Final Results
Zotefoams PLC
14 March 2006
14 March 2006
Zotefoams plc
Preliminary Results for the Year Ended 31 December 2005
Zotefoams plc, the world's leading manufacturer of cross-linked polyolefin block
foam, today announces its preliminary results for the 12 months ended 31
December 2005.
Highlights
• Turnover up 11% at £28.0 million (2004: £25.2 million)
• New product ZOTEK(R) sales of $1 million (2004: $0.006 million)
• Pre-tax profit, pre-exceptional items up 40% to £1.8 million (2004: £1.3
million)
• Pre-tax profit after exceptional items of £3.3 million
• Pension scheme restructuring completed
• Net debt reduced to £1.1 million (2004: £1.7 million)
• Dividend of 3.0p, making a total of 4.5p declared for 2005
Commenting on the results, Bill Fairservice, Chairman, said:
'I am pleased to report that 2005 was another year of solid performance by the
Company following a 39% profit increase in 2004. In spite of rising energy and
materials costs and an increasingly competitive environment, we succeeded in our
objective to grow sales of our polyolefin products in excess of the rate of
inflation in Europe and to achieve significant sales growth in North America and
Asia. Our new ZOTEK high performance foams have also made good progress,
particularly in the demanding aviation sector and we are now looking to build on
this early success.
'We continue to generate cash, to return cash to shareholders through dividends
and to invest for the future. We believe this is an appropriate balance for
Zotefoams at this stage of its development. Going forward, we will continue to
maintain a focus on our core polyolefins products while pursuing higher margin
opportunities for high performance materials and we look forward to further
progress in both divisions in 2006.'
Enquiries:
Zotefoams plc 020 8664 1600
David Stirling, Managing Director
Clifford Hurst, Finance Director
Financial Dynamics 020 7831 3113
Deborah Scott / Sarah MacLeod
CHAIRMAN'S STATEMENT
Bill Fairservice
Our Strategy
Zotefoams' strategy is to create sustained profit growth by expanding its sales
internationally and by broadening its potential market with new unique products.
This strategy is supported by our commitment to quality, innovation and customer
service through investment in the training and development of our employees. We
aim to remain at the forefront of foam technology by concentrating our resources
in key areas, exploiting our unique capability. We also seek to develop and
maintain relationships with others where our combination of expertise and
resources will be beneficial.
Our Objectives
We intend to grow sales in our core polyolefin foams business in excess of the
rate of inflation in Europe and achieve significant growth in North America and
Asia. Our sales growth in America is supported by our factory in Kentucky which
opened in mid-2001 while in Asia we will consider a similar operation, either as
a license or joint venture, as sales increase to a level where this is sensible.
We are also committed to developing a portfolio of unique foam products from
high-performance materials which will enjoy significant advantages over
competitive materials, allow higher margins for Zotefoams and confirm our
position as the pre-eminent foam technology company. We intend to achieve these
while continuing to improve our return on capital employed through a more
efficient use of assets and working capital.
Our Board
After 10 years with Zotefoams, John Marley retired from the Board as a
non-executive Director in December. On behalf of the Board I would like to thank
John for his service and contribution over the years. Effective 1 January 2006
Nigel Howard joined the Board as a non-executive Director and Chairman of the
Remuneration Committee. I am delighted to welcome Nigel who is currently a
non-executive Director of Alliance One International Inc. based in North
Carolina, USA and previously worked for Morgan Crucible in a number of roles
including Interim Chief Executive.
Our Achievements
During 2005 we grew sales by 11%. Profit before tax and exceptional items
increased by 40% to £1.8 million. Profit before tax including exceptional items
was £3.3 million. Sales in Europe grew 7% which was approximately twice the
level of inflation, while sales in North America and Asia grew 24% and 46 %
respectively. During 2005 we made the first meaningful sales of ZOTEK (R) high
performance foams and continued to invest for the future with technological
development in a number of exciting projects including polyamide (nylon) foams.
Our return on capital employed, measured as profit before tax and exceptional
items as a percentage of average equity, was 7.4%, up from 5.4% in 2004. We
ended the year with a strong balance sheet and, despite the exceptional cash
costs relating to pensions restructuring and the bid approach, we reduced net
debt (borrowings less cash) to £1.1 million (2004:£1.7 million) at 31 December.
