Final Results
Zotefoams PLC
11 March 2003
Tuesday 11th March 2003
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
2002.
Highlights
• Group sales increased 2% to £23.5 million (2001: £23
million) in difficult market conditions.
• Pre-tax profit, pre-exceptional items, £1.95 million
(2001: £2.77 million)
• Strong cash generation with EBITDA pre-exceptional items
(operating profit plus depreciation) of £5.1 million
• Robust balance sheet with gearing down to 5% and net debt
of £1.7million.
• Full year dividend maintained at 7.5p
• Rebuilding of Croydon site substantially finished
completing a long period of enforced capital expenditure
Commenting on the results, Bill Fairservice, Chairman, said:
'We begin 2003 with a strong balance sheet, limited requirement for capital
expenditure and anticipate strong cash generation throughout the year. I believe
we are well placed to build our business over the longer term despite the
uncertain economic outlook.'
Enquiries:
Zotefoams plc 020 8664 1600
David Stirling, Managing Director
Clifford Hurst, Finance Director
Financial Dynamics 020 7831 3113
Charlie Armitstead
Chairman's statement
A key element of the business strategy is to grow shareholder value through
increasing sales and exploiting the benefits of increased asset utilisation.
Over the past year sales growth has been achieved in our major markets of Europe
and North America, despite difficult market conditions with strong growth being
recorded in both areas in the second half of the year. I am also pleased to
report good sales growth in Asia, serviced through our alliance with Sekisui
Chemical Co., albeit from a low base. However sales to the UK market declined in
the year due to the lower levels of domestic manufacturing activity and this
fall in our largest single market has limited overall sales growth to 2%.
During the year, recovery from the fire at our Croydon site continued and the
rebuilding of our warehousing and dispatch facility in late 2002 substantially
completed what has been a significant programme of enforced capital expenditure
on this site. While the assets now in place are of a higher standard than
before, and the limited site redesign permitted should ultimately allow some
efficiencies, the increase in depreciation from these assets has substantially
reduced operating profit this year and will continue to do so into the coming
year.
Results
Profit before exceptional items for the year ended 31 December 2002 was £1.95
million compared to £2.77 million in 2001. Following settlement of the insurance
claim relating to a fire at our Croydon site in October 2000, an exceptional
profit of £6.6 million was recognised from cash receipts of £7.8 million.
Earnings per share were 16.6p (2001:9.0p) of which 12.6p (2001:3.4p) was
attributable to exceptional profit.
Capital expenditure was £5.2 million of which £3.1 million was associated with
the replacement of assets destroyed in the fire.
Dividend
The Directors are recommending a final dividend of 5.0p net per share payable on
21 May 2003 to shareholders who are on the Company register at the close of
business on 22 April 2003. This brings the total dividend to 7.5p and is
unchanged from the dividend in respect of the year ended 31 December 2001.
Board Changes
As indicated in last year's annual report Ian Buckley resigned as a
non-executive Director following our Annual General Meeting in April 2002.
Roger Lawson joined the Board in December 2002 and was appointed Chairman of the
Audit Committee, replacing John Marley who held the position since the
resignation of Ian Buckley. Roger was a Director of 3i plc and is a former
President of the Institute of Chartered Accountants in England and Wales.
Employees
Zotefoams' success is dependent on the commitment, support and efforts of all
its employees. On behalf of the Board I would like to extend thanks to all
employees for their contribution to the business over the past year.
Prospects
The year has started with reduced sales activity and a sharp increase in the
price of LDPE, our major raw material. Despite this our expectation is for
moderate sales growth in all our major markets. Good initial progress has been
achieved in the development of new high performance polymer foams. However it is
unlikely that this will have any significant impact on 2003 due to long approval
processes. Cost pressures will continue to impact our business, with additional
depreciation and increased employment costs from pensions and National
Insurance.
We begin 2003 with a strong balance sheet, limited requirement for capital
expenditure and anticipate strong cash generation throughout the year. I believe
we are well placed to build our business over the longer term despite the
uncertain economic outlook.
W H Fairservice
Chairman
Managing Director's review
Results
Profit before tax pre-exceptional items for the year ended 31 December 2002 was
£1.95 million compared with £2.77 million for the same period last year. Cost
increases arose principally from higher depreciation on our investment in North
America and depreciation on new assets replacing those destroyed in the fire at
Croydon in October 2000, and increased insurance charges. These offset an
increase of 2% in turnover. The increase in turnover in the second half of the
year was 12% compared to the same period last year, which was particularly
pleasing given the continued difficult market conditions prevailing through this
period.
Earnings per share pre-exceptional items were 4.0p compared with 5.6p in 2001.
Settlement of our insurance claim was finalised at £13.9 million in July 2002
following the fire at our Croydon site in October 2000. Total proceeds of
£6.1million (and costs of £5.4 million) were recognised in our financial
statements to 31 December 2001 with the remaining £7.8 million of proceeds and
£1.2 million of revenue costs recognised during 2002.
