Final Results
Zotefoams PLC
12 March 2002
Tuesday 12th March 2001
Zotefoams PLC
Preliminary Results
Zotefoams PLC, the world's leading manufacturer of cross-linked polyolefin block
foam, today announces its preliminary results for the year ended 31st December
2001.
Summary
• Turnover increased by 10% to £23.0 million (2000: £20.8 million) despite
difficult market conditions in the second half
• Pre-tax profit, pre-exceptional items, up to £2.8 million (2000: £2.3
million)
• Walton site, Kentucky now fully operational
• New technical facilities in place at Croydon site
Commenting on the results, Bill Fairservice, Chairman, said:
'General economic conditions still appear fragile. Whilst we anticipate
short-term growth to be driven by our manufacturing presence in North America
and new marketing initiatives supported by our alliance with Sekisui, margins
will be affected by increases in depreciation and insurance premiums. For the
medium-term, new upgraded technical facilities are now in place and we are in a
position to further our goal of developing new foamed products from high
performance specialty polymers, using our unique technology'.
Enquiries:
Zotefoams plc 020 8664 1600
David Stirling, Managing Director
Clifford Hurst, Finance Director
Financial Dynamics 020 7831 3113
Charlie Armitstead
Chairman's Statement
2001 was a year of intensive investment activity and achievement for Zotefoams.
Site restructuring and rebuilding, following the major fire at Croydon in
October 2000, continued through the year and for operational reasons will not be
completed until late 2002. The new manufacturing facility in Kentucky, USA
became operational in July; and the first part of the Group's Enterprise
Resource Planning (ERP) IT System went live in August 2001 and the remaining
phases will be completed during 2002.
The quality of service to our customers improved through the year as our raw
material and intermediate stock levels were re-established and site
infrastructure improved. Sales growth compared with 2000 was achieved in all of
our major markets. Overall sales growth of 10% was achieved despite a marked
slow-down in the second half-year, particularly in our North American and
Continental European markets.
Results
Profit before tax pre-exceptional items for the year ended 31 December 2001 was
£2.8 million compared to £2.3 million in 2000. The 2000 figure included a one
off write-off of £0.8 million on stock and capital equipment following the
withdrawal from the 3D toy puzzle business and a review of development projects.
Turnover increased by 10% to £23.0 million (2000: £20.8 million).
Earnings per share pre-exceptional items were 5.6p compared with 4.8p in 2000.
Costs and insurance proceeds relating to the fire at our Croydon site in October
2000 have been treated as an exceptional item. The net result is a pre-tax
exceptional profit of £0.7 million. As at 31 December 2001, £6.0 million has
been received from insurers and this is being re-invested in replacing assets
destroyed by the fire. Discussions continue with insurers, particularly on the
lost sales and additional revenue cost elements of the claim and it is
anticipated that further proceeds will be received in 2002.
Profit before tax after exceptional items is £3.5 million and EPS after
exceptionals is 6.9p.
Capital expenditure was £6.1 million associated mainly with fire replacement
assets (£2.5 million) and completion of the US manufacturing plant (£2.8
million).
Dividend
The Directors are recommending a final dividend of 5.0p net per share. This
brings the total dividend for the year to 7.5p and is unchanged from the
dividend in respect of the year ended 31 December 2000.
Board Changes
As announced in the interim report, Mike Lewsey resigned from the Board as
Marketing and Sales Director in June 2001; and from July 2001, I have
relinquished my executive role, but continue as part-time Chairman of the Board.
Ian Buckley has given notice of his resignation as a non-executive Director
immediately after the Annual General Meeting in April 2002.
Employees
On behalf of the Board, I would like to thank all employees for their continued
commitment to Zotefoams, particularly following the busiest year, in relation to
internal activities, in Zotefoams' history.
Future outlook
Although complete recovery from the fire is taking longer than initially
projected, all of the essential assets are now in place to move our strategic
goals forward.
General economic conditions still appear fragile. Whilst we anticipate short
term growth to be driven by our manufacturing presence in North America and new
marketing initiatives supported by our alliance with Sekisui, we expect this to
be offset by cost increases in depreciation and insurance premiums. For the
medium term, new upgraded technical facilities are now in place and we are in a
position to further our goal of developing new foamed products from high
performance speciality polymers, using our unique technology.
WH Fairservice
Chairman
Managing Director's Review
Zotefoams has made significant progress throughout 2001. In the first full year
of our alliance with Sekisui we have grown sales by 10% despite difficult market
conditions throughout the second half of 2001. Our manufacturing facility in
Kentucky, USA began operations in July 2001 and the major redevelopment of our
Croydon site has continued following the fire there in October 2000.
During 2001 Zotefoams also implemented the first phase of a business-wide
Enterprise Resource Planning (ERP) IT system and made significant progress in
refocusing our business development efforts, despite the limited technical
facilities available during the rebuild of our research and development
laboratory.
Results
Profit after tax, excluding exceptional items, increased by 16% on sales growth
of 10%. European markets, where our alliance with Alveo (the European arm of
Sekisui) is particularly strong, were the fastest growing markets with a 15%
sales increase over last year. However, we believe that our efforts to win sales
from former Alveo customers have been badly affected by the fire in October
2000. Sales growth of 8% in North America and 5% in the UK were as a result of
underlying market developments.
