Final Results
Zotefoams PLC
08 March 2005
Tuesday 7th March 2005
Zotefoams PLC
Preliminary Results
Zotefoams PLC, the world's leading manufacturer of cross-linked block foam,
today announces its preliminary results for the 12 months ended 31st December
2004.
Summary
• Turnover up 7% at £25.2 million (2003: £23.5 million)
• Gross profit up 10% to £5.5 million
• Pre-tax profit, pre-exceptional items up 39% to £1.3 million
• Continuing sales growth in North America, up 18%
• Strong sales across continental Europe, in particular Germany and
France, which grew by 13% and 18% respectively
• 5.3 million net cash inflow from operating activities
• Net debt reduced by £1.9 million to £1.7 million
• Net assets of £28.8 million and gearing under 6%
• Launch of ZOTEK(R) PVDF foams using patented processes
• Dividend of 3.0p, making a total of 4.5p declared for 2004
Commenting on the results, Bill Fairservice, Chairman, said:
'2004 was an extremely robust year for Zotefoams. During the year, we launched
the first in a range of foams based on Kynar(R) PVDF under our new ZOTEK(R)
brand name and progressed other projects for silicone and nylon foams to plant
scale trials. The company particularly benefited from our investment in North
America, where sales grew by 18%.
We enter 2005 with a strongly cash generative business, well invested in
capacity and with a series of options for the future in both our product
portfolio and our market place.'
Enquiries:
Zotefoams plc 020 8664 1600
David Stirling, Managing Director
Clifford Hurst, Finance Director
Financial Dynamics 020 7831 3113
Deborah Scott
Chairman's statement
Our strategy
Zotefoams' strategy is to create sustained profit growth by expanding its sales
internationally and by broadening its potential market with new unique products.
This strategy is supported by our commitment to quality, innovation and customer
service through investment in the training and development of our employees.
Zotefoams' technology affords us many different opportunities with significant
profit potential. To optimise these opportunities we must concentrate our own
resources in key areas and leverage our unique capability where appropriate.
Our objectives
We intend to grow sales in our core polyolefin foams business in excess of the
rate of inflation in Europe and achieve double-digit percentage growth in North
America and Asia. Our sales growth in America is supported by our factory in
Kentucky which opened in mid 2001 while in Asia we will consider a similar
operation, either as a license or joint venture, as sales increase to a level
where such an investment is sensible. We are also committed to developing a
portfolio of unique foam products from high-performance materials which will
enjoy significant advantages over competitive materials, allow higher margins
for Zotefoams and confirm our position as the pre-eminent foam technology
company. We intend to achieve these while continuing to improve our return on
capital employed through a more efficient use of assets and working capital and
expect our net operating assets (excluding cash) to reduce further over the next
few years while we continue to grow our sales.
Our achievements
During 2004 we grew sales by 7% and profit before tax by 39%. Our UK performance
was flat in what continues to be a difficult market, while sales in Continental
Europe grew 12% and North America grew 18% before the effect of exchange rate
fluctuations which, primarily due to the US dollar reduced profit before tax by
approximately £0.3 million after currency hedges. During 2004, we launched the
first in a range of foams based on Kynar(R) PVDF under our new ZOTEK(R) brand
name and progressed other projects for silicone and nylon foams to plant scale
trials. Our return on capital employed, measured as EBITDA as a percentage of
average net assets employed, was 16.7% up from 14.7% in 2003, as Group cash flow
strengthened and we begin to see the positive impact of our large investment in
North America.
The Directors are recommending a final dividend of 3.0p net per share payable on
24 May 2005 to shareholders on the Company register as at the close of business
of 22 April 2005. This brings the total declared dividend to 4.5p for 2004 and
is unchanged from the dividend declared for 2003.
Further, as announced on 14 January 2005, Zotefoams has received a very
preliminary approach that may or may not lead to an offer being made for its
entire issued share capital. A further announcement concerning this matter will
be made in due course.
W H Fairservice
Chairman
7 March 2005
Managing Director's review
Our year
Results for 2004 showed a marked improvement following a difficult year in 2003.
Sales growth of 7% to £25.2 million and operational improvements produced a 42%
increase in operating profit and 50% increase in net cash inflow from operating
activities. Earnings per share increased 65% to 3.3p (2003: 2.0p).
Overall sales growth of 7% was driven by growth in North America, France and
Germany. In North America our dollar sales growth of 18% translated to 7% growth
in sterling due to the weaker US dollar while, with the Euro at similar levels
to last year, growth of 18% in France and 13% in Germany was achieved by closer
contact with, and focus on, key customers.
Operational benefits were most apparent in our North American plant where
management changes late in 2003 and early in 2004 provided additional focus on
plant performance, product quality and cost control. The improvements at this
plant, which takes solid materials from our UK plant for final expansion to
foams, gave us sufficient confidence to place reliance on this facility to
expand our full range of foam products resulting in significant freight savings.
I am pleased to report that this plant is now operating at close to the levels
which we routinely achieve in our UK facility and during 2004 set new production
records in three different months as sales volumes increased 18% over 2003.
Production volume increases also lead to operational benefits in our Croydon
plant where higher levels of capacity utilisation improved overhead recovery and
profitability.
Rises in raw material prices reduced operating profits by approximately £0.3
million. Low density polyethylene (LDPE) is our major raw material and is
subject to commodity pricing. This means that prices change frequently and, on
occasion, quite significantly. In 2004, prices for LDPE began at levels
moderately above our average price for 2003. However, in September 2004, LDPE
prices began to rise rapidly and continued to do so throughout the rest of the
year. On average the price we paid for LDPE was 10% higher than in 2003. The
most significant impact on the business was after October 2004 when margins were
much tighter as LDPE rose above £600 per tonne for the first sustained time
since 2000. This increase in the fourth quarter coincided with a very sharp
increase in energy prices which we estimate increased our energy costs by
approximately £0.1 million in the fourth quarter alone. Scheduled list price
increases and a surcharge based on LDPE costs have been discussed with Zotefoams
customers for implementation during the first quarter of 2005.