During 2002 growth of 3% in Europe and a decline of 6% in UK reflected market
conditions in these areas. Growth of 13% in North America was achieved
principally through targeted market share increase in the automotive and
speciality packaging segments.
Overall sales growth of 2% comprises a decline of 6% in the first half of 2002
and an increase of 12% in the second half when compared with previous year.
During the first half of 2001 most of our major customers restocked following
the fire in 2000 which constrained supplies in late 2000 and early in 2001. This
resulted in a strong first half in all our major markets in this period.
Compared to 2001, second half sales improved by 21% in North America and by 24%
in Europe and Rest of the World, while the difficult UK manufacturing economy
was the main reason for a 8% decline in UK sales in this period.
Over the last two years our operational cost base has increased in three major
areas: the fixed costs associated with our Walton, Kentucky plant which are
directly attributable to our strategy of increasing sales to the key North
American market; increased insurance premiums due to a generally 'harder'
insurance market and premium increase following the major fire in 2000; and
increased depreciation at our Croydon site reinstatement following the fire
increases our overall asset base. Compared with 2001 the increase in
depreciation is £0.6 million, and insurance premiums have increased by £0.3
million. We have reduced our insurance premiums for 2003 as Croydon site
restoration and risk improvement measures are completed, however depreciation
will continue to increase as the assets commissioned during 2002 are subject to
a full-year depreciation charge in 2003.
Although this increased depreciation affects profitability, Zotefoams operating
cashflow remains extremely strong. During the year our net cash inflow from
operating activities was £11.0 million. Net insurance proceeds received in the
year were £6.6 million, £5.7 million of which are included in operating cashflow
and £0.9 million treated as a disposal of fixed assets.Capital expenditure of
£5.2 million, mainly related to site reinstatement, which was substantially
completed in October this year with the rebuilding of our warehouse and despatch
area. Before repayment of debt and equity dividends, our net cash inflow was
£5.9 million.
Market Overview
Zotefoams products are used in a wide variety of applications across many market
segments. This diversity reduces exposure to variations in economic activity in
specific sectors, however the fragmentation of end-markets makes the focus of
sales effort extremely important. Our strategy is to concentrate sales resource
in a limited number of segments and applications with the largest potential for
our foams to replace competitive materials - markets such as automotive and
construction offer significant opportunities for business development.
Development of markets such as sports and leisure, and speciality packaging,
which are more fragmented, rely on close co-operation with customers who focus
on these markets.
In most markets our products have qualities which make them the preferred
technical solution, however increasingly the service requirements of our
customers are becoming a more important part of our total sales package. The
combination of shorter lead-times and reduced stock-holding at customers has
increased volatility of order pattern and shortened order books. This requires
Zotefoams to be more flexible and respond more quickly to customer requirements
while ensuring that our commitments on delivery are achieved. This must be
achieved against more stringent insurance covenants restricting the volumes and
conditions of inventory holding to minimise fire risk. Since the reinstatement
of our warehousing and dispatch facilities at Croydon in late 2002 we have the
physical assets in place to manage this situation and implementation of the
advanced planning module of our ERP computer system, scheduled for mid 2003,
will provide further enhancement of our service capability through better plant
scheduling.
Manufacturing and Capacity
Zotefoams currently have a full-capability manufacturing plant in Croydon,
England and a satellite, expansion plant in Kentucky, USA. Over the past four
years there has been significant investment in capital expenditure in both
locations involving:
• Building and commissioning the plant in Kentucky at a cost
of US$13 million;
• Site rebuilding following the fire in October 2000, including
additional extrusion capacity and a full rebuild of our technical facilities, on
the Croydon site at a total cost of £6.0 million; and
• Investment in a fully integrated ERP IT system covering
both sites.
Due to the complexity and dynamics of our process, increasing capacity requires
a longer term view of the business. Investment decisions relating to our
high-pressure equipment must be made at least two years before the capacity is
required on-stream. Additional high-pressure capacity, representing an increase
of approximately 20%, is expected to be installed by the end of 2003. We
anticipate that there will be no requirement to increase capacity at either of
our sites in the immediate future and capital expenditure will be focused on
equipment enhancement and replacement. We therefore expect the amount of capital
expenditure to reduce significantly from levels seen in the last three years.
Strategy for the Business
Zotefoams strategy is to concentrate resources where the differential advantage
of our process is greatest and the benefit to our shareholders is greatest.
While we currently enjoy substantial product advantages in cross-linked
polyolefin foams, we believe that development of markets outside these areas
offer excellent scope for Zotefoams. Our approach is therefore to:
• Grow the existing polyolefin business through organic
market development of the North American market and through focused efforts in
key application sectors across Europe and Asia; and
• Invest resource in development of new foam materials where
we believe there are market requirements and where our foaming process will give
demonstrable and sustainable advantage;
In North America our market development activity continues to be a balance of
development projects with existing and with new customers. The period since July
2001, when we opened our plant in Kentucky, has been an extremely difficult one
for manufacturing business in North America. However we are fully committed to
this market and our sales and marketing activity has continued throughout this
period. As a result we have more direct customers than ever before in North
America and have established our credentials in the key industries of
automotive, packaging and construction which we believe offer longer term
potential.
