Preliminary Results

RNS Number : 5907T
Zotefoams PLC
21 March 2023
 

Zotefoams plc

 

Preliminary Results (unaudited) for the Year Ended 31 December 2022

21 March 2023 - Zotefoams plc ("Zotefoams" or "the Company" or "the Group"), a world leader in cellular material technology, today announces its unaudited preliminary results for the year ended 31 December 2022.

 

" Strong sales growth and much improved margins generate record revenues and profits ahead of initial expectations."

 

Financial highlights









2022

2021

Change





 

Group revenue

£127.4m

£100.8m

+26%





 

Gross margin

30.4%

26.4%

+400bps





 

Operating profit1

£13.9m

£8.1m

+71%





 

Profit before tax (PBT)1

£12.2m

£7.0m

+74%





 

Tax

£2.2m

£2.6m

(16%)





Basic EPS1

20.61p

9.01p

+129%





 

Cash generated from operations

£23.0m

£12.8m

+80%





 

Net debt

£27.8m

£34.3m

(19%)





Leverage ratio2

1.2x

2.1x

-





 

Final dividend3

4.62p

4.40p

+5%





 

 

1 This is a reported number under UK adopted IAS and is after the deduction of amortisation of acquired intangibles amounting to £0.258m in 2022 and £0.232m in 2021

2 Leverage is that defined under the bank facility, with net debt at the end of the period divided by the preceding 12 months' EBITDA, adjusted for the impact of IFRS2 and IFRS16

3 Final dividend is subject to approval at the May 2023 Annual General Meeting

 

Results highlights

•

Record Group revenue of £127.4m, with strong growth across all business units


- Polyolefin Foams sales up 25 % to £70.1m (2021: £56.2m) or 21% in constant currency


- High-Performance Products (HPP) sales up 29% to £54.4m (2021: £42.3m) or 16% in constant currency


- MuCell Extrusion sales up 23% to £2.8m (2021: £2.3m) or 13% in constant currency

•

Profit margins much improved


- Gross margin increased 400bps to 30.4%, with operating margin up 280bps to 10.9%


- Improved mix with faster relative growth in high-margin HPP and price rises implemented successfully in Polyolefin Foams


- Absorbed £1.9m of continued investment in the ReZorce ® mono-material barrier packaging opportunity


- Strong cost management and operational execution


- Profit before tax up 74% to £12.2m, a Group record, with EPS up 129% to 20.61p

•

Excellent cash generation


- 80% increase in cash generated from operations, with free cash flow of £14.0m (2021: £3.9m)


- Net debt reduced from £34.3m to £27.8m, with year-end leverage ratio down significantly to 1.2x

 

Strategic progress

•

Rapid recovery in Polyolefin Foams margins through price increases demonstrates strength of the product offering, and structural growth prospects exist in this important business unit, underpinned by the megatrends of environment, regulation and demographics and facilitated by the Group's well-invested global capacity

•

Further HPP growth in footwear products, where we have worked closely with our partner to develop more long-term opportunities, good first steps to recovery in aviation and strong signs that T-FIT insulation products are generating increased recognition and interest

•

Good progress in developing ReZorce, which offers society a truly circular packaging solution using existing recycling infrastructure

 

David Stirling, Group CEO, said:

"2023 has started well, with demand for our AZOTE ® polyolefin foam products in line with the previous year but with higher revenue from price increases implemented over the past twelve months. Sales of high-performance products are showing strong growth in the first few months, mainly due to the timing of shipments compared to the prior period. Sales across both businesses continue to benefit from a stronger US dollar. 

" The environment for input costs is less acute, with both energy and polyolefin polymer prices reduced from the peaks seen last year but remaining well above their long-term average. Prices for energy and energy-intensive commodities such as nitrogen remain uncertain, with forward-market pricing at a significant risk premium to spot. We are closely monitoring input costs and our pricing in the polyolefin foams business in particular.

" W hilst uncertainty persists, w e currently expect that, for the year as a whole, polyolefin foams volumes will be at a similar level to last year, with more challenging conditions in the UK and continental Europe offset by growth in North America and other geographies . Our High-Performance Products business should see further growth in footwear and continued strong growth in both our ZOTEK ® F and T-FIT ® insulation products. Within our MEL business unit, focus has progressed to commercialisation trials for ReZorce cartons.

" Overall, the Board remains confident about the future prospects for our business " .

 

 

Enquiries:

 

Zotefoams plc

+44 (0) 208 664 1600

David Stirling, Group CEO


Gary McGrath, Group CFO




IFC Advisory (Financial PR & IR)

+44 (0) 203 934 6630

Graham Herring

Tim Metcalfe

Zach Cohen

 

 

 

About Zotefoams plc

 

Zotefoams plc (LSE - ZTF) is a world leader in cellular materials technology delivering optimal material solutions for the benefit of society. Utilising a variety of unique manufacturing processes, including environmentally friendly nitrogen expansion for lightweight AZOTE® polyolefin and ZOTEK® high-performance foams, Zotefoams sells to diverse markets worldwide. Zotefoams uses its own cellular materials to manufacture T-FIT® advanced insulation for demanding industrial markets. Zotefoams also owns and licenses patented microcellular foam technology to reduce plastic use in extrusion applications and for ReZorce® mono-material recyclable barrier packaging.

 

Zotefoams is headquartered in Croydon, UK, with additional manufacturing sites in Kentucky, USA and Brzeg, Poland (foam manufacture), Oklahoma, USA (foam products manufacture and conversion), Massachusetts, USA, Stilling, Denmark (microcellular foam technology) and Jiangsu Province, China (T-FIT).

 

www.zotefoams.com

 

AZOTE®, ZOTEK®, ReZorce® and T-FIT® are registered trademarks of Zotefoams plc.

 



 

Zotefoams plc

An introduction from our Chair

Strong sales growth and improved margins generate record profits alongside continued strategic delivery

Performance and results

2022 saw the Group record a second year of strong sales growth, up 26% on 2021 following a 22% increase in the previous year. This was driven by effective pricing actions in Polyolefin Foams, a stronger US dollar and significant High-Performance Products (HPP) volume increases across Footwear, ZOTEK® F (primarily aviation) and T-FIT® insulation. A focused programme of price increases was implemented in Polyolefin Foams to recover margin loss from the severe input cost inflation that had materially impacted 2021 margins and that continued in 2022. Group revenue for the year was £127.4m (2021: £100.8m) and operating profit was 71% above the previous year at £13.9m (2021: £8.1m), a record for the Group, with operating margins expanding from 8.1% to 10.9% despite a significant increase in MuCell losses as we continue to invest in the ReZorce® circular packaging opportunity. Basic earnings per share was up 129% at 20.61p (2021: 9.01p). The balance sheet remains strong, with leverage significantly reduced during the year and ending at 1.2x (2021: 2.1x), the lowest it has been since 2018 when the Group embarked on its now complete capacity expansion programme.

Strategic progress

Our strategy is focused on delivering strong and sustainable organic growth and improved operational efficiencies. Zotefoams has a portfolio of differentiated products based on unique and environmentally friendly technology and intellectual property. We work with our partners to optimise our materials for their needs and have developed a portfolio of high-performance products that further enrich our product mix, adding more value for customers and to our business. Alongside this, we have established a diversified international manufacturing footprint to ensure there is sufficient capacity to meet growing demand across a range of attractive end markets. We seek to improve operating margins and returns through the investment cycle. We are also pursuing a transformative opportunity at MuCell Extrusion LLC with ReZorce, a mono-material barrier packaging solution which can be used for beverage and food packaging, uses recycled materials and is easy to recycle again (is "circular") using existing waste collection and recycling infrastructure.

We have made good strategic progress this year. Our largest business unit, Polyolefin Foams, converted the increased volumes of 2021 into improved margins in 2022. We continue to see structural growth prospects in this important business unit, underpinned by the megatrends of environment, regulation and demographics and facilitated by our new global capacity. In our HPP business, we delivered another year of strong growth in Footwear and worked closely with our partner to develop further long-term opportunities. Additionally, the start of a post pandemic recovery in aviation resulted in demand for ZOTEK® F technical foams growing strongly, with T-FIT® insulation products also developing well as the brand continues to gain traction. The long-term growth outlook for these HPP markets remains compelling. We also made significant progress at MuCell Extrusion LLC with ReZorce mono-material barrier packaging, investing significantly in its development, running scale-up trials and commencing the search for a strategic investor to allow full realisation of the technology's potential. Whilst acknowledging that we are still at an early stage of commercial development, this remains a high-reward opportunity and we expect to update stakeholders on progress during 2023.

Dividend

The Board is proposing a final dividend of 4.62p (2021: 4.40p) which, if approved by shareholders, would make a total dividend for the year of 6.80p (2021: 6.50p), an increase of 5%. This reflects the Board's continued confidence in the Group's future and is in line with its progressive dividend policy, recognising the importance to our shareholders of the dividend as part of their overall return. If approved, the final dividend will be paid on 2 June 2023 to shareholders on the register on 5 May 2023.

Our people

We know that our people are key to the Group's success and 2022 was another year that highlighted their importance. While in most regions the impacts of the pandemic have receded, this was not the case everywhere, with our China staff particularly impacted by shutdown and significant travel restrictions. Elsewhere, reduced restrictions have enabled the return of direct interactions between teams in different locations after at least two years of forced separation, and we see how important and valuable this is for the individuals themselves and the Group as a whole. The spiralling cost environment has placed challenges on our staff both from a work and a personal perspective and, with regard to the latter, we implemented a number of mitigating initiatives. High levels of business activity and a need to respond quickly requires resilient and committed staff, and we have again experienced this in our people, who have been outstanding and have ensured that the needs of customers continue to be met.

Having the right people at Zotefoams, who understand and promote our culture, act at all times with integrity, safety-consciousness and dedication and possess the right knowledge and skills, continues to be critical to our future success. I would like to welcome the new employees who have joined us around the world during the past twelve months. I would also like to thank those who have helped all our new colleagues integrate successfully and thank, once again, all our hard-working employees and their supportive families who have helped the Group continue to make good strategic progress during these very challenging times.

Sustainability

Our purpose is to provide optimal material solutions for the benefit of society, reflecting our belief that, used appropriately, plastics are frequently the best solution for the sophisticated, long-term applications typically delivered by our customers. The Board is focused on the importance of sustainability and the evolving debate around the use of plastics by society. It considers both in relation to the future desired outcomes for all stakeholders. Accordingly, our strategy incorporates the consideration of climate change in terms of financial and operational impacts. Good progress was made in 2022 towards our sustainability targets.

