Rising to
the challenge
Zotefoams plc
Annual Report 2022
Contents
Strategic Report
Group at a glance
6
Our brands in action
10
A unique manufacturing process
12
Our business model
14
Our external context
20
Our strategic objectives
22
An introduction from our Chair
25
Group CEO’s review
27
Group CFO’s review
32
Risk management and principal risks
39
Viability statement
51
Environmental, social and
52
governance (ESG) report
Our people
70
s172(1) statement
75
Governance
Board of Directors
78
Corporate governance
80
Audit Committee report
83
Nomination Committee report
86
Directors’ Remuneration report
88
Directors’ report
110
Statement of Directors’ responsibilities
113
Financial Statements
Independent auditor’s report
114
Consolidated income statement
119
Consolidated statement of
120
comprehensive income
Consolidated statement of financial position
121
Company statement of financial position
122
Consolidated statement of cash flows
123
Company statement of cash flows
124
Consolidated statement of changes in equity
125
Company statement of changes in equity
126
Notes
127
Five-year trading summary
166
Notice of the 2023 Annual General Meeting
167
Company information
171
Financial calendar
171
Broader and stronger
Celebrating five years of our
strategic partnership with Nike
p2
Our brands in action
p10
ReZorce
®
Circular Packaging
and MuCell
®
polymer
reduction technology
Building sustainability in
consumer packaging
p4
1
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Basic earnings
per share
20.61p
Change
129%
2021
9.01p
Total dividend
for the year
6.80p
Change
5%
2021
6.50p
Return on
capital employed
10.1%
Change
400 bps
2021
6.1%
Net debt
£27.8m
Change
19%
2021
£34.3m
Leverage
1.2x
Change
43%
2021
2.1x
Group revenue
£127.4m
Change
26%
2021
£100.8m
Gross margin
30.4%
Change
400 bps
2021
26.4%
Operating profit
£13.9m
Change
71%
2021
£8.1m
Profit before tax
£12.2m
Change
74%
2021
£7.0m
In 2022, Zotefoams grew
significantly, delivering record
revenue and profit before tax
We continue to invest in our business
linked, primarily, to three
forecastable macro-trends:
demographics, where an increasing
population is evermore urban and
aging; regulation, often around safety
of people; and environment, where
optimising the use of scarce
resources has become a global
necessity. Sustainability, along with
health and safety, is embedded in
everything we do
David Stirling
Group CEO
Financial KPIs
2
Zotefoams plc
Annual Report 2022
Five years on from the announcement of our strategic partnership
with Nike, the collaboration continues to strengthen, with some
notable developments during the year.
Still at the heart of the partnership is the focus on the distance
road running category, with Zotefoams material featuring as
ZoomX foam in programmes including the acclaimed Vaporfly,
Alphafly and Invincible ranges.
In 2022, we built on this success, with Nike’s launch of the next
generation ZoomX Alphafly NEXT% 2, the company’s pinnacle
marathon racing and training shoe. ZoomX was also introduced in
additional ranges in road running, including the ZoomX Streakfly,
Nike’s lightest road racing shoe, introduced during the summer.
Also in the summer, ZoomX went off-road for the first time,
featuring in the Nike ZoomX Zegama trail running shoe.
We continue to work closely with Nike on waste reduction
and recycling projects to support our respective and shared
sustainability objectives. Both companies took significant steps
during 2022 to reduce waste generated by manufacturing
processes and we also introduced waste recycling solutions.
Celebrating
five years of
our strategic
partnership
with Nike
Broader and stronger
3
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
4
Zotefoams plc
Annual Report 2022
2022 saw progress across the board in the development of
ReZorce Circular Packaging, our mono-material alternative to
difficult-to-recycle barrier material used for some categories of
food and beverage packaging.
Legislative developments and the drive towards the circular
economy are highlighting the unsustainable nature of composite
packaging, creating huge potential for a fully circular alternative
with equivalent performance, easy transition and full compatibility
with standard recycling infrastructure.
Simultaneously, with polymer prices reaching an all-time high
during the year, we experienced an upsurge of interest in the
foaming technology offered by MuCell Extrusion LLC, which
underpins ReZorce. By injecting atmospheric gases into plastic
extrusions during the melt phase, the process creates a product
with a foamed core bounded by solid skins that uses considerably
less polymer and is consequently lighter to transport.
Building
sustainability
in consumer
packaging
ReZorce
®
Circular Packaging
and MuCell
®
polymer
reduction technology
5
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
In 2022, we consolidated our IP position
to create a solid basis for negotiation
with potential customers and partners.
We further boosted ReZorce’s appeal to
potential customers who recognise that
their current composite packaging is
unsustainable. In particular:
An updated life cycle assessment
shows
that ReZorce uses 53% less energy and
51% less water than an equivalent composite
beverage carton and, on the key measure
of global warming potential, it boasts
a 55% reduction.
A RecyClass assessment
– which
considers the extent to which a product
is designed for recycling – confirmed that
ReZorce sheet is compatible with existing
European industrial recycling processes
and that the recycled plastic generated is
suitable for use in high-value applications
such as HDPE bottles.
We partnered with R-Cycle
to create digital
product passports for ReZorce. As well as
providing end-to-end polymer supply chain
transparency, these passports contribute
to the creation of high-quality recyclate and
circularity by identifying the polymer from
which a product is made, enabling it to be
sorted and recycled with the same material.
In November, we acquired the assets and
intellectual property of Refour ApS, with the
intention of accelerating the development
of ReZorce across both rigid and flexible
packaging formats and penetrating a wide
variety of additional applications, including
pouches, trays and cups, with MuCell
technology. The former Refour facility in
Denmark gives us an ideal pilot facility and
equipment on which to test and validate
a range of pack formats.
The potential opportunity for MuCell and
ReZorce techology is significant but requires
investment to develop and realise. One
option being considered is to involve a
strategic partner to leverage and accelerate
this potential, including the ability to scale up
globally. Following initial evaluation, we are
pursuing discussions with suitable parties.
Market potential¹
Aseptic cartons
ReZorce
Pouches
MuCell and ReZorce
Trays
MuCell
Flexible packaging/
Other markets
MuCell and ReZorce
Western Europe market
North America market
Forecast growth
2020–2025 (CAGR)
Forecast growth
2020–2025 (CAGR)
Forecast growth
2020–2025 (CAGR)
Forecast growth
2020–2025 (CAGR)
$5.5
billion
$3.3
billion
$4.3
billion
$44.6
billion
2.9%
4.7%
3.9%
3.3%
3.3%
4.5%
3.8%
3.1%
$6.3
billion
$3.3
billion
$5.1
billion
$44.9
billion
1
© Copyright Smithers Information Ltd
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Revenue by industry
%
Product
protection
Transportation
Sports
and leisure
Building and
construction
Industrial
Medical
Other
2022
2021
2021
2022
Polyolefin Foams
HPP
MEL
Revenue by business unit
£m
0
£20
£40
£60
£80
£100
£120
£140
6
Zotefoams plc
Annual Report 2022
Group at a glance
Four strong, distinctive brands
North America
Local manufacturing presence
in Kentucky for the Polyolefin
Foams business, cutting
operation in Oklahoma to
service the construction market
and headquarters of MuCell
Extrusion LLC (MEL), based
in Massachusetts, licensing
technology globally and behind
the development of ReZorce
®
.
Local representation for our
High-Performance Products
(HPP) business, including
T-FIT
®
technical insulation.
United Kingdom
Group headquarters and main
factory, manufacturing polyolefin
foams and high-performance
products for sale globally.
Continental Europe
Significant market for polyolefin
foams. Local manufacturing
presence in Brzeg, south-west
Poland, initially servicing the
Polyolefin Foams business.
Manufacturing of some T-FIT
products began in 2022. Sufficient
land has been purchased to allow
larger-scale operations in the
future. European development
facility for ReZorce and MEL
products in Zotefoams Denmark
since November 2022.
Rest of the world
T-FIT manufacturing in China
for sales of insulation products
globally. Local representation for
our HPP business. Joint venture
with INOAC Corporation for
AZOTE
®
polyolefin foams sales
in Asia. Commercial operation
in India for T-FIT insulation.
Zotefoams produces a wide range of innovative products that are critical
components in a world of everyday applications.
Rest of
the world
41%
(2021: 41%)
Continental
Europe
25%
(2021: 28%)
United
Kingdom
11%
(2021: 11%)
North
America
23%
(2021: 20%)
Group revenue by region (%)
7
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Key market drivers
Light-
weighting
Durability
Reduced
toxicity
Fire
safety
Energy
saving
AZOTE
®
Read more
page 9
Read more
page 9
Read more
page 8
Read more
page 8
AUTOCLAVE TECHNOLOGY
Lightweight technical foams
Foams which offer superior
technical properties such
as energy management,
durability and heat and/or fire
resistance. ZOTEK foams are
manufactured from engineering
polymers using our unique
nitrogen-expansion process.
Key markets served
Athletic footwear
Automotive
Aviation
Construction
Product protection
Premium durable foams
Uniformly dense foam sheets
with a consistent cell structure.
These foam sheets and blocks
are manufactured from common
polymers using our unique
nitrogen-expansion process.
Key markets served
Automotive
Aviation
Building and construction
Industrial
Marine
Medical
Military
Product protection
Sports and leisure
Key market drivers
Light-
weighting
Durability
Personal
safety
High-
technology
insulation
Sports
and leisure
Fire
safety
ZOTEK
®
Technical insulation
for industry
A range of insulation products
manufactured from Zotefoams’
own ZOTEK block foam materials.
T-FIT insulation products are
purpose-designed to perform
in demanding environments.
Key markets served
Food and personal care
manufacturing
High-temperature processing
environments
Pharmaceutical, biotech and
semiconductor cleanrooms
Key market drivers
Ageing
population
Demographic
changes
Energy
saving
Reduced
toxicity
T-FIT
®
Innovative and accessible
technology for greener,
lower-cost plastic products
This pioneering technology
injects gas into plastics during the
manufacturing process to create
micro-bubbles and is licensed to
customers manufacturing plastic
parts. The end-product uses
15–20% less material. Recently
developed ReZorce
recyclable
mono-material barrier packaging
solutions use this technology.
Key markets served
Automotive
Consumer packaging
Key market drivers
Environmental
benefit
Lower cost
EXTRUSION TECHNOLOGY
POLYOLEFIN
FOAMS
HPP
HPP
MEL
8
Zotefoams plc
Annual Report 2022
Our brands
Innovating to help our customers meet new challenges
AZOTE
®
ZOTEK
®
POLYOLEFIN
FOAMS
HPP
AZOTE polyolefin foams
are manufactured using our
unique, high-pressure process.
This process differentiates Zotefoams
from competitors that manufacture
similar foams using low-density
polyethylene (LDPE), which is our
main raw material.
Zotefoams produces foams that are
more consistent and lighter weight and
possess higher purity compared with
foams manufactured using chemical
technology. These superior attributes
are valued globally in many uses,
with examples as diverse as
aerospace, sports equipment and
medical packaging. Underlying growth
of many of these segments is driven
by global trends in regulation,
environment and demographics,
including resource efficiency.
The main geographical markets for
our AZOTE foams are the UK, other
European countries and North
America as, beyond this, distribution
costs limit the market opportunity.
We do sell outside these areas, mainly
in Japan and China, into more niche,
technical applications and further
development of these geographies
remains a longer-term goal.
ZOTEK products use Zotefoams’
unique autoclave technology
applied to high-end polymers such
as polyvinylidene fluoride (PVDF)
fluoropolymer, nylon or thermoplastic
elastomers (TPE). Combining the
original polymer properties with
our foaming process creates
truly unique materials.
ZOTEK F fluoropolymer foams are
inherently fire- and chemical-resistant
and are mainly used in aerospace
applications. ZOTEK N nylon foams
are designed to operate at very high
temperatures and are finding uses
in a wide variety of mainly industrial
applications. There is a considerable
level of interest currently in ZOTEK N
as a lightweight thermoplastic
composite material for transportation,
designed to reduce weight and meet
environmental targets for fuel
economy. ZOTEK TPE foams, which
delivered the largest contribution to
HPP growth for the second year in a
row, have excellent kinetic energy
management properties and are being
sold primarily in sports and leisure
applications. Historically, sales of
ZOTEK foams have grown due to
more stringent regulation in the
aviation markets, while recent growth
is being led by developments in the
footwear market.
Throughout its history, Zotefoams has
been at the forefront of developments
in lightweight materials that save
energy by insulating or save fuel costs
by reducing weight. Our business is
predominantly based on long-term
applications, underpinned by the
notable durability of our materials,
which derives from a unique autoclave
manufacturing process.
With sustainability and carbon
reduction a priority, Zotefoams has
introduced the Ecozote Sustainability+
foams range, which responds to the
need for plastic products that improve
circularity or reduce reliance on fossil
fuel-derived raw materials.
Ecozote builds on the underlying
sustainability credentials of all our
block foams – light weight, durable
and foamed using nitrogen borrowed
from the atmosphere – to give
customers and end-users additional
choices to address market- or
application-specific requirements.
Initial products in the range are
low-density polyethylene foams
with 30% recycled content.
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Annual Report 2022
Strategic Report
Governance
Financial Statements
T-FIT
®
HPP
MEL
The T-FIT insulation story began with
end-users looking for a solution to
insulate pipes in pharmaceutical and
biotechnology cleanrooms. T-FIT Clean
was developed as a unique thermal
insulation system designed for these
demanding, highly controlled
production environments.
Based on the unique technology
owned by Zotefoams and following
the success of T-FIT Clean insulation,
Zotefoams is expanding the T-FIT
range to address the requirements
of the food, dairy, personal care and
general process industries. These are
products that are inherently pure and
free of chemical residues and meet
leading fire certification standards.
Demonstrably resistant to growth
of mould and bacteria, the full
range of T-FIT insulation products
manufactured by Zotefoams is durable,
moisture-resistant and easy to install
and clean.
T-FIT Hygiene is designed for
large-scale, aseptic, food processing.
Production areas are built to exacting
standards, where the specification is
for a pure, pollutant- and fibre-free
thermal insulation with the capability
to withstand the steam purging
process typical in this sector. T-FIT
Hygiene can ensure air conditioning,
air filtration and other process
equipment continue to operate at
optimum levels of performance.
Unique in both its material (Nylon PA6)
and its foam insulation class, T-FIT
Process is the high temperature
addition to the T-FIT range and
operates at temperatures of up to
160°C, with spikes, for cleaning in
place, up to 205°C. Aimed at the utility
and general processing industries
around the world, T-FIT Process will
assist project and process engineers in
their quest for evermore durable and
heat-resistant insulation solutions.
ReZorce Circular Packaging, a MuCell
Extrusion LLC development, is a new
range of mono-material barrier
packaging. ReZorce offers brand
owners and packaging suppliers a
much-needed alternative to composite
packaging, which is made of different
materials laminated together and
is therefore incompatible with
increasingly stringent mandates on
recycled content and recyclability of
packaging materials. ReZorce offers
performance and aesthetics on a par
with existing composite materials
but is considered a single raw material
which can be recycled back into
the same type of packaging, rather
than downcycled.
MEL licenses microcellular foam
technology and sells related
machinery. 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.
Recently, a variation of this technology
has been used to create ReZorce
®
,
a recyclable, mono-material barrier
packaging solution.
MEL technology offers the potential
to reduce the plastic content of an
article by around 15–20% by injecting
inert gas to displace plastic with
microcellular bubbles. MEL technology
can be used with most common
plastics and reduces material
consumption with no negative impact
on recycling. The primary target market
for MEL is consumer packaging, where
production volumes are high and
developments are scalable across
geographic and product markets.
MEL continues to evolve its product
offering and intellectual property (IP).
As the business begins to achieve
commercial scale, our staff become
more specialist and our knowledge
deepens. MEL staff integrate with
the customers in product design,
to make the best use of our
technological capability, and with
this depth of knowledge comes
improved customer satisfaction and
also more opportunity for further IP.
10
Zotefoams plc
Annual Report 2022
Plastazote
®
polyethylene
foam
Decathlon is the world’s largest sporting goods retailer with over 2,000
stores across 56 countries and five continents. Headquartered in Lille,
France, Decathlon is committed to sustainably making the pleasures
and benefits of sport accessible to the many. It prides itself on offering
smart, stylish and affordable products that adhere to blue economy
principles, following sustainable production methods.
The company has selected low-density (LD) polyethylene foams
from the renowned Plastazote range for a variety of swimming aids,
including pullbuoys, kickboards, swim belts and armbands, in a variety
of bright, appealing colours developed specifically by Zotefoams to
meet Decathlon’s requirements.
Zotefoams works closely with Decathlon on product selection and
development and process optimisation.
Although Decathlon has worked with materials from other suppliers
in the past, since 2020 Plastazote has been the company’s foam of
choice in these applications thanks to its superior characteristics.
Aside from the aesthetic appeal of the colours created by Zotefoams,
Plastazote offers serious performance benefits that derive from its
unique manufacturing process.
LD grades typically offer a better performance to weight ratio than
competing foams, meaning in this instance they are ultra-light and
use less material than would be required for other foams to achieve
the same performance.
The consistent, closed cell nature of the material and the fact that it is
expanded only using pure nitrogen give it a high level of resistance to
chlorinated or salt water, resulting in products that retain their buoyancy
and integrity for an extended period.
Also key is the purity of Plastazote; subjected to independent
toxicology tests by Decathlon, it is suitable for extended skin contact
without the risk of irritation.
Our brands in action
A bright future
for Zotefoams’ partnership
with the world’s largest sporting
goods retailer
ZOTEK F is best-known as the disruptive high-performance material
that has enabled airframe manufacturers and airlines to shed
significant weight from aircraft interiors and save countless gallons of
fuel in the process.
While weight-saving properties have frequently made headlines in the
ZOTEK F success story, any materials destined for use in aircraft must
also demonstrate exceptional safety credentials. ZOTEK F has these
in abundance: PVDF is inherently inert and Zotefoams’ manufacturing
process does not affect that essential purity. Resistant to UV light
(exposure to which is far higher at altitude) and with outstanding fire,
smoke and toxicity properties, ZOTEK F has proven to be the ideal
material for multiple applications inside the cabin, as well as behind
the panels of aircraft.
Now these same properties are being harnessed in a new application
where safety is also paramount. Breakaway doors are used in
medical facilities to protect vulnerable patients from self-harm
while affording privacy.
Kennon Products (Wyoming, USA) recently launched its Kennon
Door 2.0, its newest ligature-resistant patient safety product, featuring
ZOTEK F. The door’s soft materials and breakaway magnetic hinge
save lives, while its durable design enhances the look of any facility.
A primary objective for Kennon was to develop a door that would
achieve the new National Fire Protection Association NFPA-286
certification, which is required for facility operators wishing to meet
certain fire prevention guidelines.
Zotefoams worked closely with Kennon to select and test various
ZOTEK F materials, while providing support and insight based
on previous experience of aviation applications and flame testing.
For Zotefoams, this process resulted in the development of a
new product.
For Kennon, it was mission accomplished, with the successful
launch in 2022 of its Door 2.0, the first anti-ligature door offering
NFPA-286 certification.
Performance
benefits
of ‘aviation’ foam help protect
society’s most vulnerable
ZOTEK
®
F
high-performance
PVDF foam
11
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Premium ice cream brand Mackie’s of Scotland has a bold ambition
– to become Britain’s greenest business. It has already made big
investments in energy efficiency, from wind turbines to low-carbon
refrigeration, which is expected to reduce energy consumption by
up to 70%.
In its latest move, Mackie’s has replaced short-lived nitrile rubber
with T-FIT Process closed cell nylon foam insulation on internal and
external pipework at the family farm in Aberdeenshire, Scotland,
where over 13 million litres of ice cream are produced annually.
Aside from conserving energy, insulation plays a critical role in
controlling condensation, which is generated when processes
involve hot and cold cycles, as is the case with ice cream production.
Left unchecked, condensation is a known cause of contamination in
food production.
Mackie’s anticipates many benefits from its investment in
high-performance insulation. T-FIT Process has a far longer lifespan
than the previous insulation, which hardened and eventually
disintegrated due to the repeated cycling between high and low
temperatures, meaning that Mackie’s had to strip it out and replace
it annually, with the waste going to landfill. The failure of the insulation
over time also meant that more energy was required to maintain the
temperature of the pipes – critical to production quality – resulting in
increased cost.
T-FIT Process is rugged, designed to accommodate temperature
changes, and has a closed cell structure that does not absorb
moisture and is resistant to bacteria and mould growth. It is also
fast and easy to install, reducing labour costs and downtime and –
most importantly – the Total Cost of Ownership.
The MGRSoftWall
®
NextGen vertical
sheet panel, produced by MGR Foamtex
(Thame, UK), is seen here in two executions.
While they appear identical, and performance
characteristics are indistinguishable, one is
made using ZOTEK F OSU Extra-Rigid as
its structural element, while the other uses a
traditional rigid thermoplastic. The Zotefoams
panel weighs in at just 0.24kg compared with
0.56kg for the traditional material – a saving
of over 50%.
Weight reduction is essential to the carbon
reduction targets of the commercial aviation
sector, and also for reducing costs, with fuel
representing around 25% of total spend.
Long life, low
maintenance and
reduced waste
T-FIT INSULATION proves a winner for Mackie’s
Super-luxe aircraft seat
panels are 50% lighter
with ZOTEK F OSU XR
T-FIT
®
advanced insulation
ZOTEK
®
F
OSU
for aviation
12
Zotefoams plc
Annual Report 2022
A unique manufacturing process
The Zotefoams difference
Zotefoams manufactures a wide range of closed cell, crosslinked, lightweight
block foams using variations of our unique nitrogen-expansion manufacturing
process. This affords an exclusive combination of beneficial characteristics –
uniformity, purity, low toxicity and durability – that differentiates Zotefoams’
materials from all other foams. Our core autoclave process is capital-intensive,
with a long investment cycle, and represents a considerable barrier to entry
for potential competitors
Slabs are loaded into a high-pressure
autoclave. The material is heated above
its melting point and pressurised with
pure nitrogen gas. Over a long period
of time, the nitrogen gas diffuses into
the slabs. A rapid depressurisation
destabilises the absorbed nitrogen
nucleating cells in the slab. The slabs
are then cooled under pressure in
the autoclave, locking the nitrogen
in the unexpanded slabs, prior
to them being unloaded.
Stage 1
Extrusion and
crosslinking
Polymer and any additives (colours,
fire retardants, conductive agents) are
extruded into a continuous solid plate.
The plate passes through an oven
which activates the crosslinking
process. It then cools and is cut
into slabs.
Scan the QR code to see
our process in action
zote.info/3NAZPrP
Stage 2
Nitrogen
saturation
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Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Operating at temperatures up to 250ºC, this nitrogen-based
process is extremely flexible, allowing us to foam a wide
range of polymers. The combination of foaming process
and polymer performance delivers properties such as
excellent fire resistance, high-temperature stability,
toughness and insulation, which are prized in a wide
range of demanding applications.
Stage 3
Expansion
The nitrogen-charged slabs are loaded
into a large lower-pressure autoclave
and, under moderate pressure, are
heated to above their melting point.
When the pressure is reduced, the
nitrogen expands, turning the slabs
into larger foam sheets. This expansion
process is unconstrained, so is uniform
in each dimension.
14
Zotefoams plc
Annual Report 2022
Our business model
Leveraging unique technology with an
innovation-led portfolio of advanced products
Our route to increased profitability includes running
our unique machinery as near to full capacity as
possible – and filling new capacity as quickly as
possible – and then mix-enriching our product
portfolio. We produce two distinct product
portfolios, which combine to make our model work:
At our block foam manufacturing sites in the UK,
the USA and Poland, we operate proprietary
technology to produce foams from a variety of
different polymers. Our manufacturing process
almost always involves three sequential steps:
1. Extrusion
2. Nitrogen saturation
3. Expansion
For more information on our process, see
pages 12 and 13
Zotefoams’ differential advantage is the use
of autoclaves, developed from a century of
experience, using a nitrogen-based process.
All of our assets are flexible – we can use each
of them to make many product grades.
The high levels of know-how and capital required to
use autoclaves is a difficult barrier for new entrants
to overcome. Patents on our basic process expired
some years ago, although we are able to obtain
patents for products manufactured by that process,
in particular in our High-Performance Products
(HPP) business. This, and the fact that our process
allows us to produce materials that cannot be made
by any other method, delivers a meaningful and
sustainable competitive advantage.
Foam has high distribution costs relative to price,
particularly for our polyolefin foam product range.
It is more economic and sustainable to expand the
foam closer to customers and we have recently
invested in regional manufacturing capacity in
Poland to be closer to certain markets.
Starting with
a core process
Making the best
use of our assets
High-performance products,
(typically branded
as ZOTEK
®
), meanwhile, are made of more costly
and specialised polymers that very few competitors
can foam, are currently produced in relatively
lower volumes and are sold at a higher price to
a smaller number of customers. These customers
then use this technologically advanced foam
for highly specific applications.
Polyolefin foams,
(typically branded as AZOTE
®
)
are based on polymers that are also foamed by
many of our competitors, compete primarily through
the superior foam properties created by our
technology, are produced in large volumes and
are sold to a wide variety of customers who then
incorporate the foam into many different products.
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We partner with a network of customers around
the globe that fabricate our polyolefin foams and
promote them in their geographic markets. Some
specialise in specific sectors, while others specialise
in foam fabrication capabilities for general markets.
Our aim is always to be the material of choice for
our partners. Our block foams are sold, and often
specified, into a broad range of industries, such
as automotive, aerospace, product protection,
industrial parts, marine, building and construction,
and sports and leisure.
The AZOTE portfolio is typically viewed as
“best in class” for performance, often measured by
weight, purity and durability, and can be efficiently
fabricated into complex shapes. We provide our
customers with products that offer improved
performance per unit of weight over competing
solutions. They are lighter and made with less raw
material and their durability means they need
replacing less often. This makes them a product
of choice in thermal insulation and transportation
or when protecting goods in transit, where light
weight helps reduce fuel and energy consumption.
Zotefoams products are predominantly found in
permanent solutions. Our Plastazote
®
and Evazote
®
polyolefin foam brands are held in high regard in
the industry and offer premium performance in
the portfolio of a foam fabricator.
Working with our
partners and enriching
the product mix
While the superior performance of our
foams creates demand globally, most of our
polyolefin foam customers are regional – for us
that means the UK, mainland Europe and North
America – reflected by the geographic locations of
our manufacturing plants. This is in part driven by
distribution costs and by the importance of good
service levels. By contrast, distribution costs make
up a far smaller proportion of the value of our
HPP portfolio, so do not constrain global reach,
and the complexity and higher value make it more
effective to produce the HPP range from the more
established UK site.
Over time, we expect to increase profitability
through mix enrichment. Our core process allows
us to produce a range of both polyolefin and
HPP foams. With the higher margins achievable
from HPP and more technical polyolefin foams,
we prioritise these products in our production
decision-making. However, the markets for
polyolefin foams, with many segments ranging from
those higher margin, specified, technical foams
to the highly competitive foams with low switching
costs, afford us the flexibility to make full use
of any significant availability of capacity while still
generating good margins and providing highly
valued solutions to our customers. Supporting a
broad product portfolio therefore remains critical
to our long-term success. Currently, the Polyolefin
Foams business unit utilises the largest share of
our capacity.
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A significant portion of technical, sales and
marketing expenditure is allocated to the
development of our HPP portfolio, sold under
the ZOTEK and T-FIT
®
brand names. Close
and direct collaboration with customers, and
a focus on the ultimate end-users, is crucial to
the success of this business unit. We have a long
history of investing in R&D, which enables us
to innovate and meet the needs of customers
with technically demanding requirements seeking
solutions that consume fewer resources, operating
in sectors such as footwear and aviation. These
businesses are more global in nature and we have
strong management alignment to the product range
and certain key markets.
Developing products to demanding technical
specifications, and promoting these globally,
can mean that a new HPP product makes losses
at first. However, once a product’s specifications
have been finalised and orders are secured,
the opportunities are longer term and cash
generation potential is high. Our HPP business
unit margins reflect a portfolio of products and
applications at different stages of the life cycle and
we see considerable opportunity to grow and to
enrich our product mix over the medium term.
