REG - Zotefoams PLC - Preliminary Results
19/03/2024 07:00
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RNS Number : 3321H Zotefoams PLC 19 March 2024
Zotefoams plc
Preliminary Results (unaudited) for the Year Ended 31 December 2023
19 March 2024 - Zotefoams plc ("Zotefoams" or "the Company" or "the Group"), a world leader in cellular material technology, today announces its unaudited preliminary results for the year ended 31 December 2023.
"Record profit alongside significant investment in our ReZorce(®) recyclable
packaging solution."
Financial Highlights
Foams(4) Group
2023 2022 Change 2023 2022 Change
Revenue (£m) 125.7 124.6 1% 127.0 127.4 0%
Gross margin (%) 33.9% 31.0% 290 ppt 32.3% 30.4% 190 ppt
Operating profit(1) (£m) 19.5 15.8 23% 15.1 13.9 9%
Operating margin (%) 15.5% 12.7% 280 ppt 11.9% 10.9% 100 ppt
Profit before tax(1) (£m) 17.2 14.1 22% 12.8 12.2 5%
Basic EPS(1) (p) 19.0 20.6 (8%)
Net debt (£m) 31.6 27.8 (13%)
Leverage ratio(2) 1.2 1.2 0%
Final dividend(3) (p) 4.90 4.62 6%
(1) This is a reported number under UK adopted IAS and is after the deduction
of amortisation of acquired intangibles amounting to £0.257m in 2023 and
£0.258m in 2022
(2) Leverage is that defined under the bank facility, with net debt at the end
of the period divided by the preceding 12 months' EBITDA, adjusted for the
impact of IFRS2 and IFRS16
(3) Final dividend is subject to approval at the May 2024 Annual General
Meeting
(4) Polyolefin Foams and HPP Business Units only. This excludes MuCell
Extrusion LLC (MEL) which is incurring operating losses as it invests in
ReZorce mono-material barrier packaging
Strategic Progress
· Good progress in both of the Group's business areas, reflecting different
stages of development
· Foams business
- Record profit, strongly ahead of previous year
- Margin growth through mix enrichment, efficiency and cost control
- Exclusivity agreement with Nike extended to December 2029, first sales into
basketball category
- Planned capital investment in North America to support further organic
growth
· MEL/ReZorce(®) mono-material barrier packaging
- Joint development agreement with a world-leading packager of beverages
- Multi award-winning development, with significant technical and commercial
progress in the year
- Preparing for market trial by filling the first ReZorce cartons with fruit
juice on commercial-scale equipment
- Key milestones in Q2 will enable determination of optimal path to realise
value
Results highlights
· Group revenue of £127.0m, in line with record Group revenue in prior year
· Record profits and continued improvement in profit margins
- Gross margin up 190 ppt to 32.3% (33.9% excl. MEL)
- Operating margin up 280 ppt to 15.5% excl. MEL and 100 ppt to 11.9% incl.
MEL
- Segment margin in Polyolefin Foams up from 7% to 11%
- Profit before tax excl. MEL up 22% to a record £17.2m
- Profit before tax up 5% to £12.8m after continued investment drives
progress in our ReZorce technology
· Strong cash generation reinvested in growth
- £6.3m of inventory investment to optimise capacity and in expectation of
HPP growth
- £5.5m cash outflow in MEL to drive the ReZorce opportunity
- Net debt at £31.6m while year-end leverage ratio unchanged at 1.2x
David Stirling, Group CEO, said:
"We have made a positive start to 2024, with overall sales ahead of the
previous year's record first quarter. Sales of HPP products have, thus far,
been strongly ahead of the prior year, with expectations for continued
strength in H1 2024 and more muted growth after this, mainly linked to in-year
footwear demand patterns and underlying improvements in the markets for
aviation and T-FIT insulation products. To date, sales of polyolefin foams
are below the comparative period in the prior year, with European customers
particularly impacted by weaker industrial demand, partially offset by more
robust conditions in North America. We are cautiously optimistic about the
underlying demand environment for polyolefin foams later in the year,
supported by a business focus on application-specific initiatives to increase
market share. Currently, polymer and energy input prices remain relatively
stable and therefore, other than in non-footwear HPP where prices have
increased based on raw material price inflation experienced in 2023, we do not
anticipate any uplift in selling prices this coming year. Improved asset
utilisation, product mix and operational efficiency are our key drivers of
margin enhancement. In our MEL business unit, we continue to make good
progress against the commercialisation objectives we have set for ReZorce,
with some important milestones expected to be reached in Q2. Investment to
support this will continue during 2024 as we determine the optimal pathway to
realising the opportunity presented by this technology. As a result, and while
we remain mindful of the uncertain economic backdrop, 2024 is expected to be
another year of good progress for Zotefoams".
Enquiries:
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
Chair's statement
Lynn Drummond
Chair
A year of stepping up
Dear shareholders
2023 was a year of stepping up at Zotefoams, marked by a significant increase
in the profitability of our foams business. We further solidified our
partnership with Nike through an extension of our exclusivity agreement and
additionally, we heightened our commitment to sustainability with increased
investment in our ReZorce(®) mono-material barrier technology, which is now
progressing to the market trial phase.
Record profits
I am pleased to report that the Group achieved record profits for the year,
exceeding market expectations with a profit before tax of £12.8m (2022:
£12.2m) on revenues at a similar level to the prior year. As we continue to
deliver successfully on our established autoclave technology strategy,
following significant capital investment across the UK, USA and Poland, we are
aware of the importance of differentiating between this business, comprising
the Polyolefin Foams and High-Performance Products business units, and our
high risk but potentially high reward MuCell Extrusion (MEL) business unit,
now primarily dedicated to the development of the highly innovative ReZorce
technology. In 2023, our autoclave technology businesses generated an
impressive profit before tax increase of 22% to £17.2m (2022: £14.1m) on
revenues up 1%. Conversely, increased investment in the ReZorce opportunity
generated a loss of £4.4m (2022: £1.9m), on lower revenues from the
equipment/royalty part of the business, as we head into the market testing
phase following positive progress in the development of our award-winning
technology.
Board composition
2023 saw two changes in the composition of the Board. I joined Zotefoams in
early January and became Chair in May 2023, replacing Steve Good, who stepped
down after nine years on the Zotefoams Board. In September 2023, Malcolm Swift
joined the Board and took on the Chair of the Remuneration Committee,
replacing Alison Fielding, who departed on the same date. I would like to
offer my personal thanks to both colleagues for their valuable support to me,
as well as my thanks on behalf of everyone connected to Zotefoams for their
contributions to the Group. In November 2023, we announced the planned
retirement of David Stirling, our Group CEO, after 26 years as a Board member
and 23 years leading the business. David will leave behind him a growth
business with a clear strategy, strength in depth and exciting opportunities.
The recruitment process for David's replacement is at an advanced stage and we
look forward to updating shareholders on this important evolution for the
Group.
Dividend
The Board is proposing a final dividend of 4.90p (2022: 4.62p) which, if
approved by shareholders, would make a total dividend for the year of 7.18p
(2022: 6.80p), an increase of 5.6%. This reflects the Board's continued
confidence in the Group's future and is in line with its progressive dividend
policy, recognising the importance to our shareholders of the dividend as part
of their overall return. If approved, the final dividend will be paid on 3
June 2024 to shareholders on the register on 3 May 2024.
Our people
Central to the Group's success is our talented, diverse and collaborative
team. The Board recognises that it is this which makes Zotefoams a safe,
great, enjoyable and fulfilling place to work. With travel restrictions no
longer in place across all our geographies, we see how important and valuable
direct interaction is and how diversity of thought and the sharing or our
knowledge and expertise across locations accelerates realisation of our Group
strategy. We have been very mindful of the impact of the ongoing high-cost
environment on our staff and took appropriate pay decisions during the year.
Having the right people at Zotefoams, who understand and promote our culture,
act at all times with integrity, safety-consciousness and dedication and
possess the right knowledge and skills, continues to be critical to our future
success. For the first time as Chair, I warmly welcome our new employees,
extend my gratitude to our colleagues who have helped them integrate and thank
all our hard-working people and their supportive families who have helped the
Group continue to make good strategic progress.
Sustainability
Our purpose is to provide optimal material solutions for the benefit of
society, reflecting our belief that, used appropriately, plastics
are frequently the best solution for the sophisticated, long-term
applications typically delivered by our customers. The Board is focused on the
importance of sustainability and our strategy incorporates the consideration
of climate change in terms of financial and operational impacts. Further
progress was made in 2023 towards our sustainability targets.
Acting responsibly
The Board leads an ongoing programme to ensure the highest standards of
corporate governance and integrity across the Group and has remained abreast
of developing governance standards. The Board's interactions and
communications with executive management continue to be excellent and, as a
result, the Board is well-placed to challenge, guide and support executive
management in the delivery of the growth strategy. We continue to pay
particular attention to the provision of a safe working environment for our
staff across all global locations and to the empowerment of our employees. The
Board also acknowledges the benefits of diversity, including that of gender
and ethnicity, and is committed to setting an appropriate tone from the top in
all diversity and inclusion matters.
Looking to the future
Zotefoams is well positioned for the future with well invested, differentiated
assets, committed capable and passionate people, and a clear strategy for
delivering profitable organic growth in a sustainable way. While we are
mindful of ongoing macroeconomic and geopolitical headwinds, we remain
confident about our future prospects for growth, margin improvement, ROCE and
cash generation.
Lynn Drummond
Chair
19 March 2024
Group CEO Review
David Stirling
Group CEO
Zotefoams has delivered record profits through pricing, product mix and cost
control in a year of significant investment in our ReZorce(®) recyclable
packaging solution.
2023 United Continental Europe North Rest of Total
Kingdom
America
the world*
Change % (13)% 0% (7)% 6% 0%
Group revenue (£000's) 11,879 32,514 27,195 55,387 126,975
% of Group revenue 9% 26% 21% 44% 100%
2022
Group revenue (£000's) 13,702 32,374 29,127 52,166 127,369
% of Group revenue 11% 25% 23% 41% 100%
* Rest of the world comprises China: £27.1m (2022: £30.0m) and other
countries: £28.3m (2022: £22.2m)
Overview
The business today has two distinct elements: the manufacturing and sale of
specialist foams, which is well-established, profitable and growing; and
ReZorce, which is currently a development project moving into market testing,
with enormous potential and higher associated risk.