Zotefoams' business remains strongly cash generative with substantial investment
in North America and the UK completed over the past five years. In 2004,
depreciation was £3.4 million compared to capital expenditure of £1.3 million,
which itself is at the lowest level for ten years. With significant excess and
flexible capacity at both our UK and North American facilities we anticipate
capital expenditure, other than that identified in the development of new
products, to be low for the foreseeable future.
Expenditure on research and development, all of which is charged against profits
in the year of expenditure, increased by 16% to £734,000. During the year
Zotefoams patented manufacturing processes and applications of PVDF foams. PVDF
is a fluoropolymer with excellent fire, chemical and UV-light resistance and our
foams, marketed under the ZOTEK(R) trademark are under evaluation in
applications as diverse as aerospace, aviation, construction and semiconductor
processing. Also during 2004, we developed processes to apply our unique
technology to make foams from polyamide (nylon) and silicone. Patent
applications were made for both of these developments early in 2005. We expect
these foams to find applications in markets where high temperature resistance
combined with other properties, predominantly sound and heat insulation, are
needed. Overall, during 2004 we made substantial progress in product development
and I expect this to accelerate during 2005.
While sales of new products were negligible in 2004, we have a significant
number of applications under development, some of which have been approved and
sales orders received for shipment in 2005. We believe that developments of this
type offer the potential of higher returns and diversification into new and fast
growing markets. Zotefoams approach is to develop a portfolio of materials
across a number of different markets to ensure a diversified product mix. We
constantly review our projects, approach and resource allocation to ensure that
we are focussing on the areas of greatest return. I consider these new products,
and others which are at an earlier stage in our development efforts, to offer
excellent potential for future growth and margin enhancement of our business.
Our marketplace
Zotefoams manufactures and sells crosslinked block foams used in a variety of
markets and applications worldwide. Our major markets are in the UK and Western
Europe, supplied from our Croydon, UK plant, and North America, supplied from
our Walton, Kentucky plant.
Zotefoams has a worldwide sales and marketing alliance for polyolefin foams with
the Sekisui Chemical Company Ltd, who act as exclusive agent and distributor in
Continental Europe and Asia respectively. Sekisui also act as agent for certain
customers in North America. Our new products such as PVDF, silicone and
polyamide, fall outside the scope of these arrangements and are being marketed
directly by Zotefoams to a diverse range of existing and new customers.
In the UK, Zotefoams holds a high market share which means growth must come from
the development of new market applications for our products. Although we work
closely with customers in these areas the general UK industrial climate has a
significant effect on our business. During 2004 sales increased by 1%, which has
halted the declines seen in the past two years, in what continues to be a
difficult economic climate for UK manufacturing industry. Increases in the
packaging and construction segments offset some business decline in general
industrial and marine segments.
In Germany sales increased 13% which was the fourth successive year of growth.
This reflects another year of good performance by our main distributor and an
increasing contribution from directly supplied accounts. Sales grew by 18% in
France, recovering strongly after a decline in 2003, the majority of this growth
coming from the sports and leisure market. Italy continues to be a difficult
market with traditional business in footwear and lingerie declining due to
consumer trends and moves by manufacturers to lower cost locations. Despite
this, sales in Italy grew by 3% through the development of new business in this
important market. This is in contrast to Spain where loss of business due to
market trends was not replaced at the necessary rate and we need additional
focus in this area.
North America grew by 18% in both volumes and dollar value. Gains of business in
the construction and automotive sectors were the principal drivers here.
However, we also secured additional business in the sports and leisure and
medical segments. All of this growth is supported from and made possible by our
facility in Kentucky. We have now grown 64% since commissioning the plant in
2001 and expect further gains in this market, with sports and leisure, packaging
and construction being the medium term focus.
Currently only 1% of turnover is in Asia. However we do have longer term
ambitions in this region and know that there are significant opportunities for
Zotefoams products here. We believe we do have good brand recognition in certain
segments and our products can enjoy the same competitive advantage in Asia as
they do in Europe and America. Ultimately we believe that a facility similar to
our plant in Kentucky would be an attractive investment giving accelerated
growth prospects, particularly as we can reduce the capital cost by using local
suppliers while benefiting from our experience of such a project in the USA. To
share risk and capital cost and to optimise sales, it is our intention to enter
into a joint venture or license for production in the Asian market.
Our business
Customers, employees and technology define our business. I would like to
congratulate our employees for their efforts during 2004. Through their
dedication, commitment and achievements we maintain customer satisfaction and
this shows through in our sales growth for the year.
In the last five years Zotefoams generated £26.1 million operating cash inflow,
paid £12.1 million in dividends and currently have a net debt of only £1.7
million. We have rebuilt our site in Croydon following the fire in late 2000 and
have established a significant business in North America which is growing
strongly. Our technical portfolio has a pipeline of products which we believe
offers excellent potential for growth in the future and has both patent and
technology protection.
We therefore enter 2005 with a strongly cash generative business, well invested
in capacity and with a series of options for the future in both our product
portfolio and our market place.
D B Stirling
Managing Director
7 March 2005
Finance Director's review
Group turnover of £25.2 million was 7% higher than 2003. Gross margin was £5.5
million (10% higher) with an improved margin rate compared to 2003 (21.9%
compared to 21.4% in 2003) in a difficult macro-economic environment. A weak US
dollar reduced gross margin on North American sales by approximately £0.4
million, while high polymer prices also adversely affected profit by about £0.3
million compared to 2003. The average price of LDPE, our major raw material,
increased from €770 per tonne in 2003 to €850 per tonne in 2004. Depreciation
increased by £0.2 million. These adverse impacts on profit were partly offset by
a reduction in freight costs to the USA due to operational improvements in the
Group's American manufacturing operations.
Distribution and administration expenses were similar to 2003 and despite an
increase in interest charges, profit before tax improved by 39% to £1.3 million
in 2004 as most of the gross margin improvement flowed through to profit before
tax.
Taxation
Corporation tax has been provided for at the rate of 30%. The Group tax charge
is slightly below this due to research and development credits and taxable
losses in North America. In addition 2004 benefited from a £0.2 million credit
adjustment in respect of prior periods. This reduced the profit and loss account
tax charge to £0.13 million which is 10% of pre-tax profits. Earnings per share
consequently rose by 65% to 3.3p.