Developing our
HPP portfolio
Our business model
Continued
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Our HPP portfolio comprises innovative
and versatile raw materials which, like our polyolefin
foams, lend themselves to being fabricated into
complex parts by our customers. The unique
and advanced properties of these foams often
allow designers and industry both to meet
stringent regulations, for example around safety
or environment, and to offer better products, often
by substituting non-foam products or replacing
multiple products. For example, our foam is now
used by the aviation industry for ducting, where it
acts as both the structure and the insulation, visual
window surrounds, where it also acts as the seal,
as well as ‘soft touch’ materials within the cabin.
This area of the business is more readily defensible
because of the unique performance advantages
inherent in our advanced technology, the patents
we hold and the highly specified markets we serve.
These factors also enable us to sell at a higher
price with a better margin. Ultimately, expanding
our HPP portfolio is critical to our past, present
and future growth.
In some cases, however, we are able to move even
further up the value chain and ultimately provide
finished parts directly to customers. The best
example of this is our T-FIT technical insulation
business. We take a ‘direct to market’ approach to
sell this clean insulation. While this is a departure
from our typical model of contributing to, rather
than producing, the finished product, we are able
and ready to make similar moves in response to
unmet demand when it complements our global
network of fabrication partners.
In a ‘steady state’, our business is strongly cash
generative, but we have significant opportunity to
grow and have therefore chosen to reinvest to take
advantage of profitable opportunities. Since the
beginning of 2018, we have increased capacity
significantly in anticipation of projected demand.
While our mix enrichment strategy favours our
HPP portfolio, and investment in the UK has
focused on increasing our capacity to deliver on
these opportunities, the knock-on impact of HPP
growth is a reduction in available UK capacity to
service our highly valued and profitable Polyolefin
Foams business. The larger part of this capacity
expansion has consequently been outside the UK,
to allow us to meet our growth expectations in
polyolefin foams while increasing our service levels
and reducing transport-related emissions through
closer proximity to our customers. And as one
would expect, our new facilities use state-of-the-art
technology with improved energy efficiency. All this
allows us to pursue more opportunities than before
in terms of new products and solutions, many of
which will then help to grow the business further.
Adding more value
for customers, and
to our business
Capacity to meet
growing demand
Foam manufacturing facility,
Brzeg, Poland
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Our business model
Continued
Our place in a lower-
carbon economy
There are four aspects of our business that will
enable us to thrive within a lower-carbon economy.
Over time, we plan to build on these advantages
so that we can continue to grow, reduce our
carbon footprint and help our customers become
more sustainable.
For more information about our ESG approach,
see pages 52 to 69.
1. Our nitrogen-based process
Our core high-pressure autoclave foaming process
uses nitrogen as the foaming agent, borrowed from
the atmosphere during the production process, so
there is limited further environmental impact beyond
the use of energy and raw plastic. At the same time,
this process is becoming more efficient as we invest
in newer, more efficient autoclaves.
2. Efficient use of raw material
We are proud that our unique technology delivers
foam products with better performance per unit
of weight, which allows us to offer high-quality
solutions made with less material. Furthermore, not
only do we use less material to produce our foams,
but the integrity and durability of our products also
mean they need replacing less often.
3. Our products’ role
in avoiding emissions
Our products are typically used in a way which,
in the round, reduces emissions and conserves
scarce resources. For example, our foams are
used for thermal insulation, they protect products
in transit that have a high carbon footprint and
they often replace heavier and more wasteful
alternative materials.
4. New product development
As the demand grows for products that actively
help us move to a less wasteful, lower-carbon
future, we are already responding, with more to
come. For example, ReZorce
®
is a 100% recyclable
mono-material barrier packaging solution which
has been designed to replace difficult-to-recycle
laminated paper, pouches and cartons.
Our sustainable
competitive advantages
As described on page 14 in ‘Our business model’,
our sustainable competitive advantages include:
High-value,
unique assets
Technical
know-how
Established
market position
Valued brands
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Three further competitive
advantages are also
important contributors
to our success
Critical resources
and relationships
In order for us to continue as a viable and
successful business, we are aware of the need
to secure access to, and/or invest in, our key
resources and relationships, which include:
X
raw materials
X
plant and equipment
X
intellectual property, including patents
X
well-trained people and their capacity to innovate
(read more about our people on page 70)
X
relationships with channel partners
X
relationships with HPP end-users
X
ability to move goods between
manufacturing sites and customers
X
financial resources.
1. Growing global reach
Beginning from a single site in the UK, we now
have major manufacturing sites operating in the
USA and Poland, serving regional and international
customers. Proximity to major manufacturing
centres is a significant advantage in our markets.
Having three sites provides the flexibility to serve
regional markets, while retaining high capacity
utilisation across the Group, and serve markets
that are growing at different rates with different
products. Our manufacturing base also includes a
well-located T-FIT subsidiary in China, a T-FIT sales
subsidiary in India and a facility in Oklahoma, USA,
cutting AZOTE parts for a valued customer.
2. Diversity of products and customers
We sell to customers in a wide variety of different
sectors, so we have a more limited exposure to a
downturn in any particular industry. We have also
demonstrated the ability to quickly meet a change
in demand, as with our work on producing foam
for personal protective equipment during
the COVID-19 pandemic.
3. Stable finances enabling
organic growth
Our stable finances enable us to invest in new
opportunities as they appear, giving us a significant
competitive edge. We have the resources available
to move into new polymers, or to displace
competition by superior performance. We have
grown organically for many years and we believe
that much more is possible.
For more information on MuCell, see
pages
4 and 5 as well as information on the
business unit performance on pages 29
and 30
Innovative and accessible technology for greener
and lower-cost plastic products. This pioneering
technology injects gas into plastics during the
manufacturing process to create micro-bubbles
and is licensed to customers manufacturing
plastic parts. The end-product uses 15–20%
less material. Recently developed ReZorce
recyclable mono-material barrier packaging
solutions use this technology.
Foam manufacturing facility,
Kentucky, USA
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Our external context
Our response to short- and long-term trends
We deliver stakeholder value by using unique technology to create a portfolio of
differentiated products. We focus resources primarily on markets where we are,
or have the potential to be, a market leader. We intend to develop our business
through sustained high levels of organic growth and, where appropriate,
through partnerships or acquisitions
We have built a clear long-term strategy for
growth based around three long-term global
megatrends that are driving demand for
our products.
Understanding these market trends informs
our strategy and product development,
as well as the allocation of our resources.
Given the diversity of applications for foam,
it is not possible to track every use for our
materials, and a new idea or application may
come from a foam converter, an end-user or
from within Zotefoams. We therefore actively
monitor these and maintain flexibility to react
to a wide variety of possibilities.
Optimising the use of scarce resources has
become a universal driver. Lightweighting
is fundamental to reducing fuel usage and
controlling emissions for the aviation and
automotive industries. High-quality insulation
conserves thermal energy.
MuCell
®
technology uses less material
to make everyday items and saves costs.
ReZorce
®
mono-material technology can
be used to create barrier packaging for items
such as juices, food and dried goods, which
can be recycled using common kerbside
collections. Much of our AZOTE
®
foam is used
in permanent packaging or packaging that is
designed to be reused, while foams used in
transportation are normally specified to the
lightest weight for the required physical
performance. Zotefoams products typically
use less plastic than competitive solutions
due to the cell structure of foam made in
our autoclave process, giving us both a
cost and environmental advantage.
With sustainability and carbon reduction
a priority, Zotefoams has introduced the
Ecozote Sustainability+ foams range,
which builds on the underlying sustainability
credentials of all our block foams – light
weight, durable and foamed using nitrogen
borrowed from the atmosphere – to give
customers and end-users additional choices
to address market- or application-specific
requirements. Initial products in the range
are low-density polyethylene foams with
30% recycled content.
Environment
As the world around us changes, we regularly
re-test our strategy. We believe our existing
strategy continues to serve us well and
continues to enable us to grow strongly.
Sometimes, as has happened during
the pandemic, short-term factors distort
longer-term trends. With clarity of purpose
and an understanding of the fundamental
drivers of our business environment, we
will make adjustments to our short-term
approach, such as limiting expenses and
capital expenditure, while ensuring that
our longer-term goals remain achievable.
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Better healthcare has created a population
boom, especially in older age groups, while
globally, discretionary spending power is
rising rapidly. Demand for healthcare products
is accelerating. Wealthier and more discerning
consumers are driving growth rates in other
industries such as food and drink, sports
equipment and transportation.
Transport, medical and sports and leisure
applications account for around 55% of sales
directly, while our T-FIT
®
insulation products
– demand for which is currently linked to
semiconductor, pharmaceutical and biotech
manufacturing – account for a further 5%
of sales.
Regulatory pressures, primarily to safeguard
consumers, are driving up standards
worldwide. These standards in turn create
demand for both safer products and
protective equipment.
Regulatory requirements mainly cover the
performance of end-use products, although
there are specific tests for fire performance
and toxicity limits in foams for certain
industries and jurisdictions. Zotefoams
provides specifically tested materials for
semiconductor, pharmaceutical and biotech
manufacture and automotive, aircraft and rail
insulation and provides validated materials
for medical transportation and devices, and
military storage and personnel protection.
Our technical team is closely involved in
developing new materials to meet and
anticipate standards and we are currently
working on projects for automotive batteries,
high-tech composites, foams from recycled
materials and foams which can be more
easily recycled. We sell AZOTE
grades
for automotive, medical and packaging
designed to minimise emissions and/or
meet specific purity requirements. Around
half of Zotefoams’ revenue from foams
in 2022 came from products with specific
properties tested to customer requirements,
although not all of this was demonstrably
for regulation compliance.
Plastazote
®
from our AZOTE polyolefin
foams range is the most frequently cited
thermoplastic foam in medical literature due
to its purity and hypoallergenic characteristics.
It meets ISO 10993 standards for evaluating
the biocompatibility of medical devices
and is the material of choice for skin
contact applications.
Demographics
Regulation
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Why?
Zotefoams is a capital-intensive business
with high operational gearing. The Polyolefin
Foams business is the largest user of capacity
and its volumes are particularly important for
the absorption of fixed costs. AZOTE foams
provide unique solutions to a broad spread
of customers across many industries, serving
as a valuable mitigant against industry and
customer risk. Demand for improved
resource efficiency, regulation and global
demographics underpins our growth
potential in this business unit.
This year
In 2022, sales of AZOTE polyolefin foams
grew strongly, up 25% on the previous
year (22% in constant currency). While
headline growth was significant, it was not
underpinned by increased volumes, which
declined by 1%. 2022 was a year in which
some traditionally large polyolefin market
segments, automotive in particular, declined,
while other areas grew considerably. The
automotive decline impacted Europe primarily.
Higher sales prices to counter higher input
cost inflation and improved mix explain the
increase. The Polyolefin Foams business unit
margin increased to 7% (2021: 1%) as higher
prices recovered some lost margin.
Next year, and beyond
We are confident that growing AZOTE sales
at twice the rate of global GDP growth is
achievable. The key drivers of this business –
use of materials, lightweighting, insulation
etc – remain as relevant as ever and
we are developing our product range and
geographical reach accordingly. Our technical
developments and market focus are heavily
influenced by supply chain and internal
(Scope 1 and 2 emissions) sustainability
objectives to reduce and reuse waste, as
well as provide materials which optimise our
customers’ sustainability position around
use-phase emissions. All these developments
are set to broaden Zotefoams’ product range
further and offer good opportunities to grow
market share by aligning closely with market
trends and customer needs.
Why?
Products in the HPP portfolio offer higher
growth rates and higher margins than
AZOTE
®
foams. High-performance products
use the same asset base as the Polyolefin
Foams business and leverage our uniqueness
by providing customers with solutions based
on foams that can only be manufactured
using our technology. They offer larger-scale
opportunities than our polyolefin foams and
higher drop-through operating margins.
This year
In 2022, sales in the HPP segment increased
29% and accounted for 43% (2021: 42%) of
Group revenue. The business unit invoices
most of its sales in US dollars and therefore
benefitted from a strong dollar. With the
average exchange rate being approximately
10% favourable, sales were up 16% in
constant currency. Footwear is the largest
market within the business unit and
represented 33% (2021: 34%) of Group
revenue. ZOTEK
®
F fluoropolymer foams,
primarily for aviation applications, grew
significantly in the period, up 48% (33% in
constant currency) as the industry returned to
growth after two years of customer-specific
and pandemic-related decline, but are still
well below their 2019 peak. T-FIT
®
insulation
products also grew by 48% (41% in constant
currency), albeit with performance negatively
impacted in Asia by the pandemic. The profit
margin of the HPP business unit was 28%
(2021: 21%), significantly better than the 7%
(2021: 1%) achieved in our Polyolefin Foams
business unit.
Next year, and beyond
We expect margins in HPP to continue to
grow. The rate of margin enhancement will be
dependent on the capacity utilisation of the
Group and the relative level of investment in
early-stage and high-growth opportunities
within our HPP portfolios. It will also depend
on the speed of recovery of, and further
growth in, aviation and on our success in
making our T-FIT business a recognised
global solution for that industry.
Our strategic objectives
We measure progress against six strategic objectives
We have no changes this year to how we report our strategic objectives.
2. Grow sales in our AZOTE Polyolefin Foams business
in excess of twice the rate of global GDP growth
1. Develop an HPP portfolio to deliver enhanced margins
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Why?
Zotefoams targets improved operating
margins through a continuous focus on the
efficient use of its assets and mix enrichment
across its product range and by developing
applications which most effectively leverage
its unique technology. This applies not only
to our HPP business but also to our Polyolefin
Foams business. Zotefoams adopts a
medium- to long-term view, balancing
immediate operating margin gain with the
investments required in infrastructure and
capacity (and their consequent impact on
short-term margins), to maximise future
growth. Higher operating margins generate
higher returns to shareholders.
This year
In 2022, in aggregate, segment margins
(before foreign exchange hedging gains and
losses and central costs) increased to 14.4%
(11.7% in constant currency) from 8.7%.
This increase in margins results from the
price increases implemented by Polyolefin
Foams to counter the high input costs and
an underlying favourable foreign currency
position due to the strong US dollar, mostly
impacting HPP, as well as increased volumes
achieved in this higher margin business unit.
They were negatively impacted by an increase
in investment into the ReZorce
®
opportunity
at MEL. After central costs, which include
corporate, finance and IT, mainly relating to
the corporate governance of an increasingly
complex organisation, as well as net foreign
exchange hedging movements, Group
operating margin increased to 10.9% (2021:
8.1%), or 9.6% in constant currency. Excluding
MEL, Group operating margin was 12.7%
(2021: 9.0%), or 11.2% in constant currency.
Next year, and beyond
Pricing actions implemented during 2022
should allow gross margins to continue
to grow and the drop-through effect on
underlying profit to increase. We have seen
low-density polyethylene prices fall from their
all-time highs but expect them to remain at
levels above the recent historical average.
Energy prices remain highly volatile, but we
anticipate a reduction in the medium term.
We expect in due course to return to our
polyolefin foams customers the element of
our price increases that relate to a price
surcharge, but retain the other price increases
that reflect a higher underlying cost base
going forward. We also forecast a continuing
improvement in the product mix because of
ZOTEK F sales recovery and growth beyond
previous highs, increased plant efficiency at
the newer USA and Poland facilities based
on experience and improved utilisation, and
growth in higher margin T-FIT technical
insulation sales. And finally, across our
foams business, we expect the sustainability
objectives that improve energy and polymer
use efficiency to help improve margins.
Beyond our foams business, the opportunity
from ReZorce remains significant but
uncertain during this development phase,
but will become clearer as we progress
through 2023.
3. Increase our operating margins
Definition:
Zotefoams defines the return
on capital employed (ROCE), which is not
an IFRS metric, as operating profit before
exceptional items divided by the average sum
of its equity, net debt and other non-current
liabilities. This measure excludes acquired
intangible assets and their amortisation costs
as well as any significant capacity investments
under construction until they enter production.
Why?
Zotefoams uses unique and capital-intensive
assets. We understand the importance of
generating a good return on these assets to
provide our shareholders with strong returns
and maintain their support when funding is
required to drive longer-term capital projects.
As Zotefoams’ business grows, we have
invested in large capital programmes which
have changed the shape of our balance
sheet. Our assets generate higher returns
when operational gearing (i.e. utilisation)
is high. This, combined with our strategy
to mix enrich our sales portfolio, is expected
to generate the return on capital our
shareholders seek.
This year
In 2022, the return on capital increased to
10.1% (2021: 6.1%), mostly as a result of the
increase in operating profit. The Group’s
average capital employed increased only
slightly by 2%, with capital expenditure slightly
less than depreciation and amortisation and
little movement in total working capital.
Inventory movement was negligible, while
increased receivables offset increased
payables, linked to higher selling prices and
higher input costs and variable-pay-related
compensation accruals respectively. Both
were impacted by the stronger US dollar
exchange rate.
Next year, and beyond
The Group has delivered a large capacity
expansion programme over recent years,
which ended in February 2021 with the
commissioning of the Poland manufacturing
site. The balance sheet, which includes new
capacity as well as supporting infrastructure
which will not directly generate returns, has
increased significantly. We approved these
projects, acknowledging and accepting the
dilution of return on capital over the short term
but recognising the importance of adequately
investing in the infrastructure and capacity
needed for anticipated future growth and the
corresponding improvement in return on
capital that should accompany it.
4. Improve our return on capital (over our investment cycle)
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Our strategic objectives
Continued
6. Develop and invest in MuCell technology
5. Clarify and improve the Group approach to
environmental sustainability and climate change
Why?
Our purpose is to provide optimal material
solutions for the benefit of society, reflecting
our belief that, used appropriately, plastics
are frequently the best solution for the
sophisticated, long-term applications typically
delivered by our customers. Materials
manufactured using Zotefoams’ unique
technology help customers save energy,
for example by improving insulation and
reducing the carbon emissions of cars,
planes and trains by providing lower-weight
solutions that lower fuel consumption.
Our core process uses only temperature,
pressure and nitrogen borrowed from the
atmosphere for expansion, creating materials
that are uniquely pure and durable and which
use less polymer thanks to their superior
performance-to-weight ratio. ReZorce
mono-material barrier packaging technology
presents the opportunity to increase recycling
rates in consumer packaging, reducing
waste and creating the potential for circularity.
Zotefoams products frequently form part of
the environmental sustainability agenda for
our customers, and embedding this more
formally into our strategic objectives will
support Zotefoams’ development over the
short, medium and long term.
This year
Good progress has been made against
our sustainability targets on pages 57 to 59.
The business has widened the scope of its
environmental objectives in a number of
areas, in particular in reducing waste from
excess polymer on arising from the
manufacturing process across the entire
foam range. Our main USA site switched to
fully sustainable electricity, joining the UK
and Poland sites which switched in previous
years. Using a methodology that identifies
products which, during manufacture or use,
provide a substantial increase in the efficiency
of resources used, we have assessed our
product range as producing 85% green
revenue. Further details are provided on
page 53. We made our first CDP disclosure
in 2022 and our report may be accessed
on its website: www.cdp.net/en
Next year, and beyond
We have set ambitious longer-term
sustainability objectives, aligned to a
sustainability-backed loan facility, which focus
on three performance indicators: the energy
we use to manufacture the products we sell,
the efficiency with which we utilise polymer
in the manufacture of products and the
development of new products which offer
our customers use-phase resource efficiency.
Their aim is to ensure Zotefoams has a more
sustainable product portfolio that minimises
both the energy used, and polymer waste
produced, in its manufacture. Details of these
objectives are presented on page 58.
Why?
MEL reduces plastics use at source using
patented high-pressure gas technology at
customers’ facilities and operates on a royalty
basis over a period in excess of ten years.
This underlying technology is the basis for
mono-material barrier packaging, which we
have branded ReZorce. Using significant
recycled plastic content and being readily
recyclable, the potential market is large and
facing significant pressure to improve
sustainability rapidly.
This year
The focus and resource allocation at MEL
has again this year been directed to the
development of the ReZorce opportunity,
with growth in the underlying business
being restricted to existing customers.
Nevertheless, sales increased 23% in the
year to £2.8m. Good strategic progress was
made on ReZorce, with advancements in the
technology, the acquisition of complementary
know-how and assets in a new entity in
Denmark and the start of a process to find
the right strategic partner to accelerate
commercialisation. Investment in this
opportunity resulted in an increase in the
segment loss at MEL by 175% to £1.9m
(2021: £0.7m).
Next year, and beyond
The licensing business of MEL, which is
aimed at reducing customers’ consumption
of plastic volumes, will continue to support
existing licensees and current projects.
We intend to invest within the Group’s risk
appetite to develop and commercialise the
MuCell technology, currently focused on
ReZorce mono-material barrier packaging.
This approach recognises that there is a high
“option value” for success and at this time our
business model remains flexible to deliver this
value in the best way for our stakeholders.
Having capitalised £4.7m through to the end
of 2022, as well as invested at an operating
level that drove much of the 2022 segment
loss of £1.9m, we have entered a process to
identify the right strategic partner to leverage
and accelerate the potential opportunity.
As development proceeds, we will have
greater clarity over the business model that
will capture the most value for the Group
and its shareholders.
25
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Steve Good
Chair
Strong sales growth and
improved margins generate
record profits alongside
continued strategic
delivery
Performance and results
2022 saw the Group record a second year
of strong sales growth, up 26% on 2021
following a 22% increase in the previous year.
This was driven by effective pricing actions in
Polyolefin Foams, a stronger US dollar and
significant High-Performance Products
(HPP) volume increases across Footwear,
ZOTEK
®
F (primarily aviation) and T-FIT
®
insulation. A focused programme of price
increases was implemented in Polyolefin
Foams to recover margin loss from the severe
input cost inflation that had materially
impacted 2021 margins and that continued
in 2022. Group revenue for the year was
£127.4m (2021: £100.8m) and operating profit
was 71% above the previous year at £13.9m
(2021: £8.1m), a record for the Group, with
operating margins expanding from 8.1%
to 10.9% despite a significant increase in
MuCell losses as we continue to invest in the
ReZorce
®
Circular Packaging opportunity.
Basic earnings per share was up 129% at
20.61p (2021: 9.01p). The balance sheet
remains strong, with leverage significantly
reduced during the year and ending at 1.2x
(2021: 2.1x), the lowest it has been since
2018 when the Group embarked on its now
complete capacity expansion programme.
Strategic progress
Our strategy is focused on delivering strong
and sustainable organic growth and improved
operational efficiencies. Zotefoams has a
portfolio of differentiated products based
on unique and environmentally friendly
technology and intellectual property. We work
with our partners to optimise our materials for
their needs and have developed a portfolio
of high-performance products that further
enrich our product mix, adding more value for
customers and to our business. Alongside
this, we have established a diversified
international manufacturing footprint to ensure
there is sufficient capacity to meet growing
demand across a range of attractive end
markets. We seek to improve operating
margins and returns through the investment
cycle. We are also pursuing a transformative
opportunity at MuCell Extrusion LLC with
ReZorce, a mono-material barrier packaging
solution which can be used for beverage
and food packaging, uses recycled materials
and is easy to recycle again (i.e. it is “circular”)
using existing waste collection and
recycling infrastructure.
We have made good strategic progress this
year. Our largest business unit, Polyolefin
Foams, converted the increased volumes
of 2021 into improved margins in 2022. We
continue to see structural growth prospects in
this important business unit, underpinned by
the megatrends of environment, regulation
and demographics and facilitated by our new
global capacity. In our HPP business, we
delivered another year of strong growth in
Footwear and worked closely with our partner
to develop further long-term opportunities.
Additionally, the start of a post pandemic
recovery in aviation resulted in demand for
ZOTEK F technical foams growing strongly,
with T-FIT insulation products also developing
well as the brand continues to gain traction.
The long-term growth outlook for these HPP
markets remains compelling. We also made
significant progress at MuCell Extrusion
LLC with ReZorce mono-material barrier
packaging, investing significantly in its
development, running scale-up trials and
commencing the search for a strategic
investor to allow full realisation of the
technology’s potential. Whilst acknowledging
that we are still at an early stage of
commercial development, this remains
a high-reward opportunity and we
expect to update stakeholders on progress
during 2023.
An introduction from our Chair
26
Zotefoams plc
Annual Report 2022
Sustainability
Our purpose is to provide optimal material
solutions for the benefit of society, reflecting
our belief that, used appropriately, plastics
are frequently the best solution for the
sophisticated, long-term applications typically
delivered by our customers. The Board is
focused on the importance of sustainability
and the evolving debate around the use of
plastics by society. It considers both in
relation to the future desired outcomes for
all stakeholders. Accordingly, our strategy
incorporates the consideration of climate
change in terms of financial and operational
impacts. Good progress was made in 2022
towards our sustainability targets. See the
Group CEO’s review on page 27 and the
ESG report on page 52.
The Board and Chair succession
There were no changes to the experienced
and engaged Board during the year. By the
time of the Annual General Meeting (AGM) in
May 2023, however, I will have been on the
Zotefoams Board for almost nine years and
it will be time for me to step down. Doug
Robertson, our Senior Independent Director,
has led a process to find my successor and
in early January 2023 we appointed Dr Lynn
Drummond as a Non-Executive Director and
Chair Designate. I am delighted to welcome
Lynn to the Board. She will take over as
Chair after our AGM. On a personal note,
it has been a pleasure to serve on the
Zotefoams Board and be part of the exciting
transformation and significant progress that
the business has made since I joined in 2014.
I am confident this success will continue.
Governance
The Board leads an ongoing programme to
ensure the highest standards of corporate
governance and integrity across the Group
and has remained abreast of developing
governance standards. The Board’s
interactions and communications with
executive management continue to be
excellent and, as a result, the Board is
well-placed to challenge, guide and support
executive management in the delivery
of the growth strategy. During the year,
we continued to pay particular attention to
the provision of a safe working environment
for our staff across all global locations and
maintained the improved visibility and quality
of safety performance data across the
business. I thank all employees at Zotefoams
for their efforts throughout the year to identify
and remove risks and keep each other safe.
We continue to support and empower our
employees and are meeting our commitment
to enhancing the employee voice in the
boardroom through the position of J Carling,
Independent Non-Executive Director,
as Board representative for workforce
engagement. The Board also acknowledges
the benefits of diversity, including that of
gender and ethnicity, and is committed to
setting an appropriate tone from the top in
all diversity and inclusion matters.
The Board considers that it has fully applied
all the principles and provisions of the UK
Corporate Governance Code during 2022,
with the exception of Provision 38 in respect
of the Company’s pension contribution for the
Group CEO. More information is provided in
the corporate governance report on page 80.
Looking to the future
Zotefoams is well positioned with well
invested, differentiated assets and a clear
strategy for delivering profitable organic
growth through the cycle. We have
committed, capable and passionate people
and a strong pipeline of new opportunities,
and while we remain mindful of the uncertain
external environment, with high inflation,
higher interest rates, the continued war in
Eastern Europe and remaining concerns over
COVID-19 and its variants, we are confident
about our future prospects for growth,
margin improvement and cash generation.
S P Good
Chair
4 April 2023
Dividend
The Board is proposing a final dividend of
4.62p (2021: 4.40p) which, if approved by
shareholders, would make a total dividend for
the year of 6.80p (2021: 6.50p), an increase
of 5%. This reflects the Board’s continued
confidence in the Group’s future and is in
line with its progressive dividend policy,
recognising the importance to our
shareholders of the dividend as part of
their overall return. If approved, the final
dividend will be paid on 2 June 2023 to
shareholders on the register on 5 May 2023.
Our people
We know that our people are key to the
Group’s success and 2022 was another year
that highlighted their importance. While in
most regions the impacts of the pandemic
have receded, this was not the case
everywhere, with our China staff particularly
impacted by a shutdown and significant travel
restrictions. Elsewhere, reduced restrictions
have enabled the return of direct interactions
between teams in different locations after at
least two years of forced separation, and we
see how important and valuable this is for the
individuals themselves and the Group as a
whole. The spiralling cost environment has
placed challenges on our staff from both a
work and a personal perspective and, with
regard to the latter, we implemented a number
of mitigating initiatives. High levels of business
activity and a need to respond quickly require
resilient and committed staff, and we have
again experienced this in our people, who
have been outstanding and have ensured that
the needs of customers continue to be met.
Having the right people at Zotefoams, who
understand and promote our culture, act at
all times with integrity, safety-consciousness
and dedication and possess the right
knowledge and skills, continues to be critical
to our future success. I would like to welcome
the new employees who have joined us
around the world during the past twelve
months. I would also like to thank those who
have helped all our new colleagues integrate
successfully and thank, once again, all our
hard-working employees and their supportive
families who have helped the Group continue
to make good strategic progress during these
very challenging times.
