TIDMZTF
RNS Number : 5944H
Zotefoams PLC
17 March 2015
Tuesday 17 March 2015
Zotefoams plc
Preliminary Results for the Twelve Months Ended 31 December
2014
Zotefoams plc ("Zotefoams", or "the Group" or "the Company"), a
world leader in cellular material technology, today announces its
preliminary results for the twelve months ended 31 December
2014.
Highlights
In Constant FX(1) :
-- Total Revenue(2) increased by 15%
-- High-Performance Products ('HPP') revenue growth of 61%
-- Profit before tax and exceptional items up 43%
Other:
-- HPP segment margins increase to 15% (2013: 6%)
-- MuCell Extrusion LLC ('MEL') installed equipment base
increases by 62% to 52 units (2013: 32)
-- Successful share placing in September 2014 raising GBP8.8m
gross to deliver global capacity expansion based at Group's
Kentucky, USA site
-- Proposed final dividend increased by 3% to 3.7 pence (2013: 3.6p)
Financial highlights
Twelve Twelve Change Change
months months in Constant
ended 31 ended 31 FX(1)
December December
2014 2013
GBPm GBPm % %
Total Revenue(2) 49.08 44.63 10 15
Group Revenue 48.95 44.63 10 15
Adjusted profit(3) before
tax excluding exceptional(4)
items 5.60 4.18 34 40
Profit before tax excluding
exceptional items 5.27 3.86 37 43
Profit before tax 4.01 3.86 4 10
Basic eps excluding exceptional
items (p) 10.7 8.0 34
Basic eps (p) 8.2 8.0 3
Proposed final dividend (p) 3.7 3.6 3
Commenting on the results, Nigel Howard, Chairman said:
"We entered 2015 with a larger than normal order backlog and a
strong forward order book. In Polyolefin foams demand in Europe and
North America has remained robust in the first two months of 2015
and we are also experiencing increasing levels of activity in Asia.
Following very strong levels of growth in HPP and in our MEL
licensing business we expect further progress in 2015.
While being mindful of currency and economic conditions, the
Board anticipates 2015 being another year of growth and remains
confident about the long-term prospects for our business."
Notes
(1) Estimated impact of restating 2014 at 2013 average foreign
currency exchange rates, including the restatement of gains/losses
on maturing forward exchange hedges in the period at 2013 average
rates which reduces the profit impact by GBP0.59m. Balance sheet
foreign exchange translation differences have not been
restated.
(2) Total Revenue consolidates all external sales made by the
joint-ventures as well as those made by Zotefoams plc and its
subsidiaries.
(3) Before amortisation of acquired intangible assets.
(4) The non-cash impairment charge made following the decision
to curtail manufacturing activity on the microZOTE(R) extrusion
line has been treated as an exceptional item.
Enquiries:
Zotefoams plc Tel Today: 0203-727-1000
David Stirling, Managing Director Thereafter: 0208-664-1600
Clifford Hurst, Finance Director
FTI Consulting 0203-727-1000
Victoria Foster Mitchell/Simon
Conway
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular material
technology. Using a unique manufacturing process with
environmentally friendly nitrogen expansion, Zotefoams produces
lightweight foams in Croydon, UK and Kentucky, USA for diverse
markets worldwide through its global sales force. Zotefoams also
owns and licenses patented MuCell(R) microcellular foam technology
from a base in Massachusetts, USA to customers worldwide and sells
T-Tubes(R) advanced insulation systems made from its patented
ZOTEK(R) fluoropolymer foams.
www.zotefoams.com
AZOTE (R), ZOTEK(R) and microZOTE(R) are registered trademarks
of Zotefoams plc. MuCell(R) is a registered trademark of Trexel
Inc. T-Tubes(R) is a registered trademark of UFP Technologies
Inc.
Chairman's Statement
Results
Total Revenue increased by 10% to a record GBP49.08m (2013:
GBP44.63m) while profit before tax and exceptional items increased
by 37% to GBP5.27m (2013: GBP3.86m). Basic earnings per share
pre-exceptional items grew by 34% to 10.7p (2013: 8.0p).
Group Revenue increased by 10% to GBP48.95m (2013: GBP44.63m).
The non-cash impairment charge of GBP1.27m made following the
decision to curtail manufacturing activity on the microZOTE(R)
extrusion line, announced in June 2014, has been treated as an
exceptional item. Profit before tax after this exceptional item was
GBP4.01m (2013: GBP3.86m). After exceptional items basic earnings
per share were 8.2p (2013: 8.0p).
Sales in our High-Performance Products ('HPP') segment now
account for 13% (2013: 10%) of Total Revenue and increased by 53%
to GBP6.61m (2013: GBP4.31m) while MuCell Extrusion LLC ('MEL')
sales grew 34% to GBP2.09m (2013: GBP1.56m). Polyolefin foams,
accounting for 82% (2013: 87%) of Total Revenue and sold under the
Azote(R) brand, remains the largest segment of our business and
here Total Revenue increased by 4% to GBP40.44m (2013: GBP38.83m).
Polyolefin foams Group Revenue increased by 4% to GBP40.30m (2013:
GBP38.83m).
Zotefoams has approximately 80% of sales denominated in US
Dollars and euros, both of which were relatively weaker against
sterling in 2014 than in 2013. In Constant FX sales growth was
approximately 15% and profit before tax and exceptional items
increased by 43%.
Strategy
Zotefoams' strategy is to expand through a combination of
profitable organic growth of our Polyolefin and HPP businesses, new
customers for our MEL technology licensing business, and through
partnerships or acquisitions in related technologies, products or
markets.
Objectives
We target sales growth in our core Polyolefin business in excess
of twice the average rate of increase in GDP. Our largest markets
are Europe and North America, served by factories in Croydon, UK
and Kentucky, USA. Outside these regions our largest market is in
Asia and in mid-2013 we signed a joint-venture agreement with INOAC
Corporation of Japan to develop the Asian market. We are also
committed to developing a portfolio of unique foam products from
high performance polymers with significant competitive advantages
over rival materials. This will allow us to command higher margins
and affirm our position as a leading foam technology company. We
intend to achieve this growth while continuing to improve our
operating margins and return on capital employed.
Share placing and investment
In September 2014 Zotefoams raised gross proceeds of GBP8.8m
from a placing of 9.99% of the existing issued share capital. The
purpose was to finance investment in our Walton, Kentucky, USA
factory to deliver a significant increase in global capacity to
support future growth. The investment will comprise a high-pressure
autoclave along with supporting extrusion capacity and related
infrastructure. The programme is proceeding to plan with the 285
tonne ingot for the high-pressure autoclave already forged and
ground breaking for the factory building extension scheduled early
in April.
At our site in Croydon, we increased factory space by
approximately 13% which gives us the flexibility to accommodate
planned growth in our HPP business as well as extended technical
support facilities. Further extrusion capacity for Polyolefin foams
was completed in 2014 and commissioned early in 2015 and
high-specification foam slicing equipment, suitable for both our
Azote(R) and ZOTEK(R) product ranges, installed in our new factory
in late 2014.
Talent
Zotefoams' business relies on the skills, effort and dedication
of our people and, on behalf of the Board, I would like to extend
my thanks to each and every one of them. We recognise that talent
management is key to delivery of the opportunities created by our
product portfolio and are increasing our investments in people,
training and development to meet our ambitious goals.