Zotefoams' business normally exhibits moderate seasonality with the first half
buoyed by sports and leisure projects and a second half impacted by holiday
periods. However, overall the second half year was weaker than we anticipated
with difficult general economic conditions across all our geographic markets.
The impact on demand in North America was felt early in the second half of 2001
and later, more severely, in continental Europe and the UK.
The overall balance of sales by market segments has changed little from 2000.
Speciality packaging remains the largest market, accounting for around 30% of
sales, with sports and leisure, industrial and construction all in excess of 10%
of sales by volume. Transportation, in particular automotive and aircraft, is
our fastest growing segment as pressures in these industries encourage
manufacturers to look outside traditional materials for high performance
solutions such as the products in the Zotefoams range.
Operations
I am pleased to say our facility in Walton, Kentucky has been fully operational
since July 2001. Sending solid materials to the USA for expansion and onward
shipping to our North American customer base gives us a unique position in this
growing market. North America now accounts for 21% of our worldwide sales and we
expect almost 100% of material for the North American Market to be supplied from
Kentucky in 2002.
The plant also gives us a 'Made in USA' tag which is particularly important in
selling to key government markets, and also improves opportunities in many
commercial organisations within NAFTA with whom we can now deal free of duty.
Our Croydon site has been badly impacted by site restructuring and development
after the fire. As well as the insurance claim for reinstatement of buildings
and plant, we have suffered significantly increased costs to maintain
operations. Where these costs are clearly insurance related (e.g. hire of
portacabins), we have included these within exceptional costs. Where the costs
are judgemental (e.g. increased scrap rates or labour inefficiencies), we have
taken a prudent approach, only classifying a proportion of these costs as
exceptional.
In October 2001 BP closed the autoclave plant at its Wilton site. At that time
Wilton was our largest supplier with approximately 65% of raw materials being
purchased in specified grades from this site. Our policy is to have at least two
sources of supply for all materials where possible and we have now moved
production onto our second supplier. Significant work was required to
successfully identify and specify a new alternative 'second source' LDPE grade
suitable for our full product range.
Rebuilding, plant expenditure and insurance
Buildings
The rebuilding programme at our Croydon site began in early 2001 and is expected
to continue through to late 2002.
Areas only requiring refurbishment, such as the fabrication department, sales,
engineering projects and plant management offices were occupied in late 2001.
Our maintenance workshop, stores and technical laboratory, all of which required
new buildings, become available in early 2002.
In all cases these departments now have new or refurbished facilities which have
been equipped to modern standards.
Our site still suffers significant disruption in the finished goods, storage and
despatch areas. The rebuild of these areas is particularly problematic as, in
order to minimise disruption to customers, despatch operations cannot be stopped
during building work. As health and safety has the highest priority the
rebuilding will be completed in five separate phases to minimise risk. Each
phase requires part of the site to be completely cleared for construction and
only re-occupied when building work is finished. As a result we now expect
completion to be in late 2002, some nine months later than originally planned.
Plant
Most of the damaged plant was in the technical department. The reinstatement of
the destroyed plant with equivalent modern technology and the luxury of being
able to plan from scratch allowed us to specify equipment for technical support
and development of our existing products while adding the flexibility required
for the analysis of a wider range of materials for future development.
In addition to this we have two other major capital programs on our Croydon
site: investment in high-pressure capacity and a new extrusion line.
Commissioning of these projects during 2002 will substantially complete our
investment in additional capacity and, other than maintenance capital or
investment to support technical developments, we do not anticipate any major new
capital requirements in the near future.
Insurance
Other than the additional investment in high-pressure capacity all building and
plant expenditure is subject to insurance claims. However the reinstatement of
our despatch and storage facility involves substantial enhancement and therefore
we anticipate much of this expenditure will not be covered by insurance.
Since the fire our insurance premiums have risen dramatically, from £0.1 million
in 2000, to £0.2 million in 2001 and to £0.5 million in 2002 due to hardening
insurance markets and reassessment of the insurance risks. Fire prevention and
control systems, designed to reduce our risk and due for completion in 2002, are
a significant element of the enhancement expenditure on this part of the site.
Our insurance policy has an eighteen-month indemnity period over which
additional costs of working and any loss of profit can be claimed. The indemnity
period ends on 21 April 2002. Currently, discussions are ongoing with insurers
to quantify these additional costs and the loss of profit. No income has been
recognised in the accounts for any items other than those additional costs
disclosed in note 3 to these accounts. Further insurance receipts, net of
associated costs, will be disclosed as an exceptional item in our 2002 Annual
Report.
Our financial results from 2002 will be negatively impacted by a significant
increase in depreciation as the replacement cost of many assets is substantially
higher than their original cost. We anticipate this additional depreciation will
further increase in 2003 as a full-year's charge is taken on assets commissioned
during 2002.
Development strategy
Our strategy for future development is to build on our strengths in 2 areas:
• Polyolefin foams; and
• High-pressure foaming technology
Polyolefin Foams
Zotefoams produces cross-linked block foams of the highest standard available
anywhere. Our product advantage comes from the unique nitrogen autoclave process
used to expand solid plastic slabs into foam. However product advantage must be
supported by a service capability and marketing approach, ensuring delivery to
customers and markets who value our product advantages.