The Board and Chair succession

There were no changes to the experienced and engaged Board during the year. By the time of the Annual General Meeting (AGM) in May 2023, however, I will have been on the Zotefoams Board for almost nine years and it will be time for me to step down. Doug Robertson, our Senior Independent Director, has led a process to find my successor and in early January 2023 we appointed Dr Lynn Drummond as a Non-Executive Director and Chair Designate. I am delighted to welcome Lynn to the Board; she will take over as Chair after our AGM. On a personal note, it has been a pleasure to serve on the Zotefoams Board and be part of the exciting transformation and significant progress that the business has made since I joined in 2014. I am confident this success will continue.

Governance

The Board leads an ongoing programme to ensure the highest standards of corporate governance and integrity across the Group and has remained abreast of developing governance standards. The Board's interactions and communications with executive management continue to be excellent and, as a result, the Board is well-placed to challenge, guide and support executive management in the delivery of the growth strategy. During the year, we continued to pay particular attention to the provision of a safe working environment for our staff across all global locations and maintained the improved visibility and quality of safety performance data across the business. I thank all employees at Zotefoams for their efforts throughout the year to identify and remove risks and keep each other safe. We continue to support and empower our employees and are meeting our commitment to enhancing the employee voice in the boardroom through the position of J Carling, Independent Non-Executive Director, as Board representative for workforce engagement. The Board also acknowledges the benefits of diversity, including that of gender and ethnicity, and is committed to setting an appropriate tone from the top in all diversity and inclusion matters.

The Board considers that it has fully applied all the principles and provisions of the UK Corporate Governance Code during 2022, with the exception of Provision 38 in respect of the Company's pension contribution for the Group CEO.

Looking to the future

Zotefoams is well positioned with well invested, differentiated assets and a clear strategy for delivering profitable organic growth through the cycle. We have committed, capable and passionate people and a strong pipeline of new opportunities, and while we remain mindful of the uncertain external environment, with high inflation, higher interest rates, the continued war in Eastern Europe and remaining concerns over COVID-19 and its variants, we are confident about our future prospects for growth, margin improvement and cash generation.

S P Good

Chair

21 March 2023

 

Group CEO's review

Record revenue and profit with invest ment to capitalise on identified trends and generate sustainable growth

2022

United
Kingdom

Continental Europe

North
America

Rest of
the world *

Total

Change %

27%

1 5%

46%

25%

26%

Group revenue (£000's)

13,702

32,374

29,127

52,166

127,369

% of Group revenue

11%

25%

23%

41%

100%

2021






Group revenue (£000's)

10,768

28,200

19,959

41,823

100,750

% of Group revenue

11%

28%

20%

41%

100%

 

* Rest of the world comprises China: £30.0m (2021: £28.4m) and other countries: £22.2m (2021: £13.4m)

 

Overview

In 2022, Zotefoams grew significantly, delivering record revenue , profit and earnings . The year was characterised by a continuation of trends seen in 2021: input-cost inflation in energy , in particular, polymer and other manufacturing costs as well as labour. Our effective response , to increase prices where appropriate, was the main reason for increased revenue which also benefitted from an improved sales mix and more favourable currency rates, both of which aided profitability.

We continue to invest in our business , focused primarily on three clear macro-trends: demographics, where an increasing population is evermore urban and aging; regulation, often around the safety of people; and environment, where optimising the use of scarce resources has become a global necessity. Sustainability, along with health and safety, is embedded in everything we do and, in 2022, we directed increased levels of investment to the development of new products and markets for our T-FIT ® technical insulation products and to the reduction of waste and Scope 1 and 2 emissions from operations. We also invested significantly in our ReZorce ® mono-material barrier technology, which is now transitioning from technical development to pre-market trials.

Group revenue increased 26% to £127.4m (2021: £100.8m), with operating profit of £13.9m (2021: £8.1m) 71% above last year and 20% above our previous best year (2018: £11.6m). Underlying growth in our business was approximately 5% from an improved mix of products, while pricing actions and exchange rate movements, principally a stronger US dollar, contributed approximately a 21% increase in revenue. Overall volumes were at similar levels to 2021, with another year of growth in footwear products and T-FIT insulation, continued recovery in aviation and a good performance in polyolefin foams in North America being offset by a decline in polyolefin products in continental Europe. Profit before tax increased 74% to £12.2m, (2021: £7.0m), with margin improvements in our Polyolefin Foams and HPP business units , while losses in our Mucell Extrusion LLC business unit (MEL) increased as we continue our investment in the ReZorce opportunity. See the CFO review for the impacts of currency on performance and profitability.

Strategic update and progress

Zotefoams' strategy remains unchanged: to invest in flexible assets and technology with the capability to support the organic growth opportunities afforded by our diverse, and often unique, products. The results of this investment, in development and/or capacity, typically take time to be realised fully and this can create a short-term headwind for margins. However, we are confident that our investment decisions are aligned to longer-term growth trends and that our differentiated and diverse products generate good levels of demand with pricing power over the economic cycle.

The investments we have made over the past five years have delivered increased capacity which, following the main economic effects of COVID-19, is now beginning to be used productively and is demonstrated in 2022 by very good profit growth and an ability to deliver strong operating cashflow and reduced leverage.

Our extrusion technology business, MEL, is demonstrating good progress in the development of new, sustainable packaging technology through the ReZorce mono-material barrier solution and is moving to commercialisation trials. To help accelerate the opportunity, we acquired the net assets of Refour ApS (Skandeborg, Denmark) for £0.3m in October and took on key members of the Refour team. We are now seeking the right strategic invest or to work with us on this sustainable packaging opportunity .

 

Sustainability

Zotefoams products are typically sold into markets where they are used multiple times, often for many years, and can be recycled at the end of life. They often form a positive element of our customer's own sustainability agenda s . In our foam manufacturing facilities, we have reduced waste while increasing the proportion of waste recycled, and have developed high-functioning foams with 30% recycled material content. The core markets for our products are where a "best in class" foam delivers our stated purpose: o ptimal material solutions for the benefit of society. Our products deliver performance and longevity in industrial applications and consumer durables such as footwear, medical devices, insulation for planes, cleanrooms, construction and cars, as well as military and marine uses. In 2022, 85% of our revenue was from products which are considered "green" based on a resource efficiency definition where, during manufacture or use, they provide a substantial increase in the efficiency of resources . This includes all sales from MEL , which provides solutions for increasing the efficiency of resource usage by reducing polymer consumption.

Within MEL, we continue to invest in our ReZorce mono-material barrier packaging opportunity. The premise of our MuCell ® technology is the reduction of plastic in society and the exciting ReZorce solution, using this technology, is a truly circular answer to very challenging targets set by governments and brands in reducing their carbon footprint and increasing the use of recycled materials. See MEL below for more details.

Good progress was made in 2022 towards our sustainability targets. An in-depth analysis of the transitional risks arising from climate change provided useful data relating to the short, medium and long-term impacts on the Group, which are currently assessed as low risk. We continue to strive to develop disclosures aligned with our shareholders ' and stakeholders' expectations and have been upgraded from an A score to an AA score (the second highest rating achievable) by MSCI. We also made our first report to CDP in 2022.

Polyolefin Foams

Segment Revenue

£70.1m (2021: £56.2m). Change 25%.

Segment Profit

£4.9m (2021: £0.7m). Change 7x.

Segment Profit Margin

7.0% (2021: 1.2%).

In 2022, sales in Polyolefin Foams grew by 25% to £70.1m (2021: £56.2m). Overall volumes were 1% below the previous year, with low and mid-single-digit percentage growth in the UK and North America respectively, while volumes declined 5% in continental Europe, our largest market and there were mixed outcomes in other geographies .

Polyolefin foams are widely used in industrial and multiple-use consumer applications due to their robustness and durability. The main market segments are multiple-use packaging and protection, often used in long-term storage solutions, construction, sport and leisure, automotive, aviation, marine, military and healthcare. Customers for some specific applications were negatively impacted by supply chain disruption, such as automotive, where demand declined to the lowest level for many years, while most markets were negatively impacted by high inflation of materials and energy costs as well as labour shortages. Growth in other areas, such as construction and print solutions, came from new applications which have been developed over the past few years and, in the case of those in continental Europe, benefitted from the proximity of certain customers to our facility in Poland.

Average selling prices increased 24%, which was primarily a result of price increases but also a consequence of an improved mix and some net foreign exchange benefit, with a stronger US dollar but weaker e uro. In most areas, multiple price increases have been implemented since Q2 2021 following input cost inflation and, in 2022, we benefitted from the full-year impact of price increases implemented in 2021 plus further increases in 2022, some of which were implemented as a surcharge which remained in place throughout the year . In European markets, energy, polymer and nitrogen pricing remain volatile but may have overshot their long-run sustainable level.

The intent of these price increases is to recover the higher costs we are experiencing but not to recover previous percentage margin levels, nor position our pricing based on peak input costs. Finding the balance between price adjustments and potential demand destruction in the current environment re mains an ongoing focus .

The main polymers used in our Polyolefin Foams business unit are low-density polyethylene (LDPE) and other similar polyolefins. LDPE pricing has been extremely volatile since reaching a long-time trough in early 2020 that was linked to lower demand through the COVID-related economic slowdown. Since then, it has risen rapidly due to a combination of factors, peaking in Europe in May 2022 and recently trending lower but above its long-term average. Current polymer pricing levels are in part due to high energy costs, which are also indirectly impacting the costs of nitrogen and freight as well as having a direct impact on Zotefoams. Direct costs of energy and nitrogen, which have a much higher impact on our Polyolefin Foams business unit than on HPP, increased by over 50% in the period.

In our UK and Poland facilities, good progress has been made on waste reduction and energy efficiency and in Europe we commercially launched new materials incorporating 30% recycled polymer following market testing during development. In our Kentucky, USA facility, manufacturing yield efficiency improved over the course of the year from the low levels experienced in 2021, with specific actions planned for 2023 to continue this progress.

Segment profit margin has grown to 7% of sales, significantly better than last year but with scope over time for further improvement primarily through improved asset utilisation, operational efficiency and mix enrichment.

 

High-Performance Products

Segment Revenue

£54.4m (2021: £42.3m). Change 29%.

Segment Profit

£15.3m (2021 : £8.7m). Change 75%.