An introduction from our Chair
Continued
27
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
2022
United
Kingdom
Continental
Europe
North
America
Rest of
the world*
Total
Change %
27%
15%
46%
25%
26%
Group revenue (£000’s)
13,702
32,374
29,127
52,166
127,369
% of Group revenue
11%
25%
23%
41%
100%
2021
Group revenue (£000’s)
10,768
28,200
19,959
41,823
100,750
% of Group revenue
11%
28%
20%
41%
100%
*
Rest of the world comprises China: £30.0m (2021: £28.4m) and other countries: £22.2m (2021: £13.4m).
David Stirling
Group CEO
Record revenue and profit
with investment to capitalise
on identified trends and
generate sustainable growth
Overview
In 2022, Zotefoams grew significantly,
delivering record revenue, profit and earnings.
The year was characterised by a continuation
of trends seen in 2021: input cost inflation
in energy, in particular, polymer and other
manufacturing costs as well as labour.
Our effective response, to increase prices
where appropriate, was the main reason
for increased revenue which also benefitted
from an improved sales mix and more
favourable currency rates, both of which
aided profitability.
We continue to invest in our business
focused, primarily, on three clear
macro-trends: demographics, where an
increasing population is evermore urban and
aging; regulation, often around the safety of
people; and environment, where optimising
the use of scarce resources has become a
Group CEO’s review
global necessity. Sustainability, along with
health and safety, is embedded in everything
we do and, in 2022, we directed increased
levels of investment to the development of
new products and markets for our T-FIT
®
technical insulation products and to the
reduction of waste and Scope 1 and 2
emissions from operations. We also
invested significantly in our ReZorce
®
mono-material barrier packaging technology,
which is now transitioning from technical
development to pre-market trials.
Group revenue increased 26% to £127.4m
(2021: £100.8m), with operating profit of
£13.9m (2021: £8.1m) 71% above last year
and 20% above our previous best year (2018:
£11.6m). Underlying growth in our business
was approximately 5% from an improved
mix of products, while pricing actions and
exchange rate movements, principally a
stronger US dollar, contributed approximately
a 21% increase in revenue. Overall volumes
were at similar levels to 2021, with another
year of growth in footwear products and T-FIT
insulation, continued recovery in aviation and
a good performance in polyolefin foams in
North America being offset by a decline in
polyolefin products in continental Europe.
Profit before tax increased 74% to £12.2m,
(2021: £7.0m), with margin improvements in
our Polyolefin Foams and High-Performance
Products (HPP) business units, while losses in
our Mucell Extrusion LLC business unit (MEL)
increased as we continue our investment in
the ReZorce opportunity. See the Group
CFO’s review for the impacts of currency
on performance and profitability.
Strategic update and progress
Zotefoams’ strategy remains unchanged: to
invest in flexible assets and technology with
the capability to support the organic growth
opportunities afforded by our diverse, and
often unique, products. The results of this
investment, in development and/or capacity,
typically take time to be realised fully and
this can create a short-term headwind for
margins. However, we are confident that
our investment decisions are aligned to
longer-term growth trends and that our
differentiated and diverse products generate
good levels of demand with pricing power
over the economic cycle.
The investments we have made over the past
five years have delivered increased capacity
which, following the main economic effects
of COVID-19, is now beginning to be used
productively and is demonstrated in 2022
by very good profit growth and an ability
to deliver strong operating cash flow and
reduced leverage.
Our extrusion technology business, MEL,
is demonstrating good progress in the
development of new, sustainable packaging
28
Zotefoams plc
Annual Report 2022
technology through the ReZorce
mono-material barrier packaging solution
and is moving to commercialisation trials.
To help accelerate the opportunity, we
acquired the net assets of Refour ApS
(Skandeborg, Denmark) for £0.3m in October
and took on key members of the Refour
team. We are now seeking the right strategic
investor to work with us on this sustainable
packaging opportunity, which is explained in
more detail on pages 4 and 5.
Sustainability
Zotefoams products are typically sold into
markets where they are used multiple times,
often for many years, and can be recycled
at the end of life. They often form a positive
element of our customer’s own sustainability
agendas. In our foam manufacturing facilities,
we have reduced waste while increasing the
proportion of waste recycled, and have
developed high-functioning foams with 30%
recycled material content. The core markets
for our products are where a “best in class”
foam delivers our stated purpose: optimal
material solutions for the benefit of society.
Our products deliver performance and
longevity in industrial applications and
consumer durables such as footwear, medical
devices, insulation for planes, cleanrooms,
construction and cars, as well as military and
marine uses. In 2022, 85% of our revenue
was from products which are considered
“green” based on a resource efficiency
definition where, during manufacture or use,
they provide a substantial increase in the
efficiency of resources. This includes all
sales from MEL, which provides solutions for
increasing the efficiency of resource usage
by reducing polymer consumption.
Within MEL, we continue to invest in our
ReZorce mono-material barrier packaging
opportunity. The premise of our MuCell
®
technology is the reduction of plastic in society,
and the exciting ReZorce solution, using this
technology, is a truly circular answer to very
challenging targets set by governments and
brands in reducing their carbon footprint
and increasing the use of recycled materials.
See MEL below for more details.
Good progress was made in 2022 towards
our sustainability targets. An in-depth analysis
of the transitional risks arising from climate
change provided useful data relating to the
short-, medium- and long-term impacts on
the Group, which are currently assessed as
low risk. Further details are provided in our
TCFD section on page 60. We continue to
strive to develop disclosures aligned with our
shareholders’ and stakeholders’ expectations
and have been upgraded from an A score
to an AA score (the second highest rating
achievable) by MSCI. We also made our first
report to CDP in 2022. Further details are
provided in our ESG section on page 52.
2022 content
Segment revenue
£70.1m
Change
25%
2021
£56.2m
Segment profit margin
7.0%
2021
1.2%
Segment profit
£4.9m
Change
7x
2021
£0.7m
In 2022, sales in the Polyolefin Foams
business grew by 25% to £70.1m (2021:
£56.2m). Overall volumes were 1% below the
previous year, with low and mid-single-digit
percentage growth in the UK and North
America respectively, while volumes declined
5% in continental Europe, our largest
market, and there were mixed outcomes
in other geographies.
Polyolefin foams are widely used in industrial
and multiple-use consumer applications due
to their robustness and durability. The main
market segments are multiple-use packaging
and protection, often used in long-term
storage solutions, construction, sport and
leisure, automotive, aviation, marine, military
and healthcare. Customers for some specific
applications were negatively impacted by
supply chain disruption, such as automotive,
where demand declined to the lowest level
for many years, while most markets were
negatively impacted by high inflation of
materials and energy costs as well as labour
shortages. Growth in other areas, such as
construction and print solutions, came from
new applications which have been developed
Group CEO’s review
Continued
over the past few years and, in the case of
those in continental Europe, benefitted from
the proximity of certain customers to our
facility in Poland.
Average selling prices increased 24%, which
was primarily a result of price increases but
also a consequence of an improved mix and
some net foreign exchange benefit, with a
stronger US dollar but weaker euro. In most
areas, multiple price increases have been
implemented since Q2 2021 following input
cost inflation and, in 2022, we benefitted
from the full-year impact of price increases
implemented in 2021 plus further increases
in 2022, some of which were implemented
as a surcharge which remained in place
throughout the year. In European markets,
energy, polymer and nitrogen pricing remain
volatile but may have overshot their long-run
sustainable level.
The intent of these price increases is to
recover the higher costs we are experiencing
but not to recover previous percentage
margin levels, nor position our pricing based
on peak input costs. Finding the balance
between price adjustments and potential
demand destruction in the current
environment remains an ongoing focus.
The main polymers used in our Polyolefin
Foams business unit are low-density
polyethylene (LDPE) and other similar
polyolefins. LDPE pricing has been extremely
volatile since reaching a long-time trough in
early 2020 that was linked to lower demand
through the COVID-related economic
slowdown. Since then, it has risen rapidly due
to a combination of factors, peaking in Europe
in May 2022 and recently trending lower but
above its long-term average. Current polymer
pricing levels are in part due to high energy
costs, which are also indirectly impacting the
costs of nitrogen and freight as well as having
a direct impact on Zotefoams. Direct costs
of energy and nitrogen, which have a much
higher impact on Polyolefin Foams than on
our HPP business unit, increased by over
50% in the period.
In our UK and Poland facilities, good progress
has been made on waste reduction
and energy efficiency and in Europe we
commercially launched new materials
incorporating 30% recycled polymer following
market testing during development. In our
Kentucky, USA facility, manufacturing yield
efficiency improved over the course of the
year from the low levels experienced in 2021,
with specific actions planned for 2023 to
continue this progress.
Segment profit margin has grown to 7% of
sales, significantly better than last year but
with scope over time for further improvement
primarily through improved asset utilisation,
operational efficiency and mix enrichment.
POLYOLEFIN
FOAMS
AZOTE
®
29
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Segment revenue
£2.8m
Change
23%
2021
£2.3m
Segment loss before
amortisation of acquired
intangibles*
-£1.6m
Change
231%
2021
-£0.5m
Segment loss after
amortisation of acquired
intangibles*
-£1.9m
Change
175%
2021
-£0.7m
MuCell
®
extrusion technology centres around
combining high-pressure gas with polymer,
allowing a typical reduction of 15% of the
material required. Our business model, until
recently, has been to manufacture and sell
equipment and license technology, with future
income being a royalty stream based on
the polymer savings from existing products.
Most of our customers are making consumer
packaging where our technology delivers a
lower cost and lower environmental footprint.
Over the past few years, we have worked
further to extend this gas-injection capability
to new applications. This has led to the
creation of a new platform technology,
branded ReZorce
®
, which is mono-material
barrier packaging. Certain products, such as
Sales in our HPP business unit grew by 29%
to £54.4m (2021: £42.3m). The main product
groups are Footwear, ZOTEK
®
fluoropolymer
foams and T-FIT
®
technical insulation.
Overall volumes were 12% ahead of 2021.
In Footwear, where we have an exclusive
arrangement with Nike, our materials are
primarily used in midsoles for running shoes.
In 2022, sales grew by 25% to £42.1m
(2021: £33.9m). Since partnering with Nike
in 2016, our business has grown significantly
through the use of Zotefoams materials on
more shoe models as well as through the
growth experienced by Nike in the premium
running segment. We have continued to
develop new and innovative foams and
improved our production efficiency, reducing
cost, scrap and waste, most of which is now
re-incorporated into products within the
Footwear supply chain. Pricing to Nike
recovers cost inflation, albeit with a lag,
through our contractual terms. Footwear
Segment revenue
£54.4m
Change
29%
2021
£42.3m
Segment profit margin
28.1%
2021
20.6%
Segment profit
£15.3m
Change
75%
2021
£8.7m
products accounted for 77% (2021: 80%) of
HPP segment sales.
Other HPP foams are mainly used in aviation
applications, where our ZOTEK F materials
offer unrivalled performance at very low
weight. Outside aviation, our foams, including
those made from nylon and elastomers, are
used in healthcare, packaging, military and
personal protection. Sales volumes of ZOTEK
F materials increased by 17% and value
increased by 48% to £6.2m (2021: £4.2m)
with a beneficial product mix from the
improving aviation market and the benefit
of a stronger US dollar. Input cost inflation
in these materials was less severe than in
polyolefin foams and our pricing reflected
this. These applications accounted for 11%
(2021: 12%) of HPP segment sales.
T-FIT insulation is made using Zotefoams’ own
HPP products and designed for the most
demanding internal environments, such as in
pharmaceutical, biotech and food and drink
processing. Sales grew by 48% to £5.8m
(2021: £3.9m). Our main markets are China
and India, where more new factories are
being built, although there is also an increase
in construction activity in both Europe and
North America. Most of our T-FIT conversion
from foamed sheets to tubes, which is low
capital intensity, takes place in China, but we
have recently begun manufacturing in Poland
and have an outsourced manufacturing partner
to serve the North American market. T-FIT
sales represent 11% (2021: 9%) of HPP
segment sales.
Segment profit increased to £15.3m (2021:
£8.7m), a segment profit margin of 28.1%
(2021: 20.6%). The segment margin recovered
from a relatively low point in the previous year,
seeing the benefit of an improved product mix
from higher aviation revenue and a stronger
US dollar in which almost all HPP revenue is
invoiced. We have expectations of further
growth in our HPP business and continue
to focus our investment in new product
development and sales resources for T-FIT
insulation, in line with these expectations.
HPP
MEL
ZOTEK
®
T-FIT
®
MuCell
®
ReZorce
®
*
Amortisation of acquired intangibles: 2022: £258k, 2021: £232k.
30
Zotefoams plc
Annual Report 2022
food and drink, require their packaging to
provide a barrier to oxygen and moisture
and this is typically delivered through a
combination of different materials in the same
pack. It is very effective and cost-efficient
and therefore widespread, however, often
extremely difficult to recycle and almost never
circular. We have proven that our ReZorce
packaging system can provide the required
barrier properties, is easily recycled using
common infrastructure available today and
can be made using a high proportion of
recycled raw materials. Overall, this solution
offers a lower carbon footprint for commonly
packaged foodstuffs, in some cases
a reduction of more than 50%. Our
go-to-market plans are moving from technical
development into pre-market trials and
the main challenge now is to prove the
“downstream” solution of turning ReZorce
sheet into specific packaging formats, ideally
using existing infrastructure.
Revenue from our MEL business unit grew
23% to £2.8m (2021: £2.3m), while the
segment loss widened to £1.6m (2021: £0.5m)
before amortisation of acquired intangibles, a
direct result of the non-capitalised investment
to develop ReZorce technology. In addition to
this, we capitalised £1.4m (2021: £1.0m) of
operating costs and invested £0.8m (2021:
£0.9m) in tangible fixed assets. This included
the acquisition of a full-scale extrusion line and
carton filling and packing line as well as some
ancillary equipment in Denmark, which now
operates as a development centre within the
MEL division, with scope to scale up for initial
market launch.
The market opportunity for lower carbon
footprint packaging is vast. Cartons and
pouches together generate revenues in
excess of $40bn p.a. We recognise that
launching products into this market, which
requires us to overcome significant market
and technical hurdles, is best done with
a strategic investor to mitigate the risk,
ideally through a combination of their own
experience and financial investment. Late in
2022, we appointed a USA-based adviser
to facilitate the interactions with potential
partners, and this engagement is progressing.
Capacity and investment
Zotefoams’ manufacturing process comprises
three main stages: extrusion of a polymer
sheet, high-pressure gassing of this
sheet with nitrogen and final expansion
in a lower-pressure environment. The
infrastructure around these processes is
complex and costly and, therefore, ideally
supports multiple production vessels.
Most products can be made on multiple
production lines, although some of our older
assets are not capable of making all products
we sell today. Our UK site manufactures all
HPP products and sends partly finished
polyolefin products for the final expansion
process to Poland, which is closer to many
customers, reducing overall transport costs
and emissions. Our site in Kentucky, USA is
well-placed geographically for its customer
base and operates largely independently of
the other two foam manufacturing locations.
Following the high levels of capital invested
prior to 2021, the majority of investment in
foams manufacturing over the past two y
ears has been to improve efficiency, replace
aging equipment and address bottlenecks
in production processes. The foams business
has sufficient capacity, with minimal
incremental investment, to deliver our growth
plans for the foreseeable future. Our facilities
in the USA and Poland have the flexibility for
investment to support longer-term growth.
Zotefoams also invested £2.3m (2021: £1.9m)
in developing the ReZorce mono-material
barrier packaging technology, which is
explained in more detail above.
Measuring strategic progress
The markets in which we operate are driven
by global trends – environment, regulation
and demographics – which we believe offer
the potential for high rates of market growth
as well as opportunity for our disruptive
technology solutions. We assess progress
on six separate metrics:
1.
We expect our HPP business unit to offer
higher growth rates and better margins
than Polyolefin Foams. Sales in our HPP
business unit, which offers unique
disruptive products and solutions,
now account for 43% (2021: 42%) of
Group revenues and recorded growth
of 29% (16% in constant currency). The
unique benefits offered by these products,
combined with market recovery in aviation,
offer good growth prospects. Margins
in the period were 28% (2021: 21%),
significantly better than the margins in
our Polyolefin Foams business unit
2.
Sales of our highly differentiated AZOTE
polyolefin foam products increased by 25%
(22% in constant currency), against our
target rate of twice global GDP growth.
While headline growth was significant,
it was not underpinned by increased
volumes, which declined by 1%. 2022
was a year in which some traditionally
large polyolefin market segments,
automotive in particular, declined,
while other areas grew considerably
3.
Group operating margin increased to
10.9% (2021: 8.1%). Price rises were
implemented to recover input cost inflation,
which was the primary reason for the
reduced operating margin in 2021, and
foreign exchange rates were favourable in
this period and unfavourable in the previous
period. The increased operating loss
in MEL was a direct result of planned
increased investment to deliver the
objectives of ReZorce barrier packaging.
Excluding MEL, operating margin
was 12.7% (2021: 9.0%), or 11.2% in
constant currency
4.
Group return on capital improved to 10.1%
(2021: 6.1%), largely as a result of increased
profitability of the Polyolefin Foams and
HPP business units, partly offset by the
increased losses of MEL as noted above.
The Group’s average capital employed
increased only slightly by 2%, with capital
expenditure below depreciation and
amortisation and little movement in total
working capital. Inventories were level and
increased receivables offset increased
payables, linked to higher selling prices and
higher input costs and variable-pay-related
accruals respectively, and both were
impacted by the stronger US dollar
exchange rate
5.
Our approach to environmental
sustainability and climate change has been
clarified and improved in our business. The
business now uses fully sustainable (from
renewables) electricity where available.
We have made significant progress in
waste reduction and 85% of revenues
are in applications considered “green”,
as described in our ESG report, see page
53. In March 2022, we incorporated clearly
defined ESG targets, which have a small
impact on interest margin, in our bank
refinancing arrangements and these are
supplemented by internal targets in relation
to other ESG metrics
6.
MEL has potentially disruptive technology to
improve sustainability, primarily in consumer
packaging. We intend to invest within
the Group’s risk appetite to develop and
commercialise this technology, which at this
time is focused on ReZorce mono-material
barrier packaging. This approach
recognises that there is a high “option
value” for success associated with this
higher risk profile. We have made good
progress in ReZorce development,
acquired complementary know-how and
assets in a new entity in Denmark and
begun the process to find the right strategic
investor to accelerate commercialisation.
People
The top priority for Zotefoams is ensuring the
health and safety of employees and site
visitors. The Board tolerance for risk is set
accordingly, with health and safety an
agenda item at every Board and Executive
Committee meeting.
The main safety metric in our business is
reportable lost time incidents and, regrettably,
we had two such incidents during the year
(2021: nil) from which both individuals made
Group CEO’s review
Continued
31
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
a full recovery. In line with our policy, a full
follow-up and analysis with corrective actions
was reviewed by the Board. Other metrics,
which record less severe incidents and
absences, showed significant improvement
over the prior year and are significantly
below industry benchmarks, with measured
incidents around one third of the rate of
comparable companies.
With eight physical locations globally and
many more people working, at least some
of their time, from home, we work hard to
ensure cohesion through a common culture
and clear communication of our strategy,
objectives, progress and challenges.
Employee engagement activities included
Group CEO “all-staff briefings”, which include
a Q&A session, as well as employee surveys.
More detail of these is included in the
“People” section of our report.
I would like to extend my thanks to my
colleagues and to their families for their
support over the past year.
During 2022, Zotefoams employed an
average of 518 people, 4% more than in 2021.
Of these, approximately two-thirds worked
in production, with 15% in distribution and
marketing and the remainder in administration,
including finance, HR and IT, and technical
or quality positions.
Forward-looking statements
Forward-looking statements have been
made by the Directors in good faith using
information available up until the date they
approved this Annual Report. These
forward-looking statements should be
considered in light of the continuing
uncertainty surrounding the impacts of
the COVID-19 virus and the geopolitical
environment, currently most impacted by
the events in Eastern Europe, on economic
trends and business.
Current trading and outlook
2023 has started well, with demand for our
AZOTE polyolefin foam products in line with
the previous year but with higher revenue from
price increases implemented over the past
twelve months. Sales of high-performance
products are showing strong growth in the
first few months, mainly due to the timing of
shipments compared with the prior period.
Sales across both businesses continue to
benefit from a stronger US dollar.
The environment for input costs is less acute,
with both energy and polyolefin polymer
prices reduced from the peaks seen last
year but remaining well above their
long-term averages. Prices for energy
and energy-intensive commodities
such as nitrogen remain uncertain, with
forward-market pricing at a significant risk
premium to spot. We are closely monitoring
input costs and our pricing in the polyolefin
foams business in particular.
Whilst uncertainty persists, we currently
expect that, for the year as a whole, polyolefin
foams volumes will be at a similar level to last
year, with more challenging conditions in the
UK and continental Europe offset by growth
in North America and other geographies.
Our HPP business should see further growth
in Footwear and continued strong growth
in both our ZOTEK F and T-FIT insulation
products. Within our MEL business unit, focus
has progressed to commercialisation trials for
ReZorce cartons.
Overall, the Board remains confident about
the future prospects for our business.
D B Stirling
Group CEO
4 April 2023
32
Zotefoams plc
Annual Report 2022
Group CFO’s review
Overview
Group revenue for the year increased 26% to
£127.4m (2021: £100.8m). High-Performance
Products (HPP) sales increased 29%, with
good volume growth in Footwear, ZOTEK
®
fluoropolymers and T-FIT
®
technical insulation
and a foreign currency tailwind, while
Polyolefin Foams sales rose 25%, led by
price increases, experiencing growth in all
geographical markets and major application
groupings, with the notable exception of
automotive. MuCell Extrusion LLC (MEL) sales
grew 23%, despite the ongoing refocus of
resources on our ReZorce
®
mono-material
barrier packaging opportunity. In constant
currency, Group revenue grew 19% to
£119.8m, with an additional favourable
currency impact in the year of £7.6m,
the result of the US dollar averaging 10%
higher against sterling.
Operating profit increased 71% to £13.9m
(2021: £8.1m). Raw material costs rose further
in H1 2022 before receding slightly from their
peak in the second half of the year; however,
energy prices began to surge from early in
the year, led by concerns related to Russian
supply as the impacts of the war in Ukraine
unfolded. Other key input costs, such as
nitrogen, also increased significantly. Multiple
rounds of price increases in Polyolefin Foams,
together with smaller increases in HPP, where
polymer prices were more stable, were
implemented early in the year to recover
margins. Gross margin increased 46% to
£38.7m (2021: £26.6m), also supported
by a favourable US dollar exchange rate, and
the gross margin percentage improved by
400 basis points to 30.4% (2021: 26.4%).
Distribution and administrative costs
increased 35% to £24.8m (2021: £18.4m),
with £3.0m of the movement related to
hedging differences year-on-year and much
of the remaining increase related to higher
performance-related bonus and stock option
costs reflective of the strong results. Net
finance costs were £1.8m (2021: £1.1m),
following increases in dollar and euro base
rates as well as a £0.3m write-down of
refinancing costs from the Group’s previous
bank facility. Profit before tax increased 74%
to £12.2m (2021: £7.0m). After deducting
taxation of £2.2m (2021: £2.6m), which
reflects a return to a normalised charge after
a previous year which included a £1.0m
deferred tax accrual related to the increase
in the corporation tax rate from 19% to 25%
and a £1.0m deferred tax charge related to
an earlier year tax credit, basic earnings per
share was up 129% at 20.61p (2021: 9.01p).
In constant currency, profit before tax was
£9.7m, with an additional favourable currency
impact of £2.5m.
Gary McGrath
Group CFO
2022 was a strong year for
Zotefoams, with high revenue
growth generated from HPP
volumes and polyolefin price
increases leading to significantly
improved margins despite
continued cost inflation.
Strong cash generation,
coupled with favourable
FX movements, saw leverage
fall to its lowest point since 2018
Summary P&L
2022
2021
Change (%)
Net revenue
127.4
100.8
26
Gross profit
38.7
26.6
46
Distribution and administrative costs
(24.8)
(18.4)
(35)
Operating profit
13.9
8.1
71
Finance costs
(1.8)
(1.1)
(63)
Profit before tax
12.2
7.0
74
Tax
(2.2)
(2.6)
16
EPS
20.61
9.01
129
33
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Gross profit
Gross margin increased to 30.4% (2021:
26.4%), representing an increase of £12.1m
in absolute terms from £26.6m to £38.7m.
Multiple sales price increases were
implemented in the Polyolefin Foams business
in H1 2022 to help recover lost margins
resulting mostly from raw material increases
in 2021 and, additionally in 2022, from
escalating energy (with fewer hedges due
to the high forward pricing quotes), nitrogen
and people costs. Energy costs increased
from £4.8m in 2021 to £7.3m in 2022. Smaller
price increases were implemented in HPP to
offset rising material costs of these speciality
polymers, while increased volumes in the
business unit also drove operational gearing.
Freight availability and pricing improved in
the year. The reduced strength in sterling,
The Group reports a strong balance sheet
at 31 December 2022, with net debt down
£6.5m to £27.8m (31 December 2021:
£34.3m) and the leverage multiple (net debt
to EBITDA, using definitions under the bank
facility agreement, see section “Debt facility”)
falling to 1.2 (31 December 2021: 2.1).
This was realised after a £6.9m (43%)
increase in EBITDA to £23.0m (2021: £16.1m),
strong cash generation with net cash flows
generated from operations of £23.0m
(2021: £12.8m), capital expenditure of
£7.0m (2021: £7.0m) and total dividends of
£3.2m (2021: £3.1m).
Revenue performance
Polyolefin Foams business unit sales grew
25% to £70.1m (2021: £56.2m). In constant
currency, sales grew 21% to £68.1m. This
reflects a consolidation of the volume growth
achieved in 2021, mix enrichment and a
number of price increases in H1 2022 to help
recover margins following the significant cost
inflation of 2021 which continued into 2022.
The UK and USA regions experienced very
strong sales growth, up 30% and 39%
respectively, while Europe increased 14%
and the Rest of the world increased 23%.
All application markets performed well, except
for automotive, which continued to suffer
from industry-specific challenges and mostly
impacted Europe.
HPP sales increased 29% to £54.4m
(2021: £42.3m). In constant currency, sales
grew 16% to £49.1m. Footwear is the largest
application within HPP and revenue in this
market grew a further 25% to £42.1m (2021:
£33.9m), with Zotefoams products on more
shoe platforms, resulting in this business
division accounting for 33% of Group sales
(2021: 34%). ZOTEK F fluoropolymer foam
sales closed the year 48% up at £6.2m
(2021: £4.2m), still £4.8m below our 2019
peak of £10.0m, signalling the start of a
recovery in the aviation industry after two
years impacted by COVID-19. T-FIT advanced
insulation sales also grew 48% to £5.8m
(2021: £3.9m), with strong growth in China
despite continued challenges from the
country’s strict COVID-19 controls during t
he year, which included a five-week shutdown
of our local facility in H1 2022.
MEL sales growth remains constrained by
the current strategy to focus on existing
customers and redirect resources to the
ReZorce mono-material barrier packaging
initiative. Despite this, sales grew by 23%
to £2.8m (2021: £2.3m), with negligible impact
in absolute terms from currency.
Revenue by segment (£m)
2022
Reported
2022
Adjusted
1
2021
Reported
Net change %
Reported Adjusted
Polyolefin Foams
70.1
68.1
56.2
25
21
UK
13.2
13.2
10.4
27
27
Europe
30.2
30.7
26.1
16
18
USA
22.4
20.1
16.1
39
25
Rest of the world
4.3
4.1
3.6
19
14
HPP
54.4
49.1
42.3
29
16
Footwear
42.1
37.8
33.9
25
12
ZOTEK
®
F
6.2
5.5
4.2
48
33
T-FIT
®
5.8
5.5
3.9
48
41
Other
0.3
0.3
0.3
–
–
MEL
2.8
2.6
2.3
23
13
Group
127.4
2
119.8
100.8
26
19
1
Constant currency, adjusting 2022 values to 2021 rates. See exchange rates table.
2
Adjusted for rounding.