The Directors are recommending a final dividend of 3.0p net per share payable on
26 May 2006 to shareholders on the Company register at the close of business on
28 April 2006. This would bring the total declared dividend to 4.5p for 2005 and
is unchanged from the dividend declared for 2004.
W H Fairservice
Chairman
13 March 2006
MANAGING DIRECTOR'S REVIEW
David Stirling
Our Year
I am pleased to report improved results for 2005 as sales increased 11% to £28.0
million and profit before tax excluding exceptional items increased 40% to £1.8
million. Profit before tax including exceptional items was £3.3 million.
Importantly, in a year where our raw material and energy prices rose sharply, we
were able to recover these increases through price rises and a surcharge linked
to polymer prices and therefore gross margins for the year were satisfactory at
22.6% (2004: 22.1%). Overall sales volume increased 3%. Unusually, sales in the
second half of the year were stronger than in the first half as volumes rose by
7% and sales value increased by 17%. Sales of our ZOTEK(R) high performance
foams grew to US$1 million (£555,000) which accounted for 2% of turnover.
Before exceptional items our effective tax rate is 31% (2004: 11%) giving profit
for the year of £1.3 million (an increase of 9% over 2004) and earnings per
share of 3.5p (2004: 3.2p). After exceptional items profit for the year was £2.4
million with earnings per share of 6.7p.
On 14 January 2005 Zotefoams received a preliminary approach from a third party
looking to buy the company. Discussions continued with a number of parties
through most of 2005, absorbing a significant amount of management time and
resource, until 2 November 2005 when the Zotefoams' Board terminated
discussions. The costs of this unsolicited approach were £413,000 and these are
classified as an exceptional item.
Effective 31 December 2005 Zotefoams closed its UK defined benefit scheme to
future service accrual for existing members. The defined benefit scheme had been
closed to new entrants from October 2001. All employees who were active members
of the defined benefit scheme as at 31 December 2005 were offered membership of
an alternative defined contribution scheme. This restructuring resulted in an
exceptional profit of £2.0 million due to the actuarial impact of the reduction
in future obligations on the defined benefit scheme. Net of associated costs,
including explanatory presentations to employees, an exceptional gain of £1.9
million is shown in the accounts for the period. Further detail is given in the
Finance Director's review.
Our Business
Foams produced and sold by Zotefoams fall into two main business segments which
are best characterised by their constituent raw materials: polyolefins and high
performance polymers. Development of materials for sale in the high performance
polymer foams market is a key element in our business strategy. Zotefoams'
proprietary technology allows the foaming of materials which we believe cannot
currently be achieved by other means or, alternatively, our process gives either
an economic or material performance advantage. We are seeking to exploit this
technical advantage by foaming materials other than polyolefin to meet the needs
of markets outside traditional polyolefin foams. However, we believe polyolefin
foam will continue to be our largest product group for the foreseeable future
and the combination of growth in this product and the development of new
materials will make a real and sustainable positive difference to our business.
Polyolefin foams
Overall volumes in polyolefin foams grew 3% compared to 2004. Increased selling
prices, product mix and a temporary surcharge to customers in relation to raw
materials costs combined with the volume increase to give an overall increase in
sales of polyolefin foams of 9% compared to 2004.
In a climate of increasing material costs 2005 was always likely to be a year of
subdued volume growth. Germany, which grew 9% in volumes, was the only major
market where sales volumes increased significantly. In other areas we saw a
mixed picture with quite dramatic swings in timing of sales and product mix over
the business as a whole and in France and North America in particular. The
second six months saw a more encouraging picture with volumes up 7% and sales
value, including the impact of raw material surcharges, up 14% on the previous
year.
Sales in the UK and Eire grew 5% as Zotefoams continues to work on end-user
market development and support of customers in specific market segments. UK
manufacturing overall continues to be a difficult market but new applications in
construction together with some recovery in the marine segment, offset a slower
than expected year in specialist packaging.