Segment Profit Margin

28.1% (2021: 20.6%).

Sales in our High-Performance Products ("HPP") b usiness u nit grew by 29% to £54.5m (2021: £42.3m). The main product groups are footwear, ZOTEK ® fluoropolymer foams and T-FIT ® technical insulation. Overall volumes were 12% ahead of 2021.

In footwear, where we have an exclusive arrangement with Nike, our materials are primarily used in midsoles for running shoes. In 2022, sales grew by 25% to £42. 2 m (2021: £33.9m). Since partnering with Nike in 2016, our business has grown significantly through the use of Zotefoams materials on more shoe models as well as t hrough t he growth experienced by Nike in the premium running segment. We have continued to develop new and innovative foams and improved our production efficiency, reducing cost, scrap and waste, most of which is now reincorporated into products within the footwear supply chain. Pricing to Nike recovers cost inflation, albeit with a lag, through our contractual terms. Footwear products accounted for 77% (2021: 80%) of HPP segment sales.

Other HPP foams are mainly used in aviation applications, where our ZOTEK F materials offer unrivalled performance at very low weight. Outside aviation our foams, including those made from nylon and elastomers, are used in healthcare, packaging, military and personal protection. Sales volumes of ZOTEK F materials increased by 17% and value increased by 48% to £6.2m (2021: £4.2m) with a beneficial product mix from the improving aviation market and the benefit of a stronger US dollar. Input-cost inflation in these materials was less severe than in polyolefin foams and our pricing reflected this. These applications accounted for 11% (2021: 12%) of HPP segment sales.

T-FIT insulation is made using Zotefoams' own HPP products and designed for the most demanding internal environments, such as in pharmaceutical, biotech and food and drink processing. Sales grew by 48% to £5.8m (2021: £3.9m). Our main markets are China and India, where more new factories are being built, although there is also an increase in construction activity in both Europe and North America. Most of our T-FIT conversion from foams to tubes, which is low capital-intensity, takes place in China but we have recently begun manufacturing in Poland and have an outsourced manufacturing partner to serve the North American market. T-FIT sales represent 11% (2021: 9%) of HPP segment sales.

Segment profit increased to £15.3m (2021: £8.7m), a segment profit margin of 28.1% (2021: 20.6%). The segment margin recovered from a relatively low point in the previous year, seeing the benefit of an improved product mix from higher aviation revenue and a stronger US dollar in which almost all HPP revenue is invoiced. We have expectations of further growth in our HPP business and continue to focus our investment in new product development and sales resources for T-FIT insulation, in line with these expectations.

 

MuCell Extrusion (MEL)

Segment Revenue

£2.8m (2021: £2.3m). Change 23%.

Segment loss before amortisation of acquired intangibles*

-£1.6m (2021: -£0.5m). Change 3x.

Segment loss after amortisation of acquired intangibles*

-£1.9m (2021: -£0.7m).

*Amortisation of a cquired intangibles: 2022: £258k, 2021: £232k.

MuCell ® extrusion technology centres around combining high-pressure gas with polymer, allowing a typical reduction of 15% of the material required. Our business model, until recently, has been to manufacture and sell equipment and license technology, with future income being a royalty stream based on the polymer savings from existing products. Most of our customers are making consumer packaging where our technology delivers a lower cost and lower environmental footprint. 

Over the past few years, we have worked further to extend this gas-injection capability to new applications. Th is has led to the creation of a new platform technology, branded ReZorce ® , which is mono-material barrier packaging. Certain products, such as food and drink, require their packaging to provide a barrier to oxygen and moisture and this is typically delivered through a combination of different materials in the same pack. It is very effective and cost efficient and therefore widespread, however, often extremely difficult to recycle and almost never circular. We have proven that our ReZorce packaging system can provide the required barrier properties, is easily recycled using common infrastructure available today and can be made using a high proportion of recycled raw materials. Overall, this solution offers a lower carbon footprint for commonly packaged foodstuffs, in some cases a reduction of more than 50%. Our go-to-market plans are moving from technical development into pre-market trials and the main challenge now is to prove the "downstream" solution of turning ReZorce sheet into specific packaging formats, ideally using existing infrastructure. 

Revenue from our MEL business unit grew 23% to £2.8m (2021: £2.3m), while the segment loss widened to £1.6m (2021: £0.5m) before amortisation of acquired intangibles, a direct result of the non-capitalised investment to develop ReZorce technology. In addition to this, we capitalised £1.4m (2021: £1.0m) of operating costs and invested £0.8m (2021: £0.9m) in tangible fixed assets. This included the acquisition of a full-scale extrusion line and carton filling and packing line as well as some ancillary equipment in Denmark, which now operates as a development centre within the MEL division with scope to scale up for initial market launch.

The market opportunity for lower carbon footprint packaging is vast. Cartons and pouches together generate revenues in excess of $40bn per annum. We recognise that launching products into this market, which requires us to overcome significant market and technical hurdles, is best done with a strategic investor to mitigate the risk, ideally through a combination of their own experience and financial investment. Late in 2022, we appointed a USA-based advisor to facilitate the interactions with potential partners and this engagement is progressing.

Capacity and investment

Zotefoams' manufacturing process comprises three main stages: extrusion of a polymer sheet, high-pressure gassing of this sheet with nitrogen and final expansion in a lower-pressure environment. The infrastructure around these processes is complex and costly and, therefore, ideally supports multiple production vessels.

Most products can be made on multiple production lines, although some of our older assets are not capable of making all products we sell today. Our UK site manufactures all HPP products and sends partly finished polyolefin products for the final expansion process to Poland, which is closer to many customers, reducing overall transport costs and emissions. Our site in Kentucky, USA is well-placed geographically for its customer base and operates largely independently of the other two foam manufacturing locations. 

Following the high levels of capital invested prior to 2021, the majority of investment in foams manufacturing over the past two years has been to improve efficiency, replace aging equipment and address bottlenecks in production processes. The foams business has sufficient capacity , with minimal incremental investment, to deliver our growth plans for the foreseeable future. Our facilities in the USA and Poland have the flexibility for investment to support longer term growth.

Zotefoams also invested £2.3m (2021: £1.9m) in developing the ReZorce mono-material barrier packaging technology, which is explained in more detail above.

Measuring strategic progress

The markets in which we operate are driven by global trends - environment, regulation and demographics - which we believe offer the potential for high rates of market growth as well as opportunity for our disruptive technology solutions. We assess progress on six separate metrics:

 

1.

We expect our HPP business unit to offer higher growth rates and better margins than Polyolefin Foams. Sales in our HPP business unit, which offers unique disruptive products and solutions, now account for 43% (2021: 42%) of Group revenues and recorded growth of 29% (16% in constant currency). The unique benefits offered by these products, combined with market recovery in aviation, offer good growth prospects. Margins in the period were 28% (2021: 21%), significantly better than the margins in our Polyolefin Foams business unit

 

2.

Sales of our highly differentiated AZOTE polyolefin foam products increased by 25% (22% in constant currency), against our target rate of twice global GDP growth. While headline growth was significant, it was not underpinned by increased volumes, which declined by 1%. 2022 was a year in which some traditionally large polyolefin market segments, automotive in particular, declined, while other areas grew considerably

 

3.

Group operating margin increased to 10.9% (2021: 8.1%). Price rises were implemented to recover input-cost inflation, which was the primary reason for the reduced operating margin in 2021, and foreign exchange rates were favourable in this period and unfavourable in the previous period. The increased operating loss in MEL was a direct result of planned increased investment to deliver the objectives of ReZorce barrier packaging. Excluding MEL, operating margin was 12.7% (2021: 9.0%), or 11.2% in constant currency

 

4.

Group return on capital improved to 10.1% (2021: 6.1%), largely as a result of increased profitability of the Polyolefin Foams and HPP business units, partly offset by the increased losses of MEL as noted above. The Group's average capital employed increased only slightly by 2%, with depreciation less than capital expenditure and little movement in total working capital, with inventories level and increased receivables offsetting increased payables, linked to higher selling prices and higher input costs respectively, and both impacted by the stronger US dollar exchange rate

 

5.

Our approach to environmental sustainability and climate change has been clarified and improved in our business. The business now uses fully sustainable (from renewables) electricity where available. We have made significant progress in waste reduction and 84% of revenues are in applications considered "green", as described in our ESG report. In March 2022, we incorporated clearly defined ESG targets, which have a small impact on interest margin, in our bank refinancing arrangements and these are supplemented by internal targets in relation to other ESG metrics

 

6.

MEL has potentially disruptive technology to improve sustainability, primarily in consumer packaging. We intend to invest within the Group's risk appetite to develop and commercialise this technology, which at this time is focused on ReZorce mono-material barrier packaging. This approach recognises that there is a high "option value" for success associated with this higher risk profile. We have made good progress in ReZorce development, acquired complementary know-how and assets in a new entity in Denmark and begun the process to find the right strategic investor to accelerate commercialisation.

 

People

The top priority for Zotefoams is ensuring the health and safety of employees and site visitors. The Board tolerance for risk is set accordingly, with h ealth and s afety an agenda item at every Board and Executive Committee meeting.

The main safety metric in our business is reportable lost time incidents and, regrettably, we had two such incidents during the year (2021: nil) from which both individuals made a full recovery. In line with our policy, a full follow-up and analysis with corrective actions was reviewed by the Board. Other metrics, which record less severe incidents and absences, showed significant improvement over the prior year and are significantly below industry benchmarks, with measured incidents around one third of the rate of comparable companies.

With eight physical locations globally and many more people working, at least some of their time, from home, we work hard to ensure cohesion through a common culture and clear communication of our strategy, objectives, progress and challenges. Employee engagement activities included Group CEO "all-staff briefings", which include a Q&A session , as well as employee surveys.

I would like to extend my thanks to my colleagues and to their families for their support over the past year.

During 2022, Zotefoams employed an average of 518 people, 4 % more than in 2021. Of these, approximately two thirds worked in production, with 15% in distribution and marketing and the remainder in administration, including finance, HR and IT, and technical or quality positions.

Forward-looking statements

Forward-looking statements have been made by the Directors in good faith using information available up until the date they approved th ese preliminary results . These forward-looking statements should be considered in light of the continuing uncertainty surrounding the impacts of the COVID-19 virus and the geopolitical environment, currently most impacted by the events in Eastern Europe, on economic trends and business.