Revenue by market (%)
2022
2021
Sports and leisure
37
37
Product protection
23
26
Building and construction
13
11
Transportation*
12
10
Industrial
6
7
Medical
5
5
Other
4
4
*
Within the transportation segment, aviation represented 7.6% (2021: 4.5%) and automotive 4.8% (2021: 5.8%) of Group revenue.
These two markets remain well below their pre-pandemic levels and in 2019 were 15.0% and 7.0% respectively.
mostly compared with the US dollar and in
particular in HPP, where most sales are
denominated in US dollars, significantly
benefitted gross margin by £4.9m, with some
of the impact offset by the Group’s hedging
strategy, the outcome of which appears
below under administrative costs in line
with accounting standards.
34
Zotefoams plc
Annual Report 2022
Distribution and
administrative costs
The Group has a clear expansion strategy,
founded on proprietary cellular materials
technology linked to longer-term demand
growth in our chosen markets. Organic
growth with a portfolio of unique and highly
differentiated products requires that we invest
actively in, and reprioritise where needed,
technical, sales-focused and administrative
resources to create, execute and manage
this growth.
Included within distribution costs in the
consolidated income statement are sales,
marketing and warehousing expenses. These
costs increased by £0.7m, or 10%, to £8.0m
(2021: £7.3m) during the year, mostly reflecting
increased marketing spend, HPP hirings for
planned future growth and increased sales
activity, offset by optimisation of the UK site to
reduce offsite warehousing costs. Included
within administrative expenses are technical
development, finance, information systems and
administration costs as well as the impact of
foreign exchange hedges maturing in the
period and non-cash foreign exchange
translation expenses. These costs increased
in 2022 by £5.7m, or 51%, to £16.8m (2021:
£11.1m). However, after stripping out foreign
exchange movements, which generated a
movement of £3.0m, these administrative costs
increased by 22%, or £2.7m, to £15.0m (2021:
£12.3m), mostly related to £1.8m of additional
bonus and stock option costs reflecting the
significant improvement in performance in the
year, while also reflecting increased investment
in finance and IT in the UK and staff outside the
UK. See “Currency review”, below for further
information and context around foreign
exchange movements.
The business unit results do not include central
plc costs, which are not considered to be
segment specific. Neither do they include
hedging movements. In 2022, central plc costs
were £2.5m (2021: £1.8m), the growth mostly
due to bonus and stock option charges
following a strong year.
Distribution and administrative costs breakdown
2022
2021
Change
(%)
Distribution costs
8.0
7.3
(10)
Administrative costs excluding hedging movements
15.0
12.3
(22)
Hedging movements
1.8
(1.2)
–
Administrative costs
16.8
11.1
(51)
Distribution and administrative costs
24.8
18.4
(35)
Operating profit
Operating profit was £13.9m, 71% above
2021 (£8.1m). The operating margin increased
from 8.1% to 10.9%.
Finance costs
The total interest charge for the year increased
to £1.8m (2021: £1.1m) and includes £0.1m
(2021: £0.1m) of interest on the Defined
Benefit Pension Scheme obligation. This
increase reflects the rise during the year
in US dollar and euro base rates, which are
the currencies in which the Group’s debt
obligations are held, as well as £0.3m related
to unamortised costs related to the previous
banking facility, which was replaced in
March 2022.
Profit before tax
Profit before tax increased 74% to £12.2m
(2021: £7.0m).
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars
and euros. The exchange rates used to
translate the key flows and balances were:
2022
2021
Average Closing
Average
Closing
Euro/
sterling
1.173
1.129
1.163
1.192
US dollar/
sterling
1.238
1.204
1.376
1.351
Movements in foreign exchange rates can
have a significant impact on results. During
the year, the sterling average exchange rate
year-on-year against the US dollar weakened
by 10% and the sterling average exchange
rate against the euro strengthened by 1%.
The sterling spot rate against the US dollar
from 31 December 2021 to 31 December
2022 weakened by 11%, while the sterling
spot rate against the euro from 31 December
2021 to 31 December 2022 weakened by 5%.
Zotefoams is a predominantly UK-based
exporter which invoices mostly in local
currency. In 2022, approximately 90% of
sales (2021: approximately 90%) were
denominated in currencies other than sterling,
mostly US dollars or euros. Most operating
costs are incurred in sterling, other than the
main raw materials for polyolefin foams
used for production in the UK, which are
euro-denominated, US subsidiary production
and operating costs, most other subsidiaries’
staff and operating costs and some
HPP raw materials, which are all US
dollar-denominated. Poland operating costs
are incurred in zloty. The Group uses forward
exchange contracts to hedge two-thirds
of its forecast net cash flows over the
following twelve months that are subject
to US dollar and euro transaction risk.
The Group recorded a loss on forward
exchange contracts in the year of £2.9m
(2021 gain: £1.3m).
Zotefoams also faces translation risk.
Zotefoams plc, the parent company, holds
the Group’s multi-currency borrowings facility
and has provided intercompany loans and
intercompany trading facilities to the USA
and Poland to support the Group’s capacity
expansion projects. This translation exposure
is mitigated, where possible, through an
offset with same-currency liabilities,
primarily through borrowing in the relevant
currency. Every month, these foreign
currency-denominated intercompany net
positions, despite being cash neutral, require
to be translated by Zotefoams plc on a mark
to market basis and the movement taken to
the Company income statement. The Group
also has a fast-growing HPP business, which
is mostly invoiced from the UK in US dollars,
which adds to its exposure to foreign
currency-denominated net assets and is
accounted for in the same way as above.
While FX exposure is partly mitigated by the
forward currency contracts, risk remains
based on the amount of forecast exposure
not hedged, in line with Group policy, and the
fact that there is a timing difference between
the recording of accounts receivable and
cash received. This timing difference is
tackled by further hedging activities, but their
effectiveness is subject to the accuracy of
forecasting cash receipts. The Group
recorded a translation gain in the year of
£1.0m (2021 loss: £0.1m).
Group CFO’s review
Continued
35
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Segment profit (£m)
2022
Reported
2022
Adjusted*
2021
Reported
Net change %
Reported Adjusted
Polyolefin Foams
4.9
4.6
0.7
–
–
HPP
15.3
11.0
8.7
75
26
MEL
(1.9)
(1.7)
(0.7)
–
–
Business units
18.3
14.0
8.7
110
60
Central costs
(2.5)
(2.5)
(1.8)
44
44
Hedging
(1.8)
–
1.2
58
–
Interest
(1.8)
(1.8)
(1.1)
59
59
Other
(6.1)
(4.3)
(1.7)
–
–
Group
12.2
9.7
7.0
74
39
*
Constant currency, adjusting 2022 values to 2021 rates. See exchange rates table above.
Currency movements during the year
positively impacted Group revenue by
£7.6m (2021: £4.1m negative impact).
They negatively impacted operating costs
by £3.2m (2021: £2.4m positive impact),
resulting in a net positive impact of £4.3m
(2021: negative impact £1.7m) before hedging.
After deducting the net hedging loss of
£1.8m (2021: gain of £1.2m), the net currency
positive impact for the year was £2.5m
(2021: negative impact £0.5m).
We expect growth to be denominated in
currency other than sterling and recognise
that one of our principal risks is our exposure
to foreign currency fluctuations, particularly
the US dollar, which we will aim to manage
through hedging strategies. Based on 2022
and with respect to transaction risk, it is
estimated that for every one percentage
point movement in the US dollar/sterling rate,
profit moves by £0.4m unhedged and £0.1m
hedged. In the year, it is assumed that the
transaction risk from euro/sterling movements
continues to be substantially naturally hedged,
with the risk arising on sales revenues offset
by the opportunity on costs, primarily related
to raw material purchases and certain further
processing costs.
The Group does not currently hedge for the
translation of its foreign subsidiaries’ assets or
liabilities. The foreign currency hedging policy
is kept under regular review and is formally
approved by the Board on an annual basis.
Taxation charge and earnings
per share
The tax charge for the year is £2.2m (2021:
£2.6m). The effective tax rate for the year is
18.1% (2021: 37.6%), which is a return to
a rate similar to the Group’s weighted average
corporate tax rate for the year of 19.5%
(2021: 19.0%). In the previous year, the higher
effective tax rate arose primarily from an
increase in the deferred tax charge of £1.0m
that followed the substantive enactment of
a decision to increase UK corporation tax
rates to 25% in 2023, a prudent approach to
recognising overseas tax losses as a deferred
income tax asset amounting to £0.4m and a
lower profit before tax for the year of £7.0m.
Basic earnings per share was 20.61p (2021:
9.01p), an increase of 129%. Diluted earnings
per share was 20.20p (2021: 8.87p).
ReZorce
ReZorce
®
technology being developed by
MEL offers brand owners the ability to
significantly reduce their carbon footprint and
also help meet their pledges on both recycling
and the use of recycled content in their
packaging, putting sustainability at the heart
of our MEL development agenda. During the
year, Zotefoams continued its investment in
this opportunity. In line with IAS 38 ‘Intangible
assets’, labour amounting to £0.4m (2021:
£0.4m) was redirected from MEL to ReZorce
and capitalised, and a further £1.0m (2021:
£0.6m) was invested in additional, directly
attributable costs, and capitalised. The Group
also invested £0.8m (2021: £0.9m) during the
year to purchase and develop equipment,
which has been recorded under tangible
assets. This amount includes the acquisition
of the net assets of Refour ApS (Skandeborg,
Denmark) for £0.3m, which, together with
key members of the Refour team, is expected
to accelerate the development of ReZorce
across a wide variety of applications. In total,
capitalised investment in ReZorce amounted
to £2.2m during 2022 (2021: £1.9m) and is
£4.7m cumulatively over the life of the project,
which will be amortised in line with Group
policies, if successful, or be fully impaired,
if not, in line with accounting standards.
The Board does not currently consider any
of these assets to be impaired, given the
progress made in development, the
commercial opportunities that exist, the
current search for a strategic investor and
the Board’s continuing commitment to the
initiative. MEL also reported a loss before tax
of £1.9m (2021: £0.7m), the movement driven
by our focus on the ReZorce opportunity.
Dividend
The Board has a progressive dividend
policy, recognising the importance to our
shareholders of the dividend as part of their
overall return. The Directors are proposing
a final dividend of 4.62p (2021: 4.40p),
which would be payable on 2 June 2023
to shareholders on the Company register
at the close of business on 5 May 2023.
The ex-dividend date will be 4 May 2023.
Taken with the interim dividend of 2.18p
(2021: 2.10p), this would bring the total
dividend for the year to 6.80p (2021: 6.50p)
and would represent a dividend cover of
3.7 times (2021: 1.4 times).
Currency impact on business segment profitability
Currency had a £7.6m positive impact on the Group’s sales performance. See page 33 above.
36
Zotefoams plc
Annual Report 2022
Investments
Given the capital-intensive nature of the
Zotefoams business, long lead times for
key equipment and the importance of
operational gearing, investment decisions
require significant planning and are made
with a clear assessment of strategic fit,
risk, risk appetite, sustainability credentials
and expected returns. Confidence in the
Group’s developing portfolio of HPP
opportunities is a significant consideration
in determining the timing of certain
investments, while the strategic importance
of maintaining growth in the profitable
Polyolefin Foams business, the Group’s
largest volume product range, informs the
decision to increase total Group capacity
versus relying solely on mix enrichment.
Outside significant capacity-related
investments, the Group also invests to
maintain its capital-intensive assets,
mindful of opportunities to improve energy
efficiency and further reduce health
and safety risk, particularly at the older
UK facility.
Zotefoams targets improvements in
the Group’s return on capital over the
investment cycle, while recognising
the short-term impact on the return of
sizeable capital investments during their
construction and early operations phases,
where they initially run at lower utilisation
and mix optimisation levels. When
Zotefoams embarks on investment in
a major expansion or new location,
such as the installation of extrusion
and high-pressure capability at our
existing Kentucky, USA site, which we
commissioned in 2018, or the most recent
investment in foam manufacturing at the
Poland site, commissioned in 2021, we take
into account the importance of scale and
dilution of heavy infrastructure cost over
a (future) second or third line. As such, the
first step is invariably more dilutive to capital
return than any subsequent investments.
Zotefoams is also pursuing a transformative
mono-material barrier packaging solution
through its MEL business unit, branded as
ReZorce. In this pre-revenue development
phase, overall capital returns are diluted as
a result of both the operating profit charge
as well as the capital investments made,
but the initiative offers significant potential
if the technology is adopted.
Definition of ROCE and 2022 outcome
Zotefoams defines the return on capital
employed (ROCE), which is a non-IFRS
measure, as operating profit before
exceptional items divided by the average
sum of its equity, net debt and other
non-current liabilities. This measure
excludes acquired intangible assets and
their amortisation costs. We also exclude
significant capacity investments under
construction until they enter production.
We do not attempt to adjust for the first
phase inefficiencies as mentioned above.
In 2022, the Group’s return on capital
employed increased to 10.1% (2021: 6.1%),
mostly reflecting improved profitability in
the year. The main cause of a reduction
in ROCE since 2018, when the Group
generated a ROCE of 16.5%, is the increase
in the capital base following the completion
of our investments in the UK, USA and
Poland and the additional operating costs
arising from their operation, which is
expected during this stage of the
investment cycle. Business growth,
with this increased capacity matched by
improved utilisation and mix enrichment,
is expected to improve ROCE beyond
that previously achieved.
Investment in growth-generating tangible assets (£m)
2015
2016
2017
2018¹
2019²
2020³
2021
2022
Total
Growth capital
6.1
6.9
7.8
12.8
19.8
10.3
3.4
1.6
68.7
Capitalised interest
–
–
–
–
0.9
0.6
–
–
1.5
Maintenance capital
2.6
5.2
3.6
3.0
3.7
2.1
2.6
3.8
26.6
Total investment in
property, plant and
equipment
8.7
12.1
11.4
15.8
24.4
13.0
6.0
5.4
96.8
Cash flow
The Group is highly cash generative, and this
was a particularly strong year, with net cash
from operations before investment in working
capital and provisions of £24.1m, up 46% on
the previous year (2021: £16.5m). Out of this,
£0.3m (2021: £2.9m) was then reinvested in
working capital. Trade and other receivables
increased by £4.8m (2021: increased £1.6m),
reflecting greatly increased sales in November
and December versus the previous year and
certain overdues in the USA which have since
been recovered or are being effectively
managed. Outside the USA, our overdues
continue to remain very low. Inventories
decreased just £0.4m (2021: increased
£2.8m), with increased footwear raw materials
required to match demand offset by a
depletion of fluoropolymer inventory for
ZOTEK F, which will be replenished in 2023
as demand improves post COVID-19.
Trade and other payables increased £4.1m
(2021: increased £1.5m), with a £1.4m
increase due to higher purchase costs and
timing of purchases, a further £1.6m related
to the higher 2022 bonus accrual and
approximately £0.7m related to utilities and
insurance accruals. Zotefoams recognises the
importance of its supplier relationships and
has improved its performance with respect to
honouring agreed payment terms. As a result
of all of the above, cash generated from
operations was significantly higher than the
previous year at £23.0m (2021: £12.8m).
During the year, the Group paid interest on its
borrowings of £1.3m (2021: £0.8m), reflecting
increases in base rates. Net taxation paid
during the year amounted to £0.7m (2021:
£1.1m). The Company received a refund of
£0.5m in relation to the 2020 tax computation
and also recovered £0.3m following a review
of its capital allowances on its 2019 building
expenditure in Croydon.
Zotefoams’ property, plant and equipment
capital expenditure remained at a lower level
than in recent history, as expected, following
several years of capacity expansion, with
total expenditure of £5.4m (2021: £6.0m).
Expenditure was split broadly across all
categories, the most significant being 29% on
ESG initiatives, 21% on essential replacement
and 16% on product development;
geographically, 58% was directed to our
Croydon, UK plant and 19% to our Walton,
USA plant. Product development included the
acquisition of the net assets of Refour ApS
(Skandeborg, Denmark), amounting to £0.3m,
to support the ReZorce opportunity in MEL.
Group CFO’s review
Continued
1
Commissioning of USA first high-pressure vessel, infrastructure and ancillaries.
2
Commissioning of USA second high-pressure vessel and UK high-temperature low-pressure autoclaves,
infrastructure and ancillaries.
3
Commissioning of Poland infrastructure and high-temperature low-pressure autoclave.
37
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Summary cash flow
2022
2021
Profit before tax
12.2
7.0
Depreciation and amortisation
8.2
7.6
Other
3.7
1.9
Net cash from operations before provisions and
investment in working capital
24.1
16.5
Employee defined benefit contributions
(0.8)
(0.8)
Working capital movement
(0.3)
(2.9)
Receivables
(4.8)
(1.6)
Inventory
0.4
(2.8)
Payables
4.1
1.5
Cash generated from operations
23.0
12.8
Interest paid
(1.3)
(0.8)
Taxation paid
(0.7)
(1.1)
Investments in intangible assets
(1.7)
(1.1)
Investments in tangible assets
(5.4)
(6.0)
Dividends
(3.2)
(3.1)
Movement in finance obligations
(7.8)
(0.8)
Other
0.4
(0.3)
Movement in cash and cash equivalents
2.5
(0.4)
The Group also invested £1.7m (2021: £1.1m)
in intangible assets, almost entirely related to
MEL patents and capitalised development
costs for ReZorce. The combined investment
of £7.0m (2021: £7.0m), after roundings,
is slightly below what we expect to invest,
on a normal basis, which is at a level in
line with the Group’s combined depreciation
and amortisation charge (2022: £8.2m,
2021: £7.6m).
After dividends paid in the year amounting to
£3.2m (2021: £3.1m) and lease payments of
£0.5m (2021: £0.5m), closing net debt fell to
£27.8m (2021: £34.3m). At the year end, the
Group remains comfortably within its bank
facility covenants, with a multiple of EBITDA
to net finance charges of 13.7 (2021: 16.1),
against a covenant minimum of 4 (2021: 4),
and net debt to EBITDA (leverage) multiple
of 1.2 (2021: 2.1), against a covenant of
3.5 (2021: 3.0). See “Debt facility” for
a definition of leverage and information
on the Group’s renewal of its refinancing
arrangements in March 2022.
Debt facility
At 31 December 2022, the Group’s gross
finance facilities were £50.0m (2021: £47.3m),
consisting entirely of a multi-currency term
loan. At 31 December 2021, the Group’s
gross finance facilities consisted of a
multi-currency term loan of £20.0m,
a multi-currency revolving credit facility
of £25.0m and a remaining balance of
£2.3m of a further £7.5m sterling annually
renewable term loan, repayable in equal
quarterly instalments. In March 2022, the
Group completed a retender of its debt facility
and selected Handelsbanken and NatWest,
the incumbents, to continue as its lenders.
Under the terms of the new facility, the
Group’s gross finance facility now comprises
a £50.0m multi-currency revolving credit
facility with a £25.0m accordion, on a 4+1
tenor, with an interest rate ratchet on slightly
improved terms to the previous facility and
including a small element related to the
achievement of sustainability targets.
The finance cost and leverage covenants
remain in place, with the former remaining
at a multiple of 4.0 and the latter increasing
to 3.5 from 3.0. In January 2023, the Group
successfully extended the facility by a year in
line with the term option, resulting in a revised
end term date of March 2027.
At 31 December 2022, headroom, which we
define as the combination of amount undrawn
on the facility and cash and cash equivalents
disclosed on the Statement of Financial
Position, amounted to £22.9m (2021: £13.4m).
Zotefoams defines EBITDA as profit for the
year before tax, adjusted for depreciation
and amortisation, net finance costs, the
share of profit/loss from its joint venture and
equity-settled share-based payments.
Net debt comprises short- and long-term
loans less cash and cash equivalents and is
adjusted from IFRS by the impacts of IFRS 2
and IFRS 16 under the bank facility definition.
Post-employment benefits
The Company operates a UK-registered
trust-based defined benefit pension scheme,
(“DB 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 DB
Scheme was closed to new members in
2001, as was the link to future accrual of
salary in 2005. Inconsistencies in the way the
DB Scheme’s link to future accrual of salary
was closed in 2005 were rectified in 2019.
There are three categories of pension
scheme members:
X
deferred members with salary linkage:
current employees of the Company who
have not consented to the break in their
salary linkage;
X
deferred members: former and current
employees of the Company not yet in
receipt of pension; and
X
pensioner members: in receipt of pension.
The last full actuarial valuation of the (“DB
Scheme”) took place as at 5 April 2020,
in line with the requirement to have a triennial
valuation. On a Statutory Funding Objective
basis, a deficit was calculated for the DB
Scheme of £7.7m (previous triennial valuation:
£4.2m). As a result, the Company agreed
with the Trustees to make contributions to
the DB Scheme of £643,200 p.a, beginning
1 July 2021, to meet the shortfall by
31 October 2026 (previously 31 October
2026), up from £492,000 p.a. previously.
In addition, the Company pays the ongoing
DB Scheme expenses of £216,000 per
annum (previously £180,000 p.a.) to cover
death-in-service insurance premiums, the
expenses of administering the DB Scheme
and Pension Protection Fund levies.
The net IAS 19 deficit on the DB Scheme
decreased by £1.4m to £3.3m as at
31 December 2022 (2021: £4.7m) and
represents 3.0% (2021: 4.8%) of consolidated
net assets. The main factor leading to the
improvement was a change in the discount
rate assumption to 4.80% (2021: 1.80%)
following an increase in corporate bond yields
over the year. The value of the defined benefit
obligation at the year end fell from £38.8m
in 2021 to £26.1m in 2022, driven by this
changed assumption. However, this was
partially offset by the actual investment return
achieved on the assets being lower than that
required to match the expected increase in
defined benefit obligations over the year (the
market value of assets fell from £34.1m in
2021 to £22.8m in 2022) and higher than
expected price inflation. Zotefoams does not
consider its pension scheme to be a key risk
38
Zotefoams plc
Annual Report 2022
Group banking covenants definition
Net debt to EBITDA ratio (Leverage)
£m
2022
2021
£m
2022
2021
Profit after tax
10.0
4.4
Net debt per IFRS
27.8
34.3
Adjusted for:
IFRS 16 leases
(1.0)
(1.1)
Depreciation and amortisation
8.2
7.6
Finance leases pre-1 January 2019
–
–
Finance costs
1.8
1.1
Finance income
(0.1)
–
Net debt per bank
26.8
33.2
Share of result from joint venture
–
–
Equity-settled share-based payments
0.8
0.4
Taxation
2.2
2.6
Roundings
0.1
–
EBITDA
23.0
16.1
Leverage per bank
1.2
2.1
EBITDA to net finance charges ratio
£m
2022
2021
£m
2022
2021
EBITDA, as above
23.0
16.1
Finance costs
1.8
1.1
Finance income
(0.1)
–
Share of result from joint venture
–
–
EBITDA to net finance charges
13.7
16.1
Net finance charges
1.7
1.1
to its ability to achieve its strategic objectives
due to the immaterial share of net assets
that the deficit represents. Mitigation of further
risk is expected to come from our growth
expectations and the continued focus by
the Trustees on a lower-risk strategy to
meet the DB Scheme’s deficit shortfall.
Going concern
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position,
are set out in the Strategic Report on pages
1 to 77 and the section entitled “Risk
management and principal risks” on pages
39 to 50. These also describe the financial
position of the Group, its cash flows and
liquidity position. In addition, note 21 to
the financial statements includes the
Group’s objectives, policies and processes
for managing its capital, its financial risk
management objectives, details of its financial
instruments and hedging activities, borrowing
facilities and its exposure to credit risk and
liquidity risk.
The Directors believe that the Group is well
placed to manage its business risks and,
after making enquiries including a review
of forecasts and predictions, taking account
of reasonably possible changes in trading
performance and its available debt facilities,
have a reasonable expectation that the
Group has adequate resources to continue
in operational existence for the next twelve
months following the date of approval of
the financial statements. The Directors have
also continued to draw upon the experiences
of 2020 and the Group’s success in reacting
to the challenges of COVID-19 through
its safety protocols and cost and cash
management, all of which could be replicated
in a similar scenario.
After due consideration of the range and
likelihood of potential outcomes, the Directors
continue to adopt the going concern basis of
accounting in preparing the Annual Report.
Financial risk management
The main financial risks of the Group relate
to funding and liquidity, credit, interest rate
fluctuations and currency exposures.
The management of these risks is
documented in note 21.
G C McGrath
Group CFO
4 April 2023
Group CFO’s review
Continued
39
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Risk management and principal risks
Managing our risks to achieve our strategic objectives
Zotefoams’ risk management process is designed to improve the likelihood of
achieving its strategic objectives, keep its employees safe, protect the interests
of its shareholders and key stakeholders and enhance the quality of its
decision-making. It is designed to identify key risks and provide assurance
that these risks are understood and managed in line with the agreed risk
appetite. The Group is committed to conducting business in line with all
applicable laws and regulations and in a manner consistent with its values.
Risk management governance
The Board, in the context of our set
objectives, is responsible for the risk
management framework and the Group’s
key strategic and emerging risks. It delegates
to the Audit Committee the review of the
effectiveness of risk management, the system
of internal control, the monitoring of the quality
of Financial Statements and consideration of
any findings reported by the External Auditor
in relation to the Group’s control environment
and its financial reporting procedures as part
of its annual audit. The Executive Committee
supports the Board in its responsibilities,
manages the risk framework on a day-to-day
basis and considers any emerging risks
that may not be covered under the existing
framework. Comprising most of the Executive
team, the Internal Control Committee meets
bi-annually to validate the effective functioning
of the framework, assess any need for change
and consider the more detailed outputs of the
functional steering committees. The functional
steering committees, comprising Executive
Committee members as well as functional
experts, identify and address the specific and
emerging risk areas within their area of focus.
The Board confirms that it has completed a
robust assessment of the Company’s and
Group’s principal and emerging risks and
uncertainties. The procedures, and how
these risks and uncertainties are being
managed, are laid out below.
Risk appetite
Zotefoams is a business with good
opportunities for growth. Reflecting the
uniqueness of our technology, its capital
intensity and the importance of matching
capacity with our demand expectations,
we plan for the future over five years and
convert these plans into financial forecasts.
To achieve more ambitious targets, we
understand we must be willing to accept
higher levels of risk. We seek an appropriately
balanced outcome, where we consider
the level of reward commensurate with the
likelihood of success. We recognise the
importance of taking these risks within
clear boundaries as recommended by the
Executive team and approved by the Board.
We challenge, reassess and reaffirm these
boundaries regularly and, for key decisions,
on a case-by-case basis. As a manufacturing
company, the health and safety of our
employees will always be paramount,
which translates into an extremely low
tolerance for risk in this area.
Developments during the year
X
During the year, there was a significant
relaxation of measures related to COVID-19
in most countries where Zotefoams
operates, with the notable exception of
China, where the government continued
to pursue a strict policy of confinement
and travel restrictions and the fabrication
facility shut down for five weeks in H1 2022.
Elsewhere, international travel returned,
allowing leadership to re-engage face-
to-face with their areas of responsibility
and teams to recommence important
knowledge sharing after two years of
forced distancing. In the main operating
sites, many of the strict distancing
measures were removed and, in the
UK, all staff returned to site, but on a new
basis determined by a hybrid working
policy implemented in September 2022
that the Company anticipates will increase
the prospects for talent acquisition
and retention
X
The cost inflation challenges of 2021
continued into 2022, increasing costs
which were countered by a series of price
increases in the Polyolefin Foams business
unit in the first half of the year, with high
levels of customer engagement, as well as
smaller increases in the High-Performance
Products (HPP) business unit
X
The war in Ukraine led to soaring energy
prices. In the UK, where the Group’s largest
exposure lies, this was managed closely by
the procurement team and the Executive
team leader responsible for UK operations
and included accelerated initiatives to
reduce energy consumption. With Russia
reducing the supply of gas into Europe,
the risk of supply continuity was largely
a geo-political risk, which we monitored
and made contingency plans for
X
The Footwear business grew a further
25%, with sales now representing 33%
(2021: 34%) of Group sales. The relationship
remains strong, with a dedicated
Zotefoams team engaged in frequent
discussions around current operations
and future opportunities. Visibility of future
opportunities extends two to three years
out. With the removal of travel restrictions,
senior leaders were able to visit the Nike
headquarters in Q3 2022, for the first time
in two years, to fortify the relationship and
allow more effective strategic discussions
about future opportunities
X
The ReZorce
®
mono-material barrier
packaging initiative, which puts circularity
at the heart of the MEL business unit
development agenda, progressed well,
but significant challenges remain and
investment in the opportunity was high.