Group revenue of £127.0m was at a similar level to the previous year (2022:
£127.4m), with lower demand from industrial and construction markets,
particularly in Europe and Asia, offset by growth in footwear, medical and, to
a lesser extent, the aviation and automotive markets.
Input costs, in particular polyolefin raw materials and energy, declined from
the record-high prices experienced in 2022, allowing our margins to recover as
sales prices aligned with these input costs throughout the period.
Our business strategy remains focused on the long-term opportunity for
differentiated, market-leading foams and related products. This is underpinned
by three main beneficial macro-trends: demographics, where the global
population is more urban and ageing; regulation, often around the safety of
people; and environmental sustainability. Sustainability, along with health
and safety, is embedded within everything we do.
Fundamental to our success and goal of driving improving profitability is
product-mix enrichment and high levels of asset utilisation over the
investment and business cycles. We therefore invest in a portfolio of
opportunities across products, markets, geographies and aligned technologies
which have a spread of risk and return.
In 2023, we increased investment in ReZorce mono-material barrier packaging
technology. Our focus is a market trial of beverage cartons made from ReZorce
substrate and filled with juice using commercially available packaging
equipment. We have made substantial progress, with the filling trials
scheduled to begin imminently. There is strong commercial interest in ReZorce
carton, primarily due to its sustainability credentials.
Strategic update and progress
Zotefoams invests in assets and technology with the capability to support the
organic growth opportunities afforded by its diverse and often unique
products. As global markets evolve, we identify business trends and emerging
technologies, assessing their impact on our own business and its potential for
growth. Our market knowledge, experience and customer reach afford us insights
into the emerging needs of many industries. Zotefoams has the capability to
design and manufacture foams with specific attributes to meet these needs, and
therefore our portfolio of technologies, products and customers will evolve
over time, often in partnership along the supply chain. This translates into
an improving product mix, while in-year capacity utilisation is more dependent
on our own investment timing and the economic cycle's impact on our customers.
The volatility seen in demand and input prices over the past few years was
alleviated somewhat in 2023, allowing better engagement with customers and
alignment of our product range with their developing requirements in a higher
priced environment. This "right product, right price" approach was
particularly evident in our Polyolefin Foams business, where many customers
realigned their purchasing decisions and the mix of products changed,
resulting in lower volumes and higher profitability.
Our extrusion technology business, MEL, is now substantially focused on
ReZorce mono-material barrier packaging, a recyclable and circular solution
for beverage cartons. The team's initial focus is on the market for
liquid-containing cartons. This is an enormous market globally, offering
retailers and consumers an efficient and convenient solution for packing
liquids such as fruit juice, milk and increasingly other products such as
dairy alternatives, water, soup and even household cleaning products. We
believe the ReZorce solution offers a better alternative to current
technologies: one which has a lower carbon footprint, clear recyclability
credentials and which will use a high proportion of recycled materials in its
manufacture. Our technical ability to meet the packaging requirements of
sterility, low oxygen and moisture transmission and packaging functionality
has existed for some time now. Investment in 2023 has primarily been focused
on our ability to deliver this solution all the way to the retailer and in
July, a strategic co-operation agreement was signed with a world-leading
packager of beverages to facilitate this. At the time of writing this report
we are preparing to fill 150,000 cartons, which will then be subject to
stringent sterility testing in preparation for a market trial mid-year. Given
the scale of the opportunity, we will be seeking a strategic investing partner
for ReZorce, a process which the Board believes is best timed around this
market trial. Key milestones such as this trial will enable us to determine
the optimal path to realise value.
Sustainability
Zotefoams' products are typically sold into markets where they are used
multiple times, often for many years, and can be recycled at the end of life.
Their insulation, longevity and light weight often form a positive element of
our customers' own sustainability agendas. In 2023, there was a notable trend
towards lighter foams in certain markets in our Polyolefin Foams business,
using less material, being less expensive to manufacture and offering lower
cost to our customers.
Targets are in place to manage our own Scope 1 and 2 emissions through the
reduction of energy consumption, material used in manufacturing processes and
waste. We met these internal targets for 2023, reducing energy consumption and
waste while increasing the proportion of remaining waste recycled, often into
new foams. The core markets for our products are frequently where a "best in
class" foam delivers our stated purpose: optimal material solutions for the
benefit of society. Examples are performance and longevity in industrial
applications and consumer durables such as footwear, medical devices,
insulation for planes, cleanrooms, construction and cars, as well as military
and marine uses. We follow the guidance provided by IAO 14021:2016 when making
environmental claims and, where appropriate, have products certified by
independent organisations when making claims such as those related to recycled
content. We have not yet set a net zero target, however we are committed to
specifically reviewing this during our 2024 Board strategy session.
In 2023, 85% of our revenue was from products which are considered "green"
based on a resource efficiency definition where, during manufacture or use,
they provide a substantial increase in the efficiency of resources. This
includes all sales from MEL, which provides solutions for increasing the
efficiency of resource usage by reducing polymer consumption. There were no
sales for the ReZorce product during the year, due to its stage of
development, but its considerable potential as a sustainable packaging
solution is discussed in depth in the MEL section below.
Polyolefin foams
Segment revenue £67.6m; Change (4%); 2022 £70.1m
Segment profit margin 11.1%; 2022 7.0%
Segment profit £7.5m; Change 53%; 2022 £4.9m
In 2023, the Polyolefin Foams business delivered much improved profitability
against a backdrop of lower sales volumes, improved pricing, lower polymer
costs and better cost management.
Sales declined 4%, with a 7% volume drop partially offset by a 3% average
price improvement. Volumes globally were impacted by slower industrial markets
generally, although we experienced growth in some of our smaller, more
specialist segments, such as medical and aviation. All regions were impacted
by lower demand, particularly in the latter part of the year. Pricing
improvement was primarily a result of the full-year impact of price increases
implemented part-way through 2022. These benefited margins, as did some
changes in product mix, often to lower-cost products which can deliver cost
savings to customers while being less expensive to manufacture.
Regionally, demand patterns were relatively consistent, with differences more
apparent in the specific applications for our foams. With high transportation
costs due to their bulk, most polyolefin foams are sold in Europe (62% of
segment sales, 2022: 62%) and North America (32% of segment sales, 2022: 31%)
as these are efficiently served by our local manufacturing capability in these
regions. Polyolefin foams are widely used in industrial and multiple-use
consumer applications due to their robustness and durability. The main market
segments are multiple-use packaging and protection, often in the context of
long-term storage solutions, construction, sport and leisure, automotive,
aviation, marine, military and healthcare. The segments that performed
relatively better during the year were generally those still in recovery from
previous years, for example automotive, where improved demand in 2023 was in
comparison to a 2022 that had represented the lowest level for many years.
Our input costs are predominantly polymers, labour and energy, with nitrogen,
which we use as our environmentally friendly blowing agent to expand the
foams, largely linked to the energy price.
The main polymers used in our Polyolefin Foams business are low-density
polyethylene (LDPE) and other similar polyolefins. During the year, the price
of LDPE in Europe was trending around its long-term average, which was around
30% lower than the high prices experienced in 2022. LDPE pricing is related to
the pricing of its feedstock, ethylene, and the regional supply vs demand
balance. Overall, depressed industrial markets led to an oversupply situation
and, alongside lower ethylene feedstock costs, this caused a fall in the
polymer price in Europe, more marked in the second half of the year.
Generally, this high correlation between industrial demand and polymer pricing
provides a natural hedge to volume increases or declines in the polyolefins
business.
Average prices for energy and nitrogen, which have a much higher impact on
polyolefin foams than on the products within our HPP business unit, increased
by an average of around 8% compared to 2022 although there has been a marked
decrease in the volatility of pricing. We hedge energy costs by fixing prices
on a proportion of our expected usage up to 12 months in advance.
We manufacture polyolefin foams in three facilities, with full-process
manufacture in the UK and USA and foam expansion, fabrication and logistics in
Poland. An increasing proportion of European business is served through our
Polish facility, which is now operating 24 hours, five days per week.
Segment profit margin has grown to 11% of sales (2022: 7%) through improved
efficiency and pricing more aligned to input costs. We have delivered cost
improvements, most notably through waste reduction, including internal
recycling of polymer waste and logistics cost improvements alongside
incremental gains from continuous improvement in our UK facility. In the USA,
our factory has built on the efficiency gains delivered in 2022, seeing gains
in right-first-time quality and many other aligned metrics such as waste.
Globally, there is scope over time for further improvement, primarily through
improved asset utilisation, operational efficiency and mix enrichment.
HPP (ZOTEK AND T-FIT)
Segment revenue £58.1m Change 7% 2022 £54.4m
Segment profit margin 26.5% 2022 28.1%
Segment profit £15.4m Change 1% 2022 £15.3m
Sales in our HPP business unit grew 7% to £58.1m (2022: £54.4m). The main
product groups are Footwear, ZOTEK® fluoropolymer foams and T-FIT® technical
insulation. Overall volumes were 12% ahead of 2022, with a slight adverse
impact from currency and product mix. In Footwear, where we have extended our
exclusive arrangement with Nike, our materials are primarily used in midsoles
for running shoes but, in a new development during the year, first sales were
made into their basketball segment. In 2023, sales grew 7% to £45.3m (2022:
£42.1m). This exclusive arrangement allows Zotefoams to work closely with
Nike on foam innovation related to their specific needs as well as better
align on supply chain, production efficiency, scrap reduction and cost.
Currently, there is almost zero waste in this production process, with most
scrap re-incorporated into products within the Footwear supply chain. Pricing
to Nike, covered in our exclusive agreement which, in June 2023 was extended
to 31 December 2029, reflects our material input costs, production costs and
efficiencies and foreign exchange rates.