Polyolefin Foams: Marketing Approach
Zotefoams has occupied a strong market niche for many years. Our materials enjoy
significant performance advantages due to their highly regular cellular
structure. Our foams therefore exhibit improved physical performance in all
major attributes as well as the ease of processing which product consistency
brings. The superior properties are preferred both by our customers (who
typically process materials) and by end-users who appreciate the property
advantages in the final product.
As the applications for polyolefin foams are so varied our approach has been to
sell to our first-line customers, many of whom specialise in defined market
segments, such as sports protection or packaging. The next stage in our
marketing evolution has now begun: seeking collaboration with key customers in
order to access specific markets and increase end-user contact.
Our alliance with Sekisui has helped to accelerate this process, working in
partnership with customers to match the benefits of our materials to market
requirements. We therefore create a powerful selling advantage as our product
provides benefits both to our direct customer and to the end user.
The section below describes some of the key properties of our foams. In the
following table these benefits are shown for both the processors, who are our
primary customers and also in the final application.
Benefit Benefit
Key Property to processor in final product
Purity •• •••
Impact Performance • •••
Durability •• •••
Ease of processing ••• •
Resistance to Environmental Exposure •• •••
Performance to weight ratio • •••
Key
••• Significant benefit
•• Major Benefit
• Minor benefit
Polyolefin Foams: Service Capability
Zotefoams ability to service our customers' needs was severely damaged by the
fire in October 2000. During 2001 progress has been made in restoring inventory
levels and site reinstatement, although the slow planning approval process
significantly delayed the start of rebuilding our despatch facilities. Our plans
are to build a covered warehouse giving substantial benefits in our service
capability through improved material handling and storage.
Alongside this rebuilding program we are running two other investment programs
to enhance customer service.
1. Investment in a company-wide ERP computer system. The first part of this
system went 'live' in August 2001 and work is on-going to enhance customer
service through improved planning and scheduling and web-based information
availability. Implementation of further modules improving the information
available from this system will continue through 2002.
2. High-pressure capacity. Q3 2002 will see the completion of a two year
programme to commission additional capacity in the key process of our business.
This investment will significantly increase operational flexibility across our
whole product range with corresponding improvement in service capability.
High-Pressure: Foaming Technology
Our philosophy is to concentrate resources where the differential advantage of
our process is greatest and the benefit to our shareholders is greatest. The
technology we possess is currently used to foam materials such as low-density
polyethylene. However we are confident that a wide range of other materials can
be foamed using this process and are seeking to identify markets in higher
value-added materials as a key part of our development programme.
To this end, Zotefoams has put in place a new business development structure.
During 2001 Zotefoams recruited Phil Maddox as Head of European Sales &
Marketing and Dr Robert Keller as President of Zotefoams Inc, both of whom have
strong technical backgrounds and bring a wealth of experience in performance
materials outside polyolefin foams. Together with Dr Neil Witten, who has been
with Zotefoams since 1996 and leads our Technical Department, we now have the
skill base in executive management to support this development strategy.
Expenditure on technical research and development increased by over 17% and is
now at the highest level since Zotefoams' flotation in 1995.
We have also increased our technical contact with advanced materials suppliers
to further our goal of developing unique new products in high-performance,
foamed materials. These developments aim to leverage our proprietary technology
to produce materials with superior performance characteristics required by
existing customers, and also by potential new customers.
During the year technical development has been limited by the continuing
rebuilding work underway to replace those areas severely damaged by the fire in
late 2000. This limitation has not stopped the early feasibility work and future
strategy development as described in the previous Annual Report.
In 2001 we clearly identified the route map for future technical and new product
development. This has involved the deployment and focussing of key resources
into the areas of business development through meeting the customers' technical
needs and New Product Development.
As a result 2001 is considered a watershed in technical terms and in the year we
have been able to:
• raise our profile and engage constructively with key suppliers of
speciality resins;
• evaluate at a basic level the foaming of several materials of known
market interest;
• invest some £2m in the reinstatement of our laboratory facilities; and
• specify and test laboratory equipment to offer maximum possible
flexibility and technical capabilities for the future.
Engaging with key speciality materials companies has led to a diverse range of
product development opportunities being identified and evaluated both
commercially and technically. Materials presently considered 'not foamable' have
shown feasibility in our autoclave process. These exciting materials
developments will be pursued during the course of 2002 controlled by our '
pipeline process' for development, test marketing and manufacture.
Taking these developments forward will be a key priority in 2002 as we move
towards our goal of fully exploiting our unique process.