In Europe and Asia our alliance with Sekisui is key to market development.
Sekisui, through their European subsidiary, Alveo, represent Zotefoams as our
exclusive agent in Europe and parts of Africa and South America. Customer
contact for placing of orders and initiating new projects is almost entirely
handled by Alveo. Sekisui also act as distributor for Zotefoams products in
Asia, where the focus is on development of applications in higher value-added
areas, such as the electronics business using our conductive and static
dissipative foams.
During 2002 good progress was made in early feasibility trials for a number of
high-performance polymer foams. Examples of some of these materials were
exhibited at trade shows and discussed with a limited number of potential
customers. Initial feedback has been very positive and reinforced our belief
that developments from materials such as these will be valued by the market.
However we are aware that developments of this kind, which offer potentially
high rewards, also carry higher levels of risk. Our approach is therefore to
ensure our development activities are tightly focused and that projects which
show good potential are progressed to market sampling quickly.
Expenditure on technical development will vary depending on the progress of
individual projects. Although we spent less in 2002 than 2001 our intent is to
gradually increase the allocation of resources to technical and business
development of new products.
D B Stirling
Managing director
Finance Director's review
Turnover increased by 2% to £23.5 million in 2002 from £23.0 million in 2001.
Despite the higher sales gross profit pre-exceptional items fell from £6.7
million in 2001 to £6.2 million in 2002. In last year's annual report we
indicated expected cost increases in insurance premiums and depreciation. Both
these increases occurred. Insurance premiums rose from £0.2 million to £0.5
million and depreciation, following the completion of the US plant and
replacement of items destroyed in the fire at Croydon, increased by £0.6
million. These were partially offset by a £0.2 million benefit in raw material
costs from a reduction in the price of LDPE, our major raw material, from an
average price of £538 per tonne in 2001 to £488 in 2002.
Insurance premiums for Zotefoams plc have fallen to £0.4 million for 2003
following risk improvements made to the Group's Croydon site. However,
depreciation is forecast to rise again in 2003 principally because of the full
year effect of assets completed in 2002.
Profit before tax pre-exceptional items was £1.95 million compared to £2.77
million in 2001. Earnings per share pre-exceptional items were 4.0p compared to
5.6p in 2001.
Exceptional Item
There was a major fire in October 2000 at the Group's Croydon manufacturing
facility. This was subject to an insurance claim. In total £13.9 million has
been received from insurers as a full and final settlement - £6.1 million up to
31 December 2001 and £7.8 million in 2002. Revenue costs relating to the fire
are £6.6 million of which £5.4 million was recorded in 2001 and £1.2 million in
2002. An exceptional profit has been made of £7.3 million in total, £0.7 million
in 2001 and £6.6 million in 2002.
The exceptional profit has two main components. Part of the insurance settlement
covers compensation for sales revenue lost as a result of the fire. Management
estimate that the insurance proceeds relating to the lost profit on this sales
revenue was £3.5 million. The settlement also covered replacement of plant and
buildings destroyed by the fire. The net book value of these items was £0.9
million. However, the insurance proceeds received were based on the replacement
value of these assets generating a profit which management estimates to have
been £4.6 million. Capital expenditure of £6.0 million to replace these assets
is higher than the replacement value recovered because of expenditure on risk
improvements incorporated into the rebuilding programme. The major risk
improvement has been to cover the finished good stock storage area with a
sprinkler system.
Deducting the capital expenditure relating to the fire (£6.0 million) from the
exceptional profit of £7.3 million and adjusting for the net book value of
assets destroyed (£0.9 million) gives a net cash inflow of £2.2 million relating
to the fire in the period 2000-2002. This falls to approximately £1.4 million
after corporation tax.
Taxation
The effective tax rate for the Group pre-exceptional items was 26.5%.
Corporation tax has been provided for at a rate of 30%. However, there was a tax
credit of £0.1 million due to the benefit of capital allowances on the
investment in North America. This benefit will reduce in future years increasing
the effective tax rate for the Group to 30%. Tax on the exceptional item has
been provided for at 30%.
FRS 19 'Deferred Taxation' has been adopted in 2002. Under the rules of FRS 19 a
prior year adjustment has been made releasing £0.7 million from the deferred tax
provision. This release is for that element of the provision which relates to
capital gains on buildings, principally those destroyed by the fire and provided
for in 2001. As these gains have been rolled over into replacement assets this
tax liability is not expected to crystallise in the foreseeable future and under
the rules of FRS 19 has been released.
Cashflow and Funding
Cash generation remains strong with EBITDA pre-exceptional items (operating
profit plus depreciation) of £5.1 million, slightly down on the £5.4 million
achieved in 2001 and 2000. Although capital expenditure has been high in recent
years, this is because of the replacement of assets destroyed in the fire and
the new US plant. With this programme nearly complete there is no immediate need
for further capacity improvements and capital expenditure will therefore revert
to maintenance levels.