Dividend
In 2010 the Board adopted a progressive dividend policy subject
to profit growth, investment requirements and the other needs of
the business. I am pleased to say we intend to retain this policy
and therefore, based on our expectations for the future, the Board
proposes to increase its final dividend to 3.7p per ordinary share
(2013: 3.6p), which, if approved by the shareholders, would make a
total of 5.45p per ordinary share for the year (2013: 5.3p), an
increase of 3%. If approved, the dividend will be paid on 27 May
2015 to shareholders on the register on 24 April 2015.
Current trading and prospects
We entered 2015 with a larger than normal order backlog and a
strong forward order book. In Polyolefin foams demand in Europe and
North America has remained robust in the first two months of 2015
and we are also experiencing increasing levels of activity in Asia.
Following very strong levels of growth in HPP and in our MEL
licensing business we expect further progress in 2015, with clear
indications of increased demand from existing customers and markets
along with good development opportunities in new areas. The
joint-venture in China with King Lai Group, announced earlier this
month, is expected to make a positive contribution to revenue
growth rates later in the year. As a net exporter we are exposed to
movements in foreign exchange rates. Sterling is currently much
stronger against the euro than the average rates experienced last
year, but this is counteracted by sterling's current weakness
against the US Dollar. The euro-denominated price of LDPE, our
major raw material, is currently at slightly lower levels than seen
in 2014 and these levels offer some limited benefit.
Outlook
The wide scope of Zotefoams' business means we are influenced by
global economic conditions. In addition, the timing of sales from
new products and markets, where higher growth rates are
anticipated, can be somewhat difficult to predict. While being
mindful of currency and economic conditions, the Board anticipates
2015 being another year of growth and remains confident about the
long-term prospects for our business.
Nigel Howard
Managing Director's Statement
Zotefoams is the world leader in cellular materials technology.
Using a unique manufacturing process with environmentally friendly
nitrogen-gas expansion, Zotefoams produces lightweight foams in
Croydon, UK and Kentucky, USA which it then sells through its
global sales force to diverse markets worldwide. Zotefoams also
owns and licenses patented MuCell(R) microcellular foams technology
from a base in Massachusetts, USA to customers worldwide and sells
T-Tubes(R) advanced insulation systems made from its patented
ZOTEK(R) fluoropolymer foams.
Business overview
Zotefoams' foams business is a value-added processor of
plastics, using unique, high-pressure nitrogen gas technology to
manufacture blocks of foam, which are then sold through a global
network of customers who process those foams into parts for a wide
variety of industries. We compete primarily through the superior
foam properties created by our technology, offering reduced
environmental impact, better safety and technical performance. This
business has significant barriers to entry including capital cost,
know-how, user specifications and, in our HPP business, patents.
Zotefoams block foams are sold, and often specified, under the
AZOTE(R) and ZOTEK(R) brand names, which are well-known in the
industries we serve: automotive, aerospace, packaging, industrial
parts, marine, building and construction, military and sports and
leisure. Zotefoams also sells T-Tubes(R) speciality clean-room
insulation, manufactured from ZOTEK(R) foams, for pharmaceutical,
semiconductor and biotech facilities.
MuCell Extrusion LLC ('MEL') specialises in technology to reduce
the use of plastics consumption at the point of manufacture. Our
technology creates "microbubbles" in the centre of plastic parts by
injecting gas into them as they are manufactured. This creates a
foam core that can typically deliver a 15-20% savings in the use of
raw materials and reduces both environmental impact and cost. MEL
has significant Intellectual Property ('IP'), including both
know-how and patents, which is licensed to customers. MEL shares in
the customers' benefits by receiving a licence fee for IP and/or
royalty on parts made.
Results
Zotefoams manages and reports its business in three main
segments defined by product type: Polyolefin foams, HPP foams and
MEL.
Total Revenue increased by 10% to GBP49.08m (2013: GBP44.63m),
with growth in all three segments and in all major geographies.
Before exceptional items gross profit increased by 11% and, with
distribution and administration costs at similar levels to 2013,
operating profit margin pre-exceptional items increased from 9.3%
to 11.4% and operating profit pre-exceptional items by 34% to
GBP5.57m (2013: GBP4.16m) before exceptional items.
Group Revenue increased by 10% to GBP48.95m (2013: GBP44.63m).
After exceptional items operating profit increased from GBP4.16m to
GBP4.31m.
In Constant FX, sales growth of 61% in HPP and 40% in MEL were
the main drivers of an overall 15% increase in Total Revenue. Sales
volumes of polyolefin foams increased by 9%, recovering from
customer destocking in 2013 in Continental Europe, and delivering
good underlying growth in both UK and North America while volumes
in Asia were at a similar level to 2013.
HPP
2014 2013 % change % change
GBPm GBPm (reporting (Constant
currency) FX)
------------------- ------ ------ ------------ -----------
Total and
Group Revenue 6.61 4.31 53% 61%
------------------- ------ ------ ------------ -----------
Segment profit
pre-amortisation 1.02 0.27
------------------- ------ ------ ------------ -----------
Amortisation - -
of acquired
intangibles
------------------- ------ ------ ------------ -----------
Segment profit 1.02 0.27
------------------- ------ ------ ------------ -----------
Segment profit
margin 15% 6%
------------------- ------ ------ ------------ -----------
HPP sales grew by 61% in Constant FX and 53% in reporting
currency, consolidating and building on a 20% increase in 2013 and
a 51% increase in 2012. The HPP segment reported a segment profit
of GBP1.02m (2013 restated: GBP0.27m), with segment profit margins
increasing to 15% from 6% in 2013.
In HPP we delivered a near doubling of revenue from T-Tubes(R)
insulation products, combined with continued strong progress in
aviation and a variety of early stage developmental projects with
good future growth prospects. The main markets for insulation
products are in clean-rooms for pharmaceutical, biotech and
semiconductor manufacture in China, India and Asia. To support and
continue the progress of our insulation products business we have
signed a joint-venture with King Lai Group, one of our existing
customers, to manufacture insulation products from our ZOTEK(R)
high-performance foams in China. The new venture, based in Kunshan,
Jiangsu Province, China and a related holding and trading company
in Hong Kong, will be 51% owned by Zotefoams and 49% owned by King
Lai Group, with a capital contribution of $0.3m by Zotefoams. Sales
activity in China will be the direct responsibility of the
joint-venture using King Lai as an exclusive distributor while all
sales to customers outside China will be the responsibility of a
wholly owned Zotefoams' subsidiary branch based in Thailand.
Operations are expected to begin in the second half of 2015.
Within HPP the largest market is aviation, which is
strategically well-placed to grow both as a result of new
applications (increased content per aeroplane) and an increase in
the build rate of aeroplanes using our products. Our customers have
good application development pipelines and long aviation order
books at original equipment manufacturers (OEMs) are supporting our
growth trend which we expect to be augmented later in the cycle by
a demand for retrofit and replacement parts from airlines. In
addition the aviation interiors market, which is driven by airlines
and private jets, is becoming increasingly interesting with
applications in high-end seats, luxury retrofits and flooring all
benefitting from our patented ZOTEK(R) flouropolymer foams which
are lightweight, fire retardant and have low moisture uptake.