Cash flow and funding
The underlying strength of the business is its strong cash generation. With high
depreciation EBITDA is £4.9 million (2003: £4.3 million) and net cash inflow
from operating activities to £5.3 million. Capital expenditure of £1.3 million
(2003: £1.6 million) is less than 50% of the Group depreciation charge following
a period of major expenditure on a new plant in North America and replacing
assets destroyed in a fire on the Croydon site in 2000. Limited capital
expenditure requirements are foreseen in the next few years.
The Group therefore is strongly cash generative. Net debt was reduced from £3.6
million at the end of 2003 to £1.7 million at the end of 2004. With net assets
of £28.8 million gearing is under 6%.
A final dividend of 3.0p net per share is proposed which brings the total
declared dividend for the year to 4.5p, the same level declared for 2003.
Pensions
The Group has made the disclosures required under the transitional rules of
FRS17 'Retirement Benefits' in respect of the defined benefit pension scheme for
UK employees. Under these rules this pension fund had assets of £11.5 million
and a present value of liabilities of £16.1 million as at 31 December 2004. This
deficit of £4.6 million is a slight reduction from 2003 (£4.8 million). However,
the tri-annual actuarial review of the fund is due on 6 April 2005 and it is
likely to show a deterioration in the funding position since the date of the
last review in April 2002 when the deficit was £0.6 million on an ongoing
valuation basis. The importance of this review is that it determines the
contribution rates required for the fund. Following this actuarial review the
Company will discuss with the trustees and members the future strategy for the
defined benefit scheme which has been closed to new entrants since 1 October
2001.
Treasury
With most of the costs in the business denominated in sterling and the majority
of sales being in either euros or US dollars the Group has a significant foreign
exchange exposure. While the average euro/sterling rate was similar to 2003 with
a £0.1 million adverse impact, the US dollar weakened against sterling and this
had an adverse impact on profit of approximately £0.3 million. This was partly
offset by a £0.1 million gain from the Group's hedging policy.
The Board has defined policies and procedures relating to treasury management
and accounting policies. These are designed to provide appropriate business
support, consistency of reporting and to mitigate risk. Foreign currency hedges
are used to reduce the foreign currency exposure on a proportion of the next six
month's sales. Translation exposure is not hedged. Interest rates on borrowings
are all based on variable rates plus a bank margin and are unhedged as the
interest rate risk is not, at present, considered material.
Accounting policies
Although no new accounting standards were adopted in 2004, International
Accounting Standards became mandatory for all listed companies in the UK for
accounting periods beginning on or after 1 January 2005. Accordingly the Group
has adopted International Accounting Standards with effect from 1 January 2005.
The Group plans to restate its 2004 accounts under these standards in June 2005,
prior to publishing its interim results for the first sixth months of the year
in August 2005.
Going concern statement
After making enquiries, the Directors have a reasonable expectation that the
Group has adequate resources to continue in operational existence for the
foreseeable future. For this reason they continue to adopt the going concern
basis in preparing the financial statements.
C G Hurst
Finance Director
7 March 2005
Consolidated profit and loss account
For the year ended 31 December 2004
Note 2004 2003
£000 £000
______ ______
Turnover 2 25,176 23,504
Cost of sales (19,669) (18,478)
______ ______
Gross profit 5,507 5,026
Distribution costs (1,871) (1,884)
Administrative expenses (2,080) (2,047)
______ ______
Operating profit 1,556 1,095
______ ______
Other interest receivable and similar income 5 - 18
Interest payable and similar charges 6 (225) (158)
______ ______
Profit on ordinary activities before taxation 3 1,331 955
Tax on profit on ordinary activities 7 (130) (219)
______ ______
Profit for the financial year 9 1,201 736
Equity dividends - paid (544) (906)
Equity dividends - proposed (1,087) (725)
______ ______
Total dividends paid and proposed 8 (1,631) (1,631)
______ ______
Retained loss for the financial year 18 (430) (895)
______ ______
Basic earnings per ordinary share 8 3.3p 2.0p
______ ______
Diluted earnings per ordinary share 8 3.3p 2.0p
______ ______
All amounts in the profit and loss account are derived from continuing
operations for the current and prior year. There is no difference in profit for
the financial year stated above and the historical cost equivalents and
therefore no separate note of historical cost profits and losses has been
presented.
