TIDMZTF
RNS Number : 3677C
Zotefoams PLC
12 April 2017
Zotefoams plc
2016 Annual Report and Notice of the 2017 Annual General
Meeting
In compliance with Listing Rule 9.6.1, the following documents
have been submitted to the National Storage Mechanism and will
shortly be available for inspection at:
http://www.morningstar.co.uk/uk/NSM
1 Annual Report for the year ended 31 December 2016,
incorporating the Notice of the 2017 Annual General Meeting;
and
2 Form of Proxy for the 2017 Annual General Meeting.
Copies of the 2016 Annual Report and the Notice of the 2017
Annual General Meeting are available on our website at:
http://www.zotefoams.com/investors/annual-interim-reports/
http://www.zotefoams.com/investors/agm/
A condensed set of the financial statements, the Chairman's
statement and Strategic report in respect of the Annual Report were
included in the unaudited preliminary results announcement issued
on 14 March 2017, which may be found at:
http://www.zotefoams.com/wp-content/uploads/2017/03/Zotefoams-Prelim-Statement-14.03.17.pdf
This announcement contains additional information for the
purposes of compliance with the Disclosure and Transparency Rules,
including the statement of Directors' responsibilities in respect
of the Annual Report, principal risks and uncertainties and details
of related party transactions. This information is extracted from
the 2016 Annual Report in full unedited text. This announcement is
not a substitute for reading the full Annual Report. Page and note
references in the text below refer to page numbers and notes in the
2016 Annual Report.
Statement of Directors' responsibilities in respect of the
Annual Report
The Directors are responsible for preparing the Annual Report,
the Directors' remuneration report and the financial statements in
accordance with applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group and Parent Company financial statements in
accordance with International Financial Reporting Standards
('IFRSs') as adopted by the European Union. Under company law the
Directors must not approve the financial statements unless they are
satisfied that they give a true and fair view of the state of
affairs of the Group and the Company and of the profit or loss of
the Group for that period. In preparing these financial statements,
the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and accounting estimates that are reasonable and prudent;
-- state whether applicable IFRSs as adopted by the European
Union have been followed, subject to any material departures
disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors consider the Annual Report, taken as a whole, to
be fair, balanced and understandable and provides the information
necessary for shareholders to assess the Group's performance,
business model and strategy.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company's
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them to
ensure that the financial statements and the Directors'
remuneration report comply with the Companies Act 2006 and, as
regards the Group financial statements, Article 4 of the
Regulation. They are also responsible for safeguarding the assets
of the Company and the Group and hence for taking reasonable steps
for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity
of the Company's website. Legislation in the United Kingdom
governing the preparation and dissemination of financial statements
may differ from legislation in other jurisdictions. Each of the
Directors, whose names and functions are listed on pages 32 and 33
of the Annual Report, confirms that, to the best of their
knowledge:
-- the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and fair
view of the assets, liabilities, financial position and profit of
the Group; and
-- the Strategic Report, beginning on page 1 of the Annual
Report, includes a fair review of the development and performance
of the business and the position of the Group, together with a
description of the principal risks and uncertainties that it
faces.
By order of the Board
G C McGrath
Finance Director
Principal risks and uncertainties
The Board of Directors believes that the principal risks and
uncertainties that the Group currently faces are as stated below.
Regular risk reviews are undertaken to ensure that the major risks
in the business that could affect the Group's operations and
financial performance have been identified and that, where
possible, mitigating actions and controls are put in place.
Significant risks are reviewed by the Board and the Audit
Committee. It is not possible to identify every risk that could
affect the Group's business, and the mitigating actions and
controls that have been put in place may not provide absolute
assurance that the risk will neither occur nor materially affect
the Group's operations or financial performance.
Key to Links to the Strategy:
1 Grow: Grow sales in the Polyolefin business
2 Develop: Develop a HPP portfolio and MEL customer base to deliver enhanced margins
3 Profit: Increase our profit margins
4 Improve: Improve our return on capital employed
Risk and potential Mitigation actions
impact
-------------------------------- ------------------------------------------------------------
Operational The Group has extensive
Trend: -> SHE policies and procedures
Link to strategy: 1, in place, which are
2, 3, 4 in line with best practice.