We continue to invest in our HPP products and sales development
and support, primarily with product line extensions of existing
materials, capitalising on our existing know-how and increasingly
strong market presence. Other HPP products, such as nylon, which
are currently less than 5% of segment sales, offer good medium-term
prospects from current projects in sports and leisure, automotive,
industrial and construction. Overall, the progress made in sales
and profitability over the past three years validates our strategic
approach to HPP and demonstrates the significant potential of this
segment.
MEL
2014 2013 % change % change
GBPm GBPm (reporting (Constant
currency) FX)
------------------- ------- ------- ------------ -----------
Total and
Group Revenue 2.09 1.56 34% 40%
------------------- ------- ------- ------------ -----------
Segment loss
pre-amortisation (0.10) (0.14)
------------------- ------- ------- ------------ -----------
Amortisation
of acquired
intangibles (0.30) (0.32)
------------------- ------- ------- ------------ -----------
Segment loss (0.41) (0.46)
------------------- ------- ------- ------------ -----------
Total Revenue increased 34% to GBP2.09m (2013: GBP1.56m)
representing a 40% growth in Constant FX. The segment result was a
loss (after amortisation costs associated with acquired intangible
assets) of GBP0.41m (2013: GBP0.46m), reflecting the investment
made in people and Intellectual Property ("IP") development in MEL.
Before amortisation costs on acquired intangible assets the loss
was GBP0.10m (2013: GBP0.14m).
MEL's business model is to develop and license IP and share in
the savings or benefits of the licensee through a royalty and/or
licence fee. The MuCell(R) extrusion technology is delivered
through a gas injection system which is sold to customers, often
with other associated equipment and engineering support, to
retrofit their existing extruders. Following product development
and end-user validation the customers will manufacture their
products using our technology and pay our licence fees and/or
royalties. MEL revenue therefore comes from two main sources:
initial set-up (engineering and equipment sales) and operation
(licence fees and/or royalties). MEL's IP comprises a significant
body of patents and know-how in gas injection methods and
apparatus, product performance, additives, operating systems, die
and screw design, etc.
The main target market for MEL is consumer packaging. Here
production volumes are large and developments are scalable across
geographic and product markets. Our approach is to demonstrate the
benefits of our technology with a limited number of partners in
selected markets and application types: plastic films, sheet and
blow moulded bottles, and achieve in-market validation. A highlight
of 2014 was Unilever's announcement that MuCell(R) technology would
be used in Dove body wash bottles in Europe and we estimate over 80
million units now have been manufactured using our technology, each
unit saving approximately 15% plastic content. Following such
validation the interest levels in our technology have dramatically
increased as a clear benefits statement is supported by a proven
delivery mechanism.
In addition to the consumer packaging market, MEL is active in a
variety of speciality applications. Many of these are subject to
client confidentiality agreements and are non-scalable and/or
exclusive to an individual company. Typically these licensees are
more resource intensive to develop, but can offer higher licensing
fees and technological insights which are beneficial in IP
development.
In 2014, Equipment and Engineering revenue ('E&E') increased
by 55% to $1.91m (2013: $1.21m), while Licence and Royalty revenue
('L&R') increased by 25% to $1.54m (2013: $1.23m). In MEL's
business E&E is a leading indicator of a future L&R stream,
with contracts often lasting over 10 years the annuity potential of
a new licensee can be significantly in excess of the initial
E&E. The ability to forecast L&R from E&E depends on a
number of factors: the application type (revenues from a large
sheet line can be five times larger than from a blow moulded bottle
line, while speciality lines can be substantially more and output
from a film line is somewhat lower than a sheet line), the speed of
development (some licensees are using our technology within months
while others take years for approval) and line utilisation (the
retrofit process allows production equipment to be dual
foam/non-foam use giving the licensee flexibility). We believe
that, as a leading indicator the E&E and installed equipment
base is the most useful metric and in 2014 the installed base,
excluding non-royalty bearing lines such as laboratories, increased
from 32 to 52 units of which 38 are in use.
Blow
2013 Film Moulding Sheet Speciality Total
------------- ----- ---------- ------ ----------- ------
Total Units 4 12 5 11 32
Unit in
Use 3 11 3 9 26
Blow
2014 Film Moulding Sheet Speciality Total
------------- ----- ---------- ------ ----------- ------
Total Units 8 19 14 11 52
Unit in
Use 4 17 8 9 38
Speciality applications currently represent two-thirds of
L&R and, although we continue to develop licences in this area,
the consumer packaging market is a higher priority, offering
greater revenue potential in both the short and medium term - MEL
now has 28 licensees operating in 23 countries, a validated
technology platform and a clear strategy for growth. Further
investment in IP development and people is planned to deliver on
the potential of this business over the coming years.
Polyolefin foams
2014 2013 % change % change
GBPm GBPm (reporting (Constant
currency) FX)
------------------- ------ ------ ------------ -----------
Total Revenue 40.44 38.83 4% 9%
------------------- ------ ------ ------------ -----------
Group Revenue 40.30 38.83 4% 8%
------------------- ------ ------ ------------ -----------
Segment profit
pre-amortisation 6.01 5.80 4%
------------------- ------ ------ ------------ -----------
Amortisation 0.02 -
of acquired
intangibles
------------------- ------ ------ ------------ -----------
Segment profit 5.99 5.80 3%
------------------- ------ ------ ------------ -----------
Segment profit
margin 15% 15%
------------------- ------ ------ ------------ -----------
Total Revenue in Polyolefin foams increased by 9% in Constant FX
with a 9% increase in volume as sales recovered from the customer
destocking experienced in 2013. However, volume growth was offset
by the effect of a stronger pound and Total Revenue in Polyolefin
foams increased by 4% to GBP40.44m (2013: GBP38.83m) and Group
Revenue by 4% to GBP40.30m (2013: GBP38.83m), delivering a segment
profit of GBP5.99m (2013 restated: GBP5.80m). Overall 2014 was a
year in which the Polyolefin segment performed below potential,
with a capacity constraint in the first half of the year and
administrative bottlenecks due to our new Enterprise Resource
Planning ('ERP') IT system that delayed shipments in the fourth
quarter. We estimate that delayed shipments reduced Total Revenue
by approximately GBP1.5m which if shipped in 2014 would have
delivered sales growth of 8%. Input costs were at similar levels to
2013, with the average euro price of our main raw material, LDPE,
being close to the average level as the previous year although
registering a slight downward trend within the period.
Polyolefin foams are sold through a network of converters
globally, being used in a huge variety of applications in markets
such as marine, automotive, sports, aviation, rail, construction,
consumer goods, military and packaging. Fundamental to Zotefoams'
success is our unique, high-pressure nitrogen gas processing of
extruded plastic sheets into foams. This process allows foams to be
as light as 98.5% air by volume and offers improved insulation and
cushioning protection, lower use of polymer and improved
environmental and safety performance in use. Our foams are also
very consistent, a result of the physical foaming process that uses
pure, inert gas rather than the environmentally contentious
chemical processes common in our industry. MicroZOTE(R) roll foams
are included in this business segment but, following the decision
taken in June 2014 to curtail development of this product in favour
of further investment in the speciality business of MEL, sales were
minimal and the write-down of assets treated as an exceptional
item.
Demand overall is driven by three main market trends: better use
of resources, safety improvements or other performance benefits.