After fire related items the net cash inflow was £3.2 million reducing net debt
to £1.7 million at the end of 2002. With net assets of £31.6 million the level
of gearing is low at 5%.
Pensions
The Group has made the disclosures required under the transitional rules of FRS
17 'Retirement Benefits' in respect of the defined benefit pension scheme for UK
employees. Under these rules the pension fund had assets of £8.2 million and
liabilities of £11.5 million as at 31 December 2002. The scheme has been closed
to new entrants from 1 October 2001 and following an actuarial review on 6 April
2002 Company contributions to the fund increased from 12% to 14.1% and employee
contributions from 5% to 6.5% of pensionable salary effective from 1 March 2003.
Treasury and Accounting Policies
The construction of the US plant has been partly funded by a $4.2 million three
year loan, repayable in equal six monthly instalments. The loan is repaid from
the dollar income generated by the Group's North American operations and at the
end of 2002 $2.8 million of this loan was outstanding.
The Board has defined policies and procedures relating to treasury management
and accounting practices. These are designed to provide appropriate business
support, consistency of reporting and to mitigate financial risk.
The Group policy remains to hedge foreign currency sales invoices net of foreign
currency expenditure. Translation exposure is not hedged. Interest rates on
borrowings are all based on variable rates plus a bank margin and are unhedged
as the interest rate risk is not, at present, considered material.
Treasury and Accounting Policies
2002 2001
Average Year end Average Year end
US Dollar/Sterling 1.51 1.60 1.45 1.44
Euro/Sterling 1.59 1.53 1.60 1.60
Exchange rates did not have a significant impact on the 2002 results. The
Group's main exposure is to the euro where the average exchange rate in 2002 was
almost identical to that in 2001. There was a 4% adverse movement in the average
US dollar rate compared to 2001, however US dollar/sterling movements have less
of an effect on the Group's operating results. The exposure of the Group to
currency movements is indicated below:
Analysis of exposure pre-exceptional items to main currency groups
£million equivalent
£m incurred in: £ US$ Euro Total
Turnover 7.7 5.4 10.4 23.5
Cost of sales (12.3) (1.9) (3.1) (17.3)
Gross profit (4.6) 3.5 7.3 6.2
Distribution costs (1.0) (0.9) - (1.9)
Administration expenses (2.1) - - (2.1)
Operating profit/(loss) pre-exceptionals (7.7) 2.6 7.3 2.2
2001 Operating profit/(loss) pre-exceptionals (6.1) 2.6 6.4 2.9
Going Concern Statement
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason they continue to adopt the going concern
basis in preparing the financial statements.
C G Hurst
Finance director
Consolidated profit and loss account
For the year ended 31 December 2002
2002
Pre Exceptional Post
exceptional item exceptional
item (note 3) Item
Note £000 £000 £000
Turnover -
Continuing operations 2 23,468 - 23,468
Cost of sales (17,242) 2,155 (15,087)
Gross profit 6,226 2,155 8,381
Distribution costs (1,923) (36) (1,959)
Administrative expenses (2,152) 165 (1,987)
Other operating income - 3,464 3,464
Operating profit -
Continuing operations 2,151 5,748 7,899
Profit on disposal of fixed assets - 875 875
Profit on ordinary activities
Before interest and tax 2,151 6,623 8,774
Interest receivable 6 9 - 9
Interest payable and
Similar charges 7 (208) - (208)
Profit on ordinary activities
before taxation 4 1,952 6,623 8,575
Tax on profit on
Ordinary activities 8 (517) (2,019) (2,536)
Profit for the financial year 10 1,435 4,604 6,039
Equity dividends - paid (906)
Equity dividends - proposed (1,813)
Total dividends paid
And proposed 9 (2,719)
Retained profit for the
Financial year 19 3,320
Earnings per ordinary share 9 4.0p - 16.6p
Diluted earnings per
Ordinary share 9 4.0p - 16.6p
Restated
2001
Pre Exceptional Post
exceptional item exceptional
item (note 3) Item
Note £000 £000 £000
Turnover -
Continuing operations 2 22,975 - 22,975
Cost of sales (16,227) (2,607) (18,834)
Gross profit 6,748 (2,607) 4,141
Distribution costs (1,984) (135) (2,119)
Administrative expenses (1,845) (326) (2,171)
Other operating income - - -
Operating profit -
Continuing operations 2,919 (3,068) (149)
Profit on disposal of fixed assets - 3,760 3,760
Profit on ordinary activities
Before interest and tax 2,919 692 3,611
Interest receivable 6 35 - 35
Interest payable and
Similar charges 7 (184) - (184)
Profit on ordinary activities
before taxation 4 2,770 692 3,462
Tax on profit on
Ordinary activities 8 (738) 545 (193)
Profit for the financial year 10 2,032 1,237 3,269
Equity dividends - paid (906)
Equity dividends - proposed (1,813)
Total dividends paid
And proposed 9 (2,719)
Retained profit for the
Financial year 19 550