DB Stirling
Managing director
Consolidated profit and loss account
for the year ended 31 December 2001
2001
Pre Exceptional Post
exceptional item exceptional
item (note 3) item 2000
Note £000 £000 £000 £000
Turnover - continuing operations 2 22,975 - 22,975 20,828
Cost of sales (16,227) (2,607) (18,834) (14,265)
Gross profit 6,748 (2,607) 4,141 6,563
Distribution costs (1,984) (135) (2,119) (2,037)
Administrative expenses (1,845) (326) (2,171) (2,175)
Operating profit - continuing operations 2,919 (3,068) (149) 2,351
Profit/(loss) on disposal of fixed - 3,760 3,760 (94)
assets
Profit on ordinary activities before
interest and tax 2,919 692 3,611 2,257
Interest receivable 6 35 - 35 93
Interest payable and similar charges 7 (184) - (184) (42)
Profit on ordinary activities before
taxation 4 2,770 692 3,462 2,308
Tax on profit on ordinary activities 8 (738) (206) (944) (557)
Profit for the financial year 10 2,032 486 2,518 1,751
Equity dividends - paid (906) (906)
Equity dividends - proposed (1,813) (1,813)
Total dividends paid and proposed 9 (2,719) (2,719)
Retained loss for the financial year 19 (201) (968)
Earnings per ordinary share 9 5.6p - 6.9p 4.8p
Diluted earnings per ordinary share 9 5.6p - 6.9p 4.8p
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2001
2001 2000
£000 £000
Profit for the financial year 2,518 1,751
Currency translation differences on foreign currency net investments 308 52
Total recognised gains and losses relating to the year 2,826 1,803
Consolidated balance sheet
as at 31 December 2001
2001 2000
Note £000 £000 £000 £000
Fixed assets
Tangible assets 11 33,920 30,112
33,920 30,112
Current assets
Stocks 13 3,540 2,148
Debtors 14 5,843 5,889
Cash at bank and in hand 245 1,518
9,628 9,555
Creditors: amounts falling due within one year 15 (8,066) (7,349)
Net current assets 1,562 2,206
Total assets less current liabilities 35,482 32,318
Creditors: amounts falling due after more
than one year 16 (2,229) (433)
Provisions for liabilities and charges 17 (5,003) (3,742)
Net assets 28,250 28,143
Capital and reserves
Called-up share capital 18, 19 1,813 1,813
Share premium account 19 13,707 13,707
Capital redemption reserve 19 5 5
Profit and loss account 19 12,725 12,618
Total shareholders' funds - equity 20 28,250 28,143
Company balance sheet
as at 31 December 2001
2001 2000
Note £000 £000 £000 £000
Fixed assets
Tangible assets 11 25,066 24,107
Investments 12 10,036 255
35,102 24,362
Current assets
Stocks 13 2,738 1,917
Debtors 14 6,261 11,132
Cash at bank and in hand 51 1,254
9,050 14,303
Creditors: amounts falling due within one year 15 (7,841) (6,893)
Net current assets 1,209 7,410
Total assets less current liabilities 36,311 31,772
Creditors: amounts falling due after more than 16 (2,229) (433)
one year
Provisions for liabilities and charges 17 (5,009) (3,759)
Net assets 29,073 27,580
Capital and reserves
Called-up share capital 18, 19 1,813 1,813
Share premium account 19 13,707 13,707
Capital redemption reserve 19 5 5
Profit and loss account 19 13,548 12,055
Total shareholders' funds - equity 20 29,073 27,580
Consolidated cash flow statement
For the year ended 31 December 2001
2001 2000
Note £000 £000 £000 £000
Net cash inflow from operating activities 24 842 5,504
Returns on investments and servicing of
finance
Interest received 35 92
Interest paid- bank and other (151) (22)
- finance leases (33) (20)
(149) 50
Taxation
Mainstream corporation tax (671) (963)
Overseas tax (49) (22)
(720) (985)
Capital expenditure
Purchase of fixed assets (6,065) (6,139)
Sale of fixed assets 36 982
Capital receipts from insurers relating
to the fire 24 4,049 -
(1,980) (5,157)
Equity dividends paid (2,719) (2,719)
Cash outflow before management of liquid
resources and financing (4,726) (3,307)
Capital element of finance lease payments (139) (86)
New borrowings 2,876 -
New finance leases - 595
Management of liquid resources - 1,600
Decrease in cash in the year (1,989) (1,198)
Reconciliation of net cash flow to movement in net debt
for the year ended 31 December 2001
2001 2000
Note £000 £000
Decrease in cash in the year (1,989) (1,198)
Cash (inflow)/outflow from (increase)/decrease in debt and lease finance (2,737) 86
Decrease in liquid resources - (1,600)
Change in net debt resulting from cash flows (4,726) (2,712)
New finance leases - (595)
Translation differences 9 53
Movement in net debt in the year (4,717) (3,254)
Net debt at the start of the year (383) 2,871
Net debt at the end of the year 25 (5,100) (383)
Notes to the financial statements
1. Accounting policies
Basis of preparation
The financial information above does not constitute the Group's statutory
accounts for the year ended 31 December 2001 or 2000. Statutory accounts for
2000 have been delivered to the Registrar of Companies, whereas those for 2001
will be delivered following the Annual General Meeting. The auditors have
reported on these accounts; their reports were unqualified and did not contain a
statement under s237 (2) or (3) of the Companies Act 1985.
The financial statements have been prepared in accordance with Applicable
Accounting Standards, and under the historical cost accounting rules. The
following principal accounting policies have been applied consistently in
dealing with items which are considered material in relation to the Group's
financial statements.
The Group has followed the transitional rules of FRS 17 'Retirement Benefits'
this year, providing certain additional disclosures for its defined benefit
pension scheme. In addition the Group has adopted FRS 18 'Accounting Policies'
which did not have a material effect on the results or financial position of the
Group in the current or prior year.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. Profits arising on trading between
Group undertakings are excluded. All companies within the Group make up their
financial statements to the same date. Acquisition accounting has been used to
produce the consolidated financial statements.
A separate profit and loss account dealing with the results of the parent
company only has not been presented, as permitted by Section 230 of the
Companies Act 1985.