Consolidated statement of total recognised gains and losses
For the year ended 31 December 2004
2004 2003
£000 £000
______ ______
Profit for the financial year 1,201 736
Currency translation differences on foreign currency net investments (576) (860)
______ ______
Total recognised gains and losses relating to the year 625 (124)
______ ______
Consolidated balance sheet
As at 31 December 2004
Note 2004 2004 2003 2003
£000 £000 £000 £000
______ ______ ______ ______
Fixed assets
Tangible assets 10 29,795 32,375
29,795 32,375
______ ______
Current assets
Stocks 12 3,126 3,178
Debtors 13 5,675 5,893
Cash at bank and in hand 298 212
______ ______
9,099 9,283
Creditors: amounts falling due within one 14
year (4,651) (7,263)
______ ______
Net current assets 4,448 2,020
______ ______
Total assets less current liabilities 34,243 34,395
Creditors: amounts falling due after more than 15
one year (1,500) (57)
Provisions for liabilities and charges 16 (3,913) (4,502)
______ ______
Net assets 28,830 29,836
______ ______
Capital and reserves
Called-up share capital 17, 18 1,813 1,813
Share premium account 18 13,707 13,707
Capital redemption reserve 18 5 5
Profit and loss account 18 13,305 14,311
______ ______
Total shareholders' funds - equity 19 28,830 29,836
______ ______
Company balance sheet
As at 31 December 2004
Note 2004 2004 2003 2003
£000 £000 £000 £000
______ ______ ______ ______
Fixed assets
Tangible assets 10 23,787 25,728
Investments 11 6,416 7,581
______ ______
30,203 33,309
Current assets
Stocks 12 2,274 2,365
Debtors 13 5,373 5,041
Cash at bank and in hand 65 -
______ ______
7,712 7,406
Creditors: amounts falling due within 14
one year (4,315) (7,156)
______ ______
Net current assets 3,397 250
______ ______
Total assets less current liabilities 33,600 33,559
Creditors: amounts falling due after more than 15
one year (1,500) (57)
Provisions for liabilities and charges 16 (3,891) (4,174)
Net assets 28,209 29,328
______ ______
Capital and reserves
Called-up share capital 17, 18 1,813 1,813
Share premium account 18 13,707 13,707
Capital redemption reserve 18 5 5
Profit and loss account 18 12,684 13,803
______ ______
Total shareholders' funds
- equity 19 28,209 29,328
______ ______
Consolidated cash flow statement
For the year ended 31 December 2004
Note 2004 2004 2003 2003
£000 £000 £000 £000
______ ______ ______ ______
Net cash inflow from operating activities 23 5,261 3,516
Returns on investments and servicing of finance
Interest received - 18
Interest paid
- bank and other (230) (89)
- finance leases (24) (27)
______ ______
(254) (98)
Taxation
Mainstream corporation tax (506) (1,103)
Overseas tax (14) (57)
______ ______
(520) (1,160)
Capital expenditure
Purchase of fixed assets (1,331) (1,614)
Sale of fixed assets 1 27
______ ______
(1,330) (1,587)
Equity dividends paid (1,269) (2,719)
______ ______
Cash inflow/(outflow) before financing 1,888 (2,048)
______ ______
Financing
Capital element of finance lease payments (119) (119)
New borrowings 2,000 -
Repayment of loan instalments (851) (832)
______ ______
1,030 (951)
______ ______
Increase/(decrease) in cash in the year 2,918 (2,999)
______ ______
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 2004
Note 2004 2003
£000 £000
______ ______
Increase/(decrease) in cash in the year 2,918 (2,999)
Cash (inflow)/outflow from change in debt and lease finance (1,030) 951
______ ______
Change in net debt resulting from cash flows 1,888 (2,048)
Translation differences 31 145
______ ______
Movement in net debt in the year 1,919 (1,903)
Net debt at the start of the year (3,578) (1,675)
______ ______
Net debt at the end of the year 24 (1,659) (3,578)
______ ______
Notes to the financial statements
1. Accounting policies
Basis of preparation
The financial statements have been prepared in accordance with applicable
Accounting Standards, and under the historical cost accounting rules. The
following principal accounting policies have been applied consistently in
dealing with items which are considered material in relation to the Group's
financial statements.
The Group has followed the transitional rules of FRS 17 'Retirement Benefits'
this year, providing certain additional disclosures for its defined benefit
pension scheme.
Basis of consolidation
The Group financial statements consolidate the financial statements of the
Company and its subsidiary undertakings. All companies within the Group make up
their financial statements to 31 December. Unless, otherwise stated, the
acquisition method of accounting has been adopted. Under this method, the
results of subsidiary undertakings acquired or disposed of in the year are
included in the consolidated profit and loss account from the date of
acquisition or up to the date of disposal.
A separate profit and loss account dealing with the results of the Parent
Company only has not been presented, as permitted by Section 230 of the
Companies Act 1985 (see note 9).
Tangible fixed assets and depreciation
Depreciation is provided by the Group to write off the cost less the estimated
residual value of tangible fixed assets by equal annual instalments over their
estimated useful economic lives as follows:
Freehold buildings 20 years
Plant and machinery 5 - 15 years
Computer equipment and vehicles 3 - 5 years
No depreciation is provided on freehold land. Licences purchased by the Group
are amortised over five years.
Assets held under finance leases are depreciated over the lease term where this
is shorter than the estimated useful economic life.
Foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated
into sterling at rates of exchange at the balance sheet date and the gains or
losses on translation are included in the profit and loss account.
Transactions in foreign currencies are recorded using the rate of exchange
ruling at the date of the transaction. The results of the overseas subsidiary
undertakings and overseas branches are translated at the average rate of
exchange ruling during the year. The assets and liabilities of the overseas
undertakings are translated at the closing exchange rate. Exchange differences
arising from the retranslation of the opening net investment in overseas
undertakings, and differences between the profits for the year translated at the
average and closing rates, are taken to reserves, net of exchange differences
arising on related foreign currency borrowings.
Research and development expenditure
Expenditure on research and development is written off against profits in the
year in which it is incurred.
Stocks
Stocks are stated at the lower of cost and net realisable value. In determining
the cost of raw materials, consumables and goods purchased for resale, the
weighted average purchase price is used. For work in progress and finished goods
manufactured by the Group, cost is taken as production cost, which includes an
appropriate proportion of attributable overheads.
Goodwill
Purchased goodwill (both positive and negative) arising on consolidation in
respect of acquisitions before 1 January 1998, when FRS 10 Goodwill and
intangible assets was adopted, was written off to reserves in the year of
acquisition. When a subsequent disposal occurs any related goodwill previously
written off to reserves is written back through the profit and loss account as
part of the profit or loss on disposal.
Purchased goodwill (representing the excess of the fair value of the
consideration given and associated costs over the fair value of the separable
net assets acquired) arising on consolidation in respect of acquisitions since 1
January 1998 is capitalised. Positive goodwill is amortised to nil by equal
annual instalments over its estimated useful life, not exceeding 20 years.
On the subsequent disposal or termination of a business acquired since 1 January
1998, the profit or loss on disposal or termination is calculated after charging
the unamortised amount of any related goodwill.
In the Company's financial statements, investment in subsidiary undertakings is
stated at cost less any provision against the value.
Pensions
The Company operates a pension scheme providing benefits based on final
pensionable pay, the assets of which are held independently from those of the
Company. Contributions to the scheme are charged to the profit and loss account
so as to spread the cost of pensions over employees' working lives with the
Company. The Group also operates defined contribution pension schemes in the US
and the UK. Contributions to these schemes are charged to the profit and loss
account as they are incurred.
Finance leases
Where the Company enters into a lease which entails taking substantially all the
risks and rewards of ownership of an asset, the lease is treated as a finance
lease. The asset is recorded in the Balance sheet as a tangible fixed asset and
depreciated in accordance with the Group's depreciation policy.