Other than footwear products, we offer a range of foamed sheet materials to
technically demanding applications globally under the ZOTEK® brand. The main
market is aviation, where insulation and fire performance at minimal weight is
paramount, driven by safety and sustainability. Other markets include space,
healthcare, packaging, military and personal protection. Zotefoams offers a
variety of foams with specific properties, delivered through a combination of
raw material selection and our unique foaming technology. Sales volumes of
ZOTEK F materials increased 9%, translating into a 6% value increase to £6.5m
(2022: £6.2m). We experienced high input cost inflation in the most common
materials used, although this had relatively little profit impact in the year
as previously purchased inventory was consumed. Pricing adjustments have been
made, mostly effective from 2024, and we recognise some associated risk due to
these higher prices.
ZOTEK foam sheet sales accounted for 11% (2022: 11%) of HPP segment sales.
T-FIT insulation is made using Zotefoams' own HPP products and is designed for
clean processing environments such as in pharmaceutical, biotech and food and
drink manufacture. Sales grew 1% to £5.9m (2022: £5.8m), and 6% in constant
currency. In China, one of the main markets, we delivered sales growth in food
processing but activity in the biotech and pharmaceutical sector was slower,
and we experienced a lower success rate on some targeted larger projects. In
India, sales grew strongly, with good progress across our portfolio. Outside
these geographies, we are looking to improve our performance with investment
in staff and a renewed focus on our sales processes. We manufacture common
T-FIT insulation manufacturing products locally, either at Zotefoams
facilities or outsourced to trusted partners, to support North American and
European business, while our facility in China supplies all other markets as
well as the complete range of product dimensions globally.
T-FIT sales represent 10% (2022: 11%) of HPP segment sales.
Segment profit increased to £15.4m (2022: £15.3m), a segment profit margin
of 26.5% (2022: 28.1%). Segment margin is slightly lower than the previous
year due to product mix changes and foreign exchange rate movements.
MEL/ReZorce
Aligned with a world-leading packager of beverages and a retailer with
leading-edge sustainability ambition, we are preparing to fill the first
ReZorce cartons with fruit juice on commercial-scale equipment.
Over the past two years, substantially all the activity in our MEL business
unit has been focused on the very significant opportunity in sustainable
barrier packaging. We have developed the ReZorce mono-material barrier
packaging technology to meet the needs of brands and retailers seeking a more
sustainable solution to food packaging that requires protection from moisture
and/or oxygen (hence the term "barrier packaging"). Current barrier packaging
systems require a combination of different materials in the same pack. The
carton format of these systems is very effective and cost-efficient and
therefore widespread; however, it is often extremely difficult to recycle and
almost never circular. We have proven that our ReZorce packaging system can
provide the required barrier properties, is easily recycled using common
infrastructure available today and can be made using a high proportion of
recycled raw materials. Overall, this solution offers a lower carbon footprint
for commonly packaged foodstuffs, in some cases a reduction of more than 50%,
as well as lower water and energy consumption, factors that are increasingly
important to the global sustainability agenda.
During 2023, our focus has been to move from technical possibility to market
reality. Many innovations fail at this stage as implementation requires large
investment or change to adopt the new solution. With this in mind, we have
worked closely with existing industry players and in July 2023 signed a
development agreement with a world-leading packager of beverages. Throughout
the entire development process, we have considered the likely barriers to
implementation and have assembled a team of industry experts with experience
in downstream processes and commercial norms to deliver our technology
solution and related intellectual property development. This team is augmented
by a US-based strategic adviser with dedicated packaging expertise.
Revenue from our MEL business unit declined 56% to £1.2m (2022: £2.8m), with
reduced equipment sales and reduced royalties affected by the Group's focus on
realising the ReZorce initiative, while the segment loss widened to £4.1m
(2022: £1.6m) before amortisation of acquired intangibles, a direct result of
the non-capitalised investment to develop ReZorce technology. In addition to
this, we capitalised £2.8m (2022: £2.2m).
Capacity and investment
Zotefoams' manufacturing process comprises three main stages: extrusion of a
polymer sheet, high-pressure gassing of this sheet with nitrogen and final
expansion in a lower-pressure environment. The infrastructure around these
processes is complex and costly and, therefore, ideally supports multiple
production vessels. Most products can be made on multiple production lines,
although some of our older assets are less flexible.
In the UK, most investment is focused on cost reduction and efficiency, linked
to sustainability, as well as on the replacement of older assets with upgraded
equipment. The UK site manufactures all HPP products and sends partly finished
polyolefin products for the final expansion process to Poland, which is closer
to many customers, reducing overall transport costs and emissions.
In the USA, we see good potential to increase sales and have therefore
approved the purchase of a second low-pressure autoclave, used for foam
expansion, which will increase capacity and reduce reliance on the current
vessel which was installed in 2000. Linked to this capacity increase, we are
upgrading some associated systems and increasing warehousing space. The total
cost of these investments is c. £10m, funded from existing cash resources and
expected to be incurred primarily during 2024-25.
Our facilities in the USA and Poland have the flexibility for further
investment to support longer-term growth.
Zotefoams is also investing in the development of the ReZorce mono-material
barrier packaging technology, which is explained in more detail above.
Measuring strategic progress
Zotefoams products are sold into a wide variety of applications globally.
These markets are driven by global trends - environment, regulation
and demographics - which we believe offer the potential for high rates of
market growth as well as an opportunity for our disruptive technology
solutions.
We assess progress on six separate metrics. The first two metrics have been
updated, to better reflect the focus of our management team and align with the
business strategy:
1. We intend, over time, to deliver an improved mix of products. By this we mean
improved profitability, and a reasonable proxy is average selling price per
m(3) of foam, which is typically higher for HPP products. Adding downstream
processing such as T-FIT insulation products enhances our margin, as does the
cutting processes we perform for multiple customers globally. These downstream
operations are capital-light and leverage our investment in foaming
technology. We adjust our HPP volumes to calculate a "capacity equivalent" to
reflect the often-extended processing times of these products. The adjusted
average selling price during 2023 improved by 2.7% compared with the prior
year.
2. We seek to run at high-capacity utilisation to optimise the returns from our
assets. Asset utilisation in the year improved by 2.6%, and is calculated
using the adjusted production volume, with the same mix adjustment factors as
used in the selling price calculation. Adjusted production volumes, against
which we calculate asset utilisation, were 4% higher than adjusted sales
volumes as we increased inventory during the final quarter of the year in
anticipation of strong demand in the first few months of 2024. Efficiency
gains in manufacturing during the year added 2% to the effective capacity of
the Group.
3. Group operating margin increased to 11.9% (2022: 10.9%). In constant currency,
the operating margin was 12.1%. The full-year impact of price increases from
2022 and lower input costs were augmented by improved efficiencies within
manufacturing, offset somewhat by an increase in technical, sales and
administration costs, some associated with the increased investment in
ReZorce. Excluding MEL/ReZorce, operating margin was 15.5% (2022: 12.7%) or
15.7% in constant currency.
4. Group return on capital employed improved to 10.3% (2022: 10.1%), with
increased profitability of the Polyolefin Foams and HPP business units offset
by the increased losses of MEL as noted above. Excluding MEL/ReZorce, return
on capital employed was 14.2% (2022: 12.0%). Working capital at the year-end
accounted for 45% of net assets (2022: 38%), with this significant increase
due primarily to investment in inventory in anticipation of demand in Q1 2024
and higher raw material prices for certain HPP products.
5. Our approach to environmental sustainability and climate change is paramount
to our business. Led by the Board and with an executive steering committee,
sustainability is embedded in decision making Group-wide. A detailed ESG
report is included within the Annual Report and further information is
available at www.zotefoams.com (http://www.zotefoams.com) . Targets are linked
to our bank financing arrangements, and these are supplemented by internal
targets in relation to other ESG metrics. We have not yet set a "net zero"
target as we believe that detailed measurement of Scope 3 emissions reduction
using our products is complex and ever-changing, when compared to the
best-available alternative technology, while the validity of offsetting
arrangements are increasingly being challenged. However, we are committed to
specifically reviewing this during our annual Board strategy session and the
Executive team, through our Group Sustainability Steering Committee, is
evaluating the approach to net zero.
6. MEL has potentially disruptive technology to improve sustainability, primarily
in consumer packaging. We intend to invest within the Group's risk appetite to
develop and commercialise this technology, which at this time is focused on
ReZorce mono-material barrier packaging specifically for beverage cartons.
With initial market trials imminent, we are turning our focus to full-scale
commercialisation and engagement with potential strategic partners to
facilitate this.
People
Our top priority is ensuring the health and safety of employees and site
visitors. The Board tolerance for risk is set accordingly, with health and
safety an agenda item at every Board and Executive Committee meeting. We
monitor both leading and lagging indicators to improve safety performance and
behaviours across the Group. At Board level, the main safety metric in our
business is reportable lost time incidents and, regrettably, we had one such
incident during the year (2022: 2). In line with our policy, a full follow-up
and analysis with corrective actions was reviewed by the Board. Other metrics,
which record less severe incidents and absences, have now been significantly
below industry benchmarks for six years, representing the time elapsed since
we began using this form of measurement, with measured incidents around one
third of the rate of comparable companies.
Employee engagement is another priority and is delivered through clear
communication of our strategy, objectives and progress, which includes
interactive sessions and staff surveys to facilitate feedback. Employee
engagement activities included Group CEO "all-staff briefings" across all
regions with a Q&A session.
On behalf of the Board and my executive colleagues, I would like to thank all
Zotefoams employees and their families for their support over the past year.
Forward-looking statements
Forward-looking statements have been made by the Directors in good faith
using information available up until the date they approved these preliminary
results.
Current trading and outlook
"We have made a positive start to 2024, with overall sales ahead of the
previous year's record first quarter. Sales of HPP products have, thus far,
been strongly ahead of the prior year, with expectations for continued
strength in H1 2024 and more muted growth after this, mainly linked to in-year
footwear demand patterns and underlying improvements in the markets for
aviation and T-FIT insulation products. To date, sales of polyolefin foams
are below the comparative period in the prior year, with European customers
particularly impacted by weaker industrial demand, partially offset by more
robust conditions in North America. We are cautiously optimistic about the
underlying demand environment for polyolefin foams later in the year,
supported by a business focus on application-specific initiatives to increase
market share. Currently, polymer and energy input prices remain relatively
stable and therefore, other than in non-footwear HPP where prices have
increased based on raw material price inflation experienced in 2023, we do not
anticipate any uplift in selling prices this coming year. Improved asset
utilisation, product mix and operational efficiency are our key drivers of
margin enhancement. In our MEL business unit, we continue to make good
progress against the commercialisation objectives we have set for ReZorce,
with some important milestones expected to be reached in Q2. Investment to
support this will continue during 2024 as we determine the optimal pathway to
realising the opportunity presented by this technology. As a result, and while
we remain mindful of the uncertain economic backdrop, 2024 is expected to be
another year of good progress for Zotefoams".