Tangible fixed assets and depreciation
Depreciation is provided by the Group to write off the cost less the estimated
residual value of tangible fixed assets by equal annual instalments over their
estimated useful economic lives as follows:
Freehold buildings 20 years
Plant and machinery 5 - 15 years
Computer equipment and vehicles 3 - 5 years
No depreciation is provided on freehold land. Licences purchased by the Group
are amortised over five years.
Assets held under finance leases are depreciated over the lease term where this
is shorter than the estimated useful economic life.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at rates of exchange at the balance sheet date and the gains or
losses on translation are included in the profit and loss account.
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. The results of the overseas subsidiary
undertakings and overseas branches are translated at the average rate of
exchange ruling during the year. The assets and liabilities of the overseas
undertakings are translated at the closing exchange rate. Exchange differences
arising from the retranslation of the opening net investment in overseas
undertakings, borrowings to hedge those net investments and differences between
the profits for the year translated at the average and closing rates, are
disclosed as movements on reserves.
Research and development expenditure
Expenditure on research and development is written off against profits in the
year in which it is incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value. In determining
the cost of raw materials, consumables and goods purchased for resale, the
weighted average purchase price is used. For work in progress and finished goods
manufactured by the Company, cost is taken as production cost, which includes an
appropriate proportion of attributable overheads.
Goodwill
Prior to 1 January 1998 goodwill relating to a business purchased was written
off immediately against reserves and will be charged to the profit and loss
account on any future disposal of the business to which it is related.
From 1 January 1998 the Group has adopted FRS 10 and any purchased goodwill will
be capitalised and amortised to nil by equal annual instalments over its
estimated useful life not exceeding 20 years.
Pensions
The Company operates a pension scheme providing benefits based on final
pensionable pay, the assets of which are held independently from those of the
Company. Contributions to the scheme are charged to the profit and loss account
so as to spread the cost of pensions over employees' working lives with the
Company. The Group also operates defined contribution pension schemes in the US
and the UK. Contributions to these schemes are charged to the profit and loss
account as they are incurred.
Finance leases
Finance leases of significant fixed assets are capitalised and depreciated in
accordance with the Group's depreciation policy.
The capital element of future lease payments is included under creditors.
Interest is included within 'interest payable and similar charges' within the
profit and loss account.
Operating leases
Operating leases are any other leases which are not finance leases. Rental
charges in respect of operating leases are charged to the profit and loss
account on a straight line basis over the life of the lease.
Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Provision is made for
deferred tax only to the extent that it is probable that an actual liability
will crystallise.
Turnover
Turnover represents the amounts (excluding value added tax) derived from the
provision of goods and services to customers during the year.
2. Turnover by geographical market
UK and Other North Rest of
Eire France Germany Europe America the world Total
£000 £000 £000 £000 £000 £000 £000
2001 7,791 2,549 2,984 4,588 4,725 338 22,975
2000 7,406 2,118 2,654 4,000 4,362 288 20,828
In the opinion of the Directors the Group is engaged in only one class of
business. All turnover originates in the UK.
3. Exceptional item
On 22 October 2000, there was a fire at the Group's Croydon site. In last year's
accounts the net expenses incurred and insurance proceeds received as a result
of the fire were shown as an insurance receivable of £0.9 million in other
debtors. This amount was made up of stock destroyed in the fire of £1.2
million, the net book value of fixed assets destroyed in the fire of £0.9
million, other costs incurred subsequent to the fire of £0.8 million less an
interim receipt from our insurers in 2000 of £2.0 million. As the claim has
progressed with substantial sums incurred and received from insurers, it is now
felt more appropriate to show this as an exceptional item made up as follows:
2001 2000
£000 £000
Stock destroyed (1,215) -
Net book value of fixed assets destroyed (941) -
Revenue costs incurred (3,201) -
Cash received from insurers 6,049 -
Exceptional item before taxation 692 -
Tax on exceptional item (206) -
Exceptional item after taxation 486 -
For the period from the date of the fire to 31 December 2001 cash received from
insurers totalled £6,049,000. These payments have not been allocated to specific
items by the loss adjustors and Zotefoams' management have therefore allocated
these proceeds using their best estimates at the time of signing the accounts.
The proceeds allocated by management to stock destroyed and revenue costs are
£1,348,000 and the remaining proceeds have been allocated to fixed assets
destroyed in the fire. In 2002 further cash receipts are expected from insurers
in relation to the claim.