Zotefoams makes foams that use less polymer for comparable
performance, lightweight foams for improved fuel efficiency or
better insulation properties, foams that cushion and protect from
impact or other damage (both people and objects in dynamic or
static situations) and foams with other performance benefits such
as flotation properties, electrically conductive materials and
foams where the colour match meets customer requirements.
Our Polyolefin foams business is global, currently operating
from facilities in UK and USA and selling to over 40 countries. We
manage the business in three major territory groups, which account
for 98% of sales. Sales in UK and Continental Europe account for
72% of our turnover and increased 14% in Constant FX. North
America, served from our satellite manufacturing facility in
Kentucky, represents 22% of our Polyolefin foams business and grew
by 5% in Constant FX, while Asia, where we operate a sales
joint-venture with our largest customer in that area, reported a
small decline in sales. We see all areas offering scope for further
sales growth in line with our stated objective of growing
Polyolefin Foams sales at twice the rate of global GDP and have
invested in and restructured our management teams in Europe and
Asia with the aim of delivering commercially and operationally on
the opportunities which exist.
Investment
Zotefoams' HPP and Polyolefin foams businesses are backed by
significant investment in plant and machinery as well as our
technical know-how and market position. To deliver on the potential
for our business globally we increased investment in plant,
machinery and a new IT system in 2013 and accelerated this
investment in 2014 with a decision to expand our Kentucky, USA
facility. Zotefoams ZOTEK(R) fluoropolymer foams and AZOTE(R)
polyolefin foams are manufactured in three main steps: extrusion of
a polymer sheet, high-pressure gassing with inert nitrogen gas and
final expansion. Our Croydon, UK factory employs all these
processes and supplies intermediate AZOTE(R) product for the final
expansion stage to our facility in Kentucky. Investment in
extrusion and gassing in Kentucky, at a cost estimated to be
US$22m, will deliver additional global capacity and shorten the
supply chain into the North American market. The programme is well
underway with orders placed for long lead-time items, including the
critical high-pressure autoclave.
In Croydon, investment in additional factory and office space is
expected to be substantially utilised from the third quarter of
this year. Further extrusion capacity for ZOTEK(R) fluoropolymer
and nylon foams is in progress with planned commissioning in 2016
and our new AZOTE(R) extruder is now operational, giving 17%
additional capacity in this area.
In October 2014 we implemented the first phase of a new fully
integrated IT system, Microsoft Dynamics AX, chosen to meet the
needs of our increasingly diverse business. Our previous system was
implemented in 2002 when Zotefoams was less than half its current
size and was not providing sufficient management information or
processes to support our current and future needs. The initial
implementation of the new system did not immediately deliver
sufficiently clear, detailed and accurate information from planning
through customer service and as a result our delivery performance
in the fourth quarter fell well short of expectations. While we are
confident that all substantive issues have been resolved we entered
2015 with a higher than anticipated order backlog which will take
some time to clear.
In Asia we have plans for investment in two manufacturing
joint-ventures. In early 2015 we invested $0.3m in China to begin
moulding of insulation products from our ZOTEK(R) fluoropolymer
foams in a joint-venture with King Lai Group, initially for
clean-room insulation where the largest market opportunities are
China and India. In AZOTE(R) foams we have an agreement with INOAC
Corporation in Japan for a 50:50 manufacturing joint-venture,
similar to our current expansion only facility in Kentucky, USA
which is supplied from Zotefoams plc in the UK. The trigger for
investment in this manufacturing facility, based on sales volumes,
has not yet been met and the final investment will be subject to
Board approval based on sales volumes and overall potential.
Our Research and Development ('R&D') in Croydon focuses on
variations of existing materials, particularly within the HPP
portfolio. We now offer a number of different densities and
formulations of our ZOTEK(R) fluoropolymer foams meeting the
specific requirements of certain applications, while our range of
nylon foams offers an even wider scope for development. As we are
active in end markets as diverse as automotive, sports,
construction and aviation it is important to tailor products and we
often find that developments aimed at one market open up
opportunities in other areas. In 2014, similar to previous years,
we spent approximately 2% of Group Revenue on R&D. All R&D
is expensed in the year incurred.
Strategy and objectives
Zotefoams' strategy is to expand through a combination of
profitable organic growth of our Polyolefin and HPP foams
businesses, new customers for our MEL technology licensing
business, and through partnerships or acquisitions in related
technologies, products or markets. Our stated objectives are:
-- Sales growth in our Polyolefin business to exceed twice the
average rate of global GDP growth.
-- Develop a HPP portfolio and MEL customer base to deliver enhanced margins.
-- Improve our operating margins.
-- Improve our return on capital employed.
Performance against these objectives was as follows:
-- Sales of Polyolefin foams increased by 4% in reporting currency and 9% in Constant FX.
-- HPP sales grew by 61% in Constant FX and 53% in reporting
currency. The HPP segment reported a segment profit of GBP1.02m
(2013 restated: GBP0.27m) with segment average profit margins
improving to 15%, reflecting higher margins in more established
products and lower or negative margins where we are investing for
future growth. MEL has grown its installed base of commercial
machines at customers to 52 units from 32 units in 2013, but is
still in early growth phase with the potential for enhanced margins
in the future, therefore we continue to invest in people and
intellectual property to deliver this future potential.
-- Group operating margins pre-exceptional items increased to 11.4% (2013: 9.3%).
-- Pre-tax return on average capital employed, excluding
exceptional items and acquired intangible assets and their
amortisation costs, increased to 14.7% (2013: 12.9%). Group
profitability is the main reason for the improvement in this
metric. Levels of capital employed will increase with the current
investment programme at our Croydon site from mid-2013 continuing
until the latter part of 2015 and the strategically significant
investment in our Kentucky, USA site planned to commission in the
third quarter of 2016. We expect the return on capital to reflect
this until the benefit of these investments can be realised.
Financial Results
Income Statement
Total Revenue increased by 10% to GBP49.08m (2013: GBP44.63m).
Total Revenue consolidates all external sales made by
joint-ventures as well as those made by Zotefoams and its
subsidiaries and therefore shows like-for-like sales growth. Group
Revenue, which excludes the mark-up on sales made by the Azote Asia
Limited joint-venture with Inoac, increased by 10% to GBP48.95m
from GBP44.63m in 2013. Gross margins pre-exceptional items
improved slightly at 26.2% (2013: 26.0%) with the operational
gearing benefit of the higher sales and growth in the higher gross
margin HPP business being offset by adverse foreign exchange rates.
In distribution and administrative expenses of GBP7.27m (2013:
GBP7.46m) there is a GBP0.31m gain from forward exchange hedging
contracts and foreign exchange translation (2013: GBP0.33m
loss).
The business segment results (note 2) have been restated.
Previously the HPP business result included direct costs and an
allocation of R&D and manufacturing overhead but not a share of
indirect administration costs. As the HPP business has grown
significantly in the period the result has been restated to better
reflect HPP's use of indirect resource. For 2013 the HPP segment
profit has been restated to GBP0.27m (previously reported
GBP0.42m). Central plc costs have also been excluded from the
business segments as these are non-business specific. In 2014
central costs were GBP1.34m (2013: GBP1.11m).
Profit before tax and exceptional items was GBP5.27m (2013:
GBP3.86m). As announced in June 2014, there was a non-cash
impairment charge of GBP1.27m made following the decision to
curtail manufacturing activity on the microZOTE(R) extrusion line
which has been treated as an exceptional item. Profit before tax
after this exceptional item was GBP4.01m (2013: GBP3.86m).