In Germany sales grew by 15% as a result of strong performances in the packaging
and transport segments both through our main distributor and through direct
accounts. In France, as our prices increased, some business was lost in the
industrial and construction segments although this was partly compensated for by
growth in marine applications. Italy and Spain remain difficult markets for
Zotefoams with sales performing below our expectations for the second successive
year and our approach in both countries is currently under review. Our
performance in Scandinavia, with a volume increase of 7%, was particularly
pleasing with strong contributions from the industrial segment and growth of
newly developed accounts in packaging.
In North America sales to the automotive and general construction segment were
at similar levels to 2004. Growth in this region came predominantly from the
military, specialty construction and health and beauty segments. Although
overall volumes increased by only 3% in North America the more favourable
product mix led to an overall increase in revenues from polyolefin foam of 15%.
The Rest of the World sales volume grew by 21% during the year with strong
contributions in specific regions from the construction, sports and leisure and
packaging segments.
During 2000 and 2001 Zotefoams entered into a worldwide sales and marketing
alliance for polyolefin foams with the Sekisui Chemical Company Ltd ('Sekisui'),
who act as exclusive agent and distributor for Zotefoams in Continental Europe
and Asia respectively. Sekisui also act as agent for certain customers in North
America.
As announced in December the Board has, for some time, been in discussions with
Sekisui in relation to certain of their obligations under two of these
contracts. While still open to the prospect of resolution through other means,
the Board has decided to pursue its rights through the prescribed dispute
resolution processes and Zotefoams has therefore instigated arbitration
proceedings which are scheduled to be heard at the end of March 2006 and in June
2006. Commercial arrangements with Sekisui continue as normal.
Our major raw materials are commodity polymers and therefore are subject to
rapid and sometimes large price movements. Low density polyethylene, by far our
largest raw material cost, averaged 1056 euros per tonne in 2005, up 24% on
2004. In 2005 significant price increases were experienced in both gas and
electricity and Group energy costs were 5.8% of sales. While efforts are
underway to minimise the impact of energy price rises in our business we
anticipate further increases in our energy costs in 2006.
High Performance Foams
Our high performance foams are marketed under the ZOTEK(R) brand. The first
ZOTEK product, a fluoropolymer foam known as ZOTEK F30, was launched in January
2004 with the key attributes of excellent fire, chemical and UV-light
resistance. This is a radical departure from existing materials both for
Zotefoams and for our customers and therefore requires a significant market
development effort. However, ZOTEK F30 has now gained acceptance in demanding
aviation applications and the majority of the US$1 million of sales during 2005
were in aviation in North America.
Our materials partner, Arkema Inc., offers a wide range of fluoropolymers under
the Kynar(R) trademark and we anticipate developing a range of the ZOTEK F foams
exploiting the various properties of these polymers. We have already secured
initial orders for our second major product, ZOTEK F HT, offering higher
temperature and improved chemical resistance, which was launched in January
2006.
Zotefoams are currently working on additional exciting projects in aviation,
military and in the chemical industry with ZOTEK grades. These projects are
often for much larger values than offered by a typical polyolefin foam
application. However, the performance requirements and test conditions are very
demanding and evaluation can take many months or sometimes years. Therefore the
inherent uncertainty of such projects, particularly their timing and the unique
requirements of specific applications which will vary from project to project,
makes projecting revenues and success rates extremely difficult, especially at
this early stage in their development.
Operational Capability
Zotefoams operates a unique and proprietary manufacturing process which has been
used for production of polyolefin foams for many years. Our strategy is to apply
this process to higher value polymers which cannot be foamed by conventional
means or where our process would give significant advantages. Therefore all
products we make share significant common elements of equipment and processes.
In April 2005 we commissioned a new high pressure autoclave to increase our
production capacity and flexibility. This capacity addition was required to
allow older machinery to be removed from production as part of a rolling
refurbishment and upgrade programme planned to continue into 2015. In August one
of our older high pressure vessels was removed from service as part of this
process. As this work progressed it became apparent there was some unanticipated
corrosion being caused by the water-cooling mechanism which Zotefoams have used
on this site since the 1940s. Further investigations uncovered the same issue,
to varying degrees, on all high pressure vessels operating using water cooling.
To minimise the extent of this corrosion (which ultimately would impair both the
useful life and operating pressure of these vessels as well as increase the risk
of a health and safety incident) the Board has decided to accelerate the
refurbishment and upgrade programme.