4. Profit on ordinary activities before taxation
2001 2000
£000 £000
Profit on ordinary activities before taxation is stated after charging:
Amounts payable under operating leases 64 86
Research and development costs 622 529
Auditor's remuneration:
Audit: Group 55 47
Company 50 47
Other fees paid to the auditor and their associates - recurring 40 28
- non-recurring 22 18
62 46
Trading (profit)/loss realised on foreign transactions (103) 9
Depreciation and amortisation of fixed assets - owned assets 2,415 2,986
- leased assets 43 27
5. Staff numbers and costs
The average number of people employed by the Group (including Directors) during
the year, analysed by category, was as follows:
Number of employees
2001 2000
Production 124 119
Maintenance 21 18
Distribution and marketing 29 28
Administration and technical 63 56
237 221
The aggregate payroll costs of these persons were as follows:
Wages and salaries 6,208 5,306
Social security costs 495 432
Other pension costs 444 419
7,147 6,157
6. Interest receivable
2001 2000
£000 £000
Interest on bank deposits 35 93
7. Interest payable and similar charges
2001 2000
£000 £000
On bank overdrafts 151 22
On finance leases 33 20
184 42
8. Tax on profit on ordinary activities
2001 2000
£000 £000 £000 £000
UK corporation tax at 30% (2000: 30%) 435 744
Overseas taxation 36 35
Adjustment to prior year UK tax charge - (89)
Current taxation 471 690
Deferred taxation 267 (133)
738 557
Tax on exceptional item:
UK corporation tax (788) -
Deferred tax 994 -
206 -
Total tax charge 944 557
9. Dividends and earnings per share
2001 2000
£000 £000
Interim dividend of 2.5p (2000: 2.5p) net per ordinary share 906 906
Proposed final dividend of 5.0p (2000: 5.0p) net per ordinary share 1,813 1,813
2,719 2,719
Dividends per ordinary share 7.5p 7.5p
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing profit after tax of
£2,518,000 (2000: £1,751,000) by the weighted average number of shares in issue
during the year. Diluted earnings per ordinary share adjusts for the potential
dilutive effect of share option schemes in accordance with FRS 14.
2001 2000
Average number of ordinary shares issued 36,255,772 36,255,772
Deemed issued for no consideration 9,821 2,071
Diluted 36,265,593 36,257,843
Shares deemed issued for no consideration have been calculated based on the
potential dilutive effect of the Save As You Earn share option scheme, the
Executive Share Option Scheme and options granted under the Inland Revenue
Approved Share Option Scheme:
Average number of
Exercise shares under option
Date from which exercisable price £ 2001 2000
1 October 2001 1.080 300,307 317,973
23 February 2002 0.935 32,085 32,085
4 April 2004 0.925 64,864 -
24 April 2004 0.935 301,603 -
21 August 2004 1.075 236,666 -
The average fair value of one ordinary share during the year was considered to
be £0.9498 (2000: £0.9995).
10. Profit for the financial year
The Group accounts do not include a separate profit and loss account for
Zotefoams plc (the parent undertaking) as permitted by Section 230 of the
Companies Act 1985. The Parent Company profit after tax for the financial year
is £4,212,000 (2000: £1,994,000).
11. Tangible fixed assets
Computer
Freehold equipment
land and Plant and and
buildings machinery vehicles Total
£000 £000 £000 £000
The Group
Cost
At 1 January 2001 10,795 29,705 1,627 42,127
Additions 1,596 4,143 234 5,973
Foreign exchange adjustments 233 99 1 333
Disposals - (215) (30) (245)
At 31 December 2001 12,624 33,732 1,832 48,188
Depreciation
At 1 January 2001 1,031 10,229 755 12,015
Charge for the year 273 2,000 185 2,458
On disposals - (176) (29) (205)
At 31 December 2001 1,304 12,053 911 14,268
Net book value
At 31 December 2001 11,320 21,679 921 33,920
Net book value of assets held under
finance leases included in above - - 555 555
At 31 December 2000 9,764 19,476 872 30,112
Company
Cost
At 1 January 2001 6,707 27,354 1,603 35,664
Additions 1,251 1,842 173 3,266
Disposals (17) (32) (30) (79)
At 31 December 2001 7,941 29,164 1,746 38,851
Depreciation
At 1 January 2001 1,031 9,773 753 11,557
Charge for the year 227 1,888 174 2,289
On disposals - (32) (29) (61)
At 31 December 2001 1,258 11,629 898 13,785
Net book value
At 31 December 2001 6,683 17,535 848 25,066
Net book value of assets held under
finance leases included in above - - 555 555
At 31 December 2000 5,676 17,581 850 24,107
Freehold land and buildings in the Group include £9,511,000 (2000: £7,774,000)
of depreciable assets. Freehold land and buildings in the Company include
£5,785,000 (2000: £4,533,000) of depreciable assets.
12. Fixed asset investments
Company
2001 2000
£000 £000
Shares in Group undertakings - at cost 4,505 255
Loan to Zotefoams Fabrications Limited 5,531 -
10,036 255
The investments consist of the entire ordinary share capital of Zotefoams
International Limited (£255,000), and the entire ordinary share capital of
£4,250,002 and a $8,000,000 loan to Zotefoams Fabrications Limited. Both
companies are incorporated in the UK.
The following is a complete list of the subsidiary undertakings of the company,
all of which are either directly or indirectly 100% owned:
Zotefoams International Limited
Zotefoams Inc.
Zotefoams Fabrications Limited
All the limited companies are incorporated in the United Kingdom, with the
exception of Zotefoams Inc. which is incorporated in the USA.
The principal activities of the subsidiary undertakings are as follows:
Zotefoams Fabrications Limited manufactures cross-linked block foams, Zotefoams
Inc. purchases and distributes cross-linked block foams and Zotefoams
International Limited is a holding company.
In the opinion of the Directors the investments in the Company's subsidiary
undertakings are worth at least the amount at which they are stated in the
balance sheet.
13. Stocks
Group Company
2001 2000 2001 2000
£000 £000 £000 £000
Raw materials and consumables 1,442 1,085 1,441 1,085
Work in progress 1,000 503 826 503
Finished goods and goods for resale 1,098 560 471 329
3,540 2,148 2,738 1,917
Work in progress, finished goods and goods for resale include £517,743 (2000:
£305,000) of overheads.