Earnings per ordinary share 9 5.6p - 9.0p
Diluted earnings per
Ordinary share 9 5.6p - 9.0p
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2002
2002 2001
£000 £000
Profit for the financial year 6,039 2,518
Currency translation differences on foreign currency net investments (730) 308
Total recognised gains and losses relating to the year 5,309 2,826
Prior year adjustment - as explained in note 1 751 -
Total recognised gains and losses recognised since last annual report 6,060 2,826
Consolidated balance sheet
As at 31 December 2002
Restated
2002 2001
Note £000 £000 £000 £000
Fixed assets
Tangible assets 11 34,765 33,920
34,765 33,920
Current assets
Stocks 13 3,380 3,540
Debtors 14 5,625 5,843
Cash at bank and in hand 372 245
9,377 9,628
Creditors: amounts falling due
within one year 15 (6,831) (8,067)
Net current assets 2,546 1,561
Total assets less current
liabilities 37,311 35,481
Creditors: amounts falling due
after more than one year 16 (1,049) (2,229)
Provisions for liabilities and
charges 17 (4,671) (4,251)
Net assets 31,591 29,001
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 16,066 13,476
Total shareholders' funds -equity 20 31,591 29,001
Company balance sheet
As at 31 December 2002
Restated
2002 2001
Note £000 £000 £000 £000
Fixed assets
Tangible assets 11 26,985 25,066
Investments 12 9,492 10,036
36,477 35,102
Current assets
Stocks 13 2,838 2,738
Debtors 14 5,814 6,261
Cash at bank and in hand 203 51
8,855 9,050
Creditors: amounts falling due
within one year 15 (6,684) (7,841)
Net current assets 2,171 1,209
Total assets less current
liabilities 38,648 36,311
Creditors: amounts falling due
after more than one year 16 (1,049) (2,229)
Provisions for liabilities
and charges 17 (4,573) (4,259)
Net assets 33,026 29,823
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 17,501 14,298
Total shareholders' funds - equity 20 33,026 29,823
Consolidated cash flow statement
For the year ended 31 December 2002
2002 2001
Note £000 £000 £000 £000
Net cash inflow from operating
activities 24 10,954 842
Returns on investments and
servicing of finance
Interest received 9 35
Interest paid - bank and other (181) (151)
- finance leases (27) (33)
(199) (149)
Taxation
Mainstream corporation tax (566) (671)
Overseas tax 39 (49)
(527) (720)
Capital expenditure
Purchase of fixed assets (5,197) (6,065)
Sale of fixed assets 26 36
Capital receipts from insurers
relating to the fire 3 875 4,049
(4,296) (1,980)
Equity dividends paid (2,719) (2,719)
Cash inflow/(outflow) before
financing 3,213 (4,726)
Financing
Capital element of finance lease
payments (138) (139)
New borrowings - 2,876
Repayment of loan instalments (928) -
(1,066) 2,737
Increase/(decrease) in cash in
the year 2,147 (1,989)
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 2002
2002 2001
Note £000 £000
Increase/(decrease) in cash in the year 2,147 (1,989)
Cash outflow/(inflow) from decrease/(increase)
in debt and lease finance 1,066 (2,737)
Change in net debt resulting from cash flows 3,213 (4,726)
Translation differences 212 9
Movement in net debt in the year 3,425 (4,717)
Net debt at the start of the year (5,100) (383)
Net debt at the end of the year 25 (1,675) (5,100)
Notes to the financial statements
1. Accounting policies
Basis of preparation
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.
Change in accounting policy and prior year adjustment
The adoption of FRS 19 'Deferred Taxation' has increased opening reserves at 1
January 2002 by £0.75 million. Comparative figures have been restated
accordingly.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. 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 is
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. Deferred taxation
is recognised, without discounting, in respect of all timing differences between
the treatment of certain items for taxation and accounting purposes which have
arisen but not been reserved by the balance sheet date, except as otherwise
required by FRS 19.
Turnover
Turnover represents the amounts (excluding value added tax) derived from the
provision of goods and services to customers during the year.
Cash
Cash, for the purpose of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand.
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
2002 7,335 2,754 3,121 4,529 5,331 398 23,468
2001 7,791 2,549 2,984 4,588 4,725 338 22,975
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 2001 the
expense incurred and insurance proceeds received up to 31 December 2001 were
shown in the accounts as an exceptional item. A final settlement of £13.9
million was agreed with insurers in July 2002, of this £6.1 million was received
in 2000/1 and £7.8 million in 2002. The expenses incurred in 2002 plus those
further expenses which are expected to be incurred have been disclosed as an
exceptional item.