The capital element of future lease payments is included under creditors.
Interest is included within 'interest payable and similar charges' within the
profit and loss account.
Operating leases
Operating leases are any other leases which are not finance leases. Rental
charges in respect of operating leases are charged to the profit and loss
account on a straight line basis over the life of the lease.
Taxation
The charge for taxation is based on the profit for the year and takes into
account taxation deferred because of timing differences between the treatment of
certain items for taxation and accounting purposes. Deferred tax is recognised,
without discounting, in respect of all timing differences between the treatment
of certain items for taxation and accounting purposes which have arisen but not
reversed by the balance sheet date, except as otherwise required by FRS 19.
Turnover
Turnover represents the amounts (excluding value added tax) derived from the
provision of goods and services to customers during the year. Revenue is
recognised on the despatch of goods for which specific orders have been placed.
Cash
Cash, for the purpose of the cash flow statement, comprises cash in hand and
deposits repayable on demand, less overdrafts payable on demand.
2. Turnover by geographical market
UK and Other North Rest of
Eire France Germany Europe America the World Total
£000 £000 £000 £000 £000 £000 £000
______ ______ ______ ______ ______ ______ ______
2004 6,985 3,022 4,345 4,397 5,909 518 25,176
______ ______ ______ ______ ______ ______ ______
2003 6,895 2,568 3,857 4,191 5,531 462 23,504
______ ______ ______ ______ ______ ______ ______
In the opinion of the Directors the Group is engaged in only one class of
business. All turnover originates in the UK.
3. Profit on ordinary activities before taxation
2004 2003
£000 £000
______ ______
Profit on ordinary activities before taxation is stated:
After charging
Amounts payable under operating leases 75 74
Research and development costs 734 635
Auditors' remuneration:
Audit: Group 66 64
Company 61 58
Other fees paid to the auditors and their associates
- recurring 12 12
- non-recurring 37 32
______ ______
49 44
Depreciation and amortisation of fixed assets
- owned assets 3,212 2,998
- leased assets 159 159
After crediting
Net exchange gains (108) (168)
______ ______
4. Staff numbers and costs
The average number of people employed by the Group (including Directors) during
the year, analysed by category, was as follows:
Number of employees
2004 2003
______ ______
Production 128 124
Maintenance 19 19
Distribution and marketing 33 29
Administration and technical 60 64
______ ______
240 236
______ ______
The aggregate payroll costs of these persons were as follows:
2004 2003
£000 £000
______ ______
Wages and salaries 6,415 6,328
Social security costs 589 508
Other pension costs 560 559
______ ______
7,564 7,395
______ ______
5. Other interest receivable and similar income
2004 2003
£000 £000
______ ______
Interest on bank deposits - 1
Interest on other deposits - 17
______ ______
- 18
______ ______
6. Interest payable and similar charges
2004 2003
£000 £000
______ ______
On bank loans and overdrafts 201 131
On finance leases 24 27
______ ______
225 158
______ ______
7. Tax on profit on ordinary activities
Note 2004 2003
£000 £000
______ ______
UK corporation tax at 30% (2003: 30%) 871 291
Overseas taxation 24 45
Adjustment to prior year UK tax charge (176) 52
______ ______
Current taxation 719 388
Deferred taxation 16 (589) (169)
______ ______
Total tax charge 130 219
______ ______
Factors affecting the tax charge for the current period
The current charge for the period is higher (2003: higher) than the standard
rate of corporation tax in the UK of 30% (2003: 30%). The differences are
explained below.
2004 2003
£000 £000
______ ______
Current tax reconciliation
Profit on ordinary activities before tax 1,331 955
______ ______
Current tax at 30% (2003: 30%) 399 287
Effects of:
Research and Development tax credits less expenses not deductible for tax
purposes (28) (25)
Depreciation in excess of Capital Allowances for period 327 58
Intra-group fixed asset movements 179 -
(Lower)/higher tax rates on overseas earnings (17) 16
Intra-group stock movements 35 -
Adjustments to tax charge in respect of previous periods (176) 52
______ ______
Total current tax charge 719 388
______ ______
8. Dividends and earnings per share
2004 2003
£000 £000
______ ______
Interim dividend of 1.5p (2003: 2.5p) net per 5p ordinary share 544 906
Proposed final dividend of 3.0p (2003: 2.0p) net per 5p ordinary share 1,087 725
______ ______
1,631 1,631
______ ______
Dividends per ordinary share 4.5p 4.5p
______ ______
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing profit after tax of
£1,201,000 (2003: £736,000) by the weighted average number of shares in issue
during the year. Diluted earnings per ordinary share adjusts for the potential
dilutive effect of share option schemes in accordance with FRS 14.
2004 2003
______ ______
Average number of ordinary shares issued 36,255,772 36,255,772
Deemed issued for no consideration 30,973 69,168
______ ______
Diluted 36,286,745 36,324,940
______ ______
Shares deemed issued for no consideration have been calculated based on the
potential dilutive effect of the Save As You Earn share option scheme, the
Executive Share Option Scheme and options granted under the Inland Revenue
Approved Share Option Scheme:
Number of shares under option
Exercise
Date from which exercisable Price 2004 2003
______ ______ ______
4 April 2004 92.5p - 64,864
24 April 2004 93.5p - 301,603
21 August 2004 107.5p - 125,580
1 June 2005 77.0p 177,475 212,540
20 August 2005 80.5p 654,494 654,494
18 March 2006 80.0p 872,865 872,865
7 April 2007 72.5p 1,130,034 -
______ ______ ______
The average fair value of one ordinary share during the year was considered to
be 75.3p (2003: 83.5p).
9. Profit for the financial year
The Group accounts do not include a separate profit and loss account for
Zotefoams plc (the parent undertaking) as permitted by Section 230 of the
Companies Act 1985. The Parent Company profit after tax for the financial year
is £936,000 (2003 loss: £1,508,000).
