50,883) (7,739)
Proceeds from borrowings 43,044 6,974
Payment of principal portion of lease liabilities (499) (543)
Dividends paid to equity holders of the Company (3,188) (3,074)
Net cash used in financing activities (11,526) (4,342)
Net increase/(decrease) in cash and cash equivalents 2,506 (428)
Cash and cash equivalents at 1 January 8,055 8,503
Exchange gains/(losses) on cash and cash equivalents 33 (20)
Cash and cash equivalents at 31 December 10,594 8,055
Consolidated statement of changes in equity
For the year ended 31 December 2022
Note Share Share premium Own Capital redemption reserve Translation reserve Hedging reserve Retained earnings Total
capital
£'000
shares
£'000
£'000
£'000
£'000
equity
£'000
held
£'000
£'000
Balance as at 1 January 2021 2,431 44,178 (23) 15 2,324 909 44,542 94,376
Profit for the year - - - - - - 4,376 4,376
Other comprehensive income for the year
Foreign exchange translation losses on investment in subsidiaries - - - - (96) - - (96)
Change in fair value of hedging instruments recognised in other comprehensive - - - - - (344) - (344)
income
Reclassification to income statement - administrative expenses - - - - - (1,251) - (1,251)
Tax relating to effective portion of changes in fair value of cash flow - - - - - 376 - 376
hedges, net of recycling
Actuarial gain on defined benefit pension scheme - - - - - - 3,517 3,517
Tax relating to actuarial gain on defined benefit pension scheme - - - - - - (444) (444)
Total comprehensive income for the year - - - - (96) (1,219) 7,449 6,134
Transactions with owners of the Parent:
Options exercised - - 13 - - - 27 40
Equity-settled share-based payments net of tax - - - - - - 299 299
Dividends paid 6 - - - - - - (3,074) (3,074)
Total transactions with owners of the Parent - - 13 - - - (2,748) (2,735)
Balance as at 31 December 2021 2,431 44,178 (10) 15 2,228 (310) 49,243 97,775
Balance as at 1 January 2022 2,431 44,178 (10) 15 2,228 (310) 49,243 97,775
Profit for the year - - - - - - 10,006 10,006
Other comprehensive income for the year
Foreign exchange translation losses on investment in subsidiaries - - - - 3,681 - - 3,681
Change in fair value of hedging instruments recognised in other comprehensive - - - - - (3,025) - (3,025)
income
Reclassification to income statement - administrative expenses - - - - - 2,865 - 2,865
Tax relating to effective portion of changes in fair value of cash flow - - - - - 185 - 185
hedges, net of recycling
Actuarial gain on defined benefit pension scheme - - - - - - 584 584
Tax relating to actuarial gain on defined benefit pension scheme - - - - - - (146) (146)
Total comprehensive income for the year - - - - 3,681 25 10,444 14,150
Transactions with owners of the Parent:
Options exercised - - 5 - - - (5) -
Equity-settled share-based payments net of tax - - - - - - 801 801
Dividends paid 6 - - - - - - (3,188) (3,188)
Total transactions with owners of the Parent - - 5 - - - (2,392) (2,387)
Balance as at 31 December 2022 2,431 44,178 (5) 15 5,909 (285) 57,295 109,538
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 2021. Whilst the financial
information included in this announcement has been computed in accordance with
the recognition and measurement requirements of UK adopted international
accounting standards ("UK adopted IAS") and as applied in accordance with the
provisions of the Companies Act 2006, this announcement does not itself
contain sufficient disclosures to comply with UK adopted IAS.
The information for the year ended 31 December 2022 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 2021 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 2022 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 2021 annual
audited financial statements.
2. Segment reporting
The Group's operating segments are reported in a manner consistent with the
internal reporting provided to and regularly reviewed by the Group Chief
Executive Officer, David Stirling, who is considered to be the 'chief
operating decision maker' for the purpose of evaluating segment performance
and allocating resources. The Group Chief Executive Officer primarily uses a
measure of profit for the year (before exceptional items) to assess the
performance of the operating segments.
The Group manufactures and sells high-performance foams and licenses related
technology for specialist markets worldwide. The Group's activities
are categorised as follows:
• Polyolefin Foams: these foams are made from olefinic homopolymer and copolymer
resin. The most common resin used is polyethylene.
• High-Performance Products (HPP): these foams exhibit high performance on
certain key properties, such as improved chemical, flammability, temperature
or energy management performance. Revenue in the segment is currently mainly
derived from products manufactured from three main polymer types:
polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and
thermoplastic elastomers. Foams are sold under the brand name ZOTEK(®), while
technical insulation products manufactured from certain materials are branded
as T-FIT(®).
• MuCell Extrusion LLC (MEL): licenses microcellular foam technology and sells
related machinery. It is also currently developing a fully circular solution
for mono-material barrier packaging, which it has branded ReZorce(®).