Our target, which is based on the most prudent course from a safety perspective
while continuing to operate, is for a serial refurbishment of all water-cooled
vessels on the shortest practical timescale. Approximately 60% of our HP
capacity remains to be refurbished on an accelerated timescale which will result
in capital expenditure of approximately £9 million being phased over 6 years
rather than 10 years as originally planned.
Expenditure on research and development, all of which has been charged to
profits in the year of expenditure, increased by 6% to £0.8 million in 2005. The
majority of this was spent on fluoropolymer, polyamide and silicone foams,
although there are other projects being evaluated. Developments with
fluoropolymer are aimed at extending the grade range and are strongly influenced
by feedback from market evaluations of the ZOTEK F30 foams which were sold
during the year. Our polyamide foam development is at an advanced stage and
market launch is expected around mid-2006. The technical development of
low-density silicone foam is well advanced and we are at the stage of addressing
specific engineering and handling aspects of this material. The production and
certain uses of PVDF, polyamide and silicone foams are covered by patents.
Employees
Customers, employees and technology define our business. 2005 brought
significant challenges of rising input costs against a backdrop of uncertainty
caused by the bid approach. In these challenging circumstances I am delighted at
the response from Zotefoams' employees and I would like to express my thanks to
each and every one for their effort during the year.
The Future
The key challenges for Zotefoams in the coming year are to manage the impact of
changes in commodity prices (primarily energy and materials costs) and
competitive environment while pursing our stated objectives to:
1. grow sales in our polyolefin business in excess of the rate of inflation in
Europe and achieve significant growth in North America and Asia;
2. develop a high performance foams portfolio to deliver enhanced margins;
3. improve our return on capital employed.
During 2004 and 2005 we met all these objectives and they continue to offer a
valid benchmark of our performance into 2006. We continue to generate cash, to
return cash to shareholders through dividends and to invest for the future. I
firmly believe the balance is appropriate for Zotefoams at this stage in our
development and that our business will evolve and prosper while managing the
risks outlined above. The combination of a solid foundation in polyolefin foams
and opportunities in development of high performance materials offers exciting
prospects for the future.
David Stirling
Managing Director
13 March 2006
FINANCE DIRECTOR'S REVIEW
Clifford Hurst
Finance Director's review
Group turnover was £28.0 million, 11% higher than 2004. Roughly half of this
increase was due to price rises and a material surcharge as high input prices on
polymer and energy were passed on. The average price of low density
polyethylene, our major raw material, rose 24% while our energy prices increased
by £0.3 million. It is therefore pleasing that through a combination of price
increases and efficiency improvements we were able to maintain gross margins at
around 22%.
Underlying distribution and administrative expenses, pre-exceptional items,
increased by £0.3 million with an additional investment of £0.1 million in
technical support. Sales of our new materials in the year exceeded £0.5 million
compared to practically nil in 2004 and we have an exciting pipeline of new
products.
Profit before tax and exceptional items was £1.8million, a 40% increase compared
to 2004. Profit before tax after exceptional items was £3.3 million.
There are two exceptional items shown within administrative expenses. In January
2005 the Board announced that it had received a preliminary approach that might
lead to an offer for the share capital of the Company. Discussions continued
with a number of parties until the Board announced in November 2005 that these
talks were terminated. The advisory and other costs associated with this
approach were £0.4 million.
In December 2005 the Company closed its defined benefit pension scheme to future
accrual of benefit. The actuarial gain from this curtailment, less associated
costs, was £1.9 million.
The tax charge for the year was £0.9 million, an effective tax charge of 26%.
This is after an exceptional £0.3 million release of a deferred tax provision.
The provision related to insurance proceeds received after a fire in 2000 which
were recorded as an exceptional profit and now that the tax computations have
been agreed with Her Majesty's Revenue and Customs the surplus provision has
been released as an exceptional item.
Profit after tax was therefore £2.4 million with earnings per share of 6.7
pence. Excluding exceptional items earnings per share are 3.5p compared to 3.2p
in 2004.
Cash flow and funding
EBITDA excluding exceptional items was £5.3 million (2004: £5.0 million).