10. Tangible fixed assets
Freehold Computer
land and Plant and equipment
buildings machinery and vehicles Total
£000 £000 £000 £000
______ ______ ______ ______
The Group
Cost
At 1 January 2004 14,275 36,336 2,088 52,699
Additions 256 964 75 1,295
Foreign exchange (284) (277) (8) (569)
Disposals - (54) - (54)
______ ______ ______ ______
At 31 December 2004 14,247 36,969 2,155 53,371
______ ______ ______ ______
Depreciation
At 1 January 2004 2,478 16,374 1,472 20,324
Charge for the year 563 2,442 366 3,371
Foreign exchange (32) (51) (6) (89)
On disposals - (30) - (30)
______ ______ ______ ______
At 31 December 2004 3,009 18,735 1,832 23,576
______ ______ ______ ______
Net book value
At 31 December 2004 11,238 18,234 323 29,795
______ ______ ______ ______
At 31 December 2003 11,797 19,962 616 32,375
______ ______ ______ ______
Company
Cost
At 1 January 2004 10,462 32,201 1,995 44,658
Additions 125 826 53 1,004
Disposals - (10) - (10)
______ ______ ______ ______
At 31 December 2004 10,587 33,017 2,048 45,652
______ ______ ______ ______
Depreciation
At 1 January 2004 2,114 15,401 1,415 18,930
Charge for the year 416 2,186 338 2,940
On disposals - (5) - (5)
______ ______ ______ ______
At 31 December 2004 2,530 17,582 1,753 21,865
______ ______ ______ ______
Net book value
At 31 December 2004 8,057 15,435 295 23,787
______ ______ ______ ______
At 31 December 2003 8,348 16,800 580 25,728
______ ______ ______ ______
Included in computer equipment and vehicles and total fixed assets above for
both the Company and the Group is £79,000 (2003: £238,000) in respect of the net
book value of assets held under finance leases.
11. Fixed asset investments
Company Company
2004 2003
£000 £000
______ ______
Shares in Group undertakings - at cost 4,505 4,505
Provision against the value of investment in subsidiary to reflect the
value of the underlying net assets (3,294) (3,294)
Loan to Zotefoams Fabrications Limited - 6,370
Loan to Zotefoams Inc. 5,205 -
______ ______
6,416 7,581
______ ______
The investments consist of the entire ordinary share capital of Zotefoams
International Limited and a $10,000,000 loan to Zotefoams Inc.
The following is a complete list of the subsidiary undertakings of the Company,
all of which are either directly or indirectly 100% owned:
Zotefoams International Limited
Zotefoams Inc.
Zotefoams Fabrications Limited - in voluntary liquidation
All the limited companies are incorporated in the United Kingdom, with the
exception of Zotefoams Inc. which is incorporated in the US.
The principal activities of the subsidiary undertakings are as follows:
Zotefoams Inc. purchases and distributes cross-linked block foams and Zotefoams
International Limited is a holding company. Zotefoams Fabrications Limited used
to manufacture cross-linked block foams but these activities have been
transferred to other group companies and Zotefoams Fabrications Limited is now
in members' voluntary liquidation.
In the opinion of the Directors the investments in the Company's subsidiary
undertakings are worth at least the amount at which they are stated in the
balance sheet.
12. Stocks
Group Group Company Company
2004 2003 2004 2003
£000 £000 £000 £000
______ ______ ______ ______
Raw materials and consumables 1,171 1,311 1,156 1,296
Work in progress 845 624 661 597
Finished goods and goods for resale 1,110 1,243 457 472
______ ______ ______ ______
3,126 3,178 2,274 2,365
______ ______ ______ ______
13. Debtors
Group Group Company Company
2004 2003 2004 2003
£000 £000 £000 £000
______ ______ ______ ______
Amounts falling due within one year:
Trade debtors 5,331 5,743 4,310 4,548
Amounts owed by Group undertakings - - 728 359
Other debtors 54 3 54 3
Prepayments and accrued income 290 147 281 131
______ ______ ______ ______
5,675 5,893 5,373 5,041
______ ______ ______ ______
14. Creditors: amounts falling due within one year
Group
2004 2004 2003 2003
£000 £000 £000 £000
______ ______ ______ ______
Bank overdrafts - 2,828
Trade creditors 942 855
Other creditors including taxation
and social security:
Mainstream corporation tax 577 385
Other taxation and social security 152 164
______ ______
729 549
Other creditors 72 79
Obligations under finance leases 57 119
Bank loans 400 786
Accruals and deferred income 1,364 1,322
Dividends proposed 1,087 725
______ ______
4,651 7,263
______ ______
14. Creditors: amounts falling due within one year (continued)
Company
2004 2004 2003 2003
£000 £000 £000 £000
______ ______ ______ ______
Bank overdrafts - 2,828
Trade creditors 940 855
Other creditors including taxation
and social security:
Mainstream corporation tax 380 396
Other taxation and social security 146 160
______ ______
526 556
Other creditors 23 35
Obligations under finance leases 57 119
Bank loans 400 786
Accruals and deferred income 1,282 1,252
Dividends proposed 1,087 725
______ ______
4,315 7,156
______ ______
15. Creditors: amounts falling due after more than one year
Group and Company
2004 2003
£000 £000
______ ______
Finance leases:
Amounts falling due in more than one year but less than two years - 57
Bank loans (see note 20):
Amounts falling due in more than one year but less than two years 400 -
Amounts falling due in more than two years but less than five years 1,100 -
______ ______
1,500 57
______ ______
16. Provisions for liabilities and charges
Deferred taxation
Group Company
£000 £000
______ ______
The Group and Company
At 1 January 2004 4,502 4,174
Credit for the year in the profit and loss account (589) (283)
______ ______
At 31 December 2004 3,913 3,891
______ ______
Deferred tax is provided as follows:
Group Group Company Company
2004 2003 2004 2003
£000 £000 £000 £000
______ ______ ______ ______
Difference between accumulated depreciation and
amortisation and capital allowances 3,913 4,502 3,891 4,174
______ ______ ______ ______
3,913 4,502 3,891 4,174
______ ______ ______ ______
Deferred tax is provided at a rate of 30% (2003: 30%).
No amount is included above for any liability, which might arise in respect of
the undistributed reserves of the Company's overseas subsidiary undertaking,
which the Group does not expect to remit to the UK.