Polyolefin Foams HPP MEL Consolidated
2022 2021 2022 2021 2022 2021 2022 2021
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Group revenue 70,123 56,166 54,439 42,294 2,807 2,290 127,369 100,750
Segment profit/(loss) pre amortisation 4,883 684 15,321 8,732 (1,634) (494)(1) 18,570 8,922(1)
of acquired intangible assets
Amortisation of acquired intangible assets - - - - (258) (232)(1) (258) (232)(1)
Segment profit/(loss) 4,883 684 15,321 8,732 (1,892) (688) 18,312 8,728
Foreign exchange (losses)/gains - - - - - - (1,844) 1,168
Unallocated central costs - - - - - - (2,537) (1,763)
Operating profit 13,931 8,133
Financing costs - - - - - - (1,814) (1,116)
Financing income - - - - - - 56 11
Share of profit /(loss) from joint venture 50 (20) - - - - 50 (20)
Taxation - - - - - - (2,217) (2,632)
Profit for the year 10,006 4,376
Segments assets 116,426 107,633 40,358 40,189 13,165 9,601 169,949 157,423
Unallocated assets - - - - - - 410 492
Total assets 170,359 157,915
Segment liabilities (39,814) (40,795) (15,508) (15,224) (1,427) (883) (56,749) (56,902)
Unallocated liabilities - - - - - - (4,072) (3,238)
Total liabilities (60,821) (60,140)
Depreciation of PPE 5,422 4,793 1,079 1,052 369 133 6,870 5,978
Depreciation of right-of-use assets 306 302 70 90 156 133 532 525
Amortisation 386 584(1) 144 289 312 248(1) 842 1,121
Capital expenditure:
Property, plant and equipment (PPE) 3,584 4,093 888 743 785 1,160 5,257 5,996
Intangible assets 112 98 43 34 1,569 937 1,724 1,069
(1) Prior year amortisation of acquired intangibles amended from £194k
reported in 2021 to £232k.
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis but operate
from UK, USA, European and Asian locations. In presenting information on the
basis of geographical segments, segmental revenue is based on the geographical
location of customers. Segment assets are based on the geographical location
of assets.
United Continental Europe North Rest of Total
Kingdom
£'000
America
the world
£'000
£'000
£'000
£'000
For the year ended 31 December 2022
Group revenue from external customers 13,702 32,374 29,127 52,166 127,369
Non-current assets 41,951 20,943 39,869 367 103,130
Capital expenditure - PPE 3,057 559 1,618 23 5,257
For the year ended 31 December 2021
Group revenue from external customers 10,768 28,200 19,959 41,823 100,750
Non-current assets 42,944 19,830 35,521 445 98,740
Capital expenditure - PPE 2,776 798 2,391 31 5,996
3. Property, plant and equipment
Group
Land and buildings Plant and equipment Fixtures and fittings Under construction Total
£'000
£'000
£'000
£'000
£'000
Cost
Balance at 1 January 2021 32,793 99,037 4,031 24,733 160,594
Additions 16 404 254 5,322 5,996
Disposals (88) (122) (133) - (343)
Transfers 13,346 11,239 (291) (24,774) (480)
Effect of movement in foreign exchange (291) 233 10 (815) (863)
Balance at 31 December 2021 45,776 110,791 3,871 4,466 164,904
Balance at 1 January 2022 45,776 110,791 3,871 4,466 164,904
Additions 13 441 37 4,766 5,257
Transfers 346 5,699 196 (6,241) -
Disposals (535) (3,336) (683) - (4,554)
Effect of movement in foreign exchange 1,798 4,996 141 57 6,992
Balance at 31 December 2022 47,398 118,591 3,562 3,048 172,599
Accumulated depreciation
Balance at 1 January 2021 12,578 52,195 2,896 - 67,669
Depreciation charge for the year 1,479 4,184 315 - 5,978
Disposals - (87) (114) - (201)
Transfers 51 (79) (125) - (153)
Effect of movement in foreign exchange 52 148 10 - 210
Balance at 31 December 2021 14,160 56,361 2,982 - 73,503
Balance at 1 January 2022 14,160 56,361 2,982 - 73,503
Depreciation charge for the year 1,374 5,176 320 - 6,870
Transfers - - - - -
Disposals (521) (3,139) (680) - (4,340)
Effect of movement in foreign exchange 640 1,521 110 - 2,271
Balance at 31 December 2022 15,653 59,919 2,732 - 78,304
Net book value
At 1 January 2021 20,215 46,842 1,135 24,733 92,925
At 31 December 2021 and 1 January 2022 31,616 54,430 889 4,466 91,401
At 31 December 2022 31,745 58,672 830 3,048 94,295
4. Interest-bearing loans and borrowings
Group Company
2022 2021 2022 2021
£'000
£'000
£'000
£'000
Current bank borrowings 37,446 26,564 37,446 26,564
Non-current bank borrowings - 14,710 - 14,710
37,446 41,274 37,446 41,274
In March 2022, the Group completed a debt refinancing and selected
Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under
the terms of the new facility, secured against the property, plant and
equipment and trade receivables, the Group's gross finance facility consists
of a £50m multi-currency revolving credit facility with a £25m accordion.