Current trading and outlook

2023 has started well, with demand for our AZOTE polyolefin foam products in line with the previous year but with higher revenue from price increases implemented over the past twelve months. Sales of high-performance products are showing strong growth in the first few months, mainly due to the timing of shipments compared to the prior period. Sales across both businesses continue to benefit from a stronger US dollar. 

The environment for input costs is less acute, with both energy and polyolefin polymer prices reduced from the peaks seen last year but remaining well above their long-term average. Prices for energy and energy-intensive commodities such as nitrogen remain uncertain, with forward-market pricing at a significant risk premium to spot. We are closely monitoring input costs and our pricing in the polyolefin foams business in particular.

W hilst uncertainty persists, w e currently expect that, for the year as a whole, polyolefin foams volumes will be at a similar level to last year, with more challenging conditions in the UK and continental Europe offset by growth in North America and other geographies . Our High-Performance Products business should see further growth in footwear and continued strong growth in both our ZOTEK F and T-FIT insulation products. Within our MEL business unit, focus has progressed to commercialisation trials for ReZorce cartons.

Overall, the Board remains confident about the future prospects for our business.

D B Stirling

Group CEO

21 March 2023

 

Group CFO's review

2022 was a strong year for Zotefoams, with high revenue growth generated from HPP volumes and polyolefin price increases leading to significantly improved margins despite continued cost inflation. Strong cash generation, coupled with favourable FX movements, saw leverage fall to its lowest point since 2018

Overview

Group revenue for the year increased 26% to £127.4m (2021: £100.8m). High-Performance Products (HPP) sales increased 29%, with good volume growth in Footwear, ZOTEK® fluoropolymers and T-FIT® technical insulation and a foreign currency tailwind, while Polyolefin Foams sales rose 25%, led by price increases, experiencing growth in all geographical markets and major application groupings with the notable exception of automotive. MuCell Extrusion LLC (MEL) sales grew 23%, despite the ongoing refocus of resources on our ReZorce® mono-material barrier packaging opportunity. In constant currency, Group revenue grew 19% to £119.8m, with an additional favourable currency impact in the year of £7.6m, the result of the US dollar averaging 10% higher against sterling.

Operating profit increased 71% to £13.9m (2021: 8.1m). Raw material costs rose further in H1 2022 before receding slightly from their peak early in the second half of the year; however, energy prices began to surge from early in the year, led by concerns related to Russian supply as the impacts of the war in Ukraine unfolded. Other key input costs, such as nitrogen, also increased significantly. Multiple rounds of price increases in Polyolefin Foams, together with smaller increases in HPP, where polymer prices were more stable, were implemented early in the year to recover margins. Gross margin increased 46% to £38.7m (2021: £26.6m), also supported by a favourable US dollar exchange rate, and the gross margin percentage improved by 400 basis points to 30.4% (2021: 26.4%). Distribution and administrative costs increased 35% to £24.8m (2021: £18.4m), with £3.0m of the movement related to hedging differences year-on-year and much of the remaining increase related to higher performance-related bonus and stock option costs reflective of the strong results. Net finance costs were £1.8m (2021: £1.1m), following increases in dollar and euro base rates as well as a £0.3m write-down of refinancing costs from the Group's previous bank facility. Profit before tax increased 74% to £12.2m (2021: £7.0m). After deducting taxation of £2.2m (2021: 2.6m), which reflects a return to a normalised charge after a previous year which included a £1.0m deferred tax accrual related to the increase in the Corporation Tax rate from 19% to 25% and a £1.0m deferred tax charge related to an earlier year tax credit, basic earnings per share was up 129% at 20.61p (2021: 9.01p). In constant currency, profit before tax was £9.7m with an additional favourable currency impact of £2.5m.

The Group reports a strong balance sheet at 31 December 2022, with net debt down £6.5m to £27.8m (31 December 2021: £34.3m) and the leverage multiple (net debt to EBITDA, using definitions under the bank facility agreement, see section 'Debt facility') falling to 1.2 (31 December 2021: 2.1). This was realised after a £6.9m (43%) increase in EBITDA to £23.0m (2021: £16.1m), strong cash generation with net cash flows generated from operations of £23.0m (2021: £12.8m), capital expenditure of £7.0m (2021: £7.0m), and total dividends of £3.2m (2021: £3.1m).

Revenue performance

 

Revenue by segment £m

 

2022

Reported

2022

Adjusted1

2021

Reported

Net change %

 

Reported

Adjusted

Polyolefin Foams

70.1

68.1

56.2

25

21

-  UK

-  Europe

-  USA

-  Rest of World

13.2

30.2

22.4

4.3

13.2

30.7

20.1

4.1

10.4

26.1

16.1

3.6

27

16

39

19

27

18

25

14

HPP

54.4

49.1

42.3

29

16

-  Footwear

-  ZOTEK® F

-  T-FIT®

-  Other

42.1

6.2

5.8

0.3

37.8

5.5

5.5

0.3

33.9

4.2

3.9

0.3

25

48

48

-

12

33

41

-

MEL

2.8

2.6

2.3

23

13

Group

127.42

119.8

100.8

26

19

 

1  Constant currency, adjusting 2022 values to 2021 rates. See exchange rates table.

2  Adjusted for rounding.

 

Revenue by market (%)

 

 

 

2022

2021

Sports and leisure

37

37

Product protection

23

26

Building and construction

13

11

Transportation

12

10

Industrial

6

7

Medical

5

5

Other

4

4

 

Within the transportation segment, aviation represented 7.6% (2021: 4.5%) and automotive 4.8% (2021: 5.8%) of Group revenue. These two markets remain well below their pre-pandemic levels and in 2019 were 15.0% and 7.0% respectively.

Polyolefin Foams business unit sales grew 25% to £70.1m (2021: £56.2m). In constant currency, sales grew 21% to £68.1m. This reflects a consolidation of the volume growth achieved in 2021, mix enrichment and a number of price increases in H1 2022 to help recover margins following the significant cost inflation of 2021 which continued into 2022. The UK and USA regions experienced very strong sales growth, up 30% and 39% respectively, while Europe increased 14% and the Rest of the world increased 23%. All application markets performed well, except for automotive, which continued to suffer from industry-specific challenges and mostly impacted Europe.

HPP sales increased 29% to £54.4m (2021: £42.3m). In constant currency, sales grew 16% to £49.1m. Footwear is the largest application within HPP and revenue in this market grew a further 25% to £42.1m (2021: £33.9m), with Zotefoams products on more shoe platforms, resulting in this business division accounting for 33% of Group sales (2021: 34%). ZOTEK F fluoropolymer foam sales closed the year 48% up at £6.2m (2021: £4.2m), still £4.8m below our 2019 peak of £10.0m, signalling the start of a recovery in the aviation industry after two years impacted by COVID-19. T-FIT advanced insulation sales also grew 48% to £5.8m (2021: £3.9m), with strong growth in China despite continued challenges from the country's strict COVID-19 controls during the year, which included a five-week shutdown of our local facility in H1 2022. 

MEL sales growth remains constrained by the current strategy to focus on existing customers and redirect resources to the ReZorce mono-material barrier packaging initiative. Despite this, sales grew by 23% to £2.8m (2021: £2.3m), with negligible impact in absolute terms from currency.

Gross profit

Gross margin increased to 30.4% (2021: 26.4%), representing an increase of £12.1m in absolute terms from £26.6m to £38.7m. Multiple sales price increases were implemented in the Polyolefin Foams business in H1 2022 to help recover lost margins resulting mostly from raw material increases in 2021 and, additionally in 2022, from escalating energy (with fewer hedges due to the high forward pricing quotes), nitrogen and people costs. Energy costs increased from £4.8m in 2021 to £7.3m in 2022. Smaller price increases were implemented in HPP to offset rising material costs of these speciality polymers, while increased volumes in the business unit also drove operational gearing. Freight availability and pricing improved in the year. The reduced strength in sterling, mostly compared to the US dollar and in particular in HPP, where most sales are denominated in US dollars, significantly benefitted gross margin by £4.9m, with some of the impact offset by the Group's hedging strategy, the outcome of which appears below under administrative costs in line with accounting standards.

Distribution and administrative costs

2022

2021

Change (%)

Distribution costs

8.0

7.3

10

Administrative costs excluding hedging movements

15.0

12.3

22

Hedging movements

1.8

-1.2

-

Administrative costs

16.8

11.1

51

Distribution and Administrative costs

24.8

18.4

35

 

The Group has a clear expansion strategy, founded on proprietary cellular materials technology linked to longer-term demand growth in our chosen markets. Organic growth with a portfolio of unique and highly differentiated products requires that we invest actively in, and reprioritise where needed, technical, sales-focused and administrative resources to create, execute and manage this growth.

Included within distribution costs in the consolidated income statement are sales, marketing and warehousing expenses. These costs increased by £0.7m, or 10%, to £8.0m (2021: £7.3m) during the year, mostly reflecting increased marketing spend, HPP hirings for planned future growth and increased sales activity, offset by optimisation of the UK site to reduce offsite warehousing costs. Included within administrative expenses are technical development, finance, information systems and administration costs as well as the impact of foreign exchange hedges maturing in the period and non-cash foreign exchange translation expenses. These costs increased in 2022 by £5.7m, or 51%, to £16.8m (2021: £11.1m). However, after stripping out foreign exchange movements, which generated a movement of £3.0m, these administrative costs increased by 22%, or £2.7m, to £15.0m (2021: £12.3m), mostly related to £1.8m of additional bonus and stock option costs reflecting the significant improvement in performance in the year, while also reflecting increased investment in finance and IT in the UK and staff outside the UK. See 'Currency review', below for further information and context around foreign exchange movements.

The business unit results do not include central plc costs, which are not considered to be segment specific. Neither do they include hedging movements. In 2022, central plc costs were £2.5m (2021: £1.8m), the growth mostly due to bonus and stock option charges following a strong year.

Operating profit

Operating profit was £13.9m, 71% above 2021 (£8.1m). The operating margin increased from 8.1% to 10.9%.

Finance costs

The total interest charge for the year increased to £1.8m (2021: £1.1m) and includes £0.1m (2021: £0.1m) of interest on the Defined Benefit Scheme pension obligation. This increase reflects the rise during the year in US dollar and euro base rates, which are the currencies in which the Group's debt obligations are held, as well as £0.3m related to unamortised costs related to the previous banking facility which was replaced in March 2022.

Profit before tax

Profit before tax increased 74% to £12.2m (2021: £7.0m).