The effective tax charge is 17% (2013: 18%), which is less than
the UK corporation tax rate for the year of 21.5%. This is mainly
due to a reduction in the tax charge for prior years and research
and development and other tax allowances.
Earnings Per Share and Dividend
Group basic earnings per share pre-exceptional items were 10.7p
(2013: 8.0p) and post exceptional items were 8.2p (2013: 8.0p). The
Directors are recommending a 0.1p increase in the final dividend to
3.7p per share, which, subject to shareholder approval, would be
payable on 27 May 2015 to shareholders on the Company register at
the close of business on 24 April 2015. This would bring the total
dividend to 5.45p per ordinary share for the year (2013: 5.3p).
Cash Flow and Funding
Cash generated from operations was GBP5.98m (2013: GBP6.63m)
with a GBP2.48m (2013: GBP0.71m) increase in working capital mainly
reflecting the higher sales in the final quarter of 2014 compared
to 2013. Capital expenditure was GBP7.57m (2013: GBP4.21m) with the
main items of expenditure being on the new ERP system (treated as
an intangible asset), the factory extension in Croydon and the
initial stages of investment on the expansion of our Kentucky, USA
site. The costs of the Kentucky programme are estimated at $22m and
in September 2014 Zotefoams raised GBP8.45m net via a share placing
of 9.99% of its issued share capital to support this investment
with the remainder to be provided through debt and operational cash
flow across the anticipated two year capital programme. After tax
and dividend payments, the Group had net funds of GBP2.42m (2013:
net debt of GBP1.12m) at the end of the year. These net funds at 31
December 2014 consist of GBP4.63m cash less GBP2.21m secured
borrowings. The Group also has a GBP4.9m overdraft facility.
Pensions
The gross IAS19 deficit on the Company's Defined Benefit Pension
Scheme (the "Scheme") increased by GBP1.85m to GBP6.13m (2013:
GBP4.28m). This was primarily due to a fall in bond yields which
reduced the discount rate used to value the Scheme's liabilities,
partially offset by better than expected investment growth and the
Company's contributions to the Scheme.
The April 2014 triennial actuarial review and future funding
arrangements for the Scheme are currently under discussion between
the Company and the Trustees. In the meantime the Company is
continuing to pay GBP55,000 per month into the Scheme. The Company
closed the Scheme to new members in 2001 and future accrual of
benefit in 2005.
David Stirling
Managing Director
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 IAS
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 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 - Business Review 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.
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2014
Pre exceptional Exceptional Post
items items exceptional
(see Note items
3)
2014 2014 2014 2013
Note GBP000 GBP000 GBP000 GBP000
----- ---------------- ------------ ------------- ---------
Total
Revenue 2 49,081 - 49,081 44,634
Adjustment
for JV
sales (136) - (136) -
---------------- ----- ---------------- ------------ ------------- ---------
Group
Revenue 48,945 - 48,945 44,634
Cost of
sales (36,103) (1,265) (37,368) (33,015)
---------------- ----- ---------------- ------------ ------------- ---------
Gross
profit 12,842 (1,265) 11,577 11,619
Distribution
costs (3,442) - (3,442) (3,587)
Administrative
expenses (3,829) - (3,829) (3,868)
---------------- ----- ---------------- ------------ ------------- ---------
Operating
profit 5,571 (1,265) 4,306 4,164
Finance
income 4 2 - 2 7
Finance
costs 4 (235) - (235) (315)
Share
of loss
from JVs (64) - (64) -
Profit
before
tax 5,274 (1,265) 4,009 3,856
Taxation 5 (926) 253 (673) (695)
---------------- ----- ---------------- ------------ ------------- ---------
Profit
for the
year 4,348 (1,012) 3,336 3,161
---------------- ----- ---------------- ------------ ------------- ---------
Attributable
to:
Equity
holders
of
the parent 4,348 (1,012) 3,336 3,161
Earnings
per share
Basic
(p) 6 10.7 - 8.2 8.0
---------------- ----- ---------------- ------------ ------------- ---------
Diluted
(p) 6 10.5 - 8.1 7.9
---------------- ----- ---------------- ------------ ------------- ---------
CONSOLIDATED STATEMENT OF COMPREHSENSIVE INCOME
for the year ended 31 December 2014
2014 2013
GBP000 GBP000
----------------------------------------------------- -------- -------
Profit for the year 3,336 3,161
----------------------------------------------------- -------- -------
Other comprehensive income/(expense)
Items that will not be reclassified to profit
or loss
Foreign exchange translation gains/(losses) on
investment in foreign subsidiaries 669 (187)
Actuarial (losses)/gains on defined benefit schemes (2,334) 2,526
Tax relating to items that will not be reclassified 467 (505)
----------------------------------------------------- -------- -------
Total items that will not be reclassified to profit
or loss (1,198) 1,834
----------------------------------------------------- -------- -------
Items that may be classified subsequently to profit
or loss
Effective portion of changes in fair value of
cash flow hedges net of recycling (394) 283
Tax relating to items that may be reclassified 79 (57)
----------------------------------------------------- -------- -------
Total items that may be classified subsequently
to profit or loss (315) 226
----------------------------------------------------- -------- -------
Other comprehensive (expense)/income for the year,
net of tax (1,513) 2,060
----------------------------------------------------- -------- -------
Total comprehensive income for the year 1,823 5,221
----------------------------------------------------- -------- -------
Attributable to equity holders of the parent 1,823 5,221
----------------------------------------------------- -------- -------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
for the year ended 31 December 2014
2014 2013
Note GBP000 GBP000
----------------------------------------- ----- --------- ---------
Non--current assets
Property, plant and equipment 28,561 27,333
Investments in joint-ventures 174 -
Intangible assets 6,851 4,916
Deferred tax assets 502 477
----------------------------------------- ----- --------- ---------
Total non--current assets 36,088 32,726
----------------------------------------- ----- --------- ---------
Current assets
Inventories 9,218 8,019
Trade and other receivables 13,437 10,991
Cash and cash equivalents 4,628 1,957
----------------------------------------- ----- --------- ---------
Total current assets 27,283 20,967
----------------------------------------- ----- --------- ---------
Total assets 63,371 53,693
----------------------------------------- ----- --------- ---------
Current liabilities
Interest--bearing loans and borrowings (718) (865)
Tax payable (385) (506)
Trade and other payables (6,715) (5,557)
----------------------------------------- ----- --------- ---------
Total current liabilities (7,818) (6,928)
----------------------------------------- ----- --------- ---------
Non--current liabilities
Interest--bearing loans and borrowings (1,489) (2,207)
Employee benefits 7 (6,132) (4,280)
Deferred tax liabilities (698) (1,264)
----------------------------------------- ----- --------- ---------
Total non--current liabilities (8,319) (7,751)
----------------------------------------- ----- --------- ---------
Total liabilities (16,137) (14,679)
----------------------------------------- ----- --------- ---------
Total net assets 47,234 39,014