Restated
2002 2001
£000 £000
Stock destroyed - (1,215)
Net book value of fixed assets destroyed - (941)
Revenue costs incurred (1,207) (3,201)
Cash received from insurers 7,830 6,049
Exceptional item before taxation 6,623 692
Tax on exceptional item (2,019) 545
Exceptional item after taxation 4,604 1,237
The insurance proceeds have not been allocated to specific items by the loss
adjusters and Zotefoams' management have therefore allocated these proceeds
using their best estimates at the time. Of the £7.8 million received in 2002
management have allocated £3.4 million to revenue cost, £0.9 million to fixed
assets destroyed in the fire and the remaining £3.5 million has been treated as
compensation for lost sales and allocated to other operating income.
4. Profit on ordinary activities before taxation
2002 2001
£000 £000
Profit on ordinary activities before taxation is stated
after charging:
Amounts payable under operating leases 71 64
Research and development costs 492 622
Auditor's remuneration:
Audit: Group 61 55
Company 57 50
Other fees paid to the auditor - recurring 12 40
and their associates
- non-recurring 49 22
61 62
Exchange losses /(gains) 79 (103)
Depreciation and amortisation of
fixed assets - owned assets 2,925 2,415
- leased assets 159 43
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
2002 2001
Production 121 124
Maintenance 20 21
Distribution and marketing 29 29
Administration and technical 64 63
234 237
The aggregate payroll costs of these persons were as follows:
2002 2001
£000 £000
Wages and salaries 6,140 6,208
Social security costs 556 495
Other pension costs 488 444
7,184 7,147
6. Interest receivable
2002 2001
£000 £000
Interest on bank deposits 9 35
7. Interest payable and similar charges
2002 2001
£000 £000
On bank loans and overdrafts 181 151
On finance leases 27 33
208 184
8. Tax on profit on ordinary activities
Restated
2002 2001
£000 £000
UK corporation tax at 30% (2001: 30%) 190 435
Overseas taxation (including £91,000 credit (2001: £nil)
in respect adjustments to prior year) (40) 36
Adjustment to prior year UK tax charge 168 -
Current taxation 318 471
Deferred taxation 199 267
517 738
Tax on exceptional item:
UK corporation tax 1,798 (788)
Deferred tax 221 243
2,019 (545)
Total tax charge 2,536 193
Factors affecting the tax charge for the current period
The current charge for the period is lower (2001: lower) than the standard rate
of corporation tax in the UK (30%, 2001: 30%). The differences are explained
below.
Restated
2002 2001
£000 £000
Current tax reconciliation
Profit on ordinary activities before tax 8,575 3,462
Current tax at 30% (2001: 30%) 2,572 1,039
Effects of:
Expenses not deductible for tax purposes less
Research and Development tax credits 3 14
Capital allowances for period in excess of depreciation (553) (571)
Rollover relief on profit on disposal of property - (725)
Higher tax rates on overseas earnings 17 (74)
Adjustments to tax charge in respect of previous periods 77 -
Total current tax charge 2,116 (317)
9. Dividends and earnings per share
2002 2001
£000 £000
Interim dividend of 2.5p (2001: 2.5p) net per 5p ordinary
share 906 906
Proposed final dividend of 5.0p (2001: 5.0p) net per 5p
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
£6,039,000 (2001: £3,269,000) 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.
2002 2001
Average number of ordinary shares issued 36,255,772 36,255,772
Deemed issued for no consideration 61,204 9,821
Diluted 36,316,976 36,265,593
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:
Number of
Exercise shares under option
Date from which exercisable price 2002 2001
23 February 2002 93.5p - 32,085
4 April 2004 92.5p 64,864 64,864
24 April 2004 93.5p 301,603 301,603
21 August 2004 107.5p 236,666 236,666
1 June 2005 77.0p 261,631 -
20 August 2005 80.5p 794,685 -
The average fair value of one ordinary share during the year was considered to
be 90.0p (2001: 95.0p).
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 £6,242,000 (2001 restated: £4,962,000).
11. Tangible fixed assets
Freehold Computer
land and Plant and equipment
buildings machinery and vehicles Total
£000 £000 £000 £000
The Group
Cost
At 1 January 2002 12,624 33,732 1,832 48,188
Additions 2,113 2,371 326 4,810
Foreign exchange adjustments (463) (381) (8) (852)
Disposals - (19) (55) (74)
At 31 December 2002 14,274 35,703 2,095 52,072
Depreciation
At 1 January 2002 1,304 12,053 911 14,268
Charge for the year 626 2,136 322 3,084
On disposals - (11) (34) (45)
At 31 December 2002 1,930 14,178 1,199 17,307
Net book value
At 31 December 2002 12,344 21,525 896 34,765
Net book value of assets held
under finance leases included
in above - - 396 396
At 31 December 2001 11,320 21,679 921 33,920
Company
Cost
At 1 January 2002 7,941 29,164 1,746 38,851
Additions 2,130 2,100 301 4,531
Disposals - (19) (55) (74)
At 31 December 2002 10,071 31,245 1,992 43,308
Depreciation
At 1 January 2002 1,258 11,629 898 13,785
Charge for the year 458 1,832 293 2,583
On disposals - (11) (34) (45)
At 31 December 2002 1,716 13,450 1,157 16,323
Net book value
At 31 December 2002 8,355 17,795 835 26,985
Net book value of assets held
under finance leases included
in above - - 396 396
At 31 December 2001 6,683 17,535 848 25,066
Freehold land and buildings in the Group include £11,256,000 (2001: £9,511,000)
of depreciable assets. Freehold land and buildings in the Company include
£7,895,000 (2001: £5,785,000) of depreciable assets.