D B Stirling
Group CEO
19 March 2024
Group CFO's review
Gary McGrath
Group CFO
A significant increase in profitability within the foams business, as we fill
our new capacity and enrich our product mix. This is offset by increased costs
in our ReZorce(®) mono-material barrier packaging solution as we reach
late-stage development and market testing
Summary Group P&L
Zotefoams Group Foams business units only
2023 2022 Change (%) 2023 2022 Change (%)
Net revenue 127.0 127.4 0 125.7 124.6 1
Gross profit 41.1 38.7 6 42.5 38.6 10
Distribution and administrative costs (25.9) (24.8) (5) (23.1) (22.8) (1)
Operating profit 15.1(1) 13.9 9 19.5 15.8 23
Finance costs (2.3) (1.8) (34) (2.3) (1.8) (34)
Profit before tax 12.8 12.2 5 17.2 14.1 22
Tax (3.6) (2.2) (62)
EPS 19.00 20.61 (8)
(1)Adjusted for rounding
Overview
Group revenue was broadly similar year-on-year at £127.0m (2022: £127.4m),
with £0.5m favourable currency impact. Margin management in the Polyolefin
foams business and a challenging H2 2023 environment took revenue 4% and
volumes 7% below the previous year, while HPP revenue grew 7% on 12% volume
growth. Excluding MuCell Extrusion LLC (MEL), Group revenue grew 1% to
£125.7m (2022: £124.6m).
Operating profit for the year grew 9% to £15.1m and profit before tax (PBT)
increased 5% to a Group record of £12.8m, after higher interest charges. The
underlying foams business, comprising the Polyolefin Foams and
High-Performance Foams business units, achieved a significant increase in PBT
of 22% to £17.2m (2022: £14.1m), while MEL losses increased to £4.4m (2022:
£1.9m).
Basic earnings per share fell 8% to 19.00p as a result of the higher tax
charge of £3.6m (2022: £2.2m), which reflects the increase in corporation
tax in the UK that took effect from 1 April 2023 and the mix of profits across
Group entities. Currency movements negatively impacted PBT by £0.5m.
Return on capital employed (ROCE, see below for definition) increased to 10.3%
(2022: 10.1%). Excluding MEL, which is generating losses as the Group invests
in ReZorce, but with continued investment contingent on progress and expected
outcome, ROCE increased to 14.2% (2022: 12.0%).
The Group's balance sheet at 31 December 2023 remains strong, with the
leverage multiple (calculated as a multiple of net debt to EBITDA using
definitions under the bank facility agreement, see section "Debt facility")
unchanged at 1.2x (31 December 2022: 1.2x) and financial headroom of £19.4m
(31 December 2022: £22.9m). This is after a £1.7m (7%) increase in EBITDA
to £24.7m (2022: £23.0m), increased investment in working capital of £11.1m
(2022: £0.3m), see "cash flow" below, capital expenditure of £8.5m (2022:
£7.1m) and total dividends of £3.4m (2022: £3.2m).
Revenue performance
Polyolefin Foams business unit sales fell 4% to £67.6m (2022: £70.1m) and at
constant currency, by 5% to £66.7m. This reflects a drive to maintain margins
through close collaboration with customers and identify the right product for
the right application, including promotion of the Group's recycled EcoZote(®)
foam range. European revenues grew 2% and US revenues were unchanged, while
the UK declined 18% as key customers reduced inventory. HPP sales increased 7%
to £58.1m (2022: £54.4m) and by 8%, to £58.6m, at constant currency.
Footwear is the largest application within HPP and revenue in this market grew
a further 7% to £45.3m (2022: £42.1m), resulting in this business division
accounting for 36% of Group sales (2022: 33%). ZOTEK F fluoropolymer foam
sales closed the year 6% up at £6.5m (2022: £6.2m), still significantly
below the 2019 peak of £10.0m as the recovery in aviation continues. T-FIT
advanced insulation sales growth stalled at £5.9m (2022: £5.8m), with a
downturn in demand in China following the withdrawal of support for the
pharmaceutical industry by the country's government fully offset by very
strong growth in India. MEL sales fell sharply during the year, by £1.6m to
£1.2m (2022: £2.8m), with reduced equipment sales and reduced royalties
impacted by the Group's focus on realising the ReZorce mono-material barrier
packaging initiative.
Revenue by segment (£m)
2023 2023 2022 Net change %
Reported Adjusted(1) Reported
Reported Adjusted
Polyolefin Foams 67.6 66.7 70.1 (4) (5)
UK 10.9 10.9 13.2 (18) (18)
Europe 30.7 30.0 30.2 2 (1)
USA 22.5 22.4 22.4 0 0
Rest of the world 3.5 3.4 4.3 (17) (19)
HPP 58.1 58.6 54.4 7 8
Footwear 45.3 45.3 42.1 7 7
ZOTEK® F 6.5 6.7 6.2 6 9
T-FIT® 5.9 6.1 5.8 1 6
Other 0.4 0.5 0.3 - -
Group excluding MEL 125.7 125.3 124.6 1 1
MEL 1.2 1.3 2.8 (56) (54)
Group 127.0(2) 126.6 127.4 0 (1)
(1) Constant currency, adjusting 2023 values to 2022 rates. See exchange rates
table.
(2) Adjusted for rounding.
Revenue by market (%)
2023 2022
Sports and leisure 39 37
Product protection 22 23
Building and construction 12 13
Transportation* 11 12
Industrial 5 6
Medical 6 5
Other 5 4
* Within the transportation segment, aviation represented 6.4% (2022: 7.6%)
and automotive 5.0% (2022: 4.8%) of Group revenue.
Gross profit
Gross margin increased to 32.3% (2022: 30.4%), representing an increase of
£2.3m in absolute terms to £41.1m. Excluding MEL, gross margin was 33.9%
(2022: 31.0%), or a £4.0m increase in absolute terms.
The Polyolefin Foams business unit in the UK and Europe focused on maintaining
the operating margins it was achieving by the end of the previous year, which
came after a number of price increases had been implemented to offset the
rapid cost inflation experienced across most inputs. While raw material costs
reverted to more normal levels during 2023, the inflationary effects of almost
every other input cost, including labour, offset much of the benefit. Energy
costs held at historic high levels, amounting to £8.0m in the year (2022:
£7.3m), after having been £4.8m in 2021. Labour costs rose significantly,
with the annual pay increase in the UK, the largest employer across the Group,
being 7% to help alleviate the cost-of-living crisis. Margin management for
the business unit included working closely with our customers to find the
optimal product at the optimal price point for the customer's need. The US
business focused on and succeeded in identifying and implementing operational
efficiencies, with the support of a stronger local team and increased
collaboration with the UK-based team.
Distribution and administrative costs breakdown
2023 2022 Change (%)
Distribution costs 7.9 8.0 1
Administrative costs excluding hedging movements 17.7 15.0 (19)
Hedging movements 0.3 1.8 84
Administrative costs 18.0 16.8 (7)
Distribution and administrative costs 25.9 24.8 (5)
Distribution and administrative costs
The Group has a clear expansion strategy, founded on proprietary cellular
materials technology linked to longer-term demand growth in our chosen
markets. Organic growth with a portfolio of unique and highly differentiated
products requires that we invest in, and prioritise, technical, sales-focused
and administrative resources to create, execute and manage this growth.
Included within distribution costs in the consolidated income statement are
sales, marketing and warehousing expenses. These costs decreased by £0.1m, or
1%, to £7.9m (2022: £8.0m) during the year, with lower offsite warehousing
costs offsetting inflationary costs such as labour. Included within
administrative expenses are technical development, finance, information
systems and administration costs as well as the impact of foreign exchange
hedges maturing in the period and non-cash foreign exchange translation
expenses. These costs increased in 2023 by £1.2m, or 7%, to £18.0m (2022:
£16.8m). However, after stripping out foreign exchange effects, which
generated a movement of £0.3m (2022: £1.8m), these administrative costs
increased by 19%, or £2.7m, to £17.7m (2022: £15.0m), with £0.9m of the
increase related to the Group's investment in its ReZorce technology and the
majority of the rest related to labour additions and cost increases. See
"Currency review" below for further information and context around foreign
exchange movements.
The business unit results do not include central plc costs, which are not
considered to be segment specific. Neither do they include hedging movements.
In 2023, central plc costs were £3.1m (2022: £2.5m).
Operating profit
Operating profit was £15.1m, 9% above 2022 (£13.9m) and the operating margin
increased to 11.9% from 10.9%. Operating profit of the foams business alone,
excluding MEL, was £19.5m, 23% above 2022 (£15.8m) and the operating margin
increased to 15.5% from 12.7%.
Finance costs
Gross finance costs for the year increased 40% to £2.5m (2022: £1.8m) and
include £0.1m (2022: £0.1m) of interest on the Defined Benefit Pension
Scheme obligation. This increase reflects the rise during the year
in US dollar and euro base rates, which are the currencies in which the
Group's debt obligations are held, while the prior year comparative included
£0.3m related to unamortised costs of the previous banking facility, replaced
in March 2022. Net finance costs, after finance income, increased 34% to
£2.3m (2022: £1.8m).
Profit before tax
Profit before tax increased 5% to £12.8m (2022: £12.2m). The foams business
increased 22% to £17.2m (2022: £14.1m), while the MEL loss increased to
£4.4m (2022: £1.9m).
Profit by segment (£m)
2023 2023 2022 Net change %
Reported Adjusted* Reported
Reported Adjusted
Polyolefin Foams 7.5 7.0 4.9 52 42
HPP 15.4 16.1 15.3 1 5
MEL (4.4) (4.3) (1.9) (130) (127)
Subtotal Business units 18.5 18.8 18.3 1 2
Central costs (3.1) (3.1) (2.5) (22) (22)
Hedging (0.3) - (1.8) - -
Finance costs (2.3) (2.3) (1.8) (34) (32)
Subtotal Other (5.7) (5.4) (6.1) (7) (12)
Group excluding MEL 17.2 17.7 14.1 22 25
Group 12.8 13.4 12.2 5 9
* Constant currency, adjusting 2023 values to 2022 rates. See exchange rates
table above.