----------------------------------------- ----- --------- ---------
Equity
Issued share capital 2,191 1,992
Own shares held (17) (21)
Share premium 24,340 16,090
Capital redemption reserve 15 15
Translation reserve 827 158
Hedging reserve (149) 245
Retained earnings 20,027 20,535
----------------------------------------- ----- --------- ---------
Total equity attributable to the equity
holders of the Parent 47,234 39,014
----------------------------------------- ----- --------- ---------
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2014
2014 2013
Note GBP000 GBP000
----------------------------------------------------------- -------- --------
Cash flows from operating activities
Profit for the year 3,336 3,161
Adjustments for:
Depreciation, amortisation and impairment 4,669 3,609
Finance income (2) (7)
Finance costs 235 315
Loss from joint-ventures 64 -
Equity--settled share--based payments 138 232
Taxation 673 695
------------------------------------------------------------ -------- --------
Operating profit before changes in working
capital and provisions 9,113 8,005
(Increase)/decrease in trade and other receivables (2,398) 763
Increase in inventories (1,249) (1,430)
Increase/(decrease) in trade and other payables 1,171 (45)
Employee benefit contributions (660) (660)
------------------------------------------------------------ -------- --------
Cash generated from operations 5,977 6,633
Interest paid (55) (24)
Tax paid (868) (1,013)
------------------------------------------------------------ -------- --------
Net cash from operating activities 5,054 5,596
------------------------------------------------------------ -------- --------
Interest received 2 7
Investment in joint-ventures (238) -
Acquisition of intangibles (1,606) (71)
Acquisition of property, plant and equipment (5,967) (4,141)
Net cash used in investing activities (7,809) (4,205)
------------------------------------------------------------ -------- --------
Proceeds from issue of share capital 8,453 153
Repurchase of own shares (19) (113)
Repayment of borrowings (865) (1,340)
New loans taken out - 90
Dividends paid (2,112) (2,048)
------------------------------------------------------------ -------- --------
Net cash generated/(used) in financing activities 5,457 (3,258)
------------------------------------------------------------ -------- --------
Net increase/(decrease) in cash and cash
equivalents 2,702 (1,867)
Cash and cash equivalents at 1 January 1,957 3,698
Effect of exchange rate fluctuations on
cash held (31) 126
------------------------------------------------------------ -------- --------
Cash and cash equivalents at 31 December 4,628 1,957
------------------------------------------------------------ -------- --------
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2014
Own Capital
Share shares Share redemption Translation Hedging Retained Total
capital held premium reserve reserve reserve earnings equity
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Balance at
1 January
2013 1,992 (36) 16,090 15 345 (38) 17,322 35,690
Foreign exchange
translation
losses on
investment
in foreign
subsidiaries - - - - (187) - - (187)
Effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - 283 - 283
Tax relating
to effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - - (57) (57)
Actuarial
gains on defined
benefit scheme - - - - - - 2,526 2,526
Tax relating
to actuarial
gains on defined
benefit scheme - - - - - - (505) (505)
Profit for
the year - - - - - - 3,161 3,161
Total comprehensive
(expenditure)/income
for the year - - - - (187) 283 5,125 5,221
Transactions
with owners
of the Parent:
Shares issued - 18 - - - - 135 153
Shares acquired - (3) - - - - (110) (113)
Equity--settled
share-based
payments net
of tax - - - - - - 111 111
Dividends
paid 8 - - - - - - (2,048) (2,048)
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Total transactions
with owners
of the Parent - 15 - - - - (1,912) (1,897)
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Balance at
31 December
2013 and 1
January 2014 1,992 (21) 16,090 15 158 245 20,535 39,014
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Foreign exchange
translation
gains on investment
in subsidiaries - - - - 669 - - 669
Effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - (394) - (394)
Tax relating
to effective
portion of
changes in
fair value
of cash flow
hedges net
of recycling - - - - - - 79 79
Actuarial
losses on
defined benefit
scheme - - - - - - (2,334) (2,334)
Tax relating
to actuarial
losses on
defined benefit
scheme - - - - - - 467 467
Profit for
the year - - - - - - 3,336 3,336
Total comprehensive
income/(expenditure)
for the year - - - - 669 (394) 1,548 1,823
Transactions
with owners
of the Parent:
Shares issued 199 4 8,250 - - - - 8,453
Shares acquired - - - - - - (19) (19)
Equity--settled
share-based
payments net
of tax - - - - - - 75 75
Dividends
paid 8 - - - - - - (2,112) (2,112)
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Total transactions
with owners
of the Parent 199 4 8,250 - - - (2,056) 6,397
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
Balance at 2,191 (17) 24,340 15 827 (149) 20,027 47,234
31 December
2014
---------------------- ----- --------- ------- --------- ----------- ------------- --------- ---------- --------
1. Accounting policies
Zotefoams plc (the 'Company') is a Company incorporated in Great
Britain.
The Group financial statements consolidate those of the Company
and its subsidiaries (together referred to as the 'Group'). The
Parent Company financial statements present information about the
Company as a separate entity and not about its Group. The
consolidated financial statements of Zotefoams plc have been
prepared in accordance with International Financial Reporting
Standards (IFRS) as adopted by the European Union and IFRS
Interpretations Committee (IFRS IC) interpretations applicable to
companies reporting under IFRS.
The financial information does not constitute the Company's
statutory accounts, as defined in Sections 434 of the Companies Act
2006, for the year ended 31 December 2014 or 2013 but is derived
from those accounts which have been approved by the Board of
Directors. Statutory accounts for 2013 have been delivered to the
Registrar of Companies, and those for 2014 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 498 (2) of the Companies Act
2006.
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 Managing Director, David Stirling, who is
considered to be the 'chief operating decision maker' for the
purpose of evaluating segment performance and allocating
resources.
The Group manufactures and sells high--performance foams and
licenses related technology for specialist markets worldwide.
Zotefoams' activities are categorised as follows:
-- Polyolefins: these foams are made from olefinic homopolymer
and copolymer resin. The most common resin used is polyethylene.
Included in this segment are microZOTE(R) foams made using
polyolefin resins.
-- High--Performance Products ('HPP'): these foams exhibit
high--performance on certain key properties, such as improved
chemical, flammability or temperature performance, due to the
resins on which they are based. Turnover in the segment is
currently mainly derived from our ZOTEK(R) F foams and T-Tubes(R)
insulation both made from PVDF fluoropolymer. Other products either
commercially launched or being assessed in development include
foams made from polyamide (nylon) and Pebax(R) from Arkema.
-- MuCell Extrusion LLC ('MEL'): licenses microcellular foam
technology and sells related machinery.