12. Fixed asset investments
Company
2002 2001
£000 £000
Shares in Group undertakings - at cost 4,505 4,505
Loan to Zotefoams Fabrications Limited 4,987 5,531
9,492 10,036
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
2002 2001 2002 2001
£000 £000 £000 £000
Raw materials and consumables 1,673 1,442 1,673 1,441
Work in progress 760 1,000 734 826
Finished goods and goods for resale 947 1,098 431 471
3,380 3,540 2,838 2,738
14. Debtors
Group Company
2002 2001 2002 2001
£000 £000 £000 £000
Amounts falling due within one year:
Trade debtors 5,473 5,154 4,430 3,932
Amounts owed by Group undertakings - - 1,282 1,685
Other debtors 78 208 44 187
Corporation tax debtor - 428 - 428
Prepayments and accrued income 74 53 58 29
5,625 5,843 5,814 6,261
15. Creditors: amounts falling due within one year
Group Company
2002 2001 2002 2001
£000 £000 £000 £000 £000 £000 £000 £000
Bank overdrafts 7 2,011 - 1,891
Trade creditors 771 1,195 767 1,202
Other creditors
including taxation and
social security:
Mainstream
corporation tax 1,165 - 1,156 -
Other taxation and
social security 132 158 131 153
1,297 158 1,287 153
Other creditors 339 445 272 368
Obligations under finance
leases 119 139 119 139
Bank loans 872 966 872 968
Accruals and deferred
income 1,613 1,340 1,554 1,307
Dividends proposed 1,813 1,813 1,813 1,813
6,831 8,067 6,684 7,841
16. Creditors: amounts falling due after more than one year
Group and Company
2002 2001
£000 £000
Finance leases:
Amounts falling due in more than one year but less than two years 119 139
Amounts falling due in more than two years but less than five 58 155
years
Bank loans (see note 21):
Amounts falling due in more than one year but less than two years 872 966
Amounts falling due in more than two years but less than five - 969
years
1,049 2,229
17. Provisions for liabilities and charges
Deferred taxation
- restated
Group Company
£000 £000
The Group and Company
At 1 January 2002 4,251 4,259
Charge for the year in the profit and loss account 420 314
At 31 December 2002 4,671 4,573
Deferred tax is provided as follows:
Group Company
2001 2001
2002 - restated 2002 - restated
£000 £000 £000 £000
Difference between accumulated depreciation
and amortisation and capital allowances 4,671 4,251 4,573 4,259
4,671 4,251 4,573 4,259
Deferred tax is provided at a rate of 30% (2001: 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
2002 2001
£ £
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 premium capital
£000 £000 £000 £000
The Group
At 1 January 2002 - restated 13,476 5 13,707 1,813
Other recognised losses (730) - - -
Retained profit for year 3,320 - - -
At 31 December 2002 16,066 5 13,707 1,813
The Company
At 1 January 2002 - restated 14,298 5 13,707 1,813
Other recognised losses (320) - - -
Retained profit for year 3,523 - - -
At 31 December 2002 17,501 5 13,707 1,813
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 2001
2002 - restated 2002 - restated
£000 £000 £000 £000
Profit for the financial year 6,039 2,518 6,242 4,211
Dividends (2,719) (2,719) (2,719) (2,719)
Retained profit/(loss) for the financial 3,320 (201) 3,523 1,492
year
Translation differences (730) 308 (320) -
Prior period adjustment - as explained in note 1 - 751 - 751
Net addition to shareholders' funds 2,590 858 3,203 2,243
Opening shareholders' funds 29,001 28,143 29,823 27,580
Closing shareholders' funds 31,591 29,001 33,026 29,823
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 2002.
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:
2002 2001
Fixed Variable Fixed Variable
rates rates Total rates rates Total
£000 £000 £000 £000 £000 £000
Sterling 295 7 302 433 2,011 2,444
US dollar - 1,745 1,745 - 2,901 2,901
295 1,752 2,047 433 4,912 5,345
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 2004 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 Euros. 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
The fair value of all financial assets and liabilities is not materially
different from the carrying value. Therefore the fair value is not separately
disclosed. At 31 December 2002 the Group had forward exchange contracts with a
nil carrying value and a fair value, based on estimated market values, of £1.0
million (2001: £nil).