Working capital increased by £0.7 million due to higher sales in the second half
of the year. Depreciation was £3.3 million, significantly above capital
expenditure of £1.1 million. After a period of major capital expenditure in
2000 to 2002 (£8 million was spent on opening a North American manufacturing
facility and £6 million on rebuilding the Croydon site following a fire)
depreciation has been substantially above capital expenditure. Nevertheless,
the capital expenditure in 2005 was abnormally low due to phasing of projects
and we expect capital expenditure to rise in 2006.
With cash generated from operating activities of £3.2 million the Group produced
strong cash flow, reducing net debt (borrowings less cash) in the year from £1.7
million to £1.1 million. Gearing (measured as net debt divided by shareholder's
equity) has fallen to 4% from 7% in 2004.
A final dividend of 3.0p net per share is proposed which brings the total
declared for the year to 4.5p, the same level as 2004.
Pensions
The Company operates a defined benefit pension scheme in the UK which has been
closed to new entrants since October 2001. Following the tri-annual actuarial
valuation in April 2005 the deficit on an ongoing valuation basis increased from
£0.6 million to £3.8 million. In view of the risks involved in running defined
benefit pension schemes, the Board, after a period of consultation, closed the
scheme to future accrual of benefit on 31 December 2005.
Employees who were members of the scheme have been offered membership of an
alternative defined contribution scheme. The contribution level to this scheme
has been set by an actuary to provide a similar level of benefit to that which
the member could have expected, as at 31 December 2005, when they retired from
the defined benefit scheme. The cash cost of doing this for the Company is
similar to that which it contributed to the defined benefit scheme for ongoing
benefits. However, by fixing the contribution level at 31 December 2005 the
Company now has a predictable cost for future service without bearing investment
or mortality risk.
The Company retains the risk on employee service in the defined benefit scheme
prior to 31 December 2005. By closing the scheme to future accrual the deficit
on an ongoing valuation basis was reduced to a net present value of £2.5 million
as at 5 April 2005. The Company has agreed with the trustees to pay off this
deficit in equal monthly instalments of £50,000 over the next five years.
However, in the future there is a risk that investment performance and mortality
may differ, either favourably or unfavourably, from current assumptions. The
Company has therefore not eliminated all the risks associated with the scheme,
but it has reduced them compared to leaving the scheme open to future benefit
accrual.
Treasury
In 2005 average exchange rates did not change significantly compared to 2004.
However, with most of the costs of the business being in sterling and the
majority of sales being in euros and US dollars the Group has a significant
foreign exchange exposure. The Board therefore has defined policies and
procedures relating to treasury management. These are designed to provide
appropriate business support, consistency of reporting and to mitigate risk.
Foreign currency hedges are used to reduce the foreign currency exposure based
on a proportion of the next six month's anticipated sales. 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.
Accounting policies
During the year the Group adopted International Financial Reporting Standards
for the first time. Details of the adjustments on transition and of the
principal differences were shown in the Interim Report issued to shareholders, a
copy of which can be accessed on the Zotefoams website www.zotefoams.com.