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars and euros. The exchange rates
used to translate the key flows and balances were:
2023 2022
Average Closing Average Closing
Euro/sterling 1.150 1.150 1.173 1.129
US dollar/sterling 1.243 1.271 1.238 1.204
While movements in foreign exchange rates can have a significant impact on
Group results, the impact in 2023 was limited. During the year, the sterling
average exchange rate year-on-year against the US dollar strengthened by 0.4%
and the sterling average exchange rate against the euro weakened by 2.0%.
The sterling spot rate against the US dollar from 31 December 2022 to 31
December 2023 strengthened by 5.6%, while the sterling spot rate against the
euro from 31 December 2022 to 31 December 2023 strengthened by 1.9 %.
Zotefoams is a predominantly UK-based exporter which invoices in local
currency with the exception of Asia, where all business is invoiced in US
dollars. In 2023, approximately 92% of sales (2022: approximately 90%) were
denominated in currencies other than sterling, mostly US dollars or euros.
While operating costs at the Croydon, UK, site are incurred in sterling, the
main raw materials for polyolefin foams used for production in the UK are
euro-denominated and US subsidiary production and operating costs, most other
subsidiaries' staff and operating costs and some HPP raw materials are US
dollar-denominated. Poland operating costs are incurred in zloty. The Group
uses forward exchange contracts to hedge up to 80% of its forecast net cash
flows over the following twelve months that are subject to US dollar and euro
transaction risk.
The Group recorded a gain on forward exchange contracts in the year of £0.2m
(2022 loss: £2.9m).
Zotefoams also faces translation risk. Zotefoams plc, the parent company,
holds the Group's multi-currency borrowings facility and has provided
intercompany loans and intercompany trading facilities to the USA and Poland
to support the Group's recent capacity expansion projects. This translation
exposure is mitigated, where possible, through an offset with same-currency
liabilities, primarily through borrowing in the relevant currency. Every
month, these foreign currency-denominated intercompany net positions, despite
being cash neutral, require to be translated by Zotefoams plc on a mark to
market basis and the movement taken to the Company income statement. The Group
also has a fast-growing HPP business, which is mostly invoiced from the UK in
US dollars, which adds to its exposure to foreign currency-denominated net
assets and is accounted for in the same way as above. While FX exposure is
partly mitigated by the forward currency contracts, risk remains based on the
amount of forecast exposure not hedged, in line with Group policy, and the
fact that there is a timing difference between the recording of accounts
receivable and cash received. This timing difference is managed by further
hedging activities, but their effectiveness is subject to the accuracy of
forecasting cash receipts. The Group recorded a translation loss in the year
of £0.5m (2022 gain: £1.0m).
Currency movements during the year positively impacted Group revenue by £0.5m
(2022: £7.6m positive impact). They negatively impacted operating costs by
£0.7m (2022: £3.2m negative impact), resulting in a net negative impact of
£0.2m (2022: positive impact £4.3m) before hedging. After deducting the net
hedging loss of £0.3m (2022: loss of £1.8m), the currency net negative
impact on profit before tax for the year was £0.5m (2022: positive impact
£2.5m).
We recognise that one of our principal risks is our exposure to foreign
currency fluctuations, particularly the US dollar, which we will aim to manage
through hedging strategies. Based on 2023 and with respect to transaction
risk, it is estimated that for every one percentage point movement in the US
dollar/sterling rate, profit moves by £0.6m unhedged and £0.2m hedged. In
the year, it is assumed that the transaction risk from euro/sterling movements
continues to be substantially naturally hedged, with the risk arising on sales
revenues offset by the opportunity on costs, primarily related to raw material
purchases and certain further processing costs.
The Group does not currently hedge for the translation of its foreign
subsidiaries' assets or liabilities. The foreign currency hedging policy is
kept under regular review and is formally approved by the Board on an annual
basis.
Taxation charge and earnings per share
The tax charge for the year is £3.6m (2022: £2.2m). The effective tax rate
for the year is 28.0% (2022: 18.1%) and the Group's weighted average corporate
tax rate for the year is 24.8% (2022: 19.5%). The tax charge reflects the
increase in the UK corporation tax rate to 25% that took force on 1 April 2023
and the Group's prudent approach to not recognising tax losses in its US
subsidiaries (that are driven by MEL).
Impacted by the tax charge and despite increased PBT, basic earnings per share
was 19.00p (2022: 20.61p), a decrease of 8%. Diluted earnings per share was
18.55p (2022: 20.20p).
ReZorce
The ReZorce technology being developed by MEL offers brand owners the ability
to significantly reduce their carbon footprint and also help meet their
pledges on both recycling and the use of recycled content in their packaging,
putting sustainability at the heart of our MEL development agenda. During the
year, Zotefoams continued its investment in this opportunity. In line with IAS
38 'Intangible assets', £2.5m (2022: £1.4m) was invested in labour and other
directly attributable costs and capitalised. The Group also invested £0.3m
(2022: £0.8m) during the year to purchase and develop equipment, which has
been recorded under tangible assets. In total, capitalised investment in
ReZorce amounted to £2.8m during 2023 (2022: £2.2m), and the net book value
at 31 December 2023 of amounts capitalised over the life of the project
amounts to £6.8m (2022: £4.7m). In addition to the investment capitalised
and driven by the focus on ReZorce and developments and progress made during
the year, MEL reported a loss before tax of £4.4m (2022: £1.9m). The total
cash outflow from MEL in the year amounted to £5.5m (2022: £3.9m).
The Board does not currently consider any of these assets to be impaired,
given the progress made in technical development, the signing of a joint
development agreement with a global packaging company and the contributions
this is making to progress, the preparations under way for an imminent
in-store trial at a recognised supermarket chain in northern Europe, the
assessed size of the commercial opportunities, and the Board's continuing
commitment to the initiative.
Capital allocation
The discipline with which a company allocates capital is a key determinant of
growth and sustained financial returns. The Board is actively engaged in this
process. Zotefoams focuses on achievable sustainable profit growth by
investing and developing its business in the following ways:
Capital expenditure in foam manufacturing
Given the capital-intensive nature of the Zotefoams business, long lead times
for key equipment and the importance of operational gearing, investment
decisions require significant planning and are made with a clear assessment of
strategic fit, risk, risk appetite, sustainability credentials and expected
returns. Confidence in the Group's developing portfolio of HPP opportunities
is a significant consideration in determining the timing of certain
investments, while the strategic importance of maintaining growth in the
profitable Polyolefin Foams business, the Group's largest volume product
range, informs the decision to increase total Group capacity versus relying
solely on mix enrichment. Outside significant capacity-related investments,
the Group also invests to maintain its capital-intensive assets, mindful of
the risk of operational disruption and opportunities to improve energy
efficiency and further reduce health and safety risk, particularly at the
older UK facility. The annual and five-year capital requirements planning
outcomes, as well as progress against them, are reviewed by the Board and
individual projects of a certain expenditure level require Board approval
beyond that given in the normal annual Budget cycle.
Zotefoams targets improvements in the Group's return on capital over the
investment cycle, while recognising the short-term impact on the return of
sizeable capital investments during their construction and early operations
phases, where they initially run at lower utilisation and mix optimisation
levels. When Zotefoams embarks on investment in a major expansion or new
location, such as the installation of extrusion and high-pressure capability
at our existing Kentucky, USA site, which we commissioned in 2018, or the most
recent investment in foam manufacturing at the Poland site, commissioned in
2021, we take into account the importance of scale and dilution of heavy
infrastructure cost over a (future) second or third line. As such, the first
step is invariably more dilutive to capital return than any subsequent
investments.
Research and development
Zotefoams is an innovator in advanced technical foams and pursues a strategy
to continuously develop a portfolio of products that leverages its unique
technology. Dedicated teams actively pursue raw material and new product
development opportunities that further the technical performance and
sustainability attributes of the product portfolio. Performance is reviewed at
quarterly risk and opportunity steering committees which include the Executive
team, and the Director of Technology and Development engages frequently with
the Board.
The Group is currently pursuing, and investing significantly behind, a
transformative mono-material barrier packaging solution through its MEL
business unit, branded as ReZorce. In this pre-revenue development phase,
overall capital returns are diluted as a result of both the operating profit
charge as well as the capital investments made, but the initiative offers
significant potential if the technology is adopted.
Working capital
The business requires investment in working capital to achieve high levels of
customer service and targeted margins. Customer payment terms reflect the
competitive environment of each of the geographical and industrial markets in
which the Group plays, as well as historical terms with long-term customers
who have been integral to growth over the past 1-2 decades. Inventory levels
reflect the value of the raw materials, the length of the supply chain and the
volume of inventory required to achieve targeted customer satisfaction levels.
Growing beyond the space-restricted site in the UK, as well as growing HPP at
a faster rate than Polyolefin Foams and where supply chains are longer,
technical testing is required, the customer is often more strategic, and raw
material purchase costs are significantly higher, is increasing the investment
required in inventory. The Group's main suppliers are either large
multinational polymer manufacturers or energy companies, where the ability to
negotiate credit terms is limited. The Board receives monthly financial
updates, which include performance on working capital against the annual
budget and the quarterly forecasts, both of which are reviewed and approved by
the Board.
Dividend
The Board has a progressive dividend policy, recognising the importance to our
shareholders of the dividend as part of their overall return while ensuring
sufficient capital and liquidity to pursue its growth ambition. A minimum
earnings cover of 2x is targeted. The Board regularly reviews this policy as
the Group grows and capital expenditure demands a lower share of the cash
generated.
Non-organic growth
The Group's strategy focuses on leveraging its unique technology, filling
assets and enriching the product sales mix. While it is open to non-organic
opportunities, it has not pursued them in the past. This may change with the
availability of capital from a growing business with reducing debt, the long
lead-time associated with major capacity expansion, and the ambition to
maintain a rate of growth that generates high shareholder returns.