We developed the technology further,
embarked on a series of trials with potential
future partners and engaged towards
the end of the year in a process to find
a strategic partner to help us maximise
the value of the technology. The Board
increased its involvement and oversight of
the opportunity and held monthly meetings
with and without MEL management
X
Board-approved sustainability targets
introduced in 2021 were monitored
throughout the year. These included
targets around waste reduction,
energy consumption and new product
development. Good progress was made
and is reported on pages 57 to 59 in
the ESG report
X
The Group’s borrowing facilities were
renewed in March 2022, which resulted
in us remaining with the incumbent
banks after a competitive tender process,
securing competitive terms and extending
the financing period from March 2023
to March 2027. This arrangement also
includes sustainability targets
X
The Executive team, most of whom are
also members of the Internal Controls
Committee, met twice during the year
specifically to review and update the
Group’s principal risks and uncertainties
X
Zotefoams prepares an annual strategic
plan over a five-year period. The Board
and Executive team risk-assessed this
plan during the two-day annual strategic
review in October, which was this year
held in Poland and provided an opportunity
to visit the new site and engage with the
local management team
X
The Board reviewed the Group’s key policies,
including anti-bribery and corruption,
competition, ethics, whistleblowing and share
dealing, to make sure they remain relevant
and are operating effectively
40
Zotefoams plc
Annual Report 2022
Risk management framework
Board
Executive Committee
Audit Committee
Ensures that risk is managed
across the business
Inputs into the Board’s process for setting risk appetite
Implements strategy in line with the Group’s risk appetite
Manages opportunities and the resulting risks
Maintains a watching eye over emerging risks
Leads operational management’s approach to risk
Inputs its assessment of risk and opportunities into
the Internal Controls Committee
Ensures satisfactory resolution of actions identified
at the Internal Controls Committee
Is directly responsible for managing certain
specific, high-level risks
Reviews and assesses the effective functioning of, and proposed amendments to, the Group’s risk management framework
Reviews the outputs and the effectiveness of all functional steering committees and takes action where outputs
do not achieve the desired effect
Reviews the context within which Zotefoams operates and the effect of risks and opportunities on management
systems and strategic direction
Assesses and ensures mitigation actions identified at functional steering committees are planned, implemented and effective
Reviews, updates and submits the Group’s principal risks and uncertainties to the Board
Reviews and approves the Zotefoams business continuity plan
Monitors and reviews the effectiveness of the
Group’s risk management framework
Considers reports from the Internal Auditor and the
External Auditor in relation to risk and control
Defines the Group’s appetite for risk
Assesses the Group’s principal risks
and opportunities
Internal Controls Committee
Functional Steering Committees
Audit processes
Operational management
Employees
Members of functional steering committees
Creates an environment where risk management is
embraced and the responsibility for risk management is
accepted by all employees
Implements and maintains risk management processes
With plc responsibility*
Health and Safety (with a sub-committee
on Fire Protection)
Environment
Group Sustainability
IT
Quality
Product Development
Marketing Communications
Planning and Capacity
Capital Planning
Foreign Exchange
HR and Training
T-FIT business unit
Key Supplier Review
Contract Control
Credit Management
Maintenance
With local responsibility
Zotefoams Inc Executive,
plus functional sub-committees
MEL Executive, plus functional
sub-committees
Zotefoams Poland Executive,
plus functional sub-committees
*
Covers all entities other than those identified
under local responsibility
Chaired by, and including, Executive Committee members
Provide a regular forum for active monitoring of key emerging and more established business risks
as they relate to the achievement of the Group’s strategic objectives, the controls and activities in place to mitigate them,
the key actions required and their timings
Report bi-annually to the Internal Controls Committee on adherence to their terms of reference
specific to risk and raise any failures in the effectiveness of existing processes
Steering committees are in place for:
External financial audit: the Group’s external auditor, PKF Littlejohn LLP, performs the annual statutory audit which includes
a report to the Audit Committee on significant findings
Internal financial audit: the Group engages the services of a third-party provider of internal audit services,
Grant Thornton UK LLP, and follows a risk-based annual audit plan as approved by the Audit Committee
Non-financial audit: the Group’s main manufacturing sites hold accreditations to various international standards for
health and safety, environment and quality. To maintain these accreditations, we engage reputable third parties to
verify ongoing compliance. Additionally, internal audits are conducted globally by third-party providers of internal audit
services and our own quality professionals.
Active in the day-to-day understanding
and management of risk
41
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Risk management and principal risks
Continued
X
The Brzeg, Poland plant gained
accreditation to the Occupational Health
and Safety Management System ISO
45001 during the year, while the Croydon,
UK plant retained the accreditation.
This reflects significant focus and effort
from a dedicated Health and Safety
team at both sites, underpinned by high
levels of Executive team engagement
and a continuous focus by employees
on risk identification and mitigation
X
The Brzeg, Poland plant gained
accreditation to the Environmental
Management System ISO 14001 during
the year, while the Croydon, UK site
retained accreditation
X
The Quality Management System
accreditation ISO 9001 was recertified
across the Croydon, UK, Walton, USA
and Brzeg, Poland sites
X
The Group continues to use an external
adviser to perform its financial internal
audit services. During the year, based
on the Group’s internal risk assessments,
our Internal Auditor, Grant Thornton UK
LLP, completed an audit on compliance,
anti-bribery and corruption across all
Zotefoams subsidiaries, with outcomes
and improvement plans presented to the
Audit Committee. It also commenced a
contracts management audit of the UK and
USA during the year, completing the work
at the beginning of 2023 and presenting
the outcomes and improvement plans
to the Audit Committee in March 2023.
In recognition of the increased size and
complexity of the organisation, the Group
now follows a three-year rolling audit plan
with two internal audits per year.
X
Cyber security remained a critical part of
our IT strategy. The Cyber Essentials Plus
certification, an in-depth and thorough
independent assessment of our IT systems,
was re-awarded in 2022. Zotefoams also
continued with its cyber security awareness
testing programme across all directors and
staff in the UK, including the Board. This
programme includes monthly phishing tests
emailed to each staff member and was
increased early in the year to the highest
difficulty setting. During the period, the
failure rate improved and stabilised at a rate
which is considered better than industry
standards while we continue to train and
monitor all staff. There was no instance
of a cyber security breach in 2022.
Develop an HPP portfolio to
deliver enhanced margins.
Improve our return on capital
(over our investment cycle).
Grow sales in our AZOTE
®
Polyolefin Foams business
in excess of twice the rate
of global GDP growth.
Clarify and improve the Group
approach to sustainability and
climate change.
Increase our operating margins.
Develop and invest in MuCell
®
technology to deliver potentially
high-value disruptive, sustainable
technology while remaining within
the Group risk appetite.
Read more on
pages 22 to 24.
The details of our principal and emerging risks
and uncertainties and the key mitigating
activities can be found on pages 42 to 50.
We are disclosing those risks and
uncertainties that we believe have the greatest
impact on the achievement of our strategic
objectives. The Group is exposed to a wide
range of risks in addition to those listed,
and these are managed through the risk
management framework shown on page 40.
This framework enables us to monitor for
any increase in likelihood or impact and
ensure that we have the appropriate
mitigations in place.
Zotefoams’ risk profile will evolve as the
business grows at its targeted pace,
although we expect these principal risks and
uncertainties to remain broadly consistent.
We face a number of uncertainties where an
emerging risk may potentially impact us in the
longer term. In some cases, there may be
insufficient information to understand the
likelihood or impact of the risk. We also might
not be able to fully define a mitigation plan
until we have a better understanding of
the threat. We continue to identify new
emerging risk trends, using the inputs from
all components of our risk management
framework. These are normally identified
and assessed within the functional steering
committees and reviewed by the Internal
Controls Committee in the course of its
normal terms of reference. If they are identified
at a higher level, they are pushed down into
the functional steering committee for tracking,
assessment and consideration of treatment,
or retained at a higher level within the risk
management framework.
Key to links to the strategy
Principal risks and uncertainties
1
4
2
5
3
6
Scaling up
international
operations
External
Customer
concentration
Operational
disruption
Global
capacity
management
Environmental
sustainability
and climate
change
Technology
displacement
Our principal risks and uncertainties are:
Having assessed the outcome of the risk management framework, which the Board
considers to have run effectively throughout the year, we have concluded that there are no
further changes to our assessment and that emerging risks fall within the risk grouping
already identified.
42
Zotefoams plc
Annual Report 2022
Risk management and principal risks
Continued
Description and context
What is the risk?
The performance of our business will be
impacted if we are unable to run our
equipment and manufacture and distribute
products at rates at least equivalent to those
currently achieved. The potential impacts of
operational disruption are: i) sizeable financial
consequences related to missed sales and
the high operational gearing nature of the
business; ii) the commercial and longer-term
consequences of not delivering to strategic
customers dependent on our products; and
iii) the reputational damage that might impact
the business as well as the future chances to
acquire new business.
Material influencing factors
X
The Croydon, UK site manufactures the
majority of Zotefoams’ polyolefin foams
and, given their complexity, all of its high-
performance products. It operates at high
utilisation rates. A major incident specific
to safety, health and the environment,
including a fire, high absenteeism resulting
from a pandemic such as COVID-19 or a
significant operational disruption from the
failure of either critical equipment or the
IT systems that drive them, could shut
down the plant for a period of time
X
We do what others do not, making
us unique and providing significant
opportunities. However, this uniqueness
also means that certain of our engineering
components and raw materials are sourced
from single suppliers. Disruption to those
supplies, either on a temporary or more
permanent basis, could affect production
and supply to the Group’s customers,
with the knock-on impact, in certain
defined circumstances, of contractual
commercial consequences resulting in
possible customer claims
X
The Group production processes are
energy intensive. During 2022, the war in
Ukraine led to reduced supplies of energy
from Russia which translated into higher
market prices being paid by the UK and
Poland foam manufacturing facilities, but
also created a risk of availability. Failure to
resolve a subsequent reduction in supply
could impact the ability of these sites to
operate. The risk to the USA facility is
considered extremely low.
Mitigating actions
Safety, Health and
Environment policies
We have extensive Safety, Health and
Environment (SHE) policies and procedures
in place which are in line with best practice.
The 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
recurrences. Regular internal and external
audits are performed, with high levels of
Executive team engagement, and quarterly
reports are submitted to, and discussed by,
the Board.
COVID-19 in the workplace
With the exception of China, where stringent
local regulations remained in force during
the year which culminated in a five-week
closure of our fabrication facility in H1 2022,
governments in the major countries where
Zotefoams operates have significantly
reduced requirements previously imposed,
and we have adapted how we operate our
sites accordingly, running from H2 2022 in
a similar way to that before the pandemic.
Nevertheless, we remain aware of the risks of
new variants, have reviewed and maintained
certain on-site health and safety measures
we consider necessary, and remain ready to
reintroduce measures at short notice should
circumstances dictate.
International trade
We have increased our capability around
logistics and import/export compliance,
through people, skills and focus, as a result
of the increased complexity in trading
internationally post Brexit, where input and
output trade can be blocked at ports and
penalties can be imposed for incorrect
paperwork. We are accredited to the
Authorised Economic Operator status, which
is an internationally recognised quality mark
that certifies that a business’s role in the
international supply chain is secure and has
customs control procedures that meet
Authorised Economic Operator standards
and criteria.
Energy
The situation in Ukraine in 2022 has led to
soaring energy prices in the UK and Poland
as a result of restricted supply from Russia
and coordinated government action to reduce
dependency. While energy costs have risen
significantly, this does not pose a material risk
to the continuity of operations at Zotefoams
as the Group can consume these costs and
has the ability to pass them on to customers.
In line with the Group’s ESG strategy and
documented targets, actions are also ongoing
to reduce energy consumption, although we
recognise that demand for certain types of
energy during the transition to a low-carbon
economy may adversely impact costs. Supply
shortages in the UK and Poland would have a
greater effect on the Group than any increase
in cost. The Group assesses this risk of no
supply as very low, with the greatest risk now
behind us as governments and the EU have
sought to build reserves and seek alternative
sources of supply. We consider the impact on
our USA facility to be very remote.
Insurance
The Group ensures that it has updated and
sufficient insurance in place to cover capital
restatement and loss of profits in the event of
operational disruption caused by unforeseen
events. We also work closely with our
insurance advisers and their experts to ensure
operations maintain the highest level of fire
protection measures.
Maintenance strategy
We ensure that our assets are well looked
after through a well-resourced maintenance
team and proactive maintenance investment,
including annual shutdowns. Our pressure
equipment is operated under prevailing
regulations and is subject to systematic
internal and frequent external inspections.
Appropriate contingency plans are in place
in the event of the failure of certain major
pieces of equipment, which include
maintenance and support plans with key
suppliers and well-resourced functions that
manage stores inventory.
Operational disruption
Risk trend
Strategy
1
2
3
4
43
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Strategic Report
Governance
Financial Statements
Operations outside the UK
Zotefoams has completed a large investment
programme in manufacturing capability
outside the UK, adding 60% capacity to that
with which it started 2018. The Kentucky, USA
site commissioned its first full manufacturing
line in April 2018 and a second line became
available in March 2020. These lines provide
polyolefin foam capacity, in the first instance,
but are specified to provide capacity for HPP
foams if needed. We also started our third
foam manufacturing location in Poland, the
first line of which was commissioned in
February 2021. Here, we are transitioning
customers previously serviced from the UK
to Poland and are able to manufacture
semi-finished products in the UK, which
we can ship to and store in Poland, prior to
completing the manufacturing process there
and distributing the finished product to our
European customers. The manufacture of
semi-finished products for shipment to Poland
can also be performed in the USA. These
increased options, together with increased
storage capability in Poland, near to our
European customers, further reduces
dependency on the UK facility.
Seeking dual sources
Wherever possible, supplies and services
are sourced from more than one supplier or
location. However, this is not always possible
due to the special nature of the raw materials,
particularly those used to manufacture
high-performance products, and the
machinery used. We continually monitor
suppliers, and search for new ones, and
have expanded our procurement department
to support this. We have identified new
component suppliers in the USA as a result
of our investment activities at our Kentucky,
USA plant and continue to invest dedicated
resources in the search for, and testing and
approval of, alternative suppliers of critical
materials and services. We also endeavour
to have sufficient levels of safety stock to
mitigate short-term supply issues, which is
now further supported by our Poland plant,
close to key European customers.
Investing in IT and IT security
We continue to invest in our IT systems and
department. We operate the latest version
of the Microsoft Dynamics AX ERP system
across all our businesses. We have multiple
redundancy points limiting failure of any
one hardware or operating system, we are
increasingly moving towards a cloud-based
system, and we have up-to-date policies
and procedures and comprehensive
documentation on all our critical assets and
core configurations. We are accredited to the
Cyber Essentials Plus certification, which is an
in-depth and thorough annual independent
assessment of our IT systems, which
Zotefoams first achieved in 2018 and has
maintained since. The Cyber Essentials
Scheme is part of the UK government’s
National Cyber Security Strategy, with the
primary aim of making the UK a safer place
to conduct business online. It encourages
organisations to implement digital protection
against common cyber-attacks, while allowing
them to demonstrate an increased awareness
of cyber security. We also train our employees
on a regular basis to spot potential
cyber-attacks through communication
and online training.
Control Committees
X
Board
X
Executive Committee
X
Planning and Capacity Committee
X
Health and Safety Steering Committee
X
Environmental Steering Committee
X
Key Supplier Review Steering Committee
X
Contract Control Steering Committee
X
IT Steering Committee
X
Maintenance Steering Committee
X
Zotefoams Inc Executive Committee
X
Zotefoams Poland Executive Committee
44
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Annual Report 2022
Description and context
What is the risk?
Zotefoams’ business model, strategy,
investments or operations are assessed
by stakeholders as having an unacceptable
future impact on the natural environment and
on national and international targets to tackle
climate change, with consequences ranging
from financial penalties and an inability to
hire the right staff, up to business viability.
Material influencing factors
X
Transitional risks exist relating to
developments in political and regulatory
requirements that affect the products that
Zotefoams manufactures. As businesses
progress towards a net zero greenhouse
gas target by 2050, there is potential for
abrupt government intervention aimed at
ensuring certain milestones are met.
This intervention may involve legal and
regulatory changes, including loss
of financial incentives, new taxation,
compliance costs relating to plastic
products or enhanced reporting
expenditure, with a resulting financial
impact. A fuller analysis is included in
the TCFD section on page 60
X
Growing global concerns exist over
the waste generated from the over-
consumption, misuse and over-packaging
of consumer goods and there is a
progressive tightening of restrictions
on substances that are hazardous to the
environment. A lack of understanding that
plastic can be the optimal material solution
for the benefit of society when used for
certain applications could lead to changes
in demand patterns for our products.
Mitigating actions
Firm environmental footing
We consider Zotefoams to be well positioned
environmentally. Our core materials offer
improved product performance using less
material than competitors and MuCell
®
technology reduces polymer content
and/or improves recycling. While there is
understandable consumer concern at the
environmental impact of what we consider
ill-considered, single-use plastic, used
predominantly in consumer packaging,
products using our foams are primarily integral
components in larger systems or products
or are used in the long-term protection and
storage of items. They are very rarely used
in consumer disposable items. Our foams
save weight and fuel in cars, trains and
aircraft, save energy by insulating and provide
protection to people and goods. Our products
help our customers reduce emissions, lower
energy usage, improve fuel efficiency and
comply with increasingly stringent safety
regulations. In the medium term, we anticipate
our technology being used to meet the
growing demand for improved sustainability,
with foams which include recycled or
renewable content polymers. We recognise
the importance of reducing energy emissions
in our production processes and pursue
continuous improvement in our operations,
supported by investment in capital additions
or replacements which further this aim.
This will be supported by effective reporting
on our ESG performance, see below.
Environmental sustainability-
focused developments
Having established sustainability targets
focused on the reduction of our Scope 1 and
2 carbon emissions in 2021, we reported on
them in 2022. In parallel with these specific
Scope 1 and 2 targets, we have calculated
the carbon cost of a representative selection
of our foams (referred to as “carbon
accounting”) and ReZorce
®
circular barrier
packaging technology and are utilising this
information internally, and working with
selected customers, to assess how this
can be used constructively to make objective
decisions, steer our own business and guide
our customers in choosing the optimal
materials for their solutions. We are also
developing Life Cycle Assessments for our
products in use that will give us visibility of
Scope 3 emissions on a case study basis.
For further information, refer to “Key targets”
in the Environmental, social and governance
(ESG) report on pages 57 to 59.
Effective reporting
on ESG performance
With an environmentally conscious technology
and material solutions focused on applications
that are not single-use, Zotefoams is uniquely
positioned to help reduce customers’ carbon
footprints or increase material efficiency.
Having recognised the need to provide
stakeholders with financially material,
decision-useful information relating to
our ESG performance, we have adopted the
Sustainability Accounting Standards Board
(SASB) framework and are reporting against
it in 2022. See our disclosures on pages 67
to 69. Zotefoams also provides disclosures
in line with the recommendations of the
Task Force on Climate-related Financial
Disclosures (TCFD) on pages 60 to 62.
Finally, the Group’s bank facilities include
sustainability targets.
Control Committees
X
Board
X
Executive Committee
X
Group Sustainability Steering Committee
X
Environmental Steering Committee
X
Key Supplier Review Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
X
IT Steering Committee
Environmental sustainability
and climate change
Risk trend
Strategy
1
2
3
4
5
6
Risk management and principal risks
Continued
45
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Description and context
What is the risk?
As we grow our business at the rate we
target, it is critical that we create the required
capacity to match the anticipated demand.
Failure to execute well and in a timely manner
will impact both opportunity creation and the
speed of growth. We face material risks due
to the uncertainty of medium- to long-term
demand, the high capital costs and long
construction periods of our unique
technology, the successful execution of
our investment projects, the risk of loss
of an important customer and the ability
to finance these investments.
Material influencing factors
X
Zotefoams’ growth is founded upon its
unique offering, its relevance to the global
megatrends of environment, regulation and
demographics, listed on pages 20 and 21,
and its ability to create new markets and
new applications. The nature of demand
differs between our Polyolefin Foams and
HPP business units. Polyolefin foam sales
are very diversified and more aligned with
GDP, but are boosted by the benefit of the
environment, regulation and demographics
megatrends. HPP sales are more aligned
with specific, often larger, opportunities
with the end-user who also has a more
direct involvement in the growth trajectory.
Together, this can make the timing of
growth difficult to predict, but not having
the right capacity available at the right
time may mean the opportunity cannot
be realised. We plan to invest in order
to maintain performance and prices for
polyolefin foam products as we believe
this is the best approach to ensure the
future growth prospects of this profitable
business unit
X
Our unique technology is highly capital
intensive with long lead times. The UK
site is highly developed, with space
limitations restricting further investment,
meaning the next growth initiatives have
been in other sites and geographies, most
recently the USA and Poland. New sites
require sizeable infrastructural investment,
accurate risk assessment and more time
to implement them. Because foam is costly
to transport, a geographical mismatch of
capacity and customers could impact sales
growth and/or margins in the Polyolefin
Foams business
X
The Group needs to have sufficient cash
or be able to draw on loan facilities or
access capital markets to finance this
capacity expansion. Funds for investment
are required up to a number of years before
the assets start generating cash, which
increases debt levels and leverage ratios.
Mitigating actions
New processes and
longer-term planning
Our monthly sales and operations
planning process generates high levels of
cross-functional engagement to ensure
collaboration and consistency in planning
sales and production over the upcoming 24
months. We also meet quarterly as a Planning
and Capacity Steering Committee, which
includes all of the Executive Committee,
with a five-year view to reflect the longer
time horizons related to capacity planning.
Annually, our five-year strategic plan, which
includes capacity considerations to meet
projected sales growth, is rigorously tested
by the Board. The last annual review meeting
took place in October 2022.
Recent completion of a multi-year
investment programme
We have recently been engaged in a
significant programme of capital investment,
ending with the commissioning of our Poland
foam manufacturing facility in February 2021.
The first stage of this programme was
completed in the USA in 2018, comprising
a high-pressure autoclave, extrusion and
ancillary equipment and infrastructure for
two further lines. This was followed by the
commissioning of a second high-pressure
autoclave in March 2020. In the UK, two
high-temperature, low-pressure autoclaves,
together with ancillary equipment and
infrastructure, were completed in December
2019. The Poland facility, a greenfield site
sized to offer significant further capacity
in the future, currently expands sheets
manufactured by the UK and USA in its
high-temperature, low-pressure autoclaves.
Building on our experiences
in the USA, UK and Poland
The experiences gained through the recent
investments in the Kentucky, USA and Brzeg,
Poland sites, as well as the work performed
around high-temperature, low-pressure
vessels in the UK, have provided a significant
increase in know-how, spread across more
personnel, which reduces uncertainty of
future execution. We have identified new
suppliers of critical equipment in the USA
and mainland Europe, which were previously
single sourced in the UK. In-house project
management expertise has been developed
or enhanced through either new hires
or existing staff having been given the
opportunity to grow. We have engaged and
developed relationships with experienced
consultants to lead and/or work alongside us.
Sufficient funding to
support investment
In March 2022, we completed a debt
refinancing that provides us with the
necessary funding to support our five-year
plan. This includes a £25m accordion.
As we go forward, we will consider further
opportunities as they arise and consider
options such as this accordion or an
equity raise, the latter being an option we
successfully drew upon in 2018. However,
as the Group expands and generates cash,
we expect debt levels to fall and debt capacity
to be available for further investments without
the need for recourse to equity markets while
maintaining a strong balance sheet.
Control Committees
X
Board
X
Executive Committee
X
Planning and Capacity Steering Committee
X
Group Sustainability Steering Committee
X
Capital Planning Steering Committee
X
Zotefoams Inc Executive Committee
Global capacity management
Strategy
Risk trend
1
2
3
4
5
46
Zotefoams plc
Annual Report 2022
Description and context
What is the risk?
The loss of our technological advantage
could increase competition and affect growth
rates and margins. Either our unique foam
manufacturing process or our MuCell
®
technology (including ReZorce
®
) could be
matched or bettered.
Material influencing factors
X
Our processes for the manufacture of
our products are unique to the Group.
We are not aware of anyone using
autoclave technology to make similar
products in commercial quantities.
While the principles behind the processes
are not confidential, the precise know-how
is. Our autoclave technology is flexible,
allowing us to manufacture foams from
a range of polymers. For a product with
substantial growth opportunities, or a
product with a large consolidated market,
a competitor could target an alternative,
more economic, process
X
Our Footwear business now accounts
for 33% of Group sales, with further
growth anticipated in 2024 and beyond.
Our competitive advantage relies on the
unique formulation of our materials,
which are primarily used in midsoles
for running shoes. There is a risk that
competing technology will be developed
to rival or equal the performance benefits
offered by Zotefoams
X
Critical to the success of MuCell Extrusion
LLC (MEL) is the strength of its intellectual
property and, on the back of that, its
ability to grant commercial licences. Its
intellectual property could become dated
or its patents expire or be successfully
challenged or circumvented. We are also
investing significant resources in developing
ReZorce, which is high risk but offers the
potential for very high returns, and it is
possible that another party launches a
solution before we do which is perceived by
the market as better, or the market decides
that plastic, albeit fully circular, is not a path
it wishes to pursue. In this case, we may
be required to write off some or all of our
investment in this technology
X
The size of the ReZorce opportunity and
the risk that this investment might not result
in an effective solution and require a write-
off are why we continue to rate this risk as
being on an upward trend. We rate the core
Zotefoams technology risk as stable.
Mitigating actions
Reinforcing high barriers to entry
There are high barriers to entry for the
manufacturing of our unique foams.
Significant capital investment, know-how and
time are required to invest in autoclaves and
related infrastructure. High-performance
products are significantly more complex to
manufacture than our polyolefin foams and
certain materials require years to be qualified
for supply.
We have reduced, and continue to seek
to reduce, technology displacement risk
by entering new markets with significant
barriers and cost of market entry for
competitors. For example, the development
of high-performance products and ReZorce
mono-material barrier packaging technology
using MuCell processes, where the product
offerings are unique and protected by patents
and/or process know-how and capability,
opens up new markets for the Group with
potentially significant and lasting differential
advantages.
Investing in R&D capability
and people
We invest in people to broaden our technical
capability, research new ways to leverage our
technology and accelerate the opportunities
that make Zotefoams unique. We invest in
people to ensure that know-how related to
the design and efficient use of high-pressure
autoclave systems and know-how related
to polymer processing is retained by the
business. We run a Graduate Scheme to
attract high-potential individuals in the fields
of material science and engineering. We
dedicate financial resources to testing
materials and solutions to remain at the
forefront of cellular materials technology.
Protecting our intellectual property
We actively maintain our intellectual property
and patent our technology, wherever we
believe it is appropriate to do so, and guard
our know-how to sustain protection when
technology is not subject to patent or patents
are no longer applicable. This know-how
spans multiple disciplines across our
business, making it difficult to poach. We
protect our know-how using confidentiality
and contractual agreements with employees,
suppliers and customers and by maintaining
cyber security. The Group keeps a watching
brief on competitor activity and maintains
close contact with its customers and
end-users of its products to understand
market activity.
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 for key third-party patents which are
complementary to the existing portfolio. In
some cases, our close connection with our
customers and dedication to a customised
solution has yielded new intellectual property
opportunities. Protecting these patents also
provides us with valuable insight into any
possible competitive threats on the horizon
and allows us to take timely action to mitigate
possible displacement risk.
MEL licences typically include a bundle of
patents and know-how and therefore are n
ot completely dependent on any particular
patent. All licences are reviewed by senior
personnel and the Group CEO to ensure
that terms are appropriate. The portfolio
is managed by a dedicated intellectual
property director reporting into the
MEL Executive Committee.
Managing the ReZorce opportunity
There is a clearly differentiated opportunity for
the core MuCell technology, which can be
applied to many existing products, and
ReZorce mono-material barrier packaging,
which requires market development of a new
technology. Our priority is to deliver ReZorce
as a fully developed technology platform while
selectively engaging on MuCell opportunities
which clearly offer high value within our
existing capability and capacity to execute.
ReZorce has been staffed with experts in the
field and the management team restructured.
Zotefoams has capitalised £4.7m as at
31 December 2022 and invested in operating
costs that contributed to a £1.9m segment
loss for the year in the MEL business unit.