Currency review

Exchange rates

Zotefoams transacts significantly in US dollars and euros. The exchange rates used to translate the key flows and balances were:

 

2022

 

2021

Average

Closing

 

Average

Closing

Euro/sterling

1.173

1.129

 

1.163

1.192

US dollar/sterling

1.238

1.204

 

1.376

1.351

 

Movements in foreign exchange rates can have a significant impact on results. During the year, the sterling average exchange rate year-on-year against the US dollar weakened by 10% and the sterling average exchange rate against the euro strengthened by 1%. The sterling spot rate against the US dollar from 31 December 2021 to 31 December 2022 weakened by 11%, while the sterling spot rate against the euro from 31 December 2021 to 31 December 2022 weakened by 5%.

Zotefoams is a predominantly UK-based exporter which invoices mostly in local currency. In 2022, approximately 90% of sales (2021: approximately 90%) were denominated in currencies other than sterling, mostly US dollars or euros. Most operating costs are incurred in sterling, other than the main raw materials for polyolefin foams used for production in the UK, which are euro-denominated, US subsidiary production and operating costs, most other subsidiaries' staff and operating costs and some HPP raw materials, which are all US dollar-denominated. Poland operating costs are incurred in zloty. The Group uses forward exchange contracts to hedge two-thirds of its forecast net cashflows over the following twelve months that are subject to US dollar and euro transaction risk. The Group recorded a loss on forward exchange contracts in the year of £2.9m (2021 gain: £1.3m).

Zotefoams also faces translation risk. Zotefoams plc, the parent company, holds the Group's multi-currency borrowings facility and has provided intercompany loans and intercompany trading facilities to the USA and Poland to support the Group's capacity expansion projects. This translation exposure is mitigated, where possible, through an offset with same-currency liabilities, primarily through borrowing in the relevant currency. Every month, these foreign currency-denominated intercompany net positions, despite being cash neutral, require to be translated by Zotefoams plc on a mark to market basis and the movement taken to the Company income statement. The Group also has a fast-growing HPP business, which is mostly invoiced from the UK in US dollars, which adds to its exposure to foreign currency denominated net assets and is accounted for in the same way as above. While FX exposure is partly mitigated by the forward currency contracts, risk remains based on the amount of forecast exposure not hedged, in line with Group policy, and the fact that there is a timing difference between the recording of accounts receivable and cash received. This timing difference is tackled by further hedging activities, but their effectiveness is subject to the accuracy of forecasting cash receipts. The Group recorded a translation gain in the year of £1.0m (2021 loss: £0.1m).

Currency movements during the year positively impacted Group revenue by £7.6m (2021: £4.1m negative impact). They negatively impacted operating costs by £3.2m (2021: £2.4m positive impact), resulting in a net positive impact of £4.3m (2021: negative impact £1.7m) before hedging. After deducting the net hedging loss of £1.8m (2021: gain of £1.2m), the net currency positive impact for the year was £2.5m (2021: negative impact £0.5m).

We expect growth to be denominated in currency other than sterling and recognise that one of our principal risks is our exposure to foreign currency fluctuations, particularly the US dollar, which we will aim to manage through hedging strategies. Based on 2022 and with respect to transaction risk, it is estimated that for every one percentage point movement in the US dollar/sterling rate, profit moves by £0.4m unhedged and £0.1m hedged. In the year, it is assumed that the transaction risk from euro/sterling movements continues to be substantially naturally hedged, with the risk arising on sales revenues offset by that on costs, primarily related to raw material purchases and certain further processing costs.

The Group does not currently hedge for the translation of its foreign subsidiaries' assets or liabilities. The foreign currency hedging policy is kept under regular review and is formally approved by the Board on an annual basis.

Currency impact on business segment profitability in 2022

Currency had a £7.6m positive impact on the Group's sales performance. See above.

Segment profit £m

 

2022

Reported

2022

Adjusted*

 

Net change %

2021

Reported

Reported

Adjusted

Polyolefin Foams

4.9

4.6

0.7

-

-

HPP

15.3

11.0

8.7

75

26

MEL

(1.9)

(1.7)

(0.7)

-

-

Subtotal

18.3

14.0

8.7

110

60

Other

 

- Central costs

- Hedging

- Interest

(6.1)

 

(2.5)

(1.8)

(1.8)

(4.3)

 

(2.5)

-

(1.8)

(1.7)

 

(1.8)

1.2

(1.1)

-

 

44

-

59

-

 

44

-

59

Group

12.2

9.7

7.0

74

39

 

* Constant currency, adjusting 2022 values to 2021 rates. See exchange rates table above.

Taxation charge and earnings per share

The tax charge for the year is £2.2m (2021: £2.6m). The effective tax rate for the year is 18.1% (2021: 37.6%), which is a return to a rate similar to the Group's weighted average corporate tax rate for the year of 19.5% (2021: 19.0%). In the previous year, the higher effective tax rate for the year arose primarily from an increase in the deferred tax charge of £1.0m that followed the substantive enactment of a decision to increase UK Corporation Tax rates to 25% in 2023, a prudent approach to recognising overseas tax losses as a deferred income tax asset amounting to £0.4m and a lower profit before tax for the year of £7.0m.

Basic earnings per share was 20.61p (2021: 9.01p), an increase of 129%. Diluted earnings per share was 20.20p (2021: 8.87p).

ReZorce

ReZorce® technology being developed by MEL offers brand owners the ability to significantly reduce their carbon footprint and also help meet their pledges on both recycling and the use of recycled content in their packaging, putting sustainability at the heart of our MEL development agenda. During the year, Zotefoams continued its investment in this opportunity. In line with IAS 38 "Capitalisation of Development Costs", labour amounting to £0.4m (2021: £0.4m) was redirected from MEL to ReZorce and capitalised, and a further £1.0m (2021: £0.6m) was invested in additional, directly attributable costs, and capitalised. The Group also invested £0.8m (2021: £0.9m) during the year to purchase and develop equipment, which has been recorded under tangible assets. This amount includes the acquisition of the net assets of Refour ApS (Skandeborg, Denmark) for £0.3m, which, together with key members of the Refour team, is expected to accelerate the development of ReZorce across a wide variety of applications. In total, capitalised investment in ReZorce amounted to £2.2m during 2022 (2021: £1.9m) and is £4.7m cumulatively over the life of the project, which will be amortised in line with Group policies, if successful, or be fully impaired, if not, in line with accounting standards. The Board does not currently consider any of these assets to be impaired, given the progress made in development, the commercial opportunities that exist, the current search for a strategic investor and the Board's continuing commitment to the initiative. MEL also reported a loss before tax of £1.9m (2021: £0.7m), the movement driven by our focus on the ReZorce opportunity.

Investments

Given the capital-intensive nature of the Zotefoams business, long lead times for key equipment and the importance of operational gearing, investment decisions require significant planning and are made with a clear assessment of strategic fit, risk, risk appetite, sustainability credentials and expected returns. Confidence in the Group's developing portfolio of HPP opportunities is a significant consideration in determining the timing of certain investments, while the strategic importance of maintaining growth in the profitable Polyolefin Foams business, the Group's largest volume product range, informs the decision to increase total Group capacity versus relying solely on mix enrichment.Outside of significant capacity-related investments, the Group also invests to maintain its capital-intensive assets, mindful of opportunities to improve energy efficiency and further reduce health and safety risk, particularly at the older UK facility.

Zotefoams targets improvements in the Group's return on capital over the investment cycle, while recognising the short-term impact on the return of sizeable capital investments during their construction and early operations phases, where they initially run at lower utilisation and mix optimisation levels. When Zotefoams embarks on investment in a major expansion or new location, such as the installation of extrusion and high-pressure capability at our existing Kentucky, USA site, which we commissioned in 2018, or the most recent investment in foam manufacturing at the Poland site, commissioned in 2021, we take into account the importance of scale and dilution of heavy infrastructure cost over a (future) second or third line. As such, the first step is invariably more dilutive to capital return than any subsequent investments.

Zotefoams is also pursuing a transformative mono-material barrier packaging solution through its MEL business unit, branded as ReZorce . In this pre - revenue development phase , overall capital returns are diluted as a result of both the operating profit charge as well as the capital investments made but the initiative offers significant potential if the technology is adopted.

Definition of ROCE and 2022 outcome

Zotefoams defines the return on capital employed (ROCE), which is a non IFRS measure, as operating profit before exceptional items divided by the average sum of its equity, net debt and other non-current liabilities. This measure excludes acquired intangible assets and their amortisation costs. We also exclude significant capacity investments under construction until they enter production. We do not attempt to adjust for the first phase inefficiencies as mentioned above.

In 2022, the Group's return on capital employed increased to 10.1% (2021: 6.1%), mostly reflecting improved profitability in the year. The main cause of a reduction in ROCE since 2018, when the Group generated a ROCE of 16.5%, is the increase in the capital base following the completion of our investments in the UK, USA and Poland and the additional operating costs arising from their operation, which is expected during this stage of the investment cycle. Business growth, with this increased capacity matched by improved utilisation and mix enrichment, is expected to improve ROCE beyond that previously achieved.

Investment in growth-generating tangible assets (£m)

 

2015

2016

2017

20181

20192

2020

20213

2022

 

Total

Growth capital

6.1

6.9

7.8

12.8

19.8

10.3

3.4 

1.6 

 

68.7

Capitalised interest

-

-

-

-

0.9

0.6

-

-

 

1.5

Maintenance capital

2.6

5.2

3.6

3.0

3.7

2.1

2.6

3.8

 

26.6

Total investment in property, plant and equipment

8.7

12.1

11.4

15.8

24.4

13.0

6.0

5.4

 

96.8

 

1 Commissioning of USA first high pressure vessel, infrastructure and ancillaries

2 Commissioning of USA second high pressure vessel and UK high-temperature low-pressure autoclaves, infrastructure and ancillaries

3 Commissioning of Poland infrastructure and high-temperature low-pressure autoclave

Dividend

The Board has a progressive dividend policy, recognising the importance to our shareholders of the dividend as part of their overall return. The Directors are proposing a final dividend of 4.62p (2021: 4.40p), which would be payable on 2 June 2023 to shareholders on the Company register at the close of business on 5 May 2023. The ex-dividend date will be 4 May 2023. Taken with the interim dividend of 2.18p (2021: 2.10p), this would bring the total dividend for the year to 6.80p (2021: 6.50p) and would represent a dividend cover of 3.7 times (2021: 1.4 times).