17. Share capital
2004 2003
_____ _____
£ £
Authorised
At 31 December
Equity: 56,000,000 ordinary shares of 5p each 2,800,000 2,800,000
_____ _____
Allotted, called-up and fully paid
At 31 December
Equity: 36,255,772 ordinary shares of 5p each 1,812,789 1,812,789
_____ _____
Details of share options are provided in note 8.
18. Statement of movements in reserves and share capital
Profit Capital Share Share
and loss redemption premium capital
£000 £000 £000 £000
______ ______ ______ ______
The Group
At 1 January 2004 14,311 5 13,707 1,813
Translation differences (576) - - -
Retained loss for year (430) - - -
______ ______ ______ ______
At 31 December 2004 13,305 5 13,707 1,813
______ ______ ______ ______
The Company
At 1 January 2004 13,803 5 13,707 1,813
Translation differences (424) - - -
Retained loss for year (695) - - -
______ ______ ______ ______
At 31 December 2004 12,684 5 13,707 1,813
______ ______ ______ ______
The cumulative total of goodwill written off against Group profit and loss
account reserves in respect of acquisitions prior to 1 January 1998 when FRS 10
(Goodwill and Intangible Assets) was adopted amounts to:
£000
______
Group 990
______
Company 880
______
19. Reconciliations of movements in shareholders' funds
Group Group Company Company
2004 2003 2004 2003
£000 £000 £000 £000
______ ______ ______ ______
Profit/(loss) for the financial year 1,201 736 936 (1,508)
Dividends (1,631) (1,631) (1,631) (1,631)
______ ______ ______ ______
Retained loss for the financial year (430) (895) (695) (3,139)
Translation differences (576) (860) (424) (559)
______ ______ ______ ______
Net reduction in shareholders' funds (1,006) (1,755) (1,119) (3,698)
Opening shareholders' funds 29,836 31,591 29,328 33,026
______ ______ ______ ______
Closing shareholders' funds 28,830 29,836 28,209 29,328
______ ______ ______ ______
20. Financial instruments
Policy
The Group does not enter into significant derivative transactions. The Group's
principal financial instruments comprise bank loans, cash and short-term
deposits. The main purpose of these financial instruments is to raise finance
for the Group's operations. It is, and has been throughout the period under
review, the Group's policy that no trading in financial instruments shall be
undertaken.
The main risks arising from the Group's financial instruments are interest rate
risk, liquidity risk and foreign exchange risk. The Board reviews and agrees
policies for managing each of these risks and they are summarised below. These
policies have remained fundamentally unchanged throughout the year.
The disclosures in this note exclude short-term debtors and creditors.
Interest rate risk
The Group finances its operations through a mixture of retained profits and bank
borrowings. The Group borrows in the desired currency generally at a variable
rate of interest.
The interest rate profile of the Group at 31 December was:
2004 2004 2003 2003
Fixed Variable Fixed Variable
rates rates Total rates rates Total
£000 £000 £000 £000 £000 £000
______ ______ ______ ______ ______ ______
Sterling 57 1,900 1,957 176 2,828 3,004
US dollar - - - - 786 786
______ ______ ______ ______ ______ ______
57 1,900 1,957 176 3,614 3,790
______ ______ ______ ______ ______ ______
The interest rate payable on the sterling overdraft and the US dollar bank loan
is determined by LIBOR (or similar) plus a bank margin.
Liquidity risk
The Group's objective is to maintain a balance of continuity of funding and
flexibility through the use of overdrafts, loans and finance leases as
applicable. The maturity profile of the Group's borrowings is shown in note 15.
The Group has a short-term facility of £5.0 million which is freely transferable
and convertible into sterling. This facility expires in April 2005 and is
utilised by Zotefoams plc and its subsidiary undertakings under a
cross-guarantee structure.
On 17 December 2004 Zotefoams plc paid the final instalment of the $4.2 million
three year loan agreement, which was repayable in equal six monthly instalments.
On 25 August 2004 Zotefoams plc borrowed £2,0 million under a five year
mortgage, repayable in equal quarterly instalments. This facility is secured
over specific plant assets.
Foreign currency risk
The Group has significant undertakings in the US whose revenue and expenses are
denominated in US dollars. Zotefoams plc makes a significant proportion of its
sales to European customers and these revenues are predominantly in Euros. It
was the Group's policy in 2004 to hedge the foreign currency cash flows of
invoiced sales net of expected foreign expenditure. Hedging is achieved by the
use of foreign currency contracts expiring in the month of expected cash flow.
Fair values
The fair value of all financial assets and liabilities is not materially
different from the carrying value. Therefore the fair value is not separately
disclosed. At 31 December 2004 the Group had forward exchange contracts with a
nil carrying value and a fair value, based on estimated market values, of £4.9
million (2003: £3.4 million).
21. Commitments
2004 2003
£000 £000
______ ______
(i) Capital contracts at the end of the financial year for which no provision has 115 298
been made:
(ii) The Group has annual commitments under non-cancellable operating leases which
expire
- within one year: 65 2
- between two and five years: 39 70
______ ______
(iii) As at 31 December the Group had foreign currency forward exchange contracts
amounting to: 4,934 3,367
______ ______
The above amounts apply to the Company as well as the Group apart from Capital
Commitments which includes £5,000 (2003: £200,000) in respect of subsidiary
undertakings.
22. Pension scheme
The Company operates a defined benefit pension scheme - the Zotefoams Pension
Scheme ('the scheme') providing benefits based on final pensionable pay. The
assets of the scheme are held separately from those of the Company.
An actuarial review of the scheme was carried out as at 6 April 2002 by an
independent qualified actuary. The assumptions which have the most significant
effect on the results of the valuation are: discount rate - 6.75% p.a.
pre-retirement/5.25% p.a. post-retirement; rate of future salary increases -
4.25% p.a.; rate of pension increases in payments - 2.50% p.a.; and price
inflation - 2.75% p.a.