Recent investment in capacity
Starting in 2015 with a programme to add the first and second stages of the
Zotefoams manufacturing process into the USA, continuing with the addition of
HPP capacity in the UK to support the Footwear opportunities and ending with
the commissioning of the Brzeg, Poland, manufacturing facility in 2021,
Zotefoams experienced a period of high capital investment. Over this period,
we invested £91.4m in property, plant and equipment, of which £67.1m, or
73%, was directed to growth. With this programme complete, and over the medium
term, the Group expects to return to levels of capital expenditure more in
line with depreciation.
Return on capital employed (ROCE)
Zotefoams defines the return on capital employed (ROCE), which is a non-IFRS
measure, as operating profit before exceptional items divided by the average
sum of its equity, net debt and other non-current liabilities. This measure
excludes acquired intangible assets and their amortisation costs. We also
exclude significant capacity investments under construction until they enter
production. We do not attempt to adjust for the first phase inefficiencies as
mentioned above.
In 2023, the Group's ROCE increased to 10.3% (2022: 10.1%), mostly reflecting
improved profitability in the year. Excluding MEL, which is incurring
significant discretionary losses as we invest in a significant opportunity
that could generate very high future returns, ROCE increased to 14.2% (2022:
12.0%). Before the increase in the capital base that resulted from our
investments in the UK, USA and Poland, the additional operating costs arising
from their operation, and the start of investment in ReZorce, ROCE was 16.5%
(2018). Business growth, with this increased capacity matched by improved
utilisation and mix enrichment, is expected to improve ROCE beyond
that previously achieved, excluding the outcome of the ReZorce project which
it is not possible to quantify at the current stage of its development.
Dividend
The Directors are proposing a final dividend of 4.90p (2022: 4.62p), which
would be payable on 3 June 2024 to shareholders on the Company register at
the close of business on 3 May 2024. The ex-dividend date will be 2 May 2024.
Taken with the interim dividend of 2.28p (2022: 2.18p), this would bring the
total dividend for the year to 7.18p (2022: 6.80p) and would represent a
dividend cover of 2.6 times (2022: 3.0 times).
Cash flow
Summary cash flow
2023 2022
Profit before tax 12.8 12.2
Depreciation and amortisation 8.2 8.2
Other 3.1 3.7
Net cash from operations before provisions and investment in working capital 24.1 24.1
Employee defined benefit contributions (0.9) (0.8)
Working capital movement (11.1) (0.3)
Receivables (3.8) (4.8)
Inventory (6.3) 0.4
Payables (1.0) 4.1
Cash generated from operations 12.1 23.0
Interest paid (2.1) (1.3)
Taxation paid (2.2) (0.7)
Investments in intangible assets (2.7) (1.7)
Investments in tangible assets (5.8) (5.4)
Dividends (3.4) (3.2)
Movement in finance obligations 0.4 (7.8)
Lease payments (0.8) (0.4)
Other 0.1 -
Movement in cash and cash equivalents (4.2) 2.5
The Group is by its nature highly cash generative and, this year, net cash
from operations before investment in working capital and provisions was
£24.1m, in line with the previous year (2022: £24.1m). This includes an
additional £1.4m tax charge as well as the increased loss in MEL of £2.5m as
we progress to in-store trials in H1 2024. Out of this, £11.1m (2022: £0.3m)
was reinvested in working capital. Trade and other receivables increased
£3.8m (2022: increased £4.8m), reflecting increased sales in November and
December against the previous year and the year-end timing of certain sizeable
Footwear customer receipts. Inventories increased £6.3m (2022: decreased
£0.4m), with £2.2m reflecting a strategic build of footwear and European
polyolefin foam to capitalise on available capacity in H2 2023 and in
anticipation of high levels of capacity utilisation in 2024. It also reflected
a significant increase in ZOTEK(®) F inventory value as a result of a near
doubling of unit purchase price during the year. Trade and other payables
decreased £1.0m (2022: increased £4.1m) reflecting general payment timings.
Zotefoams recognises the importance of its supplier relationships and has
improved its performance with respect to honouring agreed payment terms. As a
result of the above, cash generated from operations was significantly lower
than the previous year at £12.1m (2022: £23.0m).
During the year, the Group paid interest on its borrowings of £2.1m (2022:
£1.3m), reflecting increased base rates on similar average debt levels across
much of the year. Net taxation paid during the year, net of refunds, amounted
to £2.2m (2022: £0.7m), reflecting higher profits at the Company alongside
an increased corporation tax rate, and compared against a 2022 tax credit of
£0.8m from a tax computation refund and capital allowance recovery from
previous years.
Zotefoams' property, plant and equipment capital expenditure remained at a
lower level than in recent history, as expected, following several years of
capacity expansion, with total expenditure of £5.8m (2022: £5.4m).
Expenditure was split across several categories, the most significant being
41% on essential replacement and 26% on capacity expansion. ESG initiatives
were a key component of capital expenditure in the year with 65% of
expenditure offering benefits through improved energy efficiency, safety or
reduced waste. Geographically, 68% was directed to our Croydon, UK plant and
18% to our Walton, USA plant.
The Group also invested £2.7m (2022: £1.7m) in intangible assets, almost
entirely related to MEL patents and capitalised development costs for ReZorce.
The combined investment of £8.5m (2022: £7.1m), is in line with the Group's
combined depreciation and amortisation charge (2023: £8.2m).
After dividends paid in the year amounting to £3.4m (2022: £3.2m) and lease
payments of £0.8m (2022: £0.5m), closing net debt rose 14% to £31.6m (2022:
£27.8m). At the year end, the Group remains comfortably within its bank
facility covenants, with a multiple of EBITDA to net finance charges of 11.2
(2022: 13.7), against a covenant minimum of 4 (2022: 4), and net debt to
EBITDA (leverage) multiple of 1.2 (2022: 1.2), against a covenant of 3.5
(2022: 3.5). See "Debt facility" for a definition of leverage and information
on the Group's bank facility arrangements.
Debt facility
The Group's gross finance facilities with Handelsbanken and NatWest comprise a
£50.0m multi-currency revolving credit facility with a £25.0m accordion, a
renewal date of March 2027, an interest rate ratchet and includes a small
element related to the achievement of sustainability targets. The facility has
two covenants: a finance cost covenant with a multiple of 4.0 and a leverage
covenant with a multiple of 3.5.
At 31 December 2023, headroom, which we define as the combination of amount
undrawn on the facility and cash and cash equivalents disclosed on the
Statement of Financial Position, amounted to £19.4m (2022: £22.9m).
Zotefoams defines EBITDA as profit for the year before tax, adjusted for
depreciation and amortisation, net finance costs, the share of profit/loss
from its joint venture and equity-settled share-based payments.
Net debt comprises short- and long-term loans less cash and cash equivalents
and is adjusted from IFRS by the impacts of IFRS 2 and IFRS 16 under the bank
facility definition.
Group banking covenants definition
Net debt to EBITDA ratio (Leverage)
£m 2023 2022 £m 2023 2022
Profit after tax 9.2 10.0 Net debt per IFRS 31.6 27.8
Adjusted for: IFRS 16 leases (1.3) (1.0)
Depreciation and amortisation 8.2 8.2 Finance leases pre-1 January 2019 - -
Finance costs 2.5 1.8 Roundings (0.1) -
Finance income (0.2) (0.1) Net debt per bank 30.2 26.8
Share of result from joint venture - -
Equity-settled share-based payments 1.3 0.8
Taxation 3.6 2.2
Roundings 0.1 0.1
EBITDA 24.7 23.0 Leverage per bank 1.2 1.2
EBITDA to net finance charges ratio
£m 2023 2022 £m 2023 2022
EBITDA, as above 24.7 23.0 Finance costs 2.5 1.8
Finance income (0.2) (0.1)
Share of result from joint venture - -
EBITDA to net finance charges 11.2 13.7 Net finance charges 2.3 1.7
Post-employment benefits
The Company operates a UK-registered trust-based defined benefit pension
scheme, ("DB Scheme"), that provides defined benefits. Pension benefits are
linked to the members' final pensionable salaries and service at their
retirement (or date of leaving if earlier). The DB Scheme was closed to new
members in 2001, as was the link to future accrual of salary in 2005.
Inconsistencies in the way the DB Scheme's link to future accrual of salary
was closed in 2005 were rectified in 2019. There are three categories of
pension scheme members:
· deferred members with salary linkage: current employees of the Company who
have not consented to the break in their salary linkage;
· deferred members: former and current employees of the Company not yet in
receipt of pension; and
· pensioner members: in receipt of pension.
The last full actuarial valuation of the ("DB Scheme") took place as at 5
April 2020. On a Statutory Funding Objective basis, a deficit was calculated
for the DB Scheme of £7.7m (previous triennial valuation: £4.2m). As a
result, the Company agreed with the Trustees to make contributions to the DB
Scheme of £643,200 p.a, beginning 1 July 2021, to meet the shortfall by 31
October 2026 (previously 31 October 2026), up from £492,000 p.a. previously.
In addition, the Company pays the ongoing DB Scheme expenses of £216,000 per
annum (previously £180,000 p.a.) to cover death-in-service insurance
premiums, the expenses of administering the DB Scheme and Pension Protection
Fund levies associated with the Scheme.
In line with the requirement to have a triennial valuation, a formal
actuarial valuation is being carried out for the Trustees as at 5 April 2023
and, once finalised, the contributions may change.
The defined benefit obligation is valued by projecting the best estimate of
the future benefit from the outlay of monies (allowing for future salary
increases for deferred members with salary linkage, revaluation to retirement
for deferred members and annual pension increases for all members) and then
discounting to the balance sheet date. The majority of benefits receive
increases linked to inflation (subject to a cap of no more than 5% p.a.). The
valuation method used is known as the Projected Unit Method. The approximate
overall duration of the Scheme's defined benefit obligation as at 31 December
2023 was around 12 years. The net IAS 19 deficit on the DB Scheme decreased by
£0.6m to £2.7m as at 31 December 2023 (2022: £3.3m) and represents 2.3%
(2022: 3.0%) of consolidated net assets. The value of the defined benefit
obligation at the year-end increased by £0.4m from £26.1m in 2022 to £26.5m
in 2023 but was more than offset by the actual investment return achieved on
the assets, which grew £1.0m from £22.8m in 2022 to £23.8m in 2023.