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
13 March 2006
Consolidated income statement
for the year ended 31 December 2005
2005 2005 2005 2004
Pre- Exceptional Post-
exceptional Items exceptional
items (see note 3) items
Note £000 £000 £000 £000
Revenue 2 27,975 - 27,975 25,176
Cost of sales (21,640) - (21,640) (19,607)
______ ______ ______ ______
Gross profit 6,335 - 6,335 5,569
Distribution costs (1,905) - (1,905) (1,863)
Administrative expenses (2,407) 1,449 (958) (2,104)
______ ______ ______ ______
Operating profit 2,023 1,449 3,472 1,602
Financial income 4 813 - 813 750
Finance costs 4 (997) - (997) (1,043)
______ ______ ______ ______
Profit before tax 1,839 1,449 3,288 1,309
Taxation 5 (569) (292) (861) (139)
______ ______ ______ ______
Profit for the year 1,270 1,157 2,427 1,170
______ ______ ______ ______
Attributable to:
Equity holders of the parent 1,270 1,157 2,427 1,170
______ ______ ______ ______
Earnings per share
Basic (p) 6 6.7 3.2
______ ______
Diluted (p) 6 6.7 3.2
______ ______
Consolidated statement of recognised income and expense
for the year ended 31 December 2005
2005 2004
£000 £000
Foreign exchange translation differences on investment in foreign subsidiary 846 (576)
Effective portion of changes in fair value of cash flow hedges net of recycling (79) -
Actuarial (losses)/gains on defined benefit schemes (42) 264
Tax on items taken directly to equity 13 (79)
______ ______
Net income/(expense) recognised directly in equity 738 (391)
Profit for the year 2,427 1,170
______ ______
Total recognised income and expense for the year 3,165 779
______ ______
Attributable to equity holders of the parent 3,165 779
______ ______
Consolidated balance sheet
as at 31 December 2005
2005 2004
£000 £000
Non-current assets
Property, plant and equipment 28,364 29,795
Deferred tax assets 132 -
______ ______
Total non-current assets 28,496 29,795
Current assets
Inventories 3,933 3,126
Trade and other receivables 6,182 5,675
Cash and cash equivalents 432 298
______ ______
Total current assets 10,547 9,099
______ ______
Total assets 39,043 38,894
______ ______
Equity
Issued share capital (1,816) (1,813)
Share premium (13,753) (13,707)
Capital redemption reserve (5) (5)
Translation reserve (270) 576
Hedging reserve 79 -
Retained earnings (9,857) (9,104)
______ ______
Total equity (25,622) (24,053)
______ ______
Liabilities
Interest-bearing loans and borrowings (1,100) (1,500)
Employee benefits (5,220) (7,192)
Deferred tax liabilities (2,730) (2,585)
______ ______
Total non-current liabilities (9,050) (11,277)
Interest-bearing loans and borrowings (400) (457)
Tax payable (698) (577)
Trade and other payables (3,273) (2,530)
______ ______
Total current liabilities (4,371) (3,564)
______ ______
Total liabilities (13,421) (14,841)
______ ______
Total equity and liabilities (39,043) (38,894)
______ ______
Consolidated cash flow statement
for the year ended 31 December 2005
2005 2004
£000 £000
Cash flows from operating activities
Profit for the year 2,427 1,170
Adjustments for:
Depreciation, amortisation and impairment 3,322 3,371
Loss on sale of property, plant and equipment - 23
Financial income (813) (750)
Financial expense 997 1,043
Equity-settled share-based payments (14) 46
Taxation 861 139
______ ______
Operating profit before changes in working capital and provisions 6,780 5,042
(Increase)/decrease in trade and other receivables (346) 136
Increase in stock (704) (13)
Increase in trade and other payables 334 188
Decrease in provisions and employee benefits (2,003) (92)
______ ______
Cash generated from the operations 4,061 5,261
Interest paid (151) (254)
Tax paid (713) (520)
______ ______
Net cash from operating activities 3,197 4,487
Proceeds on disposal of property, plant and equipment - 1
Interest received 26 -
Acquisition of property, plant and equipment (1,070) (1,331)
______ ______
Net cash used in investing activities (1,044) (1,330)
______ ______
Proceeds from the issue of share capital 49 -
Repayment of borrowings (400) (851)
Proceeds from new loan - 2,000
Payment of finance lease liabilities (57) (119)
Dividends paid (1,631) (1,269)
______ ______
Net cash used in financing activities (2,039) (239)
______ ______
Net increase in cash and cash equivalents 114 2,918
Cash and cash equivalents at 1 January 298 (2,616)
Effect of exchange rate fluctuations on cash held 20 (4)
______ ______
Cash and cash equivalents at 31 December 432 298
______ ______
Cash and cash equivalents comprise cash at bank and short-term highly liquid
investments with a maturity date of less than three months.
Notes to the financial statements
1. Accounting policies
Zotefoams plc (the 'Company') is a company incorporated in the UK.
The Group financial statements consolidate those of the Company and its
subsidiaries (together referred to as the 'Group').
The Group financial statements have been prepared and approved by the Directors
in accordance with International Financial Reporting Standards as adopted by the
EU ('Adopted IFRSs').