22. Commitments
2002 2001
£000 £000
(i) Capital contracts at the end of the financial year for which no
provision has been made 772 3,305
(ii) The Group has annual commitments under non-cancellable
operating leases which expire between two and five years:
Other operating leases 181 301
(iii) As at 31 December the Group had foreign currency forward
exchange contracts amounting to: 999 -
The above amounts apply to the Company as well as the Group apart from Capital
Commitments which includes £125,000 (2001: £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. Whilst the Group continues to account for pension costs in
accordance with Statement of Standard Accounting Practice 24 'Accounting for
Pension costs', under FRS 17 'Retirement benefits' the following transitional
disclosures are required:
A full actuarial valuation was carried out at 6 April 2002 and updated by a
qualified independent actuary on a FRS 17 basis to 31 December 2002.
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 At year end
31 December 31 December
2002 2001
% p.a. % p.a.
Rate of general increase in salaries 3.85 4.50
Rate of increase of pensions in payment 2.25 2.25
Discount rate 5.47 5.83
Inflation assumption 2.35 2.50
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:
Long-term Value at Long-term Value at
rate of 31 December rate of 31 December
return 2002 return 2001
2002 £000 2001 £000
Equities 7.52 6,579 7.95 7,875
Bonds 5.00 1,281 5.39 1,487
Other - Cash 4.00 324 4.50 414
8,184 9,776
Present value of scheme liabilities (11,497) (9,897)
Deficit in the scheme (3,313) (121)
Related deferred tax asset 994 36
Net pension liability (2,319) (85)
Movement in deficit in scheme during the year
At year end
31 December
2002
£000
Deficit in scheme at beginning of year (121)
Current service cost (503)
Contributions paid 423
Past service cost -
Other finance income 148
Actuarial loss (3,260)
Deficit in the scheme at end of year (3,313)
If FRS 17 had been fully adopted in these financial statements the pension costs
for the defined benefit scheme would have been:
Analysis of other pension costs charged in arriving at operating profit
2002
£000
Current service cost (503)
Past service cost -
(503)
Analysis of amounts included in other finance income/costs
2002
£000
Expected return on pension scheme assets 737
Interest on pension scheme liabilities (589)
148
Analysis of amount recognised in statement of total recognised gains and losses
% 2002
2002 £000
Actuarial return less expected return on scheme assets (2,646)
Percentage of year end scheme assets (32)
Experience gains and losses arising on scheme liabilities (270)
Percentage of present value of year end scheme liabilities (2)
Changes in assumptions underlying the present value of scheme liabilities (344)
Percentage of present value of year end scheme liabilities (3)
Actuarial loss recognised in statement of total recognised gains and losses (28) (3,260)
In 2002 the Company paid a contribution of 12% of pensionable salaries, in
addition to the employees' contribution of 5%. Following the actuarial valuation
at 6 April 2002, it was agreed that the Company contribution would increase to
14.1% of pensionable salaries and the employee contribution to 6.5% from 1 March
2003. The total company contributions to the scheme paid in the year amounted to
£423,099.
In addition there is a stakeholder scheme for UK employees who joined the Group
after 1 October 2001. The contributions paid by the Group to the scheme for the
year ended 31 December 2002 were £2,732.
For US-based employees Zotefoams Inc. and Zotefoams Fabrications Ltd operate a
401(k) plan and a defined contribution pension plan to which Zotefoams Inc. and
Zotefoams Fabrications Ltd contributes 6.2% of pensionable salary.
24. Reconciliation of operating profit to net cash inflow from operating
activities
2002 2001
£000 £000
Operating profit/(loss) 7,899 (149)
Depreciation charge 3,084 2,458
Loss on disposal of assets 4 -
Decrease/(increase) in stocks 120 (1,394)
(Increase)/decrease in debtors (274) 184
Increase/(decrease) in creditors 121 (257)
Net cash inflow from operating activities 10,954 842
Insurance proceeds relating to the fire for £7.8 million have been received
during 2002. £6.9 million of this has been allocated to revenue and the
remainder to capital as described in note 3 to the accounts. In 2001 £6.0
million was received from the insurers of which £1.3 million was allocated to
revenue and the remainder to capital.
25. Analysis of changes in net (debt)/funds
At At
1 January Translation 31 December
2002 Cashflow Differences 2002
£000 £000 £000 £000
Cash at bank and in hand 245 147 (20) 372
Bank overdrafts (2,011) 2,000 4 (7)
Obligations under finance leases (433) 138 - (295)
Bank loans (2,901) 928 228 (1,745)
(5,100) 3,213 212 (1,675)
26. Statutory accounts
The financial information set out above does not constitute the company's
statutory accounts for the years ended 31 December 2001 or 2002 but is derived
from those accounts. Statutory accounts for 2001 have been delivered to the
Registrar of Companies, and those for 2002 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under Section 237
(2) or (3) of the Companies Act 1985.
27. Report and accounts
This statement is not being posted to shareholders. The Report and Accounts for
the year ended 31 December 2002 will be posted to shareholders by 31 March 2003.
Further copies will be available from the Company's Registered Office: Zotefoams
plc , 675 Mitcham Road, Croydon, CR9 3AL.
28. Annual general meeting
The Annual General Meeting will be held on 1 May 2003, at the Company's
Registered Office as above
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