Polyolefins HPP MEL Eliminations Consolidated
---------------------- ---------------------- -------------------- ------------------ --------------------
2014 2013 2014 2013 2014 2013 2014 2013 2014 2013
Restated Restated Restated Restated
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
Total Revenue 40,440 38,825 6,614 4,311 2,088 1,562 (61) (64) 49,081 44,634
Segment
profit/(loss)
pre-amortisation 6,008 5,798 1,022 269 (103) (138) - - 6,927 5,929
Amortisation
of acquired
intangible
assets (21) - - - (304) (320) - - (325) (320)
--------------------- --------- ----------- --------- ----------- --------- --------- ------- --------- --------- ---------
Segment
profit/(loss) 5,987 5,798 1,022 269 (407) (458) - - 6,602 5,609
Foreign
exchange
gains/(losses) - - - - - - - - 310 (334)
Unallocated
central
costs - - - - - - - - (1,341) (1,111)
--------------------- --------- ----------- --------- ----------- --------- --------- ------- --------- --------- ---------
Operating
profit - - - - - - - - 5,571 4,164
Net financing
costs - - - - - - - - (233) (308)
Share of - - - - - - - - (64) -
loss from
joint-
ventures
Taxation - - - - - - - - (926) (695)
--------- ---------
Profit
for the
year (pre
exceptional
items) 4,348 3,161
Segment
Assets 48,214 41,794 7,955 5,402 6,526 6,020 - - 62,695 53,216
Unallocated
assets - - - - - - - - 676 477
--------------------- --------- ----------- --------- ----------- --------- --------- ------- --------- --------- ---------
Total assets 63,371 53,693
Segment
liabilities (14,257) (11,639) (210) (998) (587) (272) - - (15,054) (12,909)
Unallocated
liabilities - - - - - - - - (1,083) (1,770)
--------------------- --------- ------- -------- ---------- -------- ---------- ---- ------------------ --------- ---------
Total liabilities (16,137) (14,679)
Depreciation
and impairment 4,155 3,114 151 138 38 37 - - 4,344 3,289
Amortisation 21 - - - 304 320 - - 325 320
Capital
expenditure:
Tangible
fixed assets 5,488 4,655 129 107 94 35 - - 5,711 4,797
Intangible
fixed assets 1,577 - - - 29 71 - - 1,606 71
--------------------- --------- ------- -------- ---------- -------- ---------- ---- ------------------ --------- ---------
Unallocated assets and liabilities are made up of corporation
tax and deferred tax assets and liabilities and investments in
joint-ventures.
Previously the HPP business result included direct costs and an
allocation of R&D and manufacturing overhead but not a share of
indirect administration costs. As the HPP business has grown
significantly in the period the result has been restated to better
reflect HPP's use of indirect resource. For 2013 the HPP segment
profit has been restated to GBP0.27m (previously reported
GBP0.42m). Central plc costs have also been excluded from the
business segments as these are non-business specific. In 2014
central costs were GBP1.34m (2013: GBP1.11m).
Geographical segments
Polyolefins, HPP and MEL are managed on a worldwide basis but
operate from UK and US 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 Rest
of the
Kingdom Europe North America world Total
GBP000 GBP000 GBP000 GBP000 GBP000
--------------------------------- --------- ------- -------------- -------- -------
For the year ended 31 December
2014
Revenue from external customers 10,465 20,381 14,277 3,958 49,081
Non-current assets 26,647 - 8,939 - 35,586
Capital expenditure 4,625 - 1,086 - 5,711
--------------------------------- --------- ------- -------------- -------- -------
For the year ended 31 December
2013
Revenue from external customers 9,479 18,680 12,569 3,906 44,634
Non-current assets 24,166 - 8,083 - 32,249
Capital expenditure 4,045 - 96 - 4,141
--------------------------------- --------- ------- -------------- -------- -------
Non-current assets do not include financial instruments,
deferred tax assets or post-employment assets.
Major customer
Revenues from one customer of the Group represents approximately
GBP5,127,000 (2013: GBP4,453,000) of the Group's total
revenues.
3. Exceptional Item
On 27 June 2014 the Company made the decision to curtail
manufacturing activity on its microZOTE(R) extrusion line within
its Polyolefin business segment. This has resulted in a non-cash
impairment charge as follows:
2014 2013
GBP000 GBP000
----------------------- -------- --------
Fixed asset impairment 1,175 -
Inventory impairment 90 -
----------------------- -------- --------
1,265 -
----------------------- -------- --------
4. Finance income and costs
Financial income
2014 2013
GBP000 GBP000
--------------------------- ------- -------
Interest on bank deposits 2 7
--------------------------- ------- -------
Finance costs
2014 2013
GBP000 GBP000
------------------------------------------------- ---------- ------- -------
On bank loans and overdrafts 57 21
Interest on defined benefit pension
obligation 178 294
------------------------------------------------- ---------- ------- -------
235 315
-------------------------------------------------------- ------- -------
5. Taxation
2014 2013
Note GBP000 GBP000
---------------------------------------- ----- ------- -------
UK corporation tax 859 776
Overseas taxation 44 6
Adjustment to prior year UK tax charge (154) (64)
---------------------------------------- ----- ------- -------
Current taxation 749 718
Deferred taxation 19 (76) (23)
---------------------------------------- ----- ------- -------
Total tax charge 673 695
---------------------------------------- ----- ------- -------
Factors affecting the tax charge
The tax charge for the year is lower (2013: lower) than the
standard rate of corporation tax in the UK of 21.5 % (2013:
23.25%). The differences are explained below:
2014 2013
GBP000 GBP000
--------------------------------------------------- ------- -------
Tax reconciliation
Profit before tax 4,009 3,856
--------------------------------------------------- ------- -------
Tax at 21.5% (2013: 23.25%) 862 897
Effects of:
Research and development tax credits and other
allowances less expenses not deductible for
tax purposes (61) (41)
Overseas earnings and effect of US tax losses 26 (16)
Change in deferred tax rate to 20% - (81)
Adjustments to prior year UK corporation tax
charge (154) (64)
Total tax charge 673 695
--------------------------------------------------- ------- -------
6. Dividends and earnings per share
2014 2013
GBP000 GBP000
-------------------------------------------------- ------- -------
Final dividend prior year of 3.60p (2012: 3.50p)
net per 5.0p ordinary share 1,421 1,378
Interim dividend of 1.75p (2013: 1.7p) net
per 5.0p ordinary share 691 670
-------------------------------------------------- ------- -------
Dividends paid during the year 2,112 2,048
-------------------------------------------------- ------- -------
The proposed final dividend for the year ended 31 December 2014
of 3.70p per share (2013: 3.60p) 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 GBP1,621,000 if paid to all the shares in issue.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing profit
after tax attributable to equity holders of the Parent Company of
GBP3,336,000 (2013: GBP3,161,000) by the weighted average number of
shares in issue during the year excluding own shares held by
employee trusts which are administered by independent trustees. The
number of shares held in the trust at 31 December 2014 was 340,611
(2013: 418,750). 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.
2014 2013
------------------------------------
Average number of ordinary
shares issued 40,664,440 39,330,596
Deemed issued for no consideration 599,430 515,843
-------------------------------------- ----------- -----------
Diluted number of ordinary
shares issued 41,263,870 39,846,439
-------------------------------------- ----------- -----------
7. Employee benefits
Defined benefit pension plans
The Company operates a UK registered trust based pension 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 Trustees are responsible for
running the Scheme in accordance with the Scheme's Trust Deed and
Rules, which sets out their powers. The Trustees of the Scheme are
required to act in the best interests of the beneficiaries of the
Scheme. There is a requirement that one-third of the Trustees are
nominated by the members of the Scheme.
There are two categories of pension scheme members:
-- Deferred members: former and current employees of the Company
-- Pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best
estimate of future benefit outgo (allowing for revaluation to
retirement for deferred members and annual pension increases for
all members) and then discounting to the balance sheet date. The
majority of benefits receive increases linked to inflation (subject
to a cap of no more than 5% pa). The valuation method is known as
the Projected Unit Method. The approximate overall duration of the
Scheme's defined benefit obligation as at 31 December 2014 was 20
years.
Since 1 October 2001 the Scheme has been closed to new members
and from 31 December 2005 future accrual of benefits for existing
members of the Scheme ceased.