The accounting policies have, unless otherwise stated, been applied consistently
for the Group to all periods presented in these consolidated financial
statements and in preparing an opening IFRS balance sheet at 1 January 2004 for
the purposes of the transition to Adopted IFRSs. The principal exception is
that, as more fully explained below, financial instruments accounting is
determined on different bases in current year and comparative year due to
transitional provisions of IAS 32 and IAS 39.
Transition to Adopted IFRS
The Group's financial statements are presented in accordance with Adopted IFRS
for the first time and consequently the Group has applied IFRS 1. An explanation
of how the transition to Adopted IFRS has affected the reported financial
position, financial performance and cash flows of the Group is provided in the
Interim Report of the Company to shareholders.
In addition to exempting companies from the requirement to restate comparatives
for IAS 32 and IAS 39, IFRS 1 grants certain exemptions from the full
requirements of IFRSs in the transition period. The following exemptions have
been taken in these financial statements:
• Employee benefits - all cumulative actuarial gains and losses on defined
benefit plans have been recognised in equity on 1 January 2004;
• Cumulative translation differences - cumulative translation differences
for all foreign operations have been set to zero at 1 January 2004; and
• Share-based payments - the recognition and measurement requirements of
IFRS 2 were not applied to share options awarded before 7 November 2002.
The financial information does not constitute the Company's statutory accounts
for the year ended 31 December 2005 or 2004 but is derived from those accounts.
Statutory accounts for 2004 have been delivered to the Register of Companies,
and those for 2005 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.
2. Business segments
The Group manufactures and sells high-performance foams for specialist markets
worldwide. These fall into two main business segments best categorised by their
constituent raw materials.
• Polyolefins: these foams are made from olefinic homopolymer and copolymer
resin. The most common resin used is polyethylene.
• High performance polymers (HPP): these foams exhibit high performance on
certain key properties, such as improved chemical, flammability or
temperature performance, due to the resins on which they are based. Turnover
in the segment is currently derived from our ZOTEK (R) F foams made from
PVDF fluoropolymer. Other polymers being assessed in development include
polyamide (nylon) and silicone.
Due to our unique manufacturing technology Zotefoams can produce polyolefin
foams with superior performance to other manufacturers. However, our strategy is
to use the capabilities of our technology to produce foams from other materials
as well as polyolefins. The development of foams from high-performance polymers
business is currently in its early stages with costs (including the technical
and marketing costs to develop these materials) exceeding revenues.
Polyolefins HPP
2005 2004 2005 2004
Note £000 £000 £000 £000
Revenue 27,420 25,173 555 3
Segment result 2,219 1,997 (196) (395)
Exceptional items 3 - - - -
Net financing costs - - - -
Taxation - - - -
______ ______ ______ ______
Profit for the period - - - -
Segment assets 38,026 38,203 885 691
Unallocated assets - - - -
______ ______ ______ ______
Total assets
Segment liabilities (9,752) (11,677) (241) (2)
Unallocated liabilities - - - -
______ ______ ______ ______
Total liabilities
Depreciation 3,272 3,314 50 57
Capital expenditure 1,053 1,297 17 34
______ ______ ______ ______
(Continued from table above)
Consolidated
2005 2004
Note £000 £000
Revenue 27,975 25,176
Segment result 2,023 1,602
Exceptional items 3 1,449 -
Net financing costs (184) (293)
Taxation (861) (139)
______ ______
Profit for the period 2,427 1,170
Segment assets 38,911 38,894
Unallocated assets 132 -
______ ______
Total assets 39,043 38,894
Segment liabilities (9,993) (11,679)
Unallocated liabilities (3,428) (3,162)
______ ______
Total liabilities (13,421) (14,841)
Depreciation 3,322 3,371
Capital expenditure 1,070 1,331
______ ______
Geographical segments
UK and Eire Europe North Rest of the Total
America World
For the year ending 31 December 2005 £000 £000 £000 £000
Revenue from external customers 7,332 12,604 7,336 703 27,975
Segment assets 29,744 - 9,167 - 38,911
Capital expenditure 1,046 - 24 - 1,070
______ ______ ______ ______ ______
For the year ending 31 December 2004
Revenue from external customers 6,985 11,764 5,909 518 25,176
Segment assets 30,841 - 8,053 - 38,894
Capital expenditure 1,040 - 291 - 1,331
______ ______ ______ ______ ______
3. Exceptional items
The Company has classified the following items as exceptional:
Bid costs
Relating to legal, advisory and other costs incurred in respect of a preliminary
approach for the share capital of the Company which was announced in January
2005 and terminated in November 2005.