In the UK the Company
As the Group's operations is certified to accredited
are currently mainly standards OHSAS 18001
on one site, a significant on Health and Safety
operational disruption and ISO 14001, the
or Safety, Health and International Standard
Environmental ('SHE') for Environment Management
incident could impact Systems.
the Group's ability
to manufacture and Regular training is
supply products. This provided on SHE matters
could have sizeable to the staff.
financial and commercial
consequences including, Pressure equipment
in certain defined used is operated under
circumstances, customer the Pressure Systems
claims. It could also Safety Regulations
generate reputational 2000 and is subject
risk. to systematic internal
and frequent external
inspections in accordance
with the Safety Assessment
Federation.
The Group has extensive
fire prevention systems
in place and also has
appropriate contingency
plans in place in the
event of the failure
of certain major pieces
of equipment.
Reporting of incidents,
including near misses
and damage to plant
or equipment not resulting
in personal injury,
is mandatory in order
to track issues and
to prevent reoccurrences.
Insurance is in place
to cover capital restatement
and loss of profits
in the event of operational
disruption caused by
certain events.
The Group is investing
in its Kentucky, USA,
site which, when completed,
will give multi-site
capability, subject
to capacity, on many
polyolefin products.
-------------------------------- ------------------------------------------------------------
Operational The extension of our
Trend: -> facilities in Kentucky
Link to strategy: 1, is replicating, where
3, 4 appropriate, machinery
and processes already
The Group is extending in operation in the
its operations in Kentucky UK. Existing managerial
to cover the full block and engineering support
foam manufacturing in North America is
process. This is a being supplemented
significant capital by external project
project, which is reliant expertise and resource
on some specialist from the Group's Croydon
suppliers and needs operations. Alternative
to be managed to time suppliers were considered.
and budget. Raw materials will
be trialled in the
UK first to reduce
the commissioning risk.
-------------------------------- ------------------------------------------------------------
Supply chain Wherever possible,
Trend: -> supplies are sourced
Link to strategy: 1, from more than one
2, 3, 4 supplier or location.
However, this is not
Certain of the Group's always possible due
raw materials and engineering to the special nature
components are sourced of the raw materials
from single suppliers. and machinery used.
Disruption in those
supplies, either on The Group continually
a temporary or more monitors suppliers
permanent basis, could and is investing significantly
affect production and in the search for,
supply to the Group's and testing and approval
customers and, in certain of, alternative suppliers
defined circumstances, of critical materials.
have contractual commercial
consequences which
may result in customer
claims.
-------------------------------- ------------------------------------------------------------
Technology There are high barriers
Trend: -> of entry to the market.
Link to strategy: 1, Significant capital
2, 3, 4 investment is required
for the autoclaves
The Group's processes and related infrastructure.
for the manufacture
of its products are The Group actively
substantially unique maintains its intellectual
to the Group. Whilst property. It patents
the principles behind its technology wherever
the processes are not it believes it is appropriate
confidential, the precise to do so. Where technology
know-how is. A competitor is not subject to patent,
could match or improve patents are no longer
upon the properties applicable or the technology
and economics of the is incapable of being
Group's products. patented, the Group
guards its know-how.
Key to the success
of the business of The Group reduces its
MuCell Extrusion LLC technology risk by
('MEL') is the strength entering into new markets.
of its intellectual For example, the development
property and, on the of High-Performance
back of that, its ability Products ('HPP') and
to grant commercial MEL, where the product
licences. The risks offerings are unique
to MEL are that its and protected by patents
intellectual property and/or process know-how
becomes dated or its and capability, opens
patents expire or are up new markets for
successfully challenged. the Group with potential
significant and lasting
differential advantages.
MEL actively maintains
and updates its intellectual
property portfolio.
This is done by undertaking
research and development
to add new patents
to the portfolio, further
developing its know-how
and obtaining licences
of key third-party
patents which are complementary
to the existing portfolio.
MEL licences typically
include a bundle of
patents and know-how
and therefore are not
completely dependent
on any particular patent.
-------------------------------- ------------------------------------------------------------
Pension To minimise the risk
Trend: to the Company of meeting
Link to strategy: 2, the obligations under
4 the Scheme, the Company
took action to close
The Company has a defined the Scheme to new members
benefit pension scheme in 2001 and closed
('the Scheme') and it to future accrual
any inability of the of benefits in 2005.