Zotefoams does not consider its pension scheme to be a key risk to its ability
to achieve its strategic objectives due to the immaterial share of net assets
that the deficit represents. Mitigation of further risk is expected to come
from our growth expectations and the continued focus by the Trustees on a
lower-risk strategy to meet the DB Scheme's deficit.
Going concern
The Directors believe that the Group is well placed to manage its business
risks and, after making enquiries including a review of forecasts and
predictions, taking account of reasonably possible changes in trading
performance and its available debt facilities, have a reasonable expectation
that the Group has adequate resources to continue in operational existence for
the next twelve months following the date of approval of the financial
statements. The Directors have also continued to draw upon the experiences of
2020 and the Group's success in reacting to the challenges of COVID-19 through
its safety protocols and cost and cash management, all of which could be
replicated in a similar scenario.
After due consideration of the range and likelihood of potential outcomes, the
Directors continue to adopt the going concern basis of accounting in preparing
the Annual Report.
Financial risk management
The main financial risks of the Group relate to funding and liquidity,
credit, interest rate fluctuations and currency exposures.
G C McGrath
Group CFO
19 March 2024
Consolidated income statement
For the year ended 31 December 2023
Note 2023 2022
£'000
£'000
Revenue 2 126,975 127,369
Cost of sales (85,920) (88,639)
Gross profit 41,055 38,730
Distribution costs (7,927) (8,037)
Administrative expenses (17,993) (16,762)
Operating profit 15,135 13,931
Finance costs (2,540) (1,814)
Finance Income 191 56
Share of profit/(loss) from joint venture 54 50
Profit before income tax 12,840 12,223
Income tax expense (3,598) (2,217)
Profit for the year 9,242 10,006
Profit attributable to:
Equity holders of the Company 9,242 10,006
9,242 10,006
Earnings per share:
Basic (p) 19.00 20.61
Diluted (p) 18.55 20.20
Consolidated statement of comprehensive income
For the year ended 31 December 2023
2023 2022
£'000
£'000
Profit for the year 9,242 10,006
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial (losses)/gains on defined benefit pension schemes (88) 584
Tax relating to items that will not be reclassified 22 (146)
Total items that will not be reclassified to profit or loss (66) 438
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation (losses)/gains on investment in foreign (1,885) 3,681
subsidiaries
Change in fair value of hedging instruments 1,712 (3,025)
Hedging (losses)/gains reclassified to profit or loss (192) 2,865
Tax relating to items that may be reclassified (575) 185
Total items that may be reclassified subsequently to profit or loss (940) 3,706
Other comprehensive income for the year, net of tax (1,006) 4,144
Total comprehensive income for the year 8,236 14,150
Total comprehensive income attributable to:
Equity holders of the Company 8,236 14,150
Total comprehensive income for the year 8,236 14,150
Consolidated statement of financial position
As at 31 December 2023
Note 2023 2022
£'000
£'000
Non-current assets
Property, plant and equipment 3 91,743 94,295
Right-of-use assets 1,272 939
Intangible assets 9,418 7,774
Investment in joint venture 207 153
Trade and other receivables 70 122
Deferred tax assets 435 410
Total non-current assets 103,145 103,693
Current assets
Inventories 31,904 26,139
Trade and other receivables 33,002 29,447
Derivative financial instruments 1,264 486
Cash and cash equivalents 6,294 10,594
Total current assets 72,464 66,666
Total assets 175,609 170,359
Current liabilities
Trade and other payables (12,953) (13,500)
Derivative financial instruments (28) (1,550)
Current tax liability (1,078) (226)
Lease liabilities (507) (509)
Interest-bearing loans and borrowings 4 (36,527) (37,446)
Total current liabilities (51,093) (53,231)
Non-current liabilities
Lease liabilities (827) (454)
Deferred tax liabilities (5,270) (3,846)
Post-employment benefits (2,656) (3,290)
Total non-current liabilities (8,753) (7,590)
Total liabilities (59,846) (60,821)
Total net assets 115,763 109,538
Equity
Issued share capital 5 2,442 2,431
Share premium 5 44,178 44,178
Own shares held (12) (5)
Capital redemption reserve 15 15
Translation reserve 4,024 5,909
Hedging reserve 660 (285)
Retained earnings 64,456 57,295
Total equity 115,763 109,538
Consolidated statement of cash flows
For the year ended 31 December 2023
2023 2022
£'000
£'000
Cash flows from operating activities
Profit for the year 9,242 10,006
Adjustments for:
Depreciation and amortisation 8,217 8,245
Loss on disposal of assets 4 283
Finance costs 2,349 1,758
Share of profit from joint venture (54) (50)
Net exchange differences (641) 871
Equity-settled share-based payments 1,335 809
Taxation 3,598 2,217
Operating profit before changes in working capital and provisions 24,050 24,139
Increase in trade and other receivables (3,774) (4,818)
(Increase)/decrease in inventories (6,279) 401
(Decrease)/increase in trade and other payables (1,027) 4,119
Employee defined benefit contributions (859) (859)
Cash generated from operations 12,111 22,982
Interest paid (2,082) (1,255)
Income taxes paid, net of refunds (2,248) (659)
Net cash flows generated from operating activities 7,781 21,068
Cash flows from investing activities
Interest received 191 56
Purchases of intangibles (2,739) (1,724)
Purchases of property, plant and equipment (5,744) (5,368)
Net cash used in investing activities (8,292) (7,036)
Cash flows from financing activities
Repayment of borrowings (1,231) (50,883)
Proceeds from borrowings 1,609 43,044
Payment of principal portion of lease liabilities (753) (499)
Dividends paid to equity holders of the Company (3,350) (3,188)
Net cash used in from financing activities (3,725) (11,526)
Net (decrease)/increase in cash and cash equivalents (4,236) 2,506
Cash and cash equivalents at 1 January 10,594 8,055
Exchange (losses)/gains on cash and cash equivalents (64) 33
Cash and cash equivalents at 31 December 6,294 10,594
Consolidated statement of changes in equity
For the year ended 31 December 2023
Share capital Share premium Own shares held Capital redemption reserve Translation reserve Hedging reserve Retained earnings Total equity
£`000 £`000 £`000 £`000 £`000 £`000 £`000 £`000
Balance as at 1 January 2022 2,431 44,178 (10) 15 2,228 (310) 49,243 97,775
Profit for the year - - - - - - 10,006 10,006
Other Comprehensive Income for the year
Foreign exchange translation gains on investment in subsidiaries - - - - 3,681 - - 3,681
Change in fair value of hedging instruments recognised in other comprehensive - - - - - (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
Balance as at 1 January 2023 2,431 44,178 (5) 15 5,909 (285) 57,295 109,538
Profit for the year - - - - - - 9,242 9,242
Other Comprehensive Income for the year
Foreign exchange translation losses on investment in subsidiaries - - - - (1,885) - - (1,885)
Change in fair value of hedging instruments recognised in other comprehensive - - - - - 1,712 - 1,712
income
Reclassification to income statement - administrative expenses - - - - - (192) - (192)
Tax relating to effective portion of changes in fair value of cash flow - - - - - (575) - (575)
hedges, net of recycling
Actuarial loss on defined benefit pension scheme - - - - - - (88) (88)
Tax relating to actuarial loss on defined benefit pension scheme - - - - - - 22 22
Total comprehensive income for the year - - - - (1,885) 945 9,176 8,236
Transactions with owners of the Parent:
Options exercised - - 4 - - - (4) -
Proceeds of shares issued, net of expenses 11 - (11) - - - - -
Equity-settled share-based payments net of tax - - - - - - 1,339 1,339
Dividends paid 6 - - - - - - (3,350) (3,350)
Total transactions with owners of the Parent 11 - (7) - - - (2,015) (2,011)
Balance as at 31 December 2023 2,442 44,178 (12) 15 4,024 660 64,456 115,763
1. General overview and accounting policies
Basis of preparation
Zotefoams plc (the 'Company') is a public limited company, which is listed on
the London Stock Exchange and incorporated and domiciled in the UK. The
registered office of the Company is 675 Mitcham Road, Croydon CR9 3AL.
The preliminary results (unaudited) (referred to as the 'preliminary results')
include the results of the Company and its subsidiaries (together referred to
as the 'Group'). The preliminary results of the Group have been prepared on
the basis of the accounting policies set out in the statutory financial
statements for the year ended 31 December 2022. Whilst the financial
information included in this announcement has been computed in accordance with
the recognition and measurement requirements of UK adopted international
accounting standards ("UK adopted IAS") and as applied in accordance with the
provisions of the Companies Act 2006, this announcement does not itself
contain sufficient disclosures to comply with UK adopted IAS.
The information for the year ended 31 December 2023 does not constitute
statutory accounts for the purposes of section 435 of the Companies Act 2006.
A copy of the accounts for the year ended 31 December 2022 was delivered to
the Registrar of Companies. The auditors' report on those accounts was not
qualified and did not contain statements under section 498(2) or 498(3) of the
Companies Act 2006. The audit of the statutory accounts for the year ended 31
December 2023 is not yet complete. These accounts will be finalised on the
basis of the financial information presented by the Directors in these
'preliminary results' and will be delivered to the Registrar of Companies
following the Company's annual general meeting.
The preliminary results are prepared on the historical cost basis except for
derivative financial instruments which are stated at their fair value. The
same accounting policies, presentation and methods of computation are followed
in the 'preliminary results' as were applied in the Group's 2022 annual
audited financial statements.
2. Segment reporting
The Group's operating segments are reported in a manner consistent with the
internal reporting provided to and regularly reviewed by the Group Chief
Executive Officer, David Stirling, who is considered to be the 'chief
operating decision maker' for the purpose of evaluating segment performance
and allocating resources. The Group Chief Executive Officer primarily uses a
measure of profit for the year (before exceptional items) to assess the
performance of the operating segments.
The Group manufactures and sells high-performance foams and licenses related
technology for specialist markets worldwide. The Group's activities
are categorised as follows:
· Polyolefin Foams: these foams are made from olefinic homopolymer and copolymer
resin. The most common resin used is polyethylene.