Pension curtailment costs
On 31 December 2005 the Zotefoams Defined Benefit Pension Scheme for UK
employees was closed to future accrual of benefits. The actuarial gain on
closing the scheme to future accrual of benefits and the associated costs have
been classified as an exceptional item.
Tax adjustment to exceptional items in prior year
In 2001 and 2002 the Group recorded an exceptional profit on insurance proceeds
following a fire in 2000 at the Group's Croydon site. The tax computations
relating to 2001 and 2002 have now been agreed with the Revenue resulting in a
£267,000 release on the deferred tax provided in relation to these proceeds.
This is released as an exceptional item because it relates to a previous
exceptional item.
2005 2004
£000 £000
Bid costs (413) -
Pension curtailment:
Actuarial gain 1,972 -
Associated costs borne by the Company (110) -
______ ______
Net curtailment gain 1,862 -
______ ______
Exceptional items before taxation 1,449 -
Tax on above (559) -
Adjustment to tax on prior year exceptional item 267 -
______ ______
Exceptional items after taxation 1,157 -
______ ______
4. Finance income and costs
Financial income
2005 2004
£000 £000
Interest on bank deposits 26 -
Expected return on assets of defined benefit pension fund 787 750
______ ______
813 750
______ ______
Finance costs
2005 2004
£000 £000
On bank loans and overdrafts 120 201
On finance leases 16 24
Interest on defined benefit pension obligation 861 818
______ ______
997 1,043
______ ______
5. Taxation
2005 2004
£000 £000
UK corporation tax at 30% (2004: 30%) 917 871
Overseas taxation 2 24
Adjustment to prior year UK tax charge (84) (176)
______ ______
Current taxation 835 719
Deferred taxation 26 (580)
______ ______
Total tax charge 861 139
______ ______
Factors affecting the tax charge
The tax charge for the period is lower (2004: lower) than the standard rate of
corporation tax in the UK of 30% (2004: 30%). The differences are explained
below.
2005 2004
£000 £000
Tax reconciliation
Profit on ordinary activities before tax 3,288 1,309
______ ______
Tax at 30% (2004: 30%) 986 393
Effects of:
Research and development tax credits less expenses not deductible for tax 115 (8)
purposes
Partial recognition of US tax losses (54) -
Higher/(lower) tax rates on overseas earnings 15 (17)
Intra-group stock movements - 35
Adjustments to tax charge in respect of previous periods 66 (264)
Adjustment to tax charge on prior year exceptional items (267) -
______ ______
Total tax charge 861 139
______ ______
6. Dividends and earnings per share
2005 2004
£000 £000
Final dividend prior year of 3.0p (2004: 2.0p) net per 5p ordinary share 1,087 725
______ ______
Interim dividend of 1.5p (2004: 1.5p) net per 5p ordinary share 544 544
______ ______
Dividends paid during the year 1,631 1,269
______ ______
The proposed final dividend for the year ended 31 December 2005 of 3.0p per
share (2004: 3.0p) is subject to approval by shareholders at the Annual General
Meeting and has not been included as a liability in these financial statements.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing profit after tax of
£2,427,000 (2004: £1,170,000) 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 IAS 33.
2005 2004
Average number of ordinary shares issued 36,276,976 36,255,772
Deemed issued for no consideration - 30,973
______ ______
Diluted 36,276,976 36,286,745
______ ______
Shares deemed issued for no consideration have been calculated based on the
potential dilutive effect of the Executive Share Option Scheme and options
granted under the HMRC Approved Share Option Scheme:
Date from which exercisable Exercise price Number of shares under option
2005 2004
1 June 2005 77.0p - 177,475
20 August 2005 80.5p - 654,494
18 March 2006 80.0p 872,865 872,865
7 April 2007 72.5p 1,130,034 1,130,034
22 December 2008 77.0p 1,026,320 -
______ ______ ______
3,029,219 2,834,868
______ ______
The average fair value of one ordinary share during the year was considered to
be 72.0p (2004: 75.3p).
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