14. Debtors
Group Company
2001 2000 2001 2000
£000 £000 £000 £000
Amounts falling due within one year:
Trade debtors 5,154 4,452 3,932 3,350
Amounts owed by Group undertakings - - 1,685 6,477
Other debtors 208 1,394 187 1,262
Corporation tax debtor 428 - 428 -
Prepayments and accrued income 53 43 29 43
5,843 5,889 6,261 11,132
The Group has credit insurance in place which protects approximately 92% (2000:
85%) of the Group trade debtors shown above.
Other debtors for the Group and Company in 2000 includes £0.9 million owed by
insurers in respect of the fire at the Company's Croydon site on 22 October
2000. This amount was made up of stock destroyed in the fire of £1.2 million,
the net book value of fixed assets destroyed in the fire of £0.9 million, other
costs incurred subsequent to the fire of £0.8 million less an interim receipt
from our insurers in 2000 of £2.0 million. In 2001 all revenue expenditure and
cash receipts resulting from the fire has been shown as an exceptional item.
15. Creditors: amounts falling due within one year
Group Company
2001 2000 2001 2000
£000 £000 £000 £000 £000 £000 £000 £000
Bank overdrafts 2,011 1,329 1,891 1,275
Trade creditors 1,195 1,926 1,202 1,725
Amounts owed to
subsidiary undertakings - - - 100
Other creditors including
taxation
and social security:
Mainstream corporation tax - 612 - 595
Other taxation and social 158 133 153 132
security
158 745 153 727
Other creditors 444 170 368 112
Obligations under finance 139 139 139 139
leases
Bank loans 966 - 968 -
1,549 309 1,475 251
Accruals and deferred income 1,340 1,227 1,307 1,002
Dividends proposed 1,813 1,813 1,813 1,813
8,066 7,349 7,841 6,893
16. Creditors: amounts falling due after more than one year
Group and Company
2001 2000
£000 £000
Finance leases:
Amounts falling due in more than one year but less than two years 139 139
Amounts falling due in more than two years but less than five years 155 294
Bank loans (see note 21):
Amounts falling due in more than one year but less than two years 966 -
Amounts falling due in more than two years but less than five years 969 -
2,229 433
17. Provisions for liabilities and charges
Deferred taxation
Group Company
£000 £000
The Group and Company
At 1 January 2001 3,742 3,759
Charge for the year in the profit and loss account 1,261 1,250
At 31 December 2001 5,003 5,009
Deferred tax is provided as follows:
Group Company
2001 2000 2001 2000
£000 £000 £000 £000
Difference between accumulated depreciation
and amortisation and capital allowances 4,252 3,716 4,258 3,733
Other timing differences 751 26 751 26
5,003 3,742 5,009 3,759
Deferred tax is provided at a rate of 30% (2000: 30%).
No amount is included above for any liability, which might arise in respect of
the undistributed reserves of the Company's overseas subsidiary undertaking,
which the Group does not expect to remit to the UK.
18. Share capital
2001 2000
£ £
Authorised
At 31 December
Equity: 56,000,000 ordinary shares of 5p shares 2,800,000 2,800,000
Allotted, called-up and fully paid
At 31 December
Equity: 36,255,772 ordinary shares of 5p shares 1,812,789 1,812,789
Details of share options are described in note 9 to the accounts.
19. Statement of movements in reserves and share capital
Profit Capital Share Share
and loss redemption capital premium
£000 £000 £000 £000
The Group
At 1 January 2001 12,618 5 1,813 13,707
Other recognised gains 308 - - -
Retained loss for year (201) - - -
At 31 December 2001 12,725 5 1,813 13,707
The Company
At 1 January 2001 12,055 5 1,813 13,707
Retained profit for year 1,493 - - -
At 31 December 2001 13,548 5 1,813 13,707
The cumulative total of goodwill written off against Group profit and loss
account reserves in respect of acquisitions prior to 1 January 1998 when FRS 10
(Goodwill and Intangible Assets) was adopted amounts to:
£000
Group 990
Company 880
20. Reconciliation of movements in shareholders' funds
Group Company
2001 2000 2001 2000
£000 £000 £000 £000
Profit for the financial year 2,518 1,751 4,212 1,994
Dividends (2,719) (2,719) (2,719) (2,719)
Retained (loss)/profit for the financial year (201) (968) 1,493 (725)
Translation differences 308 52 - -
Net addition/(reduction) to shareholders' funds 107 (916) 1,493 (725)
Opening shareholders' funds 28,143 29,059 27,580 28,305
Closing shareholders' funds 28,250 28,143 29,073 27,580
21. Financial instruments
Policy
The Group does not enter into significant derivative transactions. The Group's
principal financial instruments comprise bank loans, cash and short-term
deposits. The main purpose of these financial instruments is to raise finance
for the Group's operations. It is, and has been throughout the period under
review, the Group's policy that no trading in financial instruments shall be
undertaken.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and foreign exchange risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised below. These
policies have remained fundamentally unchanged since the beginning of 2001.
The disclosures in this note exclude short-term debtors and creditors.
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank
borrowings. The Group borrows in the desired currency generally at a variable
rate of interest.