Future funding obligation
The last actuarial valuation of the Scheme was performed by the
Actuary for the Trustees as at 5 April 2011. The Company agreed to
pay annual contributions of GBP504,000 per annum over the period to
30 September 2013 towards paying off the deficit. The Company also
agreed to pay GBP156,000 per annum to meet the Scheme's expenses,
PPF levy and death in service premiums.
Due to the deterioration in funding, the Company has continued
to pay contributions at this level until the results of the 5 April
2014 triennial actuarial valuation are finalised and a new recovery
plan has been agreed with the Trustees.
Risks
Through the scheme, the Company is exposed to a number of
risks:
-- Asset volatility: the Scheme's defined benefit obligation is
calculated using a discount rate with reference to corporate bond
yields, however the Scheme invests significantly in equities. These
assets are expected to outperform corporate bonds in the long term,
but provide volatility risk in the short term.
-- Changes in bond yields: a decrease in corporate bond yields
would increase the Scheme's defined benefit obligation, however
this would be partially offset by an increase in the value of the
Scheme's bond holdings.
-- Inflation risk: a significant proportion of the Scheme's
defined benefit obligation is linked to inflation, therefore higher
inflation will result in a higher defined benefit obligation
(subject to the appropriate caps in place). The majority of the
Scheme's assets are either unaffected by inflation, or only loosely
correlated with inflation, therefore an increase in inflation would
also increase the deficit.
-- Life expectancy: if Scheme members live longer than expected,
the Scheme's benefits will need to be paid for longer, increasing
the Scheme's defined benefit obligation.
The Trustees and Company manage risks in the Scheme through the
following strategies:
-- Diversification: investments are well diversified, such that
the failure of any single investment would not have a material
impact on the overall level of assets.
-- Investment strategy: the Trustees are required to review
their investment strategy on a regular basis.
-- Annuities: the Scheme holds insurance contracts to pay some
member's AVC benefits. This removes investment, inflation,
longevity and expense risks after members retire for these
benefits.
The Company has recognised all actuarial gains and losses
immediately in Other Comprehensive Income. The initial results
calculated as part of the formal actuarial valuation as at 5 April
2014 have been updated to 31 December 2014 by a qualified
independent actuary. The major assumptions used by the actuary were
(in nominal terms) as follows:
As at As at
31 December 31 December
2014 2013
----------------------------------- ------------ ------------
Discount rate 3.6% 4.5%
RPI inflation (before retirement) 2.9% 3.4%
CPI inflation (before retirement) 1.9% 2.4%
Assumptions regarding future mortality are set based on
actuarial advice in accordance with published statistics and
experience in each territory. These assumptions translate into an
average life expectancy in years for a pensioner retiring at age
65:
2014 2013
GBP000 GBP000
----------------------------- -------- --------
For an individual aged 65
in 2014
* Male 22.3 21.8
* Female 24.3 24.1
At age 65 for an individual
aged 45 in 2014
* Male 24.0 23.2
* Female 26.2 25.6
The table below outlines where the Group's post-employment
amounts and activity are included in the financial statements.
2014 2013
GBP000 GBP000
------------------------------------- -------- --------
Balance Sheet obligations
for:
* Defined pension benefits 6,132 4,280
------------------------------------- -------- --------
Income statement charge
included in operating
profit for:
* Defined pension benefits 178 294
------------------------------------- -------- --------
Actuarial (losses)/gains
recognised in Other
Comprehensive Income:
* Defined pension benefits (2,334) 2,526
------------------------------------- -------- --------
The amounts recognised in the balance sheet are determined as
follows:
2014 2013
GBP000 GBP000
---------------------------------- --------- ---------
Market value of assets 22,819 21,546
Present value of defined benefit
obligation (28,951) (25,826)
---------------------------------- --------- ---------
Funded status (6,132) (4,280)
Liability in the Balance Sheet (6,132) (4,280)
---------------------------------- --------- ---------
The movement in the defined benefit obligation over the year is
as follows:
2014 2013
GBP000 GBP000
------------------------------------- -------- --------
Value of defined benefit obligation
at start of year 25,826 26,527
Interest cost 1,138 1,120
Benefits paid (1,100) (949)
Actuarial losses: experience
differing from that assumed (56) (220)
Actuarial gains/(losses): changes
in demographic assumptions 381 (150)
Actuarial gains/(losses): changes
in financial assumptions 2,762 (502)
------------------------------------- -------- --------
Value of defined benefit obligation
at end of year 28,951 25,826
------------------------------------- -------- --------
The movement in the value of the Scheme's assets over the year
is as follows:
2014 2013
GBP000 GBP000
--------------------------------- -------- --------
Market value of assets at start
of year 21,546 19,355
Interest income 960 826
Actual gain 753 1,654
Employer contributions 660 660
Benefits paid (1,100) (949)
Market value of assets at end
of year 22,819 21,546
--------------------------------- -------- --------
The sensitivity of the defined benefit obligation to changes in
the weighted principal assumptions is:
Change in Change in
assumption defined benefit
obligation
------------------------- ------------- ----------------
+/- 0.5%
Discount rate pa -8%/+ 9%
+ 0.5% pa/
RPI inflation - 0.5% pa + 6%/- 7%
Assumed life expectancy + 1 year + 3%
The above sensitivity analyses are based on a change in an
assumption while holding all other assumptions constant. In
practice, this is unlikely to occur, and changes in some of the
other assumptions may be correlated. When calculating the
sensitivity of the defined benefit obligation to significant
actuarial assumptions the same method (present value of the defined
benefit obligation calculated with the projected unit credit method
at the end of the reporting period) has been applied as when
calculating the pension liability recognised within the statement
of financial position. The assets of the Scheme are invested as
follows:
Year ended 31 December Year ended 31 December
2014 2013
------------------------- ------------------------------ --------------------------------
Asset class Market value % of total Market % of total
GBP'000 Scheme assets value GBP'000 Scheme assets
------------------------- ------------- --------------- --------------- ---------------
Equities 15,512 68% 14,308 67%
Corporate Bonds 3,487 15% 2,936 14%
Gilts 2,633 12% 2,776 13%
Cash 752 3% 1,338 5%
Insured pensioners 435 2% 188 1%
------------------------- ------------- --------------- --------------- ---------------
Total 22,819 100% 21,546 100%
Actual return on assets
over the year: 1,713 2,480
------------------------- ------------- --------------- --------------- ---------------
Other pension schemes
On 1 January 2006 a separate stakeholder scheme was set up for
those employees who were originally in the closed defined benefit
pension scheme. The contributions paid by the Company in 2014 were
GBP431,000 (2013: GBP427,000).
In addition to this scheme, the Company operates a stakeholder
scheme which is open to employees who joined after 1 October 2001.
The contributions paid by the Company in 2014 were GBP276,000
(2013: GBP168,000).
The Company also operates another stakeholder scheme which is
open to employees who joined after 1 March 2014. The contributions
paid by the Company in 2014 were GBP65,000 (2013: nil).
For certain non UK based employees of the Company, the Company
makes contributions into individual schemes. The contributions paid
by the Company in 2014 were GBP2,000 (2013: GBP6,000).
For US based employees, Zotefoams Inc. operates a 401(k) plan.
The contributions paid by Zotefoams Inc. in 2014 were GBP54,000
(2013: GBP51,000).
This information is provided by RNS
The company news service from the London Stock Exchange
END
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