Scheme to meet its The Company is following
liabilities to its the development of
members could, ultimately, case law around the
be the responsibility effective closure of
of the Company. defined benefit schemes.
The Company will continuously
There have in recent work together with
times been a number the Trustees to undertake
of legal cases challenging de-risking activities
the validity of previously to the Scheme, where
closed defined benefit feasible.
schemes, but as yet
no clear case law. The next triennial
actuarial valuation
of the Scheme is at
5 April 2017. As a
recovery plan for the
Scheme for the previous
valuation (5 April
2014), the Company
agreed to make a contribution
to the Scheme of GBP41,000
per month until April
2020 to reduce the
deficit.
-------------------------------- ------------------------------------------------------------
Foreign exchange The Group reduces its
Trend: foreign exposure for
Link to strategy: 1, transactional items
3, 4 by making purchases
either in euros or
The Group has significant US dollars. For example,
exposure to foreign there are US dollar
exchange fluctuations. costs associated with
This is both transactional the Group's operations
and on the translation in Kentucky, USA, and
of foreign currency with MEL. In addition,
balances and the consolidation the majority of the
of its foreign subsidiaries. Group's raw materials
are purchased in euros
The Group's operations and US dollars.
are substantially based
in the UK and, therefore, The Group is nearing
most of its manufacturing completion of its significant
assets and costs are capital investment
sterling denominated. in North America, which
will reduce net exposure
The Group's customers for transactional items
are normally invoiced on the US dollar by
in their local currencies. increasing the cost
In 2016, approximately base in the USA, with
80% of the Group's local labour and raw
revenue was in currencies material procurement.
other than sterling.
The Group, therefore, The Group has a hedging
generates surpluses policy, which is approved
in US dollars and euros, by the Board. The Group
which are converted hedges a proportion
into sterling. of its exposure for
transactional items
to foreign exchange
by using forward exchange
contracts.
The Group, like most
public companies, does
not hedge for the translation
of its foreign subsidiaries'
assets or liabilities
in the consolidation
of its Group accounts.
-------------------------------- ------------------------------------------------------------
Macro economics Some of the Group's
Trend: -> markets can be cyclical.
Link to strategy: 1, However, this risk
2, 3, 4 is spread geographically
and across a number
Our markets are exposed of segments, which
to general economic are expected to diversify
and political changes, further with the growth
such as Brexit, which of HPP and MEL. The
may impact the Group's Group is operationally
performance and ability geared and its experience
to meet its strategic is that, in challenging
objectives. circumstances, operational
labour costs can be
reduced, polymer prices
generally fall with
reduced economic demand
giving a cost benefit
and cash flow can be
improved from both
reducing working capital
as well as slowing
capital expenditure
projects to help offset
the effects of a downturn.
The Group targets appropriate
financial gearing to
give it flexibility
in a downturn.
The Group will monitor
developments of Brexit
and take appropriate
commercial action when
the situation becomes
clearer.
-------------------------------- ------------------------------------------------------------
Financing The Group has strong
Trend: -> cash generation from
Link to strategy: 1, its operations. In
2, 3, 4 2017 the Group is committed
to a number of capital
The Group needs to projects, the largest
have sufficient cash, of which is the remainder
or be able to draw of the US expansion
on loan facilities, programme amounting
to finance its operations to GBP8.4m.
and growth.
The Group has, at 31
December 2016:
* a ten-year, $8m fixed rate loan;
* GBP0.7m of a GBP3.5m loan outstanding;
* a four-year, GBP8m reducing credit facility ('RCF')
and a GBP2m overdraft facility; and
* since March 2017, the Group has increased the RCF by
GBP2m to GBP10m.
The loans and RCF facility
are secured against
certain Group assets
and are subject to
covenants as described
in note 21 of the Annual
Report.
When considering investment
projects the Group
has regard to its ability
to raise finance for
the project and will
not commit to a project
until acceptable and
appropriate finance
is in place, or believed
to be available.
-------------------------------- ------------------------------------------------------------
Commercial The Group's largest
Trend: -> customers are distributors
Link to strategy: 1, and converters of foam.