Cash flow 

The Group is highly cash generative, and this was a particularly strong year, with net cash from operations before investment in working capital and provisions of £24.1m, up 46% on the previous year (2021: £16.5m). Out of this, £0.3m (2021: £2.9m) was then re-invested in working capital. Trade and other receivables increased by £4.8m (2021: increased £1.6m), reflecting greatly increased sales in November and December versus the previous year and certain overdues in the USA which have since been recovered or are being effectively managed. Outside of the USA, our overdues continue to remain very low. Inventories decreased just £0.4m, (2021: increased £2.8m), with increased footwear raw materials required to match demand offset by a depletion of fluoropolymer inventory for ZOTEK F, which will be replenished in 2023, as demand improves post COVID-19. Trade and other payables increased £4.1m (2021: increased £1.5m), with a £1.4m increase due to higher purchase costs and timing of purchases, a further £1.6m related to the higher 2022 bonus accrual and approximately £0.7m related to utilities and insurance accruals.  Zotefoams recognises the importance of its supplier relationships and has improved its performance with respect to honouring agreed payment terms. As a result of all of the above, cash generated from operations was significantly higher than the previous year at £23.0m (2021: £12.8m).

During the year, the Group paid interest on its borrowings of £1.3m (2021: £0.8m), reflecting increases in base rates. Net taxation paid during the year amounted to 0.7m (2021: £1.1m). The Company received a refund of £0.5m in relation to the 2020 tax computation and also recovered £0.3m following a review of its capital allowances on its 2019 building expenditure in Croydon.

Zotefoams' property, plant and equipment capital expenditure remained at a lower level than in recent history, as expected, following several years of capacity expansion, with total expenditure of £5.4m (2021: £6.0m). Expenditure was split broadly across all categories, the most significant being 29% on ESG initiatives, 21% on essential replacement and 16% on product development; geographically, 58% was directed to our Croydon, UK plant and 19% to our Walton, USA plant. Product development included the acquisition of the net assets of Refour ApS (Skandeborg, Denmark), amounting to £0.3m, to support the ReZorce opportunity in MEL. The Group also invested £1.7m (2021: £1.1m) in intangible assets, almost entirely related to MEL patents and capitalised development costs for ReZorce. The combined investment of £7.0m (2021: £7.0m) is slightly below what we expect to invest, on a normal basis, which is a level in line with the Group's combined depreciation and amortisation charge (2022: £8.2m, 2021: £7.6m).

After dividends paid in the year amounting to £3.2m (2021: £3.1m) and lease payments of £0.5m (2021: £0.5m), closing net debt fell to £27.8m (2021: £34.3m). At the year end, the Group remains comfortably within its bank facility covenants, with a multiple of EBITDA to net finance charges of 13.7 (2021: 16.1), against a covenant minimum of 4 (2021: 4), and net debt to EBITDA (leverage) multiple of 1.2 (2021: 2.1), against a covenant of 3.5 (2021: 3.0). See 'Debt facility' for a definition of leverage and information on the Group's renewal of its refinancing arrangements in March 2022.

Debt facility

At 31 December 2022, the Group's gross finance facilities were £50.0m (2021: £47.3m), consisting entirely of a multi-currency term loan. At 31 December 2021, the Group's gross finance facilities consisted of a multi-currency term loan of £20.0m, a multi-currency revolving credit facility of £25.0m and a remaining balance of £2.3m of a further £7.5m sterling annually renewable term loan, repayable in equal quarterly instalments. In March 2022, the Group completed a retender of its debt facility and selected Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under the terms of the new facility, the Group's gross finance facility now comprises a £50m multi-currency revolving credit facility with a £25m accordion, on a 4+1 tenor, with an interest rate ratchet on slightly improved terms to the previous facility and including a small element related to the achievement of sustainability targets. The finance cost and leverage covenants remain in place, with the former remaining at a multiple of 4 and the latter increasing to 3.5 from 3.0. In January 2023, the Group successfully extended the facility by a year in line with the term option, resulting in a revised end term date of March 2027.

At 31 December 2022, headroom, which we define as the combination of amount undrawn on the facility and cash and cash equivalents disclosed on the Statement of Financial Position, amounted to £22.9m (2021: £13.4m).

Zotefoams defines EBITDA as profit for the year before tax, adjusted for depreciation and amortisation, net finance costs, the share of profit/loss from its joint venture and equity-settled share-based payments. Net debt comprises short and long-term loans less cash and cash equivalents and is adjusted from IFRS by the impacts of IFRS 2 and IFRS 16 under the bank facility definition.

 

Group banking covenants definition

Net debt to EBITDA ratio (Leverage)

£m

2022

2021

 

£m

2022

2021

Profit after tax

10.0

4.4

 

Net debt per IFRS

27.8

34.3

Adjusted for:

 

 

 

IFRS 16 leases

(1.0)

(1.1)

Depreciation and amortisation

8.2

7.6

 

Finance leases pre-1 January 2019

-

-

Finance costs

1.8

1.1

 

 

 

 

Finance income

(0.1)

-

 

Net debt per bank

26.8

33.2

Share of result from joint venture

-

-

 

 

 

 

Equity-settled share-based payments

0.8

0.4

 

 

 

 

Taxation

2.2

2.6

 

 

 

 

Roundings

0.1

-

 

 

 

 

EBITDA

23.0

16.1

 

Leverage ratio per bank

1.2

2.1

 

 

EBITDA to net finance charges ratio

£m

2022

2021

 

£m

2022

2021

EBITDA, as above

23.0

16.1

 

Finance costs

1.8

1.1

 

 

 

 

Finance income

(0.1)

-

 

 

 

 

Share of result from joint venture

-

-

EBITDA to net finance charges ratio

13.7

16.1

 

Net finance charges

1.7

1.1

 

 

Post-employment benefits

The Company operates a UK registered trust-based pension scheme, the Zotefoams Pension Scheme (the Scheme), that provides defined benefits. Pension benefits are linked to the members' final pensionable salaries and service at their retirement (or date of leaving if earlier). The Scheme was closed to new members in 2001, as was the link to future accrual of salary in 2005. Inconsistencies in the way the Scheme's link to future accrual of salary was closed in 2005 were rectified in 2019. There are three categories of pension scheme members:

•

Deferred members with salary linkage: current employees of the Company who have not consented to the break in their salary linkage;

•

Deferred members: former and current employees of the Company not yet in receipt of pension; and

•

Pensioner members: in receipt of pension.

The last full actuarial valuation of the Defined Benefit Scheme ('DB Scheme') took place as at 5 April 2020, in line with the requirement to have a triennial valuation. On a Statutory Funding Objective basis, a deficit was calculated for the DB Scheme of £7.7m (previous triennial valuation: £4.2m). As a result, the Company agreed with the Trustees to make contributions to the DB Scheme of £643,200 per annum, beginning 1 July 2021, to meet the shortfall by 31 October 2026 (previously 31 October 2026), up from £492,000 per annum previously. In addition, the Company pays the ongoing DB Scheme expenses of £216,000 per annum (previously £180,000 per annum) to cover death-in-service insurance premiums, the expenses of administering the DB Scheme and Pension Protection Fund levies.

The net IAS 19 deficit on the DB Scheme decreased by £1.4m to £3.3m as at 31 December 2022 (2021: £4.7m) and represents 3.0% (2021: 4.8%) of consolidated net assets. The main factor leading to the improvement was a change in the discount rate assumption to 4.80% (2021: 1.80%) following an increase in corporate bond yields over the year. The value of the defined benefit obligation at the year-end fell from £38.8m in 2021 to £26.1m in 2022, driven by this changed assumption. However, this was partially offset by the actual investment return achieved on the assets being lower than that required to match the expected increase in defined benefit obligations over the year (the market value of assets fell from £34.1m in 2021 to £22.8m in 2022) and higher than expected price inflation. Zotefoams does not consider its pension scheme to be a key risk to its ability to achieve its strategic objectives due to the immaterial share of net assets that the deficit represents. Mitigation of further risk is expected to come from our growth expectations and the continued focus by the Trustees on a lower-risk strategy to meet the DB Scheme's deficit shortfall.

Going concern

The Directors believe that the Group is well placed to manage its business risks and, after making enquiries including a review of forecasts and predictions, taking account of reasonably possible changes in trading performance and its available debt facilities, have a reasonable expectation that the Group has adequate resources to continue in operational existence for the next twelve months following the date of approval of the financial statements. The Directors have also continued to draw upon the experiences of 2020 and the Group's success in reacting to the challenges of COVID-19 through its safety protocols and cost and cash management, all of which could be replicated in a similar scenario.

After due consideration of the range and likelihood of potential outcomes, the Directors continue to adopt the going concern basis of accounting in preparing the preliminary results.

Financial risk management

The main financial risks of the Group relate to funding and liquidity, credit, interest rate fluctuations and currency exposures.

G C McGrath

Group CFO

21 March 2023

 

Consolidated income statement

For the year ended 31 December 2022

 

 


Note

2022
£'000

2021

£'000

Revenue

2

127,369

100,750

Cost of sales


(88,639)

(74,184)

Gross profit


38,730

26,566

Distribution costs


(8,037)

(7,316)

Administrative expenses


(16,762)

(11,117)

Operating profit


 13,931

8,133

Finance costs


(1,814)

(1,116)

Finance income


56

11

Share of profit/(loss) from joint venture


50

(20)

Profit before income tax


12,223

7,008

Income tax expense


(2,217)

(2,632)

Profit for the year


10,006

4,376

Profit attributable to:


 


Equity holders of the Company


10,006

4,376



10,006

4,376

Earnings per share:


 


Basic (p)


20.61

9.01

Diluted (p)


20.20

8.87

 



 

Consolidated statement of comprehensive income

For the year ended 31 December 2022

 



2022
£'000

2021

£'000

Profit for the year


10,006

4,376

Other comprehensive income


 


Items that will not be reclassified to profit or loss


 


Actuarial gains on defined benefit pension schemes


584

3,517

Tax relating to items that will not be reclassified


(146)

(444)

Total items that will not be reclassified to profit or loss


438

3,073

Items that may be reclassified subsequently to profit or loss


 


Foreign exchange translation gains/(losses) on investment in foreign subsidiaries


3,681

(96)

Change in fair value of hedging instruments


(3,025)

(344)

Hedging gains/(losses) reclassified to profit or loss


2,865

(1,251)