With a 4+1 tenor, the extending year option was taken up in January 2023.
At the end of the financial year, the Group has utilised £37.4m (31 December
2021: £41.3m) of its multi-currency revolving credit facility of £50m. The
total amount of £37.4m, repayable on the last day of each loan interest
period, which is of either a 3 or 6-month duration, is net of £0.5m
origination fees paid up front and being amortised over 4 years. The Group has
headroom of £22.9m, being £10.6m cash and cash equivalents and an undrawn
facility of £12.3m, being the facility of £50m less the drawn down balance
of £37.4m, less £0.3m of exchange rate differences between the Group and the
banks.
The interest rates on the debt facility ranged between 1.60% and 6.00% in 2022
(2021: between 1.60% and 2.35%).
5. Issued share capital
Issued, allotted and fully paid ordinary shares of 5p each:
Number of shares Par value Share Total
£'000
premium
£'000
£'000
At 1 January 2022 and 31 December 2022 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. Dividends and earnings per share
2022 2021
£'000 £'000
Prior year final dividend of 4.40p (2021: 4.27) per 5.0p ordinary share 2,131 2,058
Interim dividend of 2.18p (2021: 2.10p) per 5.0p ordinary share 1,057 1,016
Dividends paid during the year 3,188 3,074
The proposed final dividend for the year ended 31 December 2022 of 4.62p per
share (2021: 4.40p) 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 £2,241k if paid to all shareholders on the Company
register at the close of business on 2 June 2023.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing consolidated profit
after tax attributable to equity holders of the Company of £10,006k (2021:
£4,376k) by the weighted average number of shares in issue during the year
and excluding own shares held by the EBT which are administered by independent
trustees. The number of shares held in the trust at 31 December 2022 was
107,130 (2021: 196,888). 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'.
2022 2021
Weighted average number of ordinary shares in issue 48,551,379 48,577,945
Adjustments for share options 987,750 755,954
Diluted number of ordinary shares issued 49,539,129 49,333,899
7. Financial instruments and financial risk management
Capital management
The Group's objectives when managing capital are to safeguard its ability to
continue as a going concern in order to provide returns for shareholders and
benefits for other stakeholders, and to maintain an optimal capital structure
to reduce the cost of capital. In order to maintain or adjust the capital
structure, the Group can adjust the amount of dividends paid to shareholders,
issue new shares or redeem existing ones or borrow funds from financial
institutions.
The Group monitors capital on the basis of the following leverage ratio: net
borrowings divided by EBITDA (as per the bank facility agreement).
Loan covenants
Under the terms of its borrowing facilities, the Group is required to comply
with the following financial covenants:
• The ratio of net borrowings on the last day of the relevant period to earnings
before interest, tax, depreciation and amortisation, share of profit/(loss)
from joint venture, equity-settled share-based payments and exceptional items
(EBITDA) shall not exceed 3.50:1.00 (until 9 March 2022, 3.00:1.00, under the
terms of the previous debt facility).
• The ratio of EBITDA to net finance charges in respect of the relevant period
shall not be less than 4.00:1.00.
The Group has complied with these covenants throughout the financial year.
As at As at
31 December 2022
31 December 2021
£'000
£'000
Net borrowings 26,852 33,219
EBITDA 22,985 16,117
Net borrowings/EBITDA 1.17 2.06
Net finance charges 1,682 1,002
EBITDA/Net finance charges 13.67 16.08
Net borrowings comprise current and non-current interest-bearing loans and
borrowings of £37,446k and cash and cash equivalents of £10,594k.
EBITDA comprises:
2022 2021
£'000
£'000
Profit for the year 10,006 4,376
Depreciation and amortisation 8,245 7,624
Finance costs 1,758 1,105
Share of loss/(profit) from joint venture (50) 20
Equity-settled share-based payments 809 360
Taxation 2,217 2,632
22,985 16,117
Net finance charges comprise interest income of £56k and finance costs
expensed of £1,738k, which excludes pension interest.
The Group's objective is to maintain leverage below the Board's appetite of
2.0. However, it is prepared to accept increases in this ratio at times of
sizeable, capacity-related, capital expenditure to support continued growth.
Subject to short-term macro-economic and geopolitical volatility, this is
always expected to reduce quickly back below the Board's appetite, and to
significantly lower levels, as capacity utilisation improves.
The bank covenant definition does not include the impact of IFRS 16 "Leases",
which would have moved the ratio from 1.17 to 1.21.
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