3, 4 The Group has good
knowledge of the end-customers
Loss, insolvency or of its major customers
divergence of interest and, with some additional
with a major customer. short-term work, would
be able to bring or
identify additional
converter capacity,
supply routes or channel
partners to service
these markets.
-------------------------------- ------------------------------------------------------------
People The Group keeps under
Trend: review its skill needs
Link to strategy: 1, and labour requirements.
2, 3, 4 The Group aims to provide
its employees with
The failure to attract, varied and interesting
develop or retain the work and to incentivise
right calibre of staff them appropriately.
to deliver growing
opportunities by product The Group has a Global
and geographic reach. Talent Manager, whose
remit is to ensure
The impact of Brexit senior and emerging
on the Group's ability talent is appropriate
to retain mainland for the Group's current
European nationals. and future needs.
The Group is following
the developments of
the UK's European Union
exit negotiations closely
and addressing its
consequences on people.
-------------------------------- ------------------------------------------------------------
Related parties
Directors
The Directors of the Company as at 31 December 2016 and their
immediate relatives control approximately 1.06% (2015: 1.9%) of the
voting shares of the Company. Details of Directors' pay and
remuneration are given in the remuneration report on pages 40 to
61. Executive Directors are considered to be the only key
management personnel.
Transactions with key management personnel:
The compensation of key management personnel is as follows:
Group Company
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
Key management emoluments 656 505 656 505
Company contributions to money purchase pension plan 70 73
70
73
Share related awards 134 140 134 140
860 718 860 718
Subsidiaries
Details of the subsidiaries of the Company are set out in note
13. These companies are considered to be related parties.
In addition the Company has a 50% interest in associate
companies Azote Asia Limited (incorporated in Hong Kong) and Inoac
Zotefoams Korea Limited (incorporated in South Korea).
Common control exists between the Company and Zotefoams
Employees' Benefit Trust ('EBT') and Zotefoams EBT has therefore
been consolidated as described in note 1b.
Zotefoams Inc. owns 100% of the ownership units of MuCell
Extrusion LLC and Zotefoams Midwest LLC, which are incorporated in
the USA.
KZ Trading and Investment Limited owns 100% of the ownership
units of Kunshan ZOTEK King Lai Limited, which is incorporated
China.
Balances between the Company and its active subsidiaries and
associates are as follows:
Receivables owed by/(to) Investments in
2016 2015 2016 2015
GBP000 GBP000 GBP000 GBP000
Zotefoams Inc 10,000 4,747 - -
KZ Trading and Investment Ltd 231 125 - -
Azote Asia Limited 2,391 1,817 - -
MuCell Extrusion LLC (69) (67) - -
Zotefoams International Limited 339 - 13,460 13,265
In addition, there is a net payable balance of GBP4,192,000
(2015: GBP2,166,000) owed by MuCell Extrusion LLC to Zotefoams
Inc.
Enquiries:
James Kindell
Company Secretary
Zotefoams plc
12 April 2017
020 8664 1600
About Zotefoams plc:
Zotefoams plc (LSE - ZTF) is a world leader in cellular
materials technology. Using a unique manufacturing process with
environmentally friendly nitrogen expansion, Zotefoams produces and
sells lightweight AZOTE(R) polyolefin and ZOTEK(R) high-performance
foams for diverse markets worldwide. Zotefoams uses its own
cellular materials to manufacture T-FIT(R) advanced insulation for
demanding industrial markets. In addition, Zotefoams owns and
licenses patented MuCell(R) microcellular foam technology,
developed specifically for extrusion applications, from a base in
Massachusetts, USA to customers worldwide.
Zotefoams is headquartered in Croydon, UK, with additional
manufacturing sites in Kentucky and Oklahoma, USA (foam products
manufacture and conversion), Massachusetts, USA (MuCell Extrusion)
and Jiangsu Province, China (T-FIT(R)).
www.zotefoams.com
AZOTE(R), ZOTEK(R), T-FIT(R) are registered trademarks of
Zotefoams plc
MuCell(R) is a registered trademark of Trexel Inc.
This information is provided by RNS
The company news service from the London Stock Exchange
END
MSCOKBDNQBKDKQD
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