Tax relating to items that may be reclassified


 185

376

Total items that may be reclassified subsequently to profit or loss


3,706

(1,315)

Other comprehensive income for the year, net of tax


4,144

1,758

Total comprehensive income for the year


14,150

6,134

Total comprehensive income attributable to:


 


Equity holders of the Company


14,150

6,134

Total comprehensive income for the year


14,150

6,134

 

 



 

Consolidated statement of financial position

As at 31 December 2022

 

 

Note

2022
£'000

2021
£'000

Non-current assets

 

 

 

Property, plant and equipment

3

94,295

91,401

Right-of-use assets

 

939

1,104

Intangible assets

 

7,774

6,224

Investment in joint venture

 

153

163

Trade and other receivables

 

 122

11

Deferred tax assets

 

410

492

Total non-current assets

 

103,693

99,395

Current assets

 

 

 

Inventories

 

26,139

25,954

Trade and other receivables

 

29,447

24,338

Derivative financial instruments

 

486

173

Cash and cash equivalents

 

10,594

8,055

Total current assets

 

66,666

58,520

Total assets

 

170,359

157,915

Current liabilities

 

 

 

Trade and other payables

 

(13,500)

(9,242)

Derivative financial instruments

 

(1,550)

(600)

Current tax liability

 

(226)

(83)

Lease liabilities

 

(509)

(486)

Interest-bearing loans and borrowings

4

(37,446)

(26,564)

Total current liabilities

 

(53,231)

(36,975)

Non-current liabilities

 

 

 

Lease liabilities

 

(454)

(643)

Interest-bearing loans and borrowings

4

-

(14,710)

Deferred tax liabilities

 

(3,846)

(3,155)

Post-employment benefits

 

(3,290)

(4,657)

Total non-current liabilities

 

(7,590)

(23,165)

Total liabilities

 

(60,821)

(60,140)

Total net assets

 

109,538

97,775

Equity

 

 

 

Issued share capital

5

2,431

2,431

Share premium

5

44,178

44,178

Own shares held

 

(5)

(10)

Capital redemption reserve

 

15

15

Translation reserve

 

5,909

2,228

Hedging reserve

 

(285)

(310)

Retained earnings

 

57,295

49,243

Total equity

 

109,538

97,775

 



 

Consolidated statement of cash flows

For the year ended 31 December 2022

 

 

 

2022
£'000

2021
£'000

Cash flows from operating activities

 

 

 

Profit for the year

 

10,006

4,376

Adjustments for:

 

 

 

Depreciation and amortisation

 

8,245

7,624

Disposal of assets

 

283

53

Finance costs

 

1,758

1,105

Share of (profit)/loss from joint venture

 

(50)

20

Net exchange differences

 

871

376

Equity-settled share-based payments

 

809

360

Taxation

 

2,217

2,632

Operating profit before changes in working capital and provisions

 

24,139

16,546

Increase in trade and other receivables

 

(4,818)

(1,636)

Decrease/(increase) in inventories

 

401

(2,843)

Increase in trade and other payables

 

4,119

1,506

Employee defined benefit contributions

 

(859)

(779)

Cash generated from operations

 

22,982

12,794

Interest paid

 

(1,255)

(789)

Income taxes paid, net of refunds

 

(659)

(1,087)

Net cash flows generated from operating activities

 

21,068

10,918

Cash flows from investing activities

 

 

 

Interest received

 

 56

11

Interest paid

 

-

(32)

Purchases of intangibles

 

(1,724)

(1,069)

Proceeds from disposal of property, plant and equipment

 

-

88

Purchases of property, plant and equipment

 

(5,368)

(6,002)

Net cash used in investing activities

 

(7,036)

(7,004)

Cash flows from financing activities

 

 

 

Proceeds from exercise of share options

 

-

40

Repayment of borrowings

 

(50,883)

(7,739)

Proceeds from borrowings

 

43,044

6,974

Payment of principal portion of lease liabilities

 

(499)

(543)

Dividends paid to equity holders of the Company

 

(3,188)

(3,074)

Net cash used in financing activities

 

(11,526)

(4,342)

Net increase/(decrease) in cash and cash equivalents

 

2,506

(428)

Cash and cash equivalents at 1 January

 

8,055

8,503

Exchange gains/(losses) on cash and cash equivalents

 

33

(20)

Cash and cash equivalents at 31 December

 

10,594

8,055

 



 

Consolidated statement of changes in equity

For the year ended 31 December 2022

 

 


Note

Share
capital
£'000

Share premium
£'000

Own
shares
held
£'000

Capital redemption reserve
£'000

Translation reserve
£'000

Hedging reserve
£'000

Retained earnings
£'000

Total
equity
£'000

Balance as at 1 January 2021

 

2,431

44,178

(23)

15

2,324

909

44,542

94,376

Profit for the year


-

-

-

-

-

-

4,376

4,376

Other comprehensive income for the year










Foreign exchange translation losses on investment in subsidiaries


-

-

-

-

(96)

-

-

(96)

Change in fair value of hedging instruments recognised in other comprehensive income


-

-

-

-

-

(344)

-

(344)

Reclassification to income statement - administrative expenses


-

-

-

-

-

(1,251)

-

(1,251)

Tax relating to effective portion of changes in fair value of cash flow hedges, net of recycling


-

-

-

-

-

376

-

376

Actuarial gain on defined benefit pension scheme


-

-

-

-

-

-

3,517

3,517

Tax relating to actuarial gain on defined benefit pension scheme


-

-

-

-

-

-

(444)

(444)

Total comprehensive income for the year


-

-

-

-

(96)

(1,219)

7,449

6,134

Transactions with owners of the Parent:










Options exercised


-

-

13

-

-

-

27

40

Equity-settled share-based payments net of tax


-

-

-

-

-

-

299

299

Dividends paid

6

-

-

-

-

-

-

(3,074)

(3,074)

Total transactions with owners of the Parent


-

-

13

-

-

-

(2,748)

(2,735)

Balance as at 31 December 2021

 

2,431

44,178

(10)

15

2,228

(310)

49,243

97,775

Balance as at 1 January 2022


2,431

44,178

(10)

15

2,228

(310)

49,243

97,775

Profit for the year


-

-

-

-

-

-

10,006

10,006

Other comprehensive income for the year


 

 

 

 

 

 

 

 

Foreign exchange translation losses on investment in subsidiaries


-

-

-

-

3,681

-

-

3,681

Change in fair value of hedging instruments recognised in other comprehensive income


-

-

-

-

-

(3,025)

-

(3,025)

Reclassification to income statement - administrative expenses


-

-

-

-

-

2,865

-

2,865

Tax relating to effective portion of changes in fair value of cash flow hedges, net of recycling


-

-

-

-

-

185

-

185

Actuarial gain on defined benefit pension scheme


-

-

-

-

-

-

584

584

Tax relating to actuarial gain on defined benefit pension scheme


-

-

-

-

-

-

(146)

(146)

Total comprehensive income for the year


-

-

-

-

3,681

25

10,444

14,150

Transactions with owners of the Parent :


 

 

 

 

 

 

 

 

Options exercised


-

-

5

-

-

-

(5)

-

Equity-settled share-based payments net of tax


-

-

-

-

-

-

801

801

Dividends paid

6

-

-

-

-

-

-

(3,188)

(3,188)

Total transactions with owners of the Parent


-

-

5

-

-

-

(2,392)

(2,387)

Balance as at 31 December 2022


2,431

44,178

(5)

15

5,909

(285)

57,295

109,538



 

1. General overview and accounting policies

Basis of preparation

Zotefoams plc (the 'Company') is a public limited company, which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The registered office of the Company is 675 Mitcham Road, Croydon CR9 3AL.

The preliminary results (unaudited) (referred to as the 'preliminary results') include the results of the Company and its subsidiaries (together referred to as the 'Group'). The preliminary results of the Group have been prepared on the basis of the accounting policies set out in the statutory financial statements for the year ended 31 December 2021. Whilst the financial information included in this announcement has been computed in accordance with the recognition and measurement requirements of UK adopted international accounting standards ("UK adopted IAS") and as applied in accordance with the provisions of the Companies Act 2006, this announcement does not itself contain sufficient disclosures to comply with UK adopted IAS.

The information for the year ended 31 December 2022 does not constitute statutory accounts for the purposes of section 435 of the Companies Act 2006. A copy of the accounts for the year ended 31 December 2021 was delivered to the Registrar of Companies. The auditors' report on those accounts was not qualified and did not contain statements under section 498(2) or 498(3) of the Companies Act 2006. The audit of the statutory accounts for the year ended 31 December 2022 is not yet complete. These accounts will be finalised on the basis of the financial information presented by the Directors in these 'preliminary results' and will be delivered to the Registrar of Companies following the Company's A nnual G eneral M eeting.

The preliminary results are prepared on the historical cost basis except for derivative financial instruments which are stated at their fair value. The same accounting policies, presentation and methods of computation are followed in the 'preliminary results' as were applied in the Group's 2021 annual audited financial statements.



 

2. Segment reporting

The Group's operating segments are reported in a manner consistent with the internal reporting provided to and regularly reviewed by the Group Chief Executive Officer, David Stirling, who is considered to be the 'chief operating decision maker' for the purpose of evaluating segment performance and allocating resources. The Group Chief Executive Officer primarily uses a measure of profit for the year (before exceptional items) to assess the performance of the operating segments.

The Group manufactures and sells high-performance foams and licenses related technology for specialist markets worldwide. The Group's activities are categorised as follows:

•

Polyolefin Foams: these foams are made from olefinic homopolymer and copolymer resin. The most common resin used is polyethylene.

•

High-Performance Products (HPP): these foams exhibit high performance on certain key properties, such as improved chemical, flammability, temperature or energy management performance. Revenue in the segment is currently mainly derived from products manufactured from three main polymer types: polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and thermoplastic elastomers. Foams are sold under the brand name ZOTEK®, while technical insulation products manufactured from certain materials are branded as T-FIT®.

•

MuCell Extrusion LLC (MEL): licenses microcellular foam technology and sells related machinery. It is also currently developing a fully circular solution for mono-material barrier packaging, which it has branded ReZorce®.