The technical and financial risks remain high
and the Board has consequently increased its
oversight and now reviews progress monthly,
with meetings split between time spent with
and without MEL management. A strategic
partner is being sought to progress the
technology to commercialisation.
Control Committees
X
Executive Committee
X
Product Development Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
Technology displacement
Risk trend
Strategy
1
2
3
4
5
6
Risk management and principal risks
Continued
47
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Description and context
What is the risk?
Growing the business geographically, being
more reliant outside the UK for Group
performance, and engaging with legal
environments and cultures less familiar
to us increases the risk of not delivering
on our growth opportunities or suffering
a compliance incident. We must ensure that
we hire the right people and manage the span
of control challenges, finding the right balance
between local and group-wide expertise,
and drive a culture of knowledge share.
Material influencing factors
X
Our business is growing in Asia and
our third foam manufacturing facility
commenced operations in February 2021
in Poland
X
Until recently, most of Zotefoams’ revenue
was shipped from the UK. Following our
investments in the USA, Europe and Asia,
the Group now employs more people,
holds more assets and generates a higher
proportion of revenues outside the UK.
We are hiring people globally at a faster
rate than previously, with high expectations
of material contributions to the Group’s
growth strategy
X
Failure to ensure responsible corporate
behaviour in these new areas will
undermine our reputation in these new
regions, could bring substantial financial
penalties and affect our growth path.
Failure to provide these distant operations
with effective financial and IT systems,
educate them effectively on all aspects of
Zotefoams’ culture and ethics and align
them on our strategic objectives could
impact business performance
X
Critical to any Group’s success is its
people. The failure to attract, develop or
retain the right calibre of staff will impact
our ability to deliver. Getting this right from
a distance, in cultures less familiar to us,
will be challenging
X
Our core engineering and technical
capability is UK-based and our business
model is to use this centre of excellence
to support overseas locations. The ability
to deliver on this depends on the free
movement of people and openness of
teams to seek and share knowledge
X
COVID-19 has demonstrated to us
the impact a pandemic has on the
maintenance of effective contact. While
in most regions in 2022 the restrictions
receded, the challenges faced in 2020
and 2021 demonstrated the importance
of ensuring the right people are in the right
roles and that behaviours are aligned with
those at the corporate centre
X
The Board and Executive Committee
have continued to review the Group’s
corporate culture, its communication
and the embedding of controls across
the organisation.
Mitigating actions
Direct engagement with
overseas employees
With the exception of China, where we have
limited operational presence, management
has resumed travel to overseas locations to
help ensure that the right people are in the
right roles and that behaviours are aligned
with those at the corporate centre. Over the
past two years, as a result of the travel
restrictions imposed by COVID-19, this has
not been possible for most of the Group’s
locations and this engagement has taken
place via the Group’s videoconferencing
facilities. While a short period of reduced
travel and physical presence can be
managed, the longer that time passes,
the more disruptive these travel restrictions
become, and the more overseas staff
additions or movements take place, the less
familiar the staff may become with aspects
of Zotefoams’ culture and ethics and less
aligned with our strategic objectives.
Following China’s move at the end of 2022
to reduce restrictions and the reintroduction
of international travel in 2023, this risk should
further reduce.
Hiring and developing
overseas leaders
The Group’s USA operations comprise
Zotefoams Inc and its subsidiaries Zotefoams
MidWest and MuCell Extrusion LLC (MEL).
Zotefoams Inc has been part of the Group
since 2001 and MEL since 2008, with
experienced teams with high tenure,
well-embedded reporting and control
structures, and a culture of regular and
effective communication with senior
operational leaders of Zotefoams and the
Board. The Zotefoams Inc President is
a member of the Executive Committee.
During the year, the business presidents
changed, with a smooth transition and
effective onboarding of the highly
experienced successors.
The Group’s China subsidiary was formed in
2016, while the India subsidiary was formed
in 2019. With the exception of Finance, local
management reports directly into the HPP
Business Leader, who has created strong
communication and reporting structures.
The local finance teams report directly into the
Group Financial Controller for independence,
and greater assurance around governance.
The recently established entity Zotefoams
Denmark is part of the MEL business unit,
reporting into the MEL business president.
Building up our global
functions and services
We have invested significantly in human
resources over the past few years as we
build global functions and hire leaders with
the skills and experience to deliver the current
and future needs of the Zotefoams business.
With three major foam manufacturing sites,
we recognise the importance of cross-site
capability sharing and relationship building,
particularly in functions such as engineering
and maintenance and given the uniqueness of
our assets, and we are now able to return to
face-to-face engagement since the removal
of COVID-related travel restrictions.
Poland manufacturing site
This site has now been operational since
2019. The leadership team is well integrated
with key functions and leaders in the UK and
regular communication and engagement
has reduced the risks originally faced at
start-up, with what was at the time an
unfamiliar country with new personnel.
In October 2022, the Board visited the site
while it held its annual Group five-year
strategy review in the area.
Upgraded IT
We have up-to-date IT systems
which standardise information and
improve communication and visibility.
We use Microsoft Teams for effective
videoconferencing and have continued to
roll out and educate the upgrades that
Microsoft has introduced throughout the
period. The systems are implemented into
all new subsidiaries as they are set up.
Training
We run a risk and role-based global
compliance training programme, which
includes tracking mechanisms across all our
locations. Key policies are translated into local
languages to facilitate understanding.
Control Committees
X
Board
X
Audit Committee (in relation to Finance)
X
Executive Committee
X
HR and Training Steering Committee
X
IT Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
X
Zotefoams Poland Executive Committee
Scaling up international operations
Risk trend
Strategy
1
2
3
4
48
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Description and context
What is the risk?
Group performance could be impacted by
the loss, insolvency or divergence of interest
with a key customer.
Material influencing factors
X
Other than in our Footwear business, the
Group’s largest customers have traditionally
been converters of foam, none of whom
have represented a material share of the
Group’s revenue or future opportunities.
The Group has successfully grown its
Footwear business through an exclusive
partnership with Nike, which in 2022
represented 33% of Group sales (2021:
34% of Group sales), and projects in the
HPP portfolio have the potential to be
much larger than with our typical AZOTE
®
customers. Divergence of interest with Nike
represents a material risk if the business is
lost, while our growth opportunities in HPP
are also likely to reshape this risk profile
X
The Group has invested in significant
capacity expansion in the past years,
built in some cases to service growth from
these customers. In an organisation with
high operational gearing, filling capacity is
critical to strong financial performance.
Mitigating actions
We have good knowledge of the end-users
of our major customers for polyolefin foams
and, with some additional short-term work
and a stable macroeconomic environment,
would expect to bring or identify additional
converter capacity, supply routes and channel
partners or take a direct approach to service
these markets.
We have a very close working relationship
with Nike, led by a dedicated Executive team
member. Visibility of future sales is good, with
a close relationship on development and
supply chain. Group resources and regular
engagement ensure we maintain close
oversight over customer service levels and
also understand Nike’s future direction
and expectations, enabling us to align our
resources accordingly and remain a core
technology for this important customer into
the long term. With travel restrictions lifted,
we were also able to visit our partner in
H2 2022 for the first time in two years.
We are excited by the size of the opportunities
offered by our ZOTEK
®
product portfolio
and have the risk appetite to pursue them.
We experienced strong growth in these
portfolios in 2022. Where we engage with
large HPP customers, we seek to ensure
that our interests are protected by balanced
commercial contracts and strong relationship
management such as with Nike.
The Board is heavily involved in such
decisions. These relationships are by their
nature longer term, providing a unique
technical solution and competitive advantage
to the ZOTEK foams customer or end-user.
The loss of such a customer is likely to come
with a reasonable notice period, allowing us
time to take appropriate action. Continued
investment in the portfolio could yield further
successes that spread the risk of any single
loss, while the T-FIT
®
insulation business
provides further balancing with its more
broadly spread global customer base.
Existing large HPP customers are
blue-chip global organisations, which
management considers have the financial
strength or strategic importance to
withstand a pandemic.
We will continually review our customer
spread and balance, particularly as the HPP
business segment takes on more importance.
Control Committees
X
Board
X
Executive Committee
Customer concentration
Risk trend
Strategy
1
2
3
4
Risk management and principal risks
Continued
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Governance
Financial Statements
Description and context
What is the risk?
Business growth prospects are vulnerable to
movements in foreign exchange rates and
geopolitical and economic developments.
These factors are often out of our control
and may influence our business in a number
of ways, including influencing the other
key risks listed.
Material influencing factors
X
COVID-19 has realised the previously
considered low risk likelihood of a
pandemic event severely impacting
demand, affecting continuity of operations
and the health of our staff, and restricting
the ability to manage a business and
people in different geographic locations
X
Our markets are exposed to general
economic and political changes which
have an influence on economic stability
and market and consumer confidence,
which in turn may impact the Group’s
performance and ability to achieve our
strategic objectives. Being at the beginning
of the value chain, the Group often sees the
impacts of downturns early, accentuated
as customers deplete their inventories,
but it then benefits from seeing the
recovery sooner too. The profit impact on
such risk is accentuated by the Group’s
operational gearing and its demand for
skilled employees, given the business’s
uniqueness, which makes short-term
cost cutting often inadvisable
X
The war in Ukraine has created significant
volatility around the cost and availability
of products and utilities. We consider
the wider risk of geopolitical actions and
seek to understand these to develop
contingency plans which may mitigate,
but are unlikely to eliminate, the impact
on our business
X
Input costs can rise faster than the Group’s
ability to raise prices, which are typically
increased only after discussions and impact
assessment with our customers, placing
short- to mid-term pressure on margins
due to the timing of inflation recovery
X
Zotefoams is exposed to foreign exchange
fluctuations, both at a transactional
level and on the translation of foreign
currency balances and the consolidation
of its foreign subsidiaries. Despite recent
investments overseas, our operations
remain substantially based in the UK and,
therefore, most of our manufacturing assets
and costs are sterling-denominated. We
normally invoice our customers in their local
currencies and 2022 was consistent with
previous years in having a large proportion
of the Group’s revenue in currencies other
than sterling, mainly US dollars or euros.
We therefore generate surpluses in US
dollars and euros, which are converted
into sterling
X
The level of the Group’s debt and base
rates of the currencies in which the Group
borrows can vary and change rapidly,
having a material impact on profitability,
particularly when the interest rate terms
are variable
X
While a trade deal was concluded between
the UK and the European Union at the
end of 2020 allowing for tariff-free trade,
the risk remains that this might be altered,
as indicated by ongoing rhetoric around
the Northern Ireland protocol, which does
not directly affect Zotefoams but could
have repercussions, and which could lead
to disruption and tariff penalties or, in the
longer term, tariff or non-tariff barriers being
introduced. There have also been sizeable
challenges to managing import and
export compliance, with the risk of HMRC
imposing penalties and products being held
at borders. Additionally, the risk remains of
increased difficulty in attracting EU talent
into our global headquarters in the UK as
a result of the end of the free movement
of people.
Mitigating actions
COVID-19 response
We have demonstrated through actions
and performance our ability to negotiate the
challenges raised by the pandemic. We have
removed many of the measures introduced
during the pandemic but remain wary of the
occurrence of new variants and are prepared
to reintroduce measures quickly should the
situation require.
Diversifying our markets
Some of our markets can be cyclical.
However, this risk is spread geographically
and across a number of segments that are
expected to diversify further with the growth
of HPP and MEL. The Group is operationally
geared, but our experience is that, during
challenging times, certain operational labour
costs can be reduced, polymer prices
generally fall with reduced economic demand,
giving a cost benefit, and cash can be
generated from both reducing working capital
and slowing capital expenditure projects
to help offset the effects of a downturn.
This was our experience during 2020.
Decisions in this regard are, however, taken
with respect to our assessment of the
underpinning reasons for a downturn, our
belief in the likely recovery and an assessment
of the impact of short-term cost control
on medium-term growth potential.
Managing input cost pressure
2022 saw a continuation of the rapid inflation
that began a year earlier, with increases in
input costs, including raw materials, services,
utilities and staff costs. Zotefoams’ policy
is to adjust prices when the changes are
considered structural but keep price changes
infrequent to minimise disruption to customers
and allow adjustments further along the
supply chain where practical. This results
in Zotefoams sharing the benefits and
disadvantages of price movements through
the cycle without fluctuations being linked to
any particular input cost or index. Following
the margin erosion of 2021, the Group took
measures early in H1 2022 to improve
profitability with a series of price increases
in Polyolefin Foams, as well as some
increases in HPP.
Managing exposure to the
US dollar and euro
We reduce our net foreign exposure to
transactional items by making purchases
either in US dollars or euros. For example,
there are US dollar costs associated with the
Group’s operations in Kentucky, USA and with
MEL. In addition, the majority of the Group’s
raw materials are purchased in euros or US
dollars. With our significant capital investment
in Kentucky, USA complete, we have reduced
exposure to transactional items to the US
dollar by increasing the operating cost base in
the USA. Raw materials are now purchased
locally and a larger workforce supports full
process production. While on a smaller scale,
at least to begin with, the same will apply
for the euro as our Poland manufacturing
facility ramps up production. Our footwear
agreement includes arrangements to recover
movements in foreign currency, although
these come with a time lag which can have a
positive or negative benefit in the short term
but balance out in the medium term.
Currency hedging
The Group has a hedging policy which is
approved by the Board. The Group hedges
a proportion of its net exposure to
transactional risk by using forward exchange
contracts. We do not hedge for the translation
of our foreign subsidiaries’ assets or liabilities
in the consolidation of the Group’s financial
statements. We do, however, hedge our
statement of financial position through
matching, where possible, our foreign
currency denominated assets with foreign
currency denominated liabilities, such as
by foreign currency debt financing.
External
Risk trend
Strategy
1
2
3
4
5
6
50
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Annual Report 2022
Managing our debt facilities
We maintain close relationships with our
supporting banks, meeting with them
regularly and updating them on performance
and outlook. In March 2022, we completed
a new refinancing round and selected our
incumbent banks following a strong
competitive process.
Our debt facilities are based on variable
interest rates which we could hedge if we
deemed appropriate. We have reviewed this
during 2022 as base rates have soared but
have selected not to do so.
Based on our most recent five-year strategic
plan, we expect our net debt levels to fall
quickly. Our budgets and forecasts going
forward include investments in growth
opportunities, some of which can be slowed
if necessary. We stress-test our possible
outcomes and engage with our banks
to ensure their continued support under
all circumstances.
Control Committees
X
Executive Committee
X
Foreign Exchange Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
External
Risk trend
Strategy
1
2
3
4
5
6
Risk management and principal risks
Continued
51
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Strategic Report
Governance
Financial Statements
Viability statement
The viability period
In accordance with provision 30 of the
2018 UK Corporate Governance Code,
the Directors have assessed the prospects
of the Group over a longer period than
the twelve months required by the going
concern provision.
The Directors consider the timeline of five
years to be appropriate, being the period
upon which the Group actively focuses,
has reasonable visibility over its opportunity
portfolio and, given the nature of capital
investment needed to support the Group’s
anticipated rate of growth, covers investment
that in some cases requires long lead times
as a result of the unique nature and capital
intensity of its technology. A longer period of
assessment introduces greater uncertainty
since the variability of potential outcomes
increases as the period considered extends.
A shorter period of assessment impacts the
Group’s ability to put the right capacity in the
right place on time.
Assessing viability
The Group is considered to be viable if it
maintains interest cover and net borrowings
to EBITDA ratios, as prescribed by its existing
financial covenants and presented in the
CFO Review under “Debt facility” on page 37,
and if there is available debt headroom to
fund operations.
The Directors’ assessment of viability has
been made with reference to Zotefoams’
current position and prospects, our alignment
with global trends, our strategy, the Board’s
risk appetite and Zotefoams’ principal risks
and how these are managed, as detailed
on pages 1 to 50.
The Board reviews our internal controls and
risk management policies as well as our
governance structure. It also appraises and
approves major financing and investment
decisions as well as the Group’s performance
and prospects as a whole. The Board reviews
Zotefoams’ strategy and makes significant
capital investment decisions over a
longer-term time horizon, based on the
Group’s strategic growth objectives, individual
project investment returns, the continuing
performance of the business, the quality
of its portfolio of opportunities, its financing
arrangements and opportunities and
a multi-year assessment of return on capital.
The bottom-up five-year plan is reviewed at
least twice annually by the Directors. In
assessing the future prospects of the Group
and achievability of this plan, the Group has
considered the potential effect of risks that
could have a significant financial impact under
severe but plausible scenarios. The risks
considered were identified from the Group’s
principal risks and uncertainties assessment.
While testing against each individual scenario,
the Board has also considered the impact
of a combination of the scenarios over the
assessment period. This was in order to
stress-test an aggregation of severe but
plausible risks occurring that should represent
the greatest potential financial impact both in
the short-term and longer-term viability period.
The Directors considered mitigating factors
that could be employed when reviewing these
scenarios and the effectiveness of actions
at their disposal. These include experiences
and successes related to cost and capital
expenditure management during 2020 in
the face of the COVID-19 pandemic, adequate
insurance coverage, the unwinding of
working capital in a downturn and ceasing
some activities.
We are satisfied that we have robust
mitigating actions in place. We recognise,
however, that the long-term viability of the
Group could also be impacted by other,
as yet unforeseen, risks or that the mitigating
actions we have put in place could turn out
to be less effective than intended.
Scenarios tested
Base case
The Group’s five-year plan is prepared
annually and presented, challenged and
approved by the Board in October. The base
case uses the five-year period out to 2027.
It is based on organic growth and pursuit of
the strategic objectives.
The following downside scenarios have
been evaluated:
Scenario 1:
Pandemic disruption. We applied our
experiences of the 2020 pandemic and
the cost and cash saving activities we
successfully implemented to stress-test
for Group revenue levels that breach
banking covenants.
Read more. Principal risk:
External pages
49 and 50.
Scenario 2:
Significant cost inflation over a long period
with no ability to adjust prices. This also
included a stress case scenario to assess
the lowest margins that can be tolerated.
Read more. Principal risk:
Operational disruption
page 42; External pages 49 and 50.
Scenario 3:
Business performance risks. These include
both Polyolefin Foams and HPP growth at
rates significantly below those included
within the five-year plan.
Read more. Principal risk:
Technology
displacement page 46; External pages 49 and 50.
Scenario 4:
Loss of a key customer in HPP. This scenario
reflects losing the Footwear business.
Read more. Principal risk:
Operational disruption
page 42; Global capacity management page 45;
Customer concentration 48.
Scenario 5:
Sterling returning to 20-year highs of two US
dollars to one pound sterling. This scenario
evaluates the cash impact on the Group as a
result of forecast growth coming increasingly
from US-denominated sales. The euro impact
is not considered material given the natural
hedge of euro sales against raw materials
and the operating costs of the Poland plant.
Read more. Principal risk:
External pages
49 and 50.
Confirmation of
longer-term viability
Based on the assessment explained above,
the Directors confirm that they have a
reasonable expectation that the Group will
continue to operate and meet its liabilities,
as they fall due, over the next five years.
52
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Annual Report 2022
Environmental, social and governance
(ESG) report
Our approach to sustainability
Zotefoams considers that managing ESG
impacts contributes to long-term value
creation, supports resilience, enhances the
Group’s reputation and helps safeguard the
business’s future in an evolving business
environment. The sustainability approach
adopted by Zotefoams is centred on the
twin principles of i) minimising the use of
natural resources through a series of internal
measures and ii) preferentially operating in
markets where Zotefoams’ products
offer unique sustainability advantages
which benefit society. Sustainability is
embedded through our strategic planning and
decision-making. An analysis of sustainability
risks and opportunities in 2021 led to the
setting of clear targets for improvement. On
page 58 we show the progress that we have
made towards achieving our long-term aims.
Sustainability opportunities
Over the past century, materials manufactured
using Zotefoams’ unique three-stage process
have been designed into products which
have saved energy by virtue of their insulating
properties, have reduced the carbon
emissions of cars, planes and trains by
reducing weight which in turn lowers fuel
consumption, have lasted longer than other
comparable solutions and have been used
to protect both people and products. These
opportunities still exist today and the choice of
Zotefoams materials is increasingly based on
sustainability considerations.
Our core manufacturing process uses only
temperature, pressure and nitrogen borrowed
from the atmosphere to create foams that
are uniquely pure and durable and which use
less polymer thanks to their superior
performance-to-weight ratio.
Zotefoams’ opportunity to improve
sustainability arises principally in two distinct
areas. Firstly, in reducing the carbon footprint
of our operations. Secondly, in manufacturing
products valued by our customers for their
use-phase resource efficiency (a concept
defined by the Sustainability Accounting
Standards Board (SASB) as a product that,
through its use, can be shown to improve
energy efficiency, eliminate or lower
greenhouse gas (GHG) emissions, reduce
raw materials consumption, increase product
longevity or reduce water consumption).
Thermal insulation is a typical example of this,
although it is difficult to measure this impact
directly as Zotefoams products are used in
many different applications and are often
combined with other materials. In setting
targets, we therefore focus on both the
carbon footprint of the manufacturing process
and on prioritising the development and
sale of products that are use-phase
resource-efficient. Further details of our
metrics are on pages 65 to 67.
Our purpose is to provide
optimal material solutions
for the benefit of society,
reflecting our belief that, used
appropriately, plastics are
frequently the best solution
for the sophisticated, long-
term applications typically
delivered by our customers
Steve Good
Non-Executive Chair
We believe that being more
sustainable over the long
term will yield rewards equal
or superior to the investment
required. Sustainability is a key
element within our strategy
and our products frequently
form part of the sustainability
agenda for our direct customers
and end-users
David Stirling
Group CEO
When designing optimal material
solutions for the benefit of
society we consider a range
of stakeholders and the value
chain as a whole. We are
tackling today’s priorities of
reducing environmental impact
while anticipating the long-
term benefits that our materials
provide in the use-phase
Karl Hewson
Director of Technology and Development
How we manage sustainability
objectives, opportunities and risks
For sustainability to be successfully
embedded within a business, it needs to
involve every relevant stakeholder. We have
embedded ESG considerations within our
risk management process described on
page 39 through alignment with the SASB
requirements and the recommendations of
the Task Force on Climate-related Financial
Disclosures (TCFD). The risk management
process aims to support the achievement
of our strategic objectives through the
identification and management of risks
which may impact the long-term prospects
of the Group.
Group Sustainability Steering
Committee’s responsibilities
X
Includes Executive representatives from
all business units and locations
X
Provides governance and sets the direction
for matters relating to the long-term
sustainability for the Group, including
climate change considerations and
the context of the business, ensuring
the suitability of the sustainability
framework used
X
Establishes sustainability objectives
and ensures their continued suitability,
adequacy and alignment with the
direction of the Group
X
Monitors that the risks relating to
sustainability are identified and appropriately
mitigated by the relevant steering
committees and report any exception
to the Internal Controls Committee.
Green Revenue
Our criteria for green revenues are products
which, during manufacture or use, provide
a substantial increase in the efficiency of
resources used. The applications we serve
are varied and diverse; so, in calculating
green revenues, we have assumed that all
applications within a market achieve the
same benefits in resource efficiency. For
transportation markets, the benefits are
reduced weight products which not only use
less material but also allow improved fuel
efficiency. For both Product Protection and
Sports and Leisure markets, the products
are designed to be lighter, so they use less
material for the same or superior
performance. For Building and Construction
markets, our products are designed to save
energy by sealing or insulating buildings and
pipework. We have excluded revenue from
sales to Industrial and Medical markets as,
while some applications will undoubtedly offer
resource efficiency benefits, many will use
our products for other performance attributes
such as purity.
Product
Green Revenue Definition
Revenue
£m
Green
Revenue
£m
Polyolefin Foams
Applies to:
X
products typically manufactured
using 30–50% less raw material
than comparably performing foams
X
products used for thermal insulation
in construction, aviation and road
vehicles to replace heavier materials,
enabling benefits in fuel economy
(aviation, railway, road vehicles)
X
products providing durable protection
designed for multiple reuse
70.1
51.7
High-Performance
Products (HPP)
Applies to:
X
foams that allow for considerable
increases in the efficiency of
resource usage
X
products used for thermal insulation
(predominantly building and construction
but also aviation) and to replace much
heavier materials enabling benefits in
fuel economy (aviation systems where
foam replaces heavier materials)
X
footwear components designed
with the intent to use less material
54.5
53.8
MEL
Applies to:
X
microcellular foam technology licences
and related machinery designed
to allow considerable increases in
the efficiency of resource usage by
reducing the raw material used in
components by 15–20%.
2.8
2.8
Total revenues
127.4
108.3
Percentage green revenues
85%
53
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
A portfolio of products...
Zotefoams Green Revenue Index
...aligned to sustainability
Recyclability
Light
weighting
Durability
Insulation
T-FIT
®
Technical
insulation for
industry
See page 9
ZOTEK
®
Lightweight
technical foams
See page 8
AZOTE
®
Premium
durable foams
See page 8
MuCell
®
and
ReZorce
®
Innovative
technologies
See page 9
54
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Annual Report 2022
Environment
We use the governance provided by our
internal controls structure to evolve our
products to offer greater environmental
benefits to society while managing the
reduction of our carbon footprint and waste.
All investments and resources are managed
using technological, financial and
sustainability criteria
Carbon footprint
The most significant proportion of our carbon
emissions arises from our operations. As part
of our commitment, we use electricity from
renewable sources wherever feasible; for
example, a Renewable Energy Guarantees
of Origin (REGO) accredited supplier has been
in place in the UK since 2021. Our foam
manufacturing plants in Brzeg, Poland and
Walton, USA also use 100% renewable
electricity. Focused targets are in place
to manage our Scope 1 and 2 emissions
through the reduction of energy consumption,
material used in manufacturing processes
and waste; see pages 57 to 59. In order to
align our commercial approach with
customers use-phase efficiency (Scope 3
emissions), we have created a Life Cycle
Assessment (LCA) template which we use
to assess typical products and applications.
Our Scope 1 and 2 emissions data, along
with these example LCAs, are being made
available to our customers to enable them
to make informed Scope 3 decisions. We
continue to monitor the Scope 3 emissions
under our control, or alternatively over which
we have influence, and use this to guide
our decision-making. For example, we have
designed foams manufactured from
renewable resources and which therefore
have a lower carbon footprint.
Business model and strategy
Our business model prioritises solutions with
superior sustainability characteristics and
which are focused on permanent applications;
see page 18. Further details of how we
incorporate climate change considerations
in our strategic planning are provided under
the TCFD section on page 60.
Accreditations
Our main sites are accredited or working
toward accreditation to ISO 45001:2018
(occupational health and safety), ISO
14001:2015 (environmental management)
and ISO 9001:2015 (quality management).
We follow ISO 14021:2016 when making
environmental claims and have taken steps
to gain independent accreditation for these.
Environmental, social and governance (ESG) report
Continued
Foam manufacturing facility,
Kentucky, USA
55
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Strategic Report
Governance
Financial Statements
Social
We have a strong safety culture grounded in
continuous improvement that enables our
workforce to operate in a safe environment,
at home or at Zotefoams’ premises, and are
guided by strong ethical principles that inform
our activities
Health and safety
X
We set internal targets for improvement
in occupational health. Our performance
and commentary are shown on page 65
and we benchmark externally against
rubber and plastics manufacturing industry
statistics; visit www.bls.gov/web/osh/
summ1_00.htm
X
Over the past two years, we have
developed a holistic approach to employee
wellbeing by fostering a culture of health
which recognises and supports both
physical and mental health. Further details
are provided in our health and safety
section on page 65 and in ‘our people’
on page 70.
Working practices
X
A blended working policy, supported by
mental health initiatives and recognising
new ways of working, was introduced in
the UK in 2021.
X
Subject to legal requirements in the
geographies in which we operate, the
Group has in place policies relating to
maternity, paternity, adoption and parental
leave, as well as time off for bereavement
and dependants’ sickness.
X
A performance management system is
in place, designed to encourage high
employee engagement with line managers
through thorough, thoughtful and regular
discussions. The system aims are:
a) to provide employee-centric
development plans, b) to monitor
and develop performance in order to
address skills gaps and c) to support
effective succession planning.
X
Zotefoams has in place ethics and dignity
at work policies prohibiting child and
forced labour, the use of worker paid
fees by Zotefoams or parties acting on its
behalf, the confiscation of workers’ original
identification documents, discrimination,
harassment and abuse and supporting
collective bargaining arrangements where
it is legal to do so.
Further details may be found in ‘our people’
on page 70.