The interest rate profile of the Group at 31 December was:
2001 2000
Fixed Variable Fixed Variable
rates rates Total rates rates Total
£000 £000 £000 £000 £000 £000
Sterling 433 2,011 2,444 572 1,275 1,847
US dollar - 2,901 2,901 - 54 54
433 4,912 5,345 572 1,329 1,901
The interest rate payable on the sterling overdraft and the US dollar bank loan
is determined by LIBOR (or similar) plus a bank margin.
Liquidity risk
The Group's objective is to maintain a balance of continuity of funding and
flexibility through the use of overdrafts, loans and finance leases as
applicable. The maturity profile of the Group's borrowings is shown in note 16.
The Group has a short-term facility of £5.0 million which is freely transferable
and convertible into sterling. This facility expires in February 2003 and is
utilised by Zotefoams plc and its subsidiary undertakings under a
cross-guarantee structure.
On 17 December 2001 Zotefoams plc borrowed $4.2 million under a three year loan
agreement, repayable in equal six monthly instalments. This facility is subject
to covenants relating to net assets, total borrowings and cash flow.
Foreign currency risk
The Group has significant undertakings in the USA whose revenue and expenses are
denominated in US dollars. In 2001 the Group borrowed $4.2 million in US dollars
to partially finance these undertakings. Zotefoams plc makes a significant
proportion of its sales to European customers and these revenues are
predominantly in Euro-zone currencies. It is the Group's policy to hedge the
foreign currency cash flows of invoiced sales net of expected foreign
expenditure. Hedging is achieved by the use of foreign currency contracts
expiring in the month of expected cash flow.
Fair values
There is no material difference between the fair value and book value of the
Group's financial assets and liabilities.
22. Commitments
2001 2000
£000 £000
(i) Capital contracts at the end of the financial year
for which no provision has been made 3,305 1,156
(ii) The Group has annual commitments under non-cancellable
operating leases which expire between two and five years:
Other operating leases 301 248
(iii) As at 31 December the Group had foreign currency
forward exchange contracts amounting to: - 1,364
The above amounts apply to the Company as well as the Group apart from Capital
Commitments in 2000 which included £850,000 in respect of subsidiary
undertakings.
23. Pension scheme
The Company operates one main defined benefit scheme in the UK. Contributions to
the Group's defined benefit pension scheme are charged to the profit and loss
account so as to spread the cost of pensions over employees' working lives with
the Company. A full actuarial valuation was carried out at 6 April 1999 and
updated to 31 December 2001 by a qualified independent actuary. The assumptions
which have the most significant effect on the results of the valuation are those
relating to the rate of return on investments and the rates of increase in
salaries and pensions. The major assumptions used by the actuary were as
follows:
At year end
31 December
2001
% p.a.
Rate of general increase in salaries 4.50
Rate of increase of pensions in payment 2.25
Discount rate 5.83
Inflation assumption 2.50
Rate of increase of pensions in deferment 2.50
Equities 7.95
Bonds 5.39
Cash/other 4.50
The assumptions used by the actuary are the best estimates chosen from a range
of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
The fair value of the scheme's assets, which are not intended to be realised in
the short-term and may be subject to significant change before they are
realised, and the present value of the scheme's liabilities, which are derived
from cash flow projections over long periods and thus inherently uncertain,
were:
At year end
31 December
2001
£000
Total market value of assets 9,776
Actuarial value of liability (9,897)
Deficit in the scheme (121)
Related deferred tax asset 36
Net pension liability (85)
Following the actuarial valuation at 6 April 1999, it was agreed that the
Company would pay a contribution rate of 10.6% Pensionable Salaries to 31
December 1999 and then 12.0% thereafter in addition to the employee contribution
of 5%, subject to review at future valuations. The total Company contributions
to the scheme paid in the year amounted to £418,741.
In addition there is a stakeholder scheme for new UK employees from 1 October
2001. There were no contributions to the scheme in the period up to 31 December
2001.
For US-based employees Zotefoams Inc. and Zotefoams Fabrications operates a 401
(k) plan and a defined contribution pension plan to which Zotefoams Inc.
contributes 6.2% of pensionable salary.
24. Reconciliation of operating profit to net cash inflow from operating
activities
2001 2000
£000 £000
Operating (loss)/profit (149) 2,351
Depreciation charge 2,458 3,013
(Increase)/decrease in stocks (1,394) 339
Decrease/(increase) in debtors 184 (1,031)
(Decrease)/increase in creditors (257) 832
Net cash inflow from operating activities 842 5,504
Insurance proceeds relating to the fire for £6,049,000 have been received at 31
December 2001. £1,348,000 of this has been provisionally allocated to revenue
and the remainder to capital as described in note 3 to the accounts. Of the
insurance proceeds, £4,049,000 was received in 2001 and £2,000,000 in 2000. In
2000 the costs incurred relating to the fire in that year and the £2,000,000
insurance proceeds were netted together in other debtors and form part of the
debtors movement in the cash flow statement. In 2001 this insurance debtor
account has been released to the profit and loss account as part of the
exceptional item.
25. Analysis of changes in net (debt)/funds
At At
1 January Translation 31 December
2001 Cashflow differences 2001
£000 £000 £000 £000
Cash at bank and in hand 1,518 (1,308) 35 245
Bank overdrafts (1,329) (681) (1) (2,011)
Obligations under finance leases (572) 139 - (433)
Bank loans - (2,876) (25) (2,901)
(383) (4,726) 9 (5,100)
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