The valuation showed that the market value of the scheme's assets was
£10,082,000 which represented 94% of the benefits that had accrued to members,
after allowing for expected future increases in earnings. The total
contributions payable by the Company was agreed to be 12.0% of pensionable
salary to 1 March 2003 and 14.1% of pensionable salary thereafter. Employee
contributions were increased from 5.0% to 6.5% of pensionable salary
respectively.
The pension charge for the year was £467,966 (2003: £468,837) which represents
the contributions paid to the scheme in respect of the members.
In addition there is a stakeholder scheme for UK employees who joined the Group
after 1 October 2001. The contributions paid by the Company to the scheme were
£10,559 (2003: £8,965).
For US based employees, Zotefoams Inc. and Zotefoams Fabrications Limited
operate a 401(k) plan and a defined contribution pension plan to which Zotefoams
Inc. and Zotefoams Fabrications Limited contribute 6.2% of pensionable salary.
Whilst the Group continues to account for pension costs in accordance with
Statement of Standard Accounting Practice 24 'Accounting for Pension costs',
under FRS 17 'Retirement benefits' the following transitional disclosures are
required:
A full actuarial valuation was carried out at 6 April 2002 and updated by a
qualified independent actuary on a FRS 17 basis to 31 December 2004. The major
assumptions used by the actuary were as follows:
At year end At year end At year end
31 December 31 December 31 December
2004 2003 2002
% p.a. % p.a. % p.a.
______ ______ ______
Rate of general increase in salaries 4.40 4.30 3.85
Rate of increase of pensions in payment 2.50 2.70 2.25
Discount rate 5.30 5.36 5.47
Inflation assumption 2.90 2.80 2.35
______ ______ ______
The assumptions used by the actuary are the best estimates chosen from a range
of possible actuarial assumptions which, due to the timescale covered, may not
necessarily be borne out in practice.
The fair value of the scheme's assets, which are not intended to be realised in
the short-term and may be subject to significant change before they are
realised, and the present value of the scheme's liabilities, which are derived
from cash flow projections over long periods and thus inherently uncertain,
were:
Long- Long- Long-
term Value at term Value at term Value at
rate of 31 December rate of 31 December rate of 31 December
return 2004 return 2003 return 2002
2004 £000 2003 £000 2002 £000
______ ______ ______ ______ ______ ______
Equities 7.20 9,330 7.80 8,452 7.52 6,579
Bonds 4.94 1,599 5.10 1,356 5.00 1,281
Other - Cash 4.50 617 3.75 258 4.00 324
______ ______ ______ ______ ______ ______
11,546 10,066 8,184
Present value of
scheme liabilities (16,117) (14,884) (11,497)
______ ______ ______
Deficit in the
scheme (4,571) (4,818) (3,313)
Related deferred
tax asset 1,371 1,445 994
______ ______ ______
Net pension liability (3,200) (3,373) (2,319)
______ ______ ______
Movement in deficit in scheme during the year
2004 2003
£000 £000
______ ______
Deficit in scheme at beginning of year (4,818) (3,313)
Current service cost (418) (452)
Contributions paid 468 469
Past service cost - -
Other finance cost (53) (53)
Actuarial gain/(loss) 250 (1,469)
______ ______
Deficit in the scheme at end of year (4,571) (4,818)
______ ______
If FRS 17 had been fully adopted in these financial statements the pension costs
for the defined benefit scheme would have been:
Analysis of other pension costs charged in arriving at operating profit
2004 2003
£000 £000
______ ______
Current service cost 418 452
Past service cost - -
______ ______
418 452
______ ______
As the scheme is closed to new members the current service cost will increase,
relative to pensionable payroll, as members of the scheme approach retirement.
Analysis of amounts included in other finance income/costs
2004 2003
£000 £000
______ ______
Expected return on pension scheme assets 753 585
Interest on pension scheme liabilities (806) (638)
______ ______
(53) (53)
______ ______
Analysis of amount recognised in statement of total recognised gains and losses
2004 2004 2003 2003
% £000 % £000
______ ______ ______ ______
Actuarial return less expected return on scheme assets 356 931
Percentage of year end scheme assets 3 9
Experience gains and losses arising on scheme liabilities - (681)
Percentage of present value of year end scheme liabilities - (5)
Changes in assumptions underlying the present value of scheme
liabilities (106) (1,719)
Percentage of present value of year end scheme liabilities 1 (12)
Actuarial gain/(loss) recognised in statement of total
recognised gains and losses 250 (1,469)
Percentage of present value of year end scheme liabilities 2 (10)
______ ______
23. Reconciliation of operating profit to net cash inflow from operating
activities
2004 2003
£000 £000
______ ______
Operating profit 1,556 1,095
Depreciation charge 3,371 3,157
Loss on disposal of assets 23 -
(Increase)/decrease in stocks (13) 75
Decrease/(increase) in debtors 136 (397)
Increase/(decrease) in creditors 188 (414)
______ ______
Net cash inflow from operating activities 5,261 3,516
______ ______
24. Analysis of changes in net (debt)/funds
At At
1 January Translation 31 December
2004 Cashflow differences 2004
£000 £000 £000 £000
______ ______ ______ ______
Cash at bank and in hand 212 85 1 298
Bank overdrafts (2,828) 2,833 (5) -
Obligations under finance leases (176) 119 - (57)
Bank loans (786) (1,149) 35 (1,900)
______ ______ ______ ______
(3,578) 1,888 31 (1,659)
______ ______ ______ ______
25. Statutory accounts
The financial information set out above does not constitute the company's
statutory accounts for the year ended 31 December 2004 or 2003 but is derived
from those accounts. Statutory accounts for 2003 have been delivered to the
Register of Companies, and those for 2004 will be delivered following the
Company's Annual General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not contain statements under Section 237
(2) or (3) of the Companies Act.
26. Reports and accounts
This statement is not being posted to shareholders. The Report and Accounts for
the year ended 31 December 2004 will be posted to shareholders by 31 March 2005.
Further copies will be available from the Company's Registered Office:
Zotefoams plc, 675 Mitcham Road, Croydon, CR9 3AL.
27. Annual General Meeting
The Annual General Meeting will be held on 28 April 2005, at the Company's
Registered Office as above.
This information is provided by RNS
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