Remuneration
X
The Company compensates its staff in
line with market rates and taking account
of regulatory guidance, which includes
paying employees at or above the rates
published by the Living Wage Foundation
in the UK. In other geographies, the rate
of pay for Zotefoams employees is above
the minimum wage applicable locally.
Recognising the impact of the energy crisis
in the UK and corresponding inflation,
an early salary increase was granted to
lower paid staff in October 2022 ahead
of the annual review in April 2023. Similar
measures were implemented in the USA
and Poland during 2022 to ensure that
salaries remained aligned with the market.
The impact of consumer inflation was
assessed locally across the Group and,
where relevant, adjustments were made in
addition to our normal annual inflationary
salary adjustments.
Ethics
X
Policies and internal controls are in place,
and are monitored by the Board, on
health and safety, modern slavery, ethics,
anti-corruption and bribery, anti-fraud,
whistleblowing and equal opportunities;
visit https://zote.info/3x0de78
X
Biennial compliance training programmes
are delivered globally to relevant staff on
modern slavery, anti-bribery and corruption,
anti-fraud, anti-money laundering, insider
trading and data protection. All staff are
required to acknowledge that they have
read and understand policies applicable to
them, which are translated as necessary
for staff who do not speak English.
X
Our Ethics Policy was also updated in
2022 to incorporate community
engagement considerations. As a
responsible employer and neighbour,
we aim to have a beneficial impact in the
local communities we operate in and
understand that positive relations are key to
maintaining our social licence. Our objective
is to build trust and engagement over time
through mutually beneficial interaction.
The Group has in place a contact
mechanism for stakeholders to reach
out to the business on issues of concern.
Suppliers
X
A consistent, material improvement
pattern has been noted in our payment
practices, with the average settlement
period in the UK being reduced from
50 days in 2019 to 30 days in 2022; visit
https://check-payment-practices.service.
gov.uk/report/65430
X
Compliance requirements are in place
to ensure key suppliers are aligned
with Zotefoams’ standards on ethics,
modern slavery, anti-fraud and anti-bribery
and corruption requirements. Zotefoams
has voluntarily added its details to the
Modern Slavery Statement Registry to
share the positive steps it has taken to
tackle and prevent modern slavery.
The registry enhances transparency
and accessibility and allows users such
as consumers, investors and civil society
to scrutinise the actions Zotefoams is
taking to identify and address modern
slavery risks in its operations.
56
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Annual Report 2022
Governance
We manage Zotefoams by embedding robust
corporate governance systems and principles
within our business. We are led by an
independent Board with diverse skills and
operate under an effective and principled
management team
Risk management
A comprehensive risk management
framework is in place. See page 40.
Diversity and inclusion
The Board adopted its diversity policy in 2021.
An Equal Opportunities Policy is in place
and can be viewed on our website;
visit https://zote.info/36Dv3ya
More information on diversity and inclusion
at Zotefoams may be found in ‘our people’
on pages 70 to 74 and in our Nomination
Committee report on page 86.
Stakeholders
Considering all stakeholders when making
key business decisions is fundamental to
our ability to create value over the longer
term. See our s172(1) disclosures on page 75.
In particular, Zotefoams will continue to
work with customers and suppliers on
improving the sustainability characteristics
of our products.
UK Corporate Governance
Code 2018
The Company overall complies with
the requirements of the UK Corporate
Governance Code and has due regard
to best practice in governance matters.
Further details are provided in our corporate
governance section on pages 80 to 82.
In particular:
X
71% of the Board is independent,
with 29% executive representation,
supporting effective stewardship of
the Company’s assets. All Board
committees are fully independent
X
Board and committee members in post
at year end attended 100% of all meetings
in 2022 (2021: 100%)
X
progression towards greater gender
diversity is noted in senior roles:
X
28% of senior managers are female
compared with 20% in 2021
X
29% of the Board is female, with female
Board Committees representation
amounting to 45%
X
following the appointment of
L Drummond as Chair Designate on
17 January 2023, the Board’s female
membership increased to 37% and will
further increase to 43% once she takes
over as Chair from S Good at the 2023
Annual General Meeting, subject to
election by the shareholders
X
an extended questionnaire for assessing
the External Auditor’s effectiveness
and independence in accordance with
FRC guidance was completed in 2022.
This evidenced that there is candid and
complete dialogue between the External
Auditor and the Audit Committee
X
the Board’s working arrangements were
kept under review in 2022 to ensure that
an optimal mix of in-person and virtual
meetings was in place
X
the articles of association were last
amended in 2020 to allow hybrid general
meeting arrangements and comply with
current best practice. The Board intends
to continue to extend digital inclusion
by regularly broadcasting business
presentations on the Investor Meet
Company platform.
Thoughtful employee engagement supports
effective governance. The Board strived to
enhance the employee voice in the
boardroom during the year through both
scheduled engagement during site visits
and Board representation on the Joint
Consultative Committee, which last adopted
new terms of reference in 2021.
Executive remuneration
The Remuneration Committee sets executive
remuneration in light of prevailing conditions
and takes into account wider workforce pay
and conditions. Executive remuneration is
linked to ESG metrics. See our Directors’
Remuneration report on pages 88 to 109.
Environmental, social and governance (ESG) report
Continued
Scan the QR code to see
the Board Diversity Policy
zote.info/3FKeYVI
57
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Key targets
Our sustainability targets focus on
the reduction of Scope 1, 2 and 3
carbon emissions.
In parallel with these specific Scope 1 and 2
targets, we have calculated the carbon cost
of a representative selection of our foams
(referred to as “carbon accounting”) and
ReZorce
®
Circular Packaging technology.
Targets
Status at end of 2022
RAG
1. Improve purchase-to-product (mass
balance) of foam products.
We purchase
more polymer than we sell as foam, with losses in
the current manufacturing process. This is waste
material and waste energy which, with some
investment, can be reduced. By the end of 2026,
we plan to have halved the polymer purchased
that is not in the end-product (internal waste and
oversized materials). To support this, in 2022 we will
financially and operationally plan the investments
required in future years to achieve our 2026 target.
Additionally, we aim to implement improvements to
reduce the polymer waste rate during manufacture
and are targeting a 2.5% waste reduction for 2022.
Measure the baseline excess
polymer by end of Q1 2022.
Save 2.5% total waste
for 2022.
Propose a reduction plan
including any capex for
2023 by the end of Q3 2022
and for 2024–26 by the
end of 2022.
Since publishing our 2021 Annual Report, we have
broadened our target to include all foams produced,
with significant focus and achievement in reducing
excess polymer purchased for Footwear products.
For the first quarter of 2022, we measured the
baseline of excess polymer purchased.
We worked on numerous efficiency initiatives
throughout the year and calculated the excess
polymer purchased for the full year to be 4.7%.
For our AZOTE polyolefin foams, our biggest
product range, we achieved a 4.1% reduction
in the excess polymer purchased during 2022.
We have allocated capital in our five-year plan
to improve manufacturing equipment so we can
achieve our 2026 target.
2. Re-purpose unpreventable polymer waste
from our UK manufacturing process.
Inherent
to achieving longevity and lightweight in our foams is
a manufacturing step known as crosslinking, which
modifies the polymer. Crosslinking is not practically
reversable and therefore utilising this modified
polymer to manufacture foams requires different
techniques than when dealing with unmodified
polymer. As we develop these techniques, we are
able to re-incorporate this modified polymer in the
manufacture of certain products.
By the end of 2022:
i. develop AZOTE
products that allow us to
re-incorporate into our foams
50% of solid polymer waste
produced at our UK site
ii. have found applications
that reuse 90% of all AZOTE
foam waste produced at
the UK site.
i. We have developed products and a manufacturing
process capable of re-incorporating more than
50% of the solid polymer waste produced at our
UK site (68% was re-incorporated during the
month of November). We continue to build demand
for these products.
ii. We work with two companies, Schmitz Foam
Recycling B.V. and Apetek S.r.L, which utilise our
product primarily as underlay in artificial turf. 94%
of our foam scrap was re-purposed during 2022.
We are utilising this information internally and
working with selected customers to assess
how this can be used constructively to
make objective decisions to steer our own
business and guide our customers in
choosing the optimal material solutions for
their applications. We are also developing
Life Cycle Assessments for our products in
use, giving us visibility of Scope 3 emissions
on a case study basis.
Target met for 2022
We have set longer-term sustainability objectives, aligned to a sustainability backed loan facility, which will be published in
future years
58
Zotefoams plc
Annual Report 2022
Long-term objectives
Objective
KPI
Target
Achievement
RAG
Achieve a 10% reduction
in the energy used to
manufacture our products
by 2026
From a baseline of 0.74kWh/£
in December 2021, reduce the
energy used per unit revenue
generated (kWh/£)
2022
0.73 kWh/£
0.66 kWh/£
2023
0.72 kWh/£
2024
0.70 kWh/£
2025
0.68 kWh/£
2026
0.66 kWh/£
Further develop our product
portfolio by designing and
developing new products
which offer our customers
more sustainable solutions
such that, by 2026, they will
account for 5% of revenue
Share of sales from products
designed for use-phase
efficiency (% of revenue)
2022
0.5%
1.2%
2023
2%
2024
3%
2025
4%
2026
5%
By the end of 2026, halve the
polymer purchased that is not
in the end-product (internal
waste and oversized materials)
Reduction in the mass of
excess polymer purchased
to that sold (% reduction)
2022
2.5%
4.7%
2023
7.5%
2024
15%
2025
30%
2026
40%
Targets
Status at end of 2022
RAG
3. Zotefoams products have historically been
designed to use less material and last longer.
We will further develop our product portfolio by
designing and developing new products which
offer our customers more sustainable solutions.
By the end of 2026, 5% of our revenue will
be generated from new products designed
and developed after 2022 for use-phase
resource efficiency.
An interim target of 0.5% of
revenue was set for 2022.
We have worked to create a strong pipeline of
products offering sustainable benefits to our
customers. During 2022, we developed many
new products that contributed over £1.5m, or 1.2%,
of revenue. The major developments are for a district
heating project, many T-FIT insulation items and a
new product for lightweighting of aircraft interiors.
Additionally, during 2022:
X
70% of the projects in our development portfolio
offered sustainability benefits
X
we developed a foam containing polymer
recovered from post-consumer waste which
will be launched during 2023
X
we developed a high-performance foam based
on a polymer with high renewable content which
is now being evaluated by customers.
4.
We continually strive to reduce the energy
consumed in the manufacture of our products.
As we produce greater quantities of products
across multiple manufacturing sites, the energy
we consume increases. Additionally, certain products
we develop which offer use-phase resource
efficiencies can require greater energy per unit
volume to manufacture.
Setting a target which accommodates growth and
the changing product mix is difficult, but we have
committed that by 2026 we will reduce the energy
consumed per unit revenue by 10%.
An interim target of
0.73 kWh/£ was set
for December 2022.
Having started 2022 with a baseline of 0.74 kWh/£,
by December 2022 we had achieved 0.66 kWh/£,
which far exceeded our interim target. This was
primarily due to high-capacity utilisation and recent
price increases. The energy consumed will vary
through economic and investment cycles but, after
correcting for price inflation, we still exceeded our
2022 target and thus see the long-term outlook
as positive.
Target met for 2022
Environmental, social and governance (ESG) report
Continued
59
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Zotefoams manufactures a wide range of
foam products in sheet form. These typically
have minimum dimensions and include a
process skin as part of the product sold to
our customers. The process skins are often
removed by our customers who use the
consistent homogeneous core of the sheet.
While relatively thin, these skins are not
typically required by customers, who then
have to re-purpose them. Oversized sheets
and skins are the two main causes of
processing a larger quantity of polymer than
the customer uses. A key attribute, valued by
our customers, is that the physical properties
of our products are the same in all directions,
giving performance benefits that allow them
to replace competitive foams with significantly
higher density. The unconstrained expansion
required to achieve this is a contributor to the
sheet being oversized and consumes more
polymer; but this waste is much less than
the extra polymer required by competitive
processes to produce higher density foams
that match the performance of our products.
The challenge we have set ourselves is to
reduce by half this “Excess Mass of Polymer
Purchased” over the next five years, with
annual targets that reflect the long-term
nature of this objective. This target has been
endorsed by our lenders following the renewal
of our refinancing arrangements in 2022.
The process skin is an integral part of
the product and will always be present.
Reduction of the polymer consumed can
be achieved by the following activities:
• optimisation of tooling: most foams we
manufacture use common equipment
which is not always optimal. Waste can
be reduced by adapting and, where
appropriate, purchasing optimised tooling
• tolerance reduction: we guarantee
customers can obtain a minimum size
from our foam sheets. To achieve this,
we target a larger size foam sheet during
manufacture to accommodate the process
skin and our manufacturing tolerances.
Reducing tolerances at all stages of our
process will allow us to reduce the target
size and the excess mass of polymer
purchased. For some process steps, this
will require investment in new equipment
• process improvements: there are small
losses at all stages of our manufacturing
process. Enhanced monitoring and
a focus on reduction of these losses
will reduce the waste
Five-year reduction target of Excess Mass
of Polymer relative to baseline
Our target for the full year was to reduce Excess Mass
of Polymer by 2.5%. We exceeded this target, achieving
a 4.7% reduction over the baseline for the full year.
• circularity: incorporating polymer waste we
produce into products we sell in order to
replace the virgin polymer we purchase.
For many plastics processors this is
standard practice. But AZOTE polyolefin
foams are crosslinked, a chemical
modification that prevents re-incorporation
directly into the same process. We aim
to develop a method to sustainably
re-incorporate our chemically modified
polymer waste into our premium products.
During 2022, we adopted detailed monitors
at our Croydon site that measure and report
waste at all stages of our process, allowing
a consistent method of reporting the excess
mass of polymer. In parallel, our engineering
team has developed a process that allows
products to be manufactured which
incorporate our internal polymer waste.
Our Ecozote
®
Sustainability+ LDR foams
containing 30% recycled LDPE content
were launched in October.
A baseline was generated using data from
Q1 2022. Approximately half of this is
intentionally included as process skins.
Improve circularity
and waste reduction:
mass of excess polymer purchased compared
with that sold as foam
2.5%
7.5%
15.5%
30%
40%
2022
2023
2024
2025
2026
16
14
12
10
8
6
4
2
0
-2
-4
Reduction in excess mass of polymer
Full year
2022 target
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Reduction of Excess Mass of Polymer %
60
Zotefoams plc
Annual Report 2022
Governance
a. Describe the Board’s oversight of climate-related risks and opportunities
b. Describe management’s role in assessing and managing climate-related risks and opportunities
The Board sets the strategic aims of the Group, ensures that the necessary resources are in place to achieve the Group’s objectives and
reviews management performance. The Board has oversight of climate-related matters (which include risks and opportunities) and is
updated on these matters as necessary through:
X
the Audit Committee, which is responsible for keeping under review the adequacy and effectiveness of the Group’s internal control and risk
management systems, which consider climate-related risks by the appropriate Control Committees (see page 44); and
X
bi-annual business unit presentations, which consider both the physical and transition risks of climate change and opportunities arising from
climate change and are made by the executive function head to the Board. For examples of how we integrate sustainability and climate change
considerations into our strategy, see pages 18, 20 and 24.
The sustainability targets linked to climate change that we set in 2021 were incorporated into the 2022 corporate objectives. The Executive team
reviewed and discussed progress towards the objectives at its meetings in January, April, September and November 2022.
Strategy
a. Describe the climate-related risks and opportunities the organisation has identified over the short, medium and long term
b. Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and financial planning
c. Describe the resilience of the organisation’s strategy, taking into consideration different climate-related scenarios, including a 2°C
or lower scenario
Risks
Our risk exposure to climate change is partly mitigated through operating foam manufacturing facilities in countries with high regulatory standards
and through the implementation of well-established environmental management systems in all locations. The risk management framework on
page 40 aims to assess the Group’s principal risks and ensure these are effectively managed across the entire business. Climate change is
considered in our risk section as a principal risk. The financial impact of key climate change scenarios is reviewed below.
RISK
MITIGATION
Physical risk such as adverse
weather event disrupting
manufacturing or our supply chain
Zotefoams sites are not located in areas under physical threat from climate change over and above an increased
number of severe weather incidents. The likelihood of a severe weather impact is increasing, which in turn generates
a higher expectation of supply disruption, including transportation. Most key suppliers are dual sourced, thereby
mitigating this risk. As we invest in new, and update our existing, infrastructure, new designs accommodate more
frequent extreme weather events arising from global warming.
A significant increase in the
cost of energy would increase
manufacturing, raw material and
transportation costs and create
inflationary pressures
Energy prices are a significant direct cost to our business and also to our suppliers. We have set objectives to
reduce our direct energy consumption across our manufacturing sites and to reduce consumption of raw materials.
As well as reducing the consumption of energy and raw materials, we also have recourse to increasing prices to our
customers. To ensure we understand the market response to such price increases, which are often implemented
with a lag compared with cost inflation and after consultation with our customers, we monitor demand through our
Controls Framework and Sales & Operational Planning processes. Over time, we seek to invest closer to markets
which are expected to account for most of our sales volume and to improve our mix so that it includes more
higher-value products, both of which mitigate the risk of higher transport costs.
A significant increase in taxation
to drive behaviour, such as
a carbon, plastic or waste tax
Environmental taxes are a relatively low proportion of tax revenues. They have been used to change consumer
behaviour (plastic bag tax, Climate Change Levy, landfill tax) and offer opportunity as well as risk.
It is likely that taxes will be used to incentivise and force quicker change as emissions reduction targets are
accelerated. Passing on increased tax costs through pricing would be more difficult to achieve than for increases
in the cost of energy and materials. Our Controls Framework monitors taxation trends related to climate change
and plans accordingly, whether through energy efficiency initiatives, investments or product developments to
accommodate changing demand patterns.
A significant shift in market
demand pattern such as a move
away from plastics or only
sourcing circular plastic products.
An increased demand for thermal
insulation and lighter weight
products. Increasing energy
costs increase transport cost
Our technology produces foams with better performance and a clean foaming agent that can be used in
applications which directly and indirectly save energy. This is aligned with a low-carbon economy. We have low
exposure to single-use plastic markets. We have proven benefits in markets where weight saving is beneficial and
where society values performance. Our product offering, managed through our Controls Framework, is evolving
to meet the needs of a circular lower-carbon economy. The main challenge comes from faster transitions which
reduce the time to react. In 2021, we added a Group Sustainability Steering Committee with a remit that includes
monitoring and reacting to customer and market trends.
Significant increase in water costs,
directly or indirectly through
taxation or levy
Compared with other manufacturers, Zotefoams is not a big user of water and the relative cost is small. Any change
in the cost of water will have a small impact. An environmental management system is in place to monitor water
usage and identify improvement opportunities.
Task Force on Climate-related
Financial Disclosures
(TCFD) response
The risks associated with climate change
are subject to rapidly increasing societal,
regulatory and political focus, both in the UK
and internationally. In line with the TCFD
recommendations and best practice, we have
embedded these risks into the Group’s risk
management framework in order to adapt the
Group’s operations and business strategy to
address the financial risks resulting from both:
(i) the physical risk of climate change; and (ii) the
transition to a low-carbon economy.
We set out below our climate-related financial
disclosures for the financial year ended
31 December 2022 in accordance with the
Financial Conduct Authority (FCA) listing rule LR
9.8.6 R(8). The rule requires relevant companies
to report on a ‘comply or explain’ basis against
the TCFD recommendations. We have
considered our ‘comply or explain’ obligation and
have detailed in the table below the 11 TCFD
recommendations, all with which we fully comply.
Environmental, social and governance (ESG) report
Continued
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Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Opportunities
Short-term:
Our business model is centred around sustainability. The opportunities available to Zotefoams are detailed on pages 14 to 19.
Details of our strategic objectives, including those relating to sustainability and climate change, are provided on pages 22 to 24. Progress has
been made against the sustainability targets set in 2021. See pages 57 to 59.
Medium and long term:
We believe the benefits of plastics will be recognised and scarce resources will be managed to ensure optimal
use and a circular economy. The processing of polymers uses less energy compared with many other materials which, with our technology
benefit of producing lighter, longer-lasting products using less material and which have inherent thermal insulating performance, represents
a significant opportunity as sustainability increases in importance.
Risk management
a. Describe the organisation’s processes for identifying and assessing climate-related risks
b. Describe the organisation’s processes for managing climate-related risks
c. Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall
risk management
Refer to our risk management framework on
page 40
and environmental sustainability and climate change risk on
page 44.
Metrics and targets
a. Disclose the metrics used by the organisation to assess climate-related risks and opportunities in line with its strategy and risk
management process
b. Disclose Scope 1, Scope 2, and, if appropriate, Scope 3 greenhouse gas (GHG) emissions, and the related risks
c. Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets
The SASB framework provides performance metrics for our functional steering committees to implement. See further details on pages 67 to 69.
Our Scope 1 and 2 emissions are disclosed on page 66. Our approach to managing Scope 3 emissions is detailed on page 54. The risks are
managed through our risk management framework detailed on page 40.
Progress against our sustainability targets is detailed on pages 57 to 59.
In the table below, we list the principal risks most likely to be materially impacted by climate change. We also set out examples of events that
could cause financial losses or impact our strategy.
Potential risk Impact
Negligible (1)
Minor (2)
Moderate (3)
High (4)
Major (5)
Business disruption /
asset damage
and other
consequential loss
<1%
Operating profit
(ca.<£0.1m)
1-5%
Operating profit
(ca.£0.1m–£0.5m)
5-10%
Operating profit
(ca.£0.5m–£1m)
10-20%
Operating profit
(ca.£1m–£2m)
>20%
Operating profit
(ca.>£2m)
Politico-economic
impact
Minimal financial
impact
Material financial
impact
Serious financial
impact
Major financial
impact
Extreme financial
impact
Technology impact
No need to change
existing technologies
Insignificant
technology
update required
Significant
technology
update required
New technology
needs to be
implemented in
the medium term
New technology
needs to be
implemented urgently
Social impact
Public awareness
may exist but no
public concern
Local social issue or
public concern
Regional social issue
or public concern
National social issue
or public concern
International
social issue or
public concern
Physical impact of
climate change
Minimal impact
Material impact
Serious impact
Major impact
Extreme impact
Methodology
A risk assessment, looking at impact and likelihood, was conducted reviewing three climate change scenarios and five risk events.
The assessment was first undertaken by the Executive team and later revised following review with the entire Senior Management team.
The following methodology has been used to assess the potential risk impact and the likelihood of the risk event.
62
Zotefoams plc
Annual Report 2022
The following risk events arising from climate change or the transition to a low-carbon economy were considered:
X
physical risk: adverse weather event disrupts manufacturing or supply chain
X
significant increase in energy costs during transition: manufacturing costs, raw material costs, transport costs, inflationary pressures
X
significant taxation increase during transition: carbon tax, plastics tax, waste tax
X
significant shift in market demand pattern during transition: move from plastics or to circular plastic products only; increased demand for
thermal insulation and lighter weight
X
significant increase in water costs: directly or indirectly through taxation or levy.
The ongoing transition to a low-carbon economy was considered through the prism of achieving global net zero carbon emissions to limit
global warming. Three scenarios were considered: no target, net zero by 2070 and net zero by 2050. The transition at the global and national
levels brings about political, legal, economic, technological and other changes which produce transitional risks. Transitional risks primarily affect
economic performance, which we have considered in terms of our planning cycles of 1 year, 1-5 years and >5 years.
Likelihood of the risk event
Rare (1)
Unlikely (2)
Possible (3)
Likely (4)
Almost Certain (5)
Never occurred or is
highly unlikely to occur
in the next 20 years
Occurred several times
or could happen within
the next 20 years
Occurred at some point
within the last 10 years
and may re-occur within
the next 10 years
Occurred infrequently:
less than once per year
and is likely to re-occur
within the next 5 years
Occurred frequently: one
or more times per year
and is likely to re-occur
within the next year
Climate change
impact
Business as usual
Paris Agreement
scenario
Sustainable development
scenario
Adaptions
Unlimited global warming
(>>2˚C)
No global net zero target
Limited global warming
to >2˚C
Global net zero by 2070
Limited global warming
to >1.5˚C
Global net zero by 2050
Short term
(> 1 year)
Physical risk
Energy costs
Taxation
Demand shift
Water costs
Mitigate supply chain.
Medium term
(1-5 years)
Physical risk
Energy costs
Taxation
Demand shift
Water costs
Mitigate supply chain. Develop
environmentally sustainable
products that are part of the circular
economy in markets the products
benefit or are less likely to be
impacted. Better use of water as we
update equipment and processes.
Long term
(>5 years)
Physical risk
Energy costs
Taxation
Demand shift
Water costs
Modify existing and new
infrastructure to accommodate
changing climate. Business
interruption insurances.
Product range and pricing evolves
to address taxes.
Risk Rating
Likelihood
Rare
Unlikely
Possible
Likely
Almost certain
Major
High
Moderate
Minor
Negligible
Impact
There are significant risks from climate change and the impact increases with faster transition to a low-carbon economy. The impacts of climate
change and the transition to a low-carbon economy are no greater than other risks faced by the business such as energy pricing and currency
fluctuations. Our core products present opportunities in a low-carbon economy and the mitigations already in place for the current slower
transition rate will help if the rate of transition increases.
Very low
Low
High
Medium
Very high
Environmental, social and governance (ESG) report
Continued
63
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Third party assessment
We continually strive to improve our
sustainability disclosures.
In 2022, we made our first report to CDP,
a not-for-profit charity that runs a global
disclosure system for investors, companies,
cities, states and regions to manage their
environmental impacts. Our report may
be found on its website: www.cdp.net/en
In early 2023, Zotefoams was also upgraded
from an A score to an AA score by MSCI and
was awarded a ‘green flag’ (the lowest risk
rating) as it has no ESG controversies. MSCI
ESG Research provides MSCI ESG Ratings
on global public and a few private companies
on a scale of AAA (leader) to CCC (laggard),
according to exposure to industry-specific
ESG risks and the ability to manage those
risks relative to peers. Further details may
be found on its website: www.msci.com
Safety, Health & Environment
(SHE)
Zotefoams considers the management of
SHE matters to form a key element of effective
governance and has put in place specific
policies relating to SHE. The Company is
certified to accredited standard ISO
45001:2018 for Health and Safety, ISO
14001:2015 for Environmental Management
Systems and ISO 9001:2015 for Quality
Management and is subject to a recertification
regime requiring two surveillance audits
per annum. The recertification process for
2022 has been completed. The auditor
commended Zotefoams’ willingness to
continually improve and advised that the very
small number of minor non-conformities
raised in the previous three years was an
excellent result.
“Discussions with the Managing
Director Europe held during the
2022 recertification audit
provided assurance on the top
management’s commitment
and involvement in establishing
and encouraging a positive
health and safety culture
across the business. His
dedication supports progress
toward the achievements of
Zotefoams’ environmental
sustainability goals.”
BSI ISO 45001 & 14001 audit report,
September 2022
The Board has ultimate responsibility for
SHE policy and performance and receives
quarterly reports on Group SHE issues. The
Board has set a low risk appetite for health
and safety matters. Annual performance
objectives are agreed by the Board and
performance against these is monitored as
part of its quarterly reporting programme.
RIDDORs (lost time accidents reportable
under the Reporting of Injuries, Diseases and
Dangerous Occurrences Regulations 2013)
are recorded immediately and are subject
to a thorough root cause analysis reviewed
by the Board, with appropriate follow-up
actions agreed with management.
Additionally, the Board has a detailed review
of SHE performance, targets, metrics and
approach through monthly updates.
The Group CEO is directly responsible to the
Board for SHE performance. All SHE matters
are overseen by steering committees, chaired
by the Group CEO (or appropriate responsible
person in subsidiary companies). The steering
committees meet quarterly and consider
overall performance and the impact of current
and impending legislation.
On joining the Group, all employees receive
induction training on SHE matters, including
the Group’s SHE policies, and refresher
training is provided, as appropriate, to ensure
employees remain abreast of and familiar
with SHE matters. Employees are made
aware that each and every one of them has
a part to play in ensuring their own safety at
work and that of their colleagues. Employees
are encouraged to report to their managers
any unsafe, or potentially unsafe, acts or
conditions. Senior managers are responsible
for ensuring that SHE policies are
implemented in their areas, that their teams
are informed of the departmental SHE
requirements and that employees receive
and understand training on environmental
issues and safe working practices. Regular
audits are conducted to ensure policy and
procedure implementation is appropriate.