 

 

Polyolefin Foams

 

HPP

 

MEL

 

Consolidated

2022
£'000

2021
£'000

 

2022
£'000

2021
£'000

 

2022
£'000

2021
£'000

 

2022
£'000

2021
£'000

Group revenue

70,123

56,166

 

54,439

42,294

 

2,807

2,290

 

127,369

100,750

Segment profit/(loss) pre amortisation

of acquired intangible assets

4,883

684

 

15,321

8,732

 

(1,634)

(494)1

 

18,570

8,9221

Amortisation of acquired intangible assets

-

-

 

-

-

 

(258)

(232)1 

 

(258)

(232)1

Segment profit/(loss)

4,883

684

 

15,321

8,732

 

(1,892)

(688)

 

18,312

8,728

Foreign exchange (losses)/gains

-

-

 

-

-

 

-

-

 

(1,844)

1,168

Unallocated central costs

-

-

 

-

-

 

-

-

 

(2,537)

(1,763)

Operating profit

 

 

 

 

 

 

 

 

 

13,931

8,133

Financing costs

-

-

 

-

-

 

-

-

 

(1,814)

(1,116)

Financing income

-

-

 

-

-

 

-

-

 

56

11

Share of profit /(loss) from joint venture

50

(20)

 

-

-

 

-

-

 

50

(20)

Taxation

-

-

 

-

-

 

-

-

 

(2,217)

(2,632)

Profit for the year

 

 

 

 

 

 

 

 

 

10,006

4,376

Segments assets

116,426

107,633

 

40,358

40,189

 

13,165

9,601

 

169,949

157,423

Unallocated assets

-

-

 

-

-

 

-

-

 

410

492

Total assets

 

 

 

 

 

 

 

 

 

170,359

157,915

Segment liabilities

(39,814)

(40,795)

 

(15,508)

(15,224)

 

(1,427)

(883)

 

(56,749)

(56,902)

Unallocated liabilities

-

-

 

-

-

 

-

-

 

(4,072)

(3,238)

Total liabilities

 

 

 

 

 

 

 

 

 

(60,821)

(60,140)

Depreciation of PPE

5,422

4,793

 

1,079

1,052

 

369

133

 

6,870

5,978

Depreciation of right-of-use assets

306

302

 

70

90

 

156

133

 

532

525

Amortisation

386

5841

 

144

289

 

312

2481

 

842

1,121

Capital expenditure:

 

 

 

 

 

 

 

 

 

 

 

Property, plant and equipment (PPE)

3,584

4,093

 

888

743

 

785

1,160

 

5,257

5,996

Intangible assets

112

98

 

43

34

 

1,569

937

 

1,724

1,069

 

1 Prior year amortisation of acquired intangibles amended from £194k reported in 2021 to £232k.

Geographical segments

Polyolefin Foams, HPP and MEL are managed on a worldwide basis but operate from UK, USA, European and Asian locations. In presenting information on the basis of geographical segments, segmental revenue is based on the geographical location of customers. Segment assets are based on the geographical location of assets.

United
Kingdom
£'000

Continental Europe
£'000

North
America
£'000

Rest of
the world
£'000

Total
£'000

For the year ended 31 December 2022

 

 

 

 

 

Group revenue from external customers

 13,702

 32,374

 29,127

 52,166

 127,369

Non-current assets

41,951

20,943

39,869

367

103,130

Capital expenditure - PPE

3,057

559

1,618

23

5,257

For the year ended 31 December 2021






Group revenue from external customers

10,768

28,200

19,959

41,823

100,750

Non-current assets

42,944

19,830

35,521

445

98,740

Capital expenditure - PPE

2,776

798

2,391

31

5,996



 

3. Property, plant and equipment

Group


Land and buildings
£'000

Plant and equipment
£'000

Fixtures and fittings
£'000

Under construction
£'000

Total
£'000

Cost






Balance at 1 January 2021

32,793

99,037

4,031

24,733

160,594

Additions

16

404

254

5,322

5,996

Disposals

(88)

(122)

(133)

-

(343)

Transfers

13,346

11,239

(291)

(24,774)

(480)

Effect of movement in foreign exchange

(291)

233

10

(815)

(863)

Balance at 31 December 2021

45,776

110,791

3,871

4,466

164,904

Balance at 1 January 2022

45,776

110,791

3,871

4,466

164,904

Additions

13

441

37

4,766

5,257

Transfers

346

5,699

196

(6,241)

-

Disposals

(535)

(3,336)

(683)

-

(4,554)

Effect of movement in foreign exchange

1,798

4,996

141

57

6,992

Balance at 31 December 2022

47,398

118,591

3,562

3,048

172,599

Accumulated depreciation






Balance at 1 January 2021

12,578

52,195

2,896

-

67,669

Depreciation charge for the year

1,479

4,184

315

-

5,978

Disposals

-

(87)

(114)

-

(201)

Transfers

51

(79)

(125)

-

(153)

Effect of movement in foreign exchange

52

148

10

-

210

Balance at 31 December 2021

14,160

56,361

2,982

-

73,503

Balance at 1 January 2022

14,160

56,361

2,982

-

73,503

Depreciation charge for the year

1,374

5,176

320

-

6,870

Transfers

-

-

-

-

-

Disposals

(521)

(3,139)

(680)

-

(4,340)

Effect of movement in foreign exchange

640

1,521

110

-

2,271

Balance at 31 December 2022

15,653

59,919

2,732

-

78,304

Net book value






At 1 January 2021

20,215

46,842

1,135

24,733

92,925

At 31 December 2021 and 1 January 2022

31,616

54,430

889

4,466

91,401

At 31 December 2022

31,745

58,672

830

3,048

94,295

 



 

4. Interest-bearing loans and borrowings



Group


Company

2022
£'000

2021
£'000


2022
£'000

2021
£'000

Current bank borrowings


37,446

26,564


37,446

26,564

Non-current bank borrowings


-

14,710


-

14,710



37,446

41,274


37,446

41,274

 

In March 2022, the Group completed a debt refinancing and selected Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under the terms of the new facility, secured against the property, plant and equipment and trade receivables, the Group's gross finance facility consists of a £50m multi-currency revolving credit facility with a £25m accordion. With a 4+1 tenor, the extending year option was taken up in January 2023.

At the end of the financial year, the Group has utilised £37.4m (31 December 2021: £41.3m) of its multi-currency revolving credit facility of £50m. The total amount of £37.4m, repayable on the last day of each loan interest period, which is of either a 3 or 6-month duration, is net of £0.5m origination fees paid up front and being amortised over 4 years. The Group has headroom of £22.9m, being £10.6m cash and cash equivalents and an undrawn facility of £12.3m, being the facility of £50m less the drawn down balance of £37.4m, less £0.3m of exchange rate differences between the Group and the banks.

The interest rates on the debt facility ranged between 1.60% and 6.00% in 2022 (2021: between 1.60% and 2.35%).

 

5. Issued share capital

Issued, allotted and fully paid ordinary shares of 5p each:


Number of shares

Par value
£'000

Share
premium
£'000

Total
£'000

At 1 January 2022 and 31 December 2022

48,621,234

2,431

44,178

46,609

The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled, on a poll, to one vote per share at meetings of the Company.

 

6. Dividends and earnings per share


2022

2021

£'000

£'000

Prior year final dividend of 4.40p (2021: 4.27) per 5.0p ordinary share

2,131

2,058

Interim dividend of 2.18p (2021: 2.10p) per 5.0p ordinary share

1,057

1,016

Dividends paid during the year

3,188

3,074

 

The proposed final dividend for the year ended 31 December 2022 of 4.62p per share (2021: 4.40p) is subject to approval by shareholders at the AGM and has not been recognised as a liability in these financial statements. The proposed dividend would amount to £2,241k if paid to all shareholders on the Company register at the close of business on 2 June 2023.

Earnings per ordinary share

Earnings per ordinary share is calculated by dividing consolidated profit after tax attributable to equity holders of the Company of £10,006k (2021: £4,376k) by the weighted average number of shares in issue during the year and excluding own shares held by the EBT which are administered by independent trustees. The number of shares held in the trust at 31 December 2022 was 107,130 (2021: 196,888). Distribution of shares from the trust is at the discretion of the trustees. Diluted earnings per ordinary share adjusts for the potential dilutive effect of share option schemes in accordance with IAS 33 'Earnings per Share'.

 


2022

2021

Weighted average number of ordinary shares in issue

48,551,379

48,577,945

Adjustments for share options

987,750

755,954

Diluted number of ordinary shares issued

49,539,129

49,333,899


 




 

7. Financial instruments and financial risk management

Capital management

The Group's objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group can adjust the amount of dividends paid to shareholders, issue new shares or redeem existing ones or borrow funds from financial institutions.

The Group monitors capital on the basis of the following leverage ratio: net borrowings divided by EBITDA (as per the bank facility agreement).

Loan covenants

Under the terms of its borrowing facilities, the Group is required to comply with the following financial covenants:

•

The ratio of net borrowings on the last day of the relevant period to earnings before interest, tax, depreciation and amortisation, share of profit/(loss) from joint venture, equity-settled share-based payments and exceptional items (EBITDA) shall not exceed 3.50:1.00 (until 9 March 2022, 3.00:1.00, under the terms of the previous debt facility).

•

The ratio of EBITDA to net finance charges in respect of the relevant period shall not be less than 4.00:1.00.

The Group has complied with these covenants throughout the financial year.

As at
31 December 2022
£'000

As at
31 December 2021
£'000

Net borrowings

26,852

33,219

EBITDA

22,985

16,117

Net borrowings/EBITDA

1.17

2.06

Net finance charges

1,682

1,002

EBITDA/Net finance charges

13.67

16.08

 

Net borrowings comprise current and non-current interest-bearing loans and borrowings of £37,446k and cash and cash equivalents of 10,594k.

 

EBITDA comprises:



2022
£'000

2021
£'000

Profit for the year


10,006

4,376

Depreciation and amortisation


8,245

7,624

Finance costs


1,758

1,105

Share of loss/(profit) from joint venture


(50)

20

Equity-settled share-based payments


809

360

Taxation


2,217

2,632



22,985

16,117

 

Net finance charges comprise interest income of £56k and finance costs expensed of £1,738k, which excludes pension interest.

The Group's objective is to maintain leverage below the Board's appetite of 2.0. However, it is prepared to accept increases in this ratio at times of sizeable, capacity-related, capital expenditure to support continued growth. Subject to short-term macro-economic and geopolitical volatility, this is always expected to reduce quickly back below the Board's appetite, and to significantly lower levels, as capacity utilisation improves.

The bank covenant definition does not include the impact of IFRS 16 "Leases", which would have moved the ratio from 1.17 to 1.21.

 

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