· High-Performance Products (HPP): these foams exhibit high performance on
certain key properties, such as improved chemical, flammability, temperature,
or energy management performance. Revenue in the segment is currently mainly
derived from products manufactured from three main polymer types:
polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and
thermoplastic elastomers. Foams are sold under the brand name ZOTEK(®), while
technical insulation products manufactured from certain materials are branded
as T-FIT(®).
· MuCell Extrusion LLC (MEL): licenses microcellular foam technology and sells
related machinery. It is also currently developing a fully circular solution
for mono-material barrier packaging, which it has branded ReZorce(®).
Polyolefin Foams HPP MEL Consolidated
2023 2022 2023 2022 2023 2022 2023 2022
£'000
£'000
£'000
£'000
£'000
£'000
£'000
£'000
Group revenue 67,596 70,123 58,132 54,439 1,247 2,807 126,975 127,369
Segment profit/(loss) pre-amortisation of acquired intangibles 7,455 4,883 15,418 15,321 (4,098) (1,634) 18,775 18,570
Amortisation of acquired intangible assets - - - - (257) (258) (257) (258)
Segment profit/(loss) 7,455 4,883 15,418 15,321 (4,355) (1,892) 18,518 18,312
Foreign exchange losses - - - - - - (296) (1,844)
Unallocated central costs - - - - - - (3,087) (2,537)
Operating profit 15,135 13,931
Financing costs - - - - - - (2,540) (1,814)
Financing income - - - - - - 191 56
Share of profit from joint venture 54 50 - - - - 54 50
Taxation - - - - - - (3,598) (2,217)
Profit for the year 9,242 10,006
Segments assets 110,374 116,426 50,456 40,358 14,344 13,165 175,174 169,949
Unallocated assets - - - - - - 435 410
Total assets 175,609 170,359
Segment liabilities (37,631) (39,814) (14,363) (15,508) (1,504) (1,427) (53,498) (56,749)
Unallocated liabilities - - - - - - (6,348) (4,072)
Total liabilities (59,846) (60,821)
Depreciation of PPE 5,189 5,422 1,122 1,079 532 369 6,843 6,870
Depreciation of right-of-use assets 422 306 92 70 204 156 718 532
Amortisation 223 386 101 144 332 312 656 842
Capital expenditure:
Property, plant and equipment (PPE) 4,619 3,584 1,421 888 343 785 6,383 5,257
Intangible assets 118 112 56 43 2,565 1,569 2,739 1,724
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis but operate
from UK, USA, European and Asian locations. In presenting information on the
basis of geographical segments, segmental revenue is based on the geographical
location of customers. Segment assets are based on the geographical location
of assets.
United Continental Europe North Rest of Total
Kingdom
£'000
America
the world
£'000
£'000
£'000
£'000
For the year ended 31 December 2023
Group revenue from external customers 11,879 32,514 27,195 55,387 126,975
Non-current assets 42,745 19,815 39,697 246 102,503
Capital expenditure - PPE 4,393 524 1,464 2 6,383
For the year ended 31 December 2022
Group revenue from external customers 13,702 32,374 29,127 52,166 127,369
Non-current assets 41,951 20,943 39,869 367 103,130
Capital expenditure - PPE 3,057 559 1,618 23 5,257
3. Property, plant and equipment
Group
Land and buildings Plant and equipment Fixtures and fittings Under construction Total
£'000 £'000 £'000 £'000 £'000
Cost
Balance at 01 January 2022 45,776 110,791 3,871 4,466 164,904
Additions 13 441 37 4,766 5,257
Transfers 346 5,699 196 (6,241) -
Disposals (535) (3,336) (683) - (4,554)
Effect of movement in foreign exchange 1,798 4,996 141 57 6,992
At 31 December 2022 47,398 118,591 3,562 3,048 172,599
At 1 January 2023 47,398 118,591 3,562 3,048 172,599
Additions 8 77 93 6,205 6,383
Disposals - (941) (194) (44) (1,179)
Effect of movement in foreign exchange (793) (2,451) (73) (91) (3,408)
At 31 December 2023 46,613 115,276 3,388 9,118 174,395
Accumulated depreciation
Balance at 01 January 2022 14,160 56,361 2,982 - 73,503
Depreciation charge 1,374 5,176 320 - 6,870
Disposals (521) (3,139) (680) - (4,340)
Effect of movement in foreign exchange 640 1,521 110 - 2,271
At 31 December 2022 15,653 59,919 2,732 - 78,304
At 1 January 2023 15,653 59,919 2,732 - 78,304
Depreciation charge 1,737 4,862 244 - 6,843
Disposals - (984) (191) - (1,175)
Effect of movement in foreign exchange (331) (925) (64) - (1,320)
At 31 December 2023 17,059 62,872 2,721 - 82,652
Net book value
At 1 January 2022 31,616 54,430 889 4,466 91,401
At 31 December 2022 and 1 January 2023 31,745 58,672 830 3,048 94,295
At 31 December 2023 29,554 52,404 667 9,118 91,743
4. Interest-bearing loans and borrowings
Group Company
2023 2022 2023 2022
£'000
£'000
£'000
£'000
Current bank borrowings 36,527 37,446 36,527 37,446
In March 2022, the Group completed a debt refinancing and selected
Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under
the terms of the new facility, secured against the property, plant and
equipment and trade receivables, the Group's gross finance facility consists
of a £50m multi-currency revolving credit facility with a £25m accordion.
With a 4+1 tenor, the extending year option was taken up in January 2023.
At the end of the financial year, the Group has utilised £36.5m (31 December
2022: £37.4m) of its multi-currency revolving credit facility of £50m. The
total amount of £36.5m, repayable on the last day of each loan interest
period, which is of either a three- or six-month duration, is net of £0.4m
origination fees paid up front and being amortised over four years. The Group
has headroom of £19.4m, being £6.3m cash and cash equivalents, and the
undrawn facility of £13.1m, being the facility of £50m less the drawn-down
balance of £36.5m, less the £0.4m origination fees.
The interest rates on the debt facility ranged between 3.70% and 6.60% in 2023
(2022: between 1.60% and 6.00%).
5. Issued share capital
Issued, allotted and fully paid ordinary shares of 5p each:
Number of shares Par value Share premium Total
£'000 £'000 £'000
At 1 January 2022 and 31 December 2022 48,621,234 2,431 44,178 46,609
Share issue to Employee Benefit Trust 225,000 11 - 11
At 31 December 2023 48,846,234 2,442 44,178 46,620
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled, on a poll, to one vote per share at
meetings of the Company.
6. Dividends and earnings per share
2023 2022
£'000 £'000
Prior year final dividend of 4.62p (2022: 4.40p) per 5.0p ordinary share 2,243 2,131
Interim dividend of 2.28p (2022: 2.18p) per 5.0p ordinary share 1,107 1,057
Dividends paid during the year 3,350 3,188
The proposed final dividend for the year ended 31 December 2023 of 4.90p per
share (2022: 4.62p) is subject to approval by shareholders at the AGM and has
not been recognised as a liability in these financial statements. The proposed
dividend, which would be payable on 3 June 2024 to shareholders on the Company
register at the close of business on 3 May 2024, would amount to £2,382k if
paid to shareholders who are on the Company register as at 31 December 2023
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing consolidated profit
after tax attributable to equity holders of the Company of £9,242k (2022:
£10,006k) by the weighted average number of shares in issue during the year
and excluding own shares held by the EBT which are administered by independent
trustees. The number of shares held in the trust at 31 December 2023 was
244,286 (2022: 107,130). Distribution of shares from the trust is at the
discretion of the trustees. Diluted earnings per ordinary share adjusts for
the potential dilutive effect of share option schemes in accordance with IAS
33 "Earnings per Share".
2023 2022
Weighted average number of ordinary shares in issue 48,643,755 48,551,379
Adjustments for share options 1,161,180 987,750
Diluted number of ordinary shares issued 49,804,935 49,539,129
7. Financial instruments and financial risk management
Capital management
The Group's objectives when managing capital are to safeguard its ability to
continue as a going concern, in order to provide returns for shareholders and
benefits for other stakeholders, and to maintain an optimal capital structure
to reduce the cost of capital. In order to maintain or adjust the capital
structure, the Group can adjust the amount of dividends paid to shareholders,
issue new shares or redeem existing ones or borrow funds from financial
institutions.
The Group monitors capital on the basis of the following leverage ratio: net
borrowings divided by EBITDA (as per bank facility agreement).
Loan covenants
Under the terms of its borrowing facilities, the Group is required to comply
with the following financial covenants:
· The ratio of net borrowings on the last day of the relevant period to earnings
before interest, tax, depreciation and amortisation, share of profit/(loss)
from joint venture, equity-settled share-based payments and exceptional items
(EBITDA) shall not exceed 3.50:1.00 (until 9 March 2022, 3.00:1.00, under the
terms of the previous debt facility).
· The ratio of EBITDA to net finance charges in respect of the relevant period
shall not be less than 4.00:1.00.
The Group has complied with these covenants throughout the financial year.
As at As at
31 December 2023
31 December 2022
£'000
£'000
Net borrowings 30,233 26,852
EBITDA 24,687 22,985
Net borrowings/EBITDA 1.22 1.17
Net finance charges 2,212 1,682
EBITDA/Net finance charges 11.16 13.67
Net borrowings comprise current and non-current interest-bearing loans and
borrowings of £36,527k and cash and cash equivalents of £6,294k.
EBITDA comprises:
2023 2022
£'000
£'000
Profit for the year 9,242 10,006
Depreciation and amortisation 8,217 8,245
Finance costs 2,349 1,758
Share of profit from joint venture (54) (50)
Equity-settled share-based payments 1,335 809
Taxation 3,598 2,217
24,687 22,985
Net finance charges comprise interest income of £191k and finance costs
expensed of £2,403k, which excludes pension interest.
The Group's objective is to maintain leverage below the Board's appetite of
2.0. However, it is prepared to accepted increases in this ratio at times of
sizeable, capacity-related, capital expenditure to support continued growth.
Subject to short-term macro-economic and geopolitical volatility, this is
always expected to reduce quickly back below the Board's appetite, and to
significantly lower levels, as capacity utilisation improves.
The bank covenant definition does not include the impact of IFRS 16 "Leases",
which would have moved the ratio from 1.22 to 1.28.
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