The Group takes the reporting of all SHE
incidents very seriously and requires
employees to report all incidents, including
any near misses, as well as damage to plant
or equipment which has not resulted in
personal injury. The Group considers the
reporting of near misses to be as important
as actual incidents, since it raises situations to
management that could cause, or might have
caused, harm. It then ensures appropriate
corrective action can be taken to eliminate or
minimise the risk. The Group also ensures
that appropriate safety practices are included
in standard operating procedures to reduce
the risk of SHE incidents occurring.
Few controlled substances are used in the
manufacture of our foams, but where they
are, the Group has established procedures,
in which the relevant employees are trained,
to ensure safe storage and handling of such
substances in accordance with regulatory
requirements. The manufacturing process
involves manual handling and processing of
materials. When new or altered equipment
or materials are introduced, and at regular
periods thereafter, the risks to the processes
are assessed and improvements made
wherever possible, such as to the design
of the equipment, to reduce or eliminate the
risks identified.
The most strictly controlled parts of the
Group’s sites are where high-pressure gas
is used. The high-pressure autoclaves are
subject to the Pressure Systems Safety
Regulations 2000 in the UK, OSHA
(Occupational Safety and Health
Administration) in the USA and the Journal of
Laws of the Republic of Poland, Dz. U. 2022
poz. 68. Tightly defined procedures and
operational controls are in place to manage
the safety of these pressure systems. Fail-safe
mechanisms, known as pressure relief valves
and bursting discs (which act like fuses in
an electrical system), are included in the
design of the pressure systems which,
when triggered, allow safe depressurisation
of sections of the system and prevent any
further risks. Operation of these fail-safe
mechanisms releases harmless nitrogen gas
into the atmosphere. The air we breathe is
composed of 78% nitrogen.
All SHE incidents are investigated by
appropriate levels of management to
ascertain the root cause of the incident and,
wherever possible, working practices and
procedures are improved to minimise the
risk of recurrence. In 2022, there were no
prosecutions, fines or enforcement actions
taken as a result of non-compliance with
SHE legislation (2021: none).
Health and safety
Fostering a safety culture has a positive
impact on risk and performance. Our
approach is twofold: strong leadership
maintaining safety as the number one priority;
and training of employees to develop the
tools to continually improve safety in the
working environment.
Management focus remains on developing
safety leadership, using various engagement
methods to increase Group-wide awareness
of hazard identification and control. In 2022,
the safety engagement programme in the
UK expanded into non-manufacturing areas
to incorporate contractor management,
warehousing and facilities management.
This wider coverage resulted in over 5,000
safety engagements in the UK (3,000 in 2021).
The safety engagement programme has been
adopted throughout the Group, where a
further 595 safety engagements were carried
out as we look to increase maturity across all
sites and continue to focus on identifying
hazards and improving awareness and
behaviours relating to safety. We refreshed
the use of 5S methodology at our Croydon
64
Zotefoams plc
Annual Report 2022
In 2022, our UK site completed over
5,000 safety engagements. In recognition
of this achievement, a special awards
presentation was hosted by the HSE
team. Seven awards were presented to
employees who had demonstrated a
consistent contribution to the health and
safety programme. The awards covered
the most engagements completed, best
quality, hazard identification, contractor
surveillance, team focus, passionate about
recycling and best safety representative
for actively encouraging participation.
The award and recognition event was fun,
well received and it was nice to see such
a cross-functional group at an event that
captured the spirit of the progress made
over the last few years
Nick Donhue
OHSE Manager
manufacturing site to improve our workplace
safety through the promotion of a clean
working environment. Training has been
provided over a broad range of safety topics
and there are daily forums at which safety is
the first agenda item and where concerns
can be raised. Our KPIs indicate our approach
is working. Health surveillance programmes
Group-wide remain in place to provide at-risk
employees with medical monitoring and
support to ensure that work-related medical
conditions are identified and addressed
promptly through the appropriate referral
to medical specialists. Wellbeing initiatives
continued in 2022 and include mental health
first aiders globally and comprehensive
employee assistance programmes in our
two largest sites in the UK and USA.
Further details are provided in ‘our people’
on page 70.
Our Polish site organised a highly interactive
day in September 2022 that involved supplier
demonstrations of all types of safety-related
products, with the aim of improving
engagement with and understanding of
safety. This was well-received and we plan to
replicate this at other sites within the Group.
In 2023, we will continue with the same
approach as in 2022. The safety engagement
programme will continue with an increased
number of engagements being carried out by
operators, with training to support this, both
for specific hazards and non-routine tasks.
We will continue to improve iteratively the
headline SHE indicators across the Group
and enhance the leadership team high
visibility programme, including initiating a
regular in-person Group-wide SHE leadership
forum to share best practice across sites.
Our Polish manufacturing site achieved
ISO 45001 accreditation in December 2022.
The 5S methodology
provides a framework
to organise a work
space for efficiency and
effectiveness by identifying
and storing the items used,
maintaining the area and
items, and sustaining the
organisational system
HSE
AWARDS
Environmental, social and governance (ESG) report
Continued
65
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Health and safety performance
The primary metric used to monitor the
number of reportable injuries for the Group
is RIDDOR. In 2022, two RIDDOR incidents
occurred across the Group (2021: 0).
Both RIDDORs were subject to a detailed root
cause analysis with hazard awareness being
the common theme. Hazard identification of
both frequent and infrequent tasks is part
of our 2023 improvement plans. This will
involve increased participation in safety
engagement programmes and interactive
competency-based training to enhance
hazard awareness and routine inspections
at all sites in the Group.
The Group also uses metrics devised by the
United States Department of Labor to
measure staff absences resulting from
workplace incidents and accidents. This
allows a comparison with a large, relevant
peer group and also provides an established
methodology with which we can benchmark
our performance annually. In 2022, there were
significant decreases in Days Away From
Work (DAFW) and Days Away Restricted or
Transferred (DART). Our strategy and actions
to continuously improve the safety culture of
the organisation continue to have a positive
downwards effect on DAFW and DART,
improving our performance relative to the
latest benchmark data for Rubber and
Plastics Processors. RIDDOR, DAFW and
DART are our primary metrics. Other metrics
are provided below to meet SASB Chemical
Industry requirements.
Year
2022
2021
2020
Industry
(latest
published
figures)
RIDDOR
2
0
1
n/a
DAFW
0.5
1.2
1.3
1.2
DART
0.5
1.7
1.6
2.3
TRIR
Direct Employees
Contract Employees
3.1
0
Process Safety
Incidents Count
1
4
Process Safety
Incident Rate
1
0.7
Process Safety
Incident Severity Rate
1
1.5
Number of transport
incidents
1
0
Fatality Rate
Direct Employees
Contract Employees
0
0
0
0
0
0
1
Tier 1 level incidents.
Environmental performance
A decrease in Group energy usage of 2,990
MWh mainly arose through better energy
management at our Croydon site in line with
our sustainability target 4 (down by 3,595
MWh). 2022 saw a new programme and
renewed focus on energy reduction for the
Group. Increased visibility and daily trend
analysis were combined with improved
energy and waste engagement.
There were no significant environmental
incidents during the year (2021: none).
Previous years have been analysed against
an internal categorisation introduced in 2018,
guided by the environmental reporting
guidelines at.
Level 1
– Reported to Environment Agency
(e.g. polluting incident)
Level 2
– Reported to local authority
(e.g. waste concerns)
Level 3
– Internal report only (e.g. small
granule spills)
The Company ensures that all environmental
reports of incidents are taken seriously and
appropriately investigated and that the
responses given are appropriate to their level
of impact or potential impact. Fifteen internally
reported Level 3 incidents (2021: 17) relating
to minor machine oil spills, plastic granule
spills and thermal oil spills were recorded
during the year. The incidents are captured
by daily inspections and actioned as required.
The decrease is attributed to a high level of
safety observations, employee education and
ongoing implementation of the 5S method
to reduce waste and increase productivity.
In 2022, one incident, in our Kentucky, USA
site, was reported at Level 2 following the
release of 200 gallons of oil caused by a
pump failure. It had no significant impact on
the environment. Even though the release was
contained on site, it was reported to the local
authorities via the National Reporting Center
(NRC) and has therefore been categorised as
a Level 2 incident.
SHE: Key metrics
2022
2021
2020
Internally recorded environmental incidents
Level 1
0
0
0
Level 2
1
0
0
Company metrics (UK only)
Energy usage (MWh)
46,483*
50,078*
48,405
Specific Energy Consumption (kWh/kg)
8.58**
9.22**
9.89**
Group metrics (All sites)
Energy usage (MWh)
69,017*
72,007*
62,740
Energy usage (GJ)
248,463*
Proportion of energy from grid electricity (%)
45
Proportion of energy from renewable sources (%)
35
*
From 2022, the reported energy usage includes electricity, gas and other fuels (LNG, diesel and propane.) In prior years,
not all fuels were included as they were not material. The 2021 comparative figure has been recalculated on the same basis
as 2022.
**
Calculation shown as mix-neutral assessment of energy usage per kg of polymer processed.
Specific Energy Consumption
(SEC) – UK
In October 2009, the Company entered into
a Climate Change Levy (CCL) agreement
which involves meeting specific voluntary
targets to increase energy efficiency and
reduce carbon dioxide (CO2) emissions.
Provided the Company meets the
requirements of the CCL agreement, it
receives a rebate on its electricity bills and
is also exempt from the Carbon Reduction
Commitment Scheme for the plastics sector;
the scheme is run by BPF Energy Limited, to
which unadjusted SEC figures are reported
quarterly. The scheme will run up to 2025.
The Company measures energy efficiency
by taking energy consumption and dividing it
by the amount of material (in kg) that passes
through high-pressure autoclaves. The
increase in production of our HPP foams,
which generally require more processing
energy than polyolefin foams, prompted us
to update these metrics to be product-mix
neutral in 2018. In 2022, our adjusted
energy efficiency measure, Specific Energy
Consumption (SEC), has decreased 7% to
8.58 kWh/kg (2021: 9.22 kWh/kg), the lowest
recorded since 2015. In 2019, the Company
completed its second assessment under the
Energy Saving Opportunity Scheme (ESOS)
and remained compliant in 2022. The next
assessment is planned in 2023.
The SEC value has been reported in the
Annual Report as a mix-adjusted value
since 2018 to reflect the growth of Footwear
and to show the energy efficiency
improvements made.
Global carbon emissions
Zotefoams products are used globally to
improve people’s lives and reduce energy
consumption, primarily through insulation and
weight reduction. The processes we employ
Scan the QR code to
see the environmental
reporting guidelines
zote.info/36LLN69
66
Zotefoams plc
Annual Report 2022
Group: carbon emissions (CO
2
tonnes)
2022
2021
2020
2019
2018
Scope 1 Emissions (direct emissions from
our operations which includes fuel)
6,932
7,418
7,078
5,626
6,661
Scope 2 Emissions (indirect emissions,
primarily electricity)
6,029
6,792
7,464
6,787
8,148
Total
12,961
14,210
14,542
12,413
14,809
Carbon emissions (kg) per material
gassed (kg)
1.4
1.5
1.6
1.6
1.7
Group: pollutant emissions (tonnes)
2022
NO
X
(excluding N
2
O)
2.5
SO
X
0.0
VOCs
0.3
HAPs
0.0
NO
X
and SO
X
calculated from Scope 1 emissions.
VOCs and HAPs measured on a typical production day at factory emission points and scaled for total annual production volumes.
Group Monthly CO
2
e Emissions (tonnes)
1,100
700
800
900
1,000
600
Jan 17
Jan 18
Jan 19
Jan 20
Jan 21
Jan 22
Jan 23
CO
2
e (tonnes)
Total emissions
Total emissions excluding renewables
to create these foams allow us to use less
raw material and produce lighter foams than
competitive processes, both of which are
beneficial for carbon reduction. In making
these foams, energy (both gas and electricity)
is the main source of carbon emissions from
our facilities.
Overall carbon emissions for 2022 were
12,961 metric tonnes (2021: 14,210 metric
tonnes), with the main changes being due to
energy reduction initiatives such as standby
sequencing of extraction systems and
temperature optimisation of our thermal
oil system.
In 2022, 99.4% (2021: 97.7%) of the Group’s
carbon emissions arose from our use of
electricity and gas, primarily in processing
polymer but with some use in facility heating
and cooling. Direct carbon emissions from
other sources were minimal (0.6% of Group
emissions) as we do not operate our own
fleet of vehicles.
The methodology we have used is in
accordance with the guidance published by the
Department for Environment, Food and Rural
Affairs in June 2013. We have only included
emissions for which we are directly responsible.
We have not included emissions for activities
over which we have no direct control. For
example, we have included business mileage
on a Company van and mileage claimed by
employees in the UK, but not other forms of
business travel, such as travel made by
employees elsewhere in the Group or travel
using public transport or air travel.
We are committed to using renewable
electricity where feasible. 100% of the
electricity used in our UK, USA (Walton) and
Poland sites comes from renewable sources.
Alternative measures
Many companies consider carbon offsetting.
Zotefoams’ view is to report as a primary
metric the absolute carbon emissions
calculated using the UK government carbon
cost of energy. We buy electricity from
renewable resources, wherever available,
and we do not buy carbon credits or
subscribe to offset schemes such as tree
planting or felling avoidance.
To facilitate a comparison with those who
consider renewable electricity to have a
zero-carbon footprint, our carbon footprint in
2022 was reduced by 37% in absolute terms.
Water
While none of our sites is located in regions
where water is scarce, we recognise that
usage of water is a key environmental metric
supporting our sustainability proposition. Our
water consumption is metered and we have
specific programmes to improve efficiency
and reduce water usage. Water usage
decreased by more than 25% across the
Group in 2022, driven by a decrease in usage
of almost 30% in the UK, our largest
manufacturing site. We attribute this
significant reduction to improvements in water
usage through daily monitoring, with results
reviewed and discussed at the daily
production team meeting. This improved
visibility has ensured more appropriate levels
of control and engagement leading to the
generation of new ideas in Croydon. There
was a small increase in water consumption
at our USA sites. This reflected increased
production activity at our Walton site and
capacity expansion of water jet machines at
our Tulsa site.
Waste
Waste reduction initiatives accelerated in
2022, with two sustainability targets aiming to:
X
reduce scrap through the improvement of
mass balance of AZOTE polyolefin foam
products manufactured globally. Details of
this target are outlined in the case study on
page 59. During 2022, we targeted a 2.5%
reduction in the excess mass of polymer
purchased for our AZOTE products. We
achieved 4.1%, mainly through activities to
optimise tooling and re-incorporate polymer
waste into products
X
re-purpose unpreventable polymer waste
from our UK manufacturing process.
We have two main sources of polymer
waste: solid polymer from our extrusion
process and foamed polymer from our
fabrication facility and the destructive
quality tests undertaken.
o The solid polymer waste primarily
comprises trims from our extrusion
process. A small quantity of this can be
re-incorporated directly into the product,
such as the polymers used in our
Footwear business. The majority is
crosslinked LDPE (chemically modified),
so cannot be directly re-incorporated into
the product. We have developed a
method to re-incorporate this chemically
modified polymer sustainably into the
foam manufacturing process with only
minor changes to the performance. Our
Ecozote Sustainability+ LDR foams,
containing 30% recycled LDPE content,
were launched in October and we are
currently incorporating more than 50%
of solid polymer waste into products.
Demand for these products is growing
and we are developing further products
which incorporate post-industrial waste
from other users
o Almost all foam scrap is now re-purposed
for use as underlay in artificial turf.
Details are provided on page 57.
Environmental, social and governance (ESG) report
Continued
67
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Water: Global
Water consumption (000m
3
)
2022
2021
2020
UK site
55.9
79.3
81.5
USA site
6.6
5.2
4.7
Other sites
1.6
1.9
1.8
Global consumption
64.1
86.4
88.0
Percentage in regions with
Baseline Water Stress
1
High
88%
Extremely High
0%
1
Our Croydon, UK plant represents 87% of the water used by the Group. Although
Croydon is identified as an area of high Baseline Water Stress by the Water Resource
Institute, our plant is not at high risk of water scarcity or of impacting local communities’
water supply. No water was withdrawn and not consumed.
Waste: Global
Group: waste
1
2022
2021
2020
Waste recycled (tonnes)
1,126
856
787
Total waste (tonnes)
3,003
3,124
2,636
Total hazardous waste
(tonnes)
2
56.0
Percentage of hazardous
waste recycled
2
63.3
1
Excludes India, where waste generated is not material.
2
2022 is the first year this metric is being reported.
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Greenhouse
gas emissions
Gross global Scope 1 emissions,
percentage covered under
emissions-limiting regulations
Quantitative
Metric tonnes (t) CO
2
Percentage (%)
RT-CH-110a.1
See Group carbon
emissions table on
page 66
. 0% of scope 1
emissions were
covered under
emissions-limiting
regulations
Discussion of long-term and
short-term strategy or plan to
manage Scope 1 emissions,
emissions reduction targets,
and an analysis of performance
against those targets
Discussion
and analysis
n/a
RT-CH-110a.2
See Group carbon
emissions section
page 66
and
targets section
pages 57 to 59
Air quality
Air emissions of the following
pollutants: (1) NO
X
(excluding
N
2
O), (2) SO
X
, (3) volatile organic
compounds (VOCs) and (4)
hazardous air pollutants (HAPs)
Quantitative
Metric tonnes (t)
RT-CH-120a.1
See Group carbon
emissions table
page 66
Energy
management
(1) Total energy consumed
(2) Percentage grid electricity
(3) Percentage renewable
(4) Total self-generated energy
Quantitative
Gigajoules (GJ),
Percentage (%)
RT-CH-130a.1
See SEC table
page 65
We do not generate
our own energy
Water
management
(1) Total water withdrawn
(2) Total water consumed,
percentage of each in regions
with high or extremely high
baseline water stress
Quantitative
Thousand cubic
meters (m³),
Percentage (%)
RT-CH-140a.1
See water data table
page 67
Number of incidents of
non-compliance associated
with water quality permits,
standards and regulation
Quantitative
Number
RT-CH-140a.2
None
Description of water
management risks and
discussion of strategies and
practices to mitigate those risks
Discussion
and analysis
n/a
RT-CH-140a.3
See water data
table on
page 67
and
TCFD disclosures
pages 60 to 62
Sustainability Accounting Standards Board (SASB) disclosures
SASB Standards identify the subset of ESG issues reasonably likely to have a material impact on the financial performance of the typical
company in an industry. The following table summarises our response to the sector-specific standards for chemicals companies.
68
Zotefoams plc
Annual Report 2022
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Hazardous
waste
management
Amount of hazardous
waste generated and
percentage recycled
Quantitative
Metric tonnes (t),
Percentage (%)
RT-CH-150a.1
See waste data table
page 67
Community
relations
Discussion of engagement
processes to manage risks
and opportunities associated
with community interests
Discussion
and analysis
n/a
RT-CH-210a.1
See People section
pages 70 to 74
Workforce
health and
safety
(1) Total recordable incident
rate (TRIR) (2) Fatality rate for
(a) direct employees and
(b) contract employee
Quantitative
Rate
RT-CH-320a.1
See SHE key metrics table
page 65
Description of efforts to assess,
monitor and reduce exposure of
employees and contract workers
to long-term (chronic) health risks
Discussion
and analysis
n/a
RT-CH-320a.2
See Health and Safety
performance section
pages 63 to 65
Product design
for use-phase
efficiency
Revenue from products designed
for use-phase resource efficiency
Quantitative
Reporting currency
RT-CH-410a.1
See Key Targets section
pages 57 to 59
Safety and
environmental
stewardship
of chemicals
(1) Percentage of products that
contain Globally Harmonized
System of Classification and
Labelling of Chemicals (GHS)
and Category 1 and 2 Health
and Environmental Hazardous
Substances
Quantitative
Percentage (%)
by revenue
RT-CH-410b.1
Less than 5% of revenue
is generated from
substances we use that
are regulated
1
or are
considered to be of
international concern
2
.
100% of goods purchased
and sold undergo hazard
assessments. The
hazardous substances,
such as flame retardants
and low levels of
stabilisers, are
non-hazardous in the
finished products as
they are bound into the
polymer matrix
(2) Percentage of such
products that have undergone
a hazard assessment
Percentage (%)
Discussion of strategy to (1)
manage chemicals of concern
and (2) develop alternatives
with reduced human and/or
environmental impact
Discussion
and analysis
n/a
RT-CH-410b.2
The risks relating to
products of concern are
reviewed in control
committees. Continued
use and substitution are
discussed and, where
possible, such substances
are substituted
Genetically
modified
organisms
(GMOs)
Percentage of products by
revenue that contain GMOs
Discussion
and analysis
Percentage (%)
RT-CH-410c.1
No products
contain GMOs
Management
of the legal
and regulatory
environment
Discussion of corporate position
related to government regulations
and/or policy proposals that
address environmental and social
factors affecting the industry
Discussion
and analysis
n/a
RT-CH-530a.1
Zotefoams follows all local
regulations relating to
Health, Safety and
Environment as well as
social factors. We have
a low risk appetite
towards safety
See
pages 63 to 65
Sustainability Accounting Standards Board (SASB) disclosures
Environmental, social and governance (ESG) report
Continued
69
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Operational
safety,
emergency
preparedness
& response
Process Safety Incidents Count
(PSIC), Process Safety Total
Incident Rate (PSTIR) and
Process Safety Incident
Severity Rate (PSISR)
Quantitative
Number, rate
RT-CH-540a.1
See OHSE table
page 65
Number of transport incidents
Quantitative
Number
RT-CH-540a.2
Zotefoams had
no reportable
transport incidents
Production
by reportable
segment
n/a
Quantitative
Cubic meters (m³)
or metric tonnes (t)
RT-CH-000.A
7,911 tonnes of AZOTE
®
polyolefin foam and
1,635 tonnes of HPP
were manufactured.
There is a lag between
manufacturing and sale
1
Substances of very high concern under REACH and the EU’s Restriction of Hazardous Substances Directive or substances listed under California Prop 65.
2
Substances controlled by the Montreal Protocol, Stockholm and Rotterdam Conventions, GHS category 1 and category 2 health hazards.
Sustainability Accounting Standards Board (SASB) disclosures
70
Zotefoams plc
Annual Report 2022
Macroeconomic challenges to our business
intensified in 2022. In most of the world,
increased energy prices and rising inflation
had a significant impact on household costs.
In Asia, the Chinese government’s zero
tolerance COVID policy resulted in a five-week
shutdown of our T-FIT
®
manufacturing facility.
Everywhere, the labour market remained
challenging and evolving employees’
expectations have called, and are calling for,
new approaches to attract, retain and develop
talent. Maintaining resilience in an uncertain
world required a response to the challenges
faced by our people, challenges we expect
to continue in the foreseeable future.
Our focus this year has been to provide
support where needed and ensure that the
right conditions are in place for our people
to continue to thrive and adapt to the needs
of our growing business. Thanks to the good
work of our staff, we were able to steer
successfully through this difficult period and
achieve sales growth, profit improvement and
a strong development pipeline. This success
is a testament to the dedication, talent and
versatility of the Zotefoams workforce.
Our people strategy
Our ambition is to be the world leader in
cellular materials technology in our chosen
markets. Our people are key to delivering
on that ambition. As a knowledge-based
business, our people strategy, which is
reviewed and approved by the Board annually,
aims to provide the capability to deliver on
that ambition in order to create long-term
value for our shareholders and alignment
with other stakeholders. The people strategy
has been developed to support our purpose
and enable the fulfilment of our strategic
objectives. We focus our efforts on the
attraction, retention and training of the right
people, role model leadership and evolution
of a corporate culture designed to guide our
business in the prevailing environment.
Progress is evaluated through the
measurement of employee experience,
retention rate and performance.
Delivery of our people strategy
Our people strategy is delivered by our
management team with the support of
Human Resources (HR). The HR team
operates from a Group function located in the
UK and local leads in the USA, China, and
Poland. An online portal is in place to allow
staff to easily manage certain HR tasks in our
manufacturing sites, allowing the HR team
to fully focus on supporting line managers
and improving the employee experience.
During the year, the HR function focused on
improvements around competency levels
across the business. A key output of that
exercise was to strengthen the measures
and controls for the delivery of our people
objectives through 2022 and 2023.
People policies
Zotefoams’ people policies Group-wide
are aligned with business needs and,
at a minimum, meet local legal requirements.
Policies relating to maternity, paternity,
adoption and parental leave, as well as
time off for dependants’ sickness and
bereavement, are in place in all main locations
other than in India, where government
guidance is currently followed but a plan
is in place to align with Group policies, which
go beyond this guidance, during 2023.
Culture, diversity and inclusion
Zotefoams aims to create a positive working
environment which yields benefits for
employees, shareholders and the wider
communities in which the Group is active.
As a global manufacturing business with a
diverse workforce operating cross-functionally
in different locations, our strategy is strongly
focused on building highly efficient teams
attuned to customers’ evolving needs.
We recognise that the Group’s culture and
inclusivity can be negatively impacted by the
lack of personal interaction between staff
working in different modes and at different
locations. To address this, we focused
during 2022 on embedding our culture in
an increasingly virtual world with different
challenges to effective collaboration. We also
recognised that the labour pool is changing,
with millennials anticipated to make up 75%
of the workforce in the next five to eight years.
This translates into different expectations in
terms of reward structures, working conditions
and tenure. Recruitment, training and
succession strategies were adapted in 2022
to meet the changing employment landscape
and ensure that the right talent can be hired
and trained with the necessary flexibility.
Our people
Our Culture Pillars
We live the Brand Values
We hold ourselves accountable
We understand how we contribute
to Zotefoams’ success
We are a learning organisation
We constructively challenge
ourselves and others
We value people and recognise
our successes
Zotefoams’ purpose
Optimal material
solutions for the benefit
of society
90%
Group employee
retention rate
75%
participation rate in
Group employee survey
39
nationalities
represented in
Group workforce
66
employee Net
Promoter Score
0.1%
gender pay gap
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Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
All people in my team know
how to work together and
they respect each other
No two days are the same.
Zotefoams has given me
an amazing opportunity to
grow and experience new
challenges and opportunities
I feel that my opinion matters
and my ideas help bring
about long-term solutions
The best thing is regularly
meeting new clients and
sharing knowledge – and
also gaining knowledge
I love making a difference,
getting through to people
in a way that makes
people want to work
in a safe manner
Team cooperation,
the trust of my colleagues,
the achievement of my
goals: these are the things
I am proud of
Trustworthy, Responsive,
Pioneering and Reliable:
what do these Brand Values
mean to our people?
Meaningful values are key to maintaining
a healthy culture. Informed by the output
of performance reviews and employee
feedback in 2021, we developed a number of
culture-focused initiatives this year centred
around our brand values and culture pillars.
These included open discussions led by the
Executive team members on identifying with
the brand values, understanding how the
language used in leadership influences
culture and using culture pillars to inform the
decisions we make. The global staff survey,
which had a high response rate, also focused
on team perceptions of culture and how it
impacted them. An employee Net Promoter
Score of 66 was achieved, indicating a high
level of employees’ loyalty. The employee
Net Promoter Score is calculated on the basis
of the answer given to the question: “Would
you recommend Zotefoams to others as a
place of employment?”. An employee Net
Promoter Score between 50 and 70 is
considered excellent.
The Board noted that a transparent process
had been followed, involving staff at all levels
and at every stage of their career life cycle.
The data and insights garnered will foster
a greater understanding of the employee’s
experience and support the Board in its
approach to employee engagement.
Our Ethics Policy was updated during the
year to be more specific on community
engagement considerations. As a responsible
employer and neighbour, we aim to have a
beneficial impact on the local communities in
which we operate and we understand that
positive relations are key to maintaining our
social licence. Our objective is to build trust
and engagement over time through mutually
beneficial interaction. The Group has in
place a contact mechanism for external
stakeholders to reach out to the business
on issues of concern. Our environmental
and health and safety record is sound,
with any issues handled through proactive
engagement with the local community.
Employee engagement survey highlights
Community-focused initiatives in 2022
included graduates attending career
days in secondary schools and a donation
to Walton Fire Protection District for
a Memorial Monument.
Employee engagement
Zotefoams recognises that employee
engagement is a key enabler of our purpose.
In the UK, our Joint Consultative Committee
(JCC), which comprises an employee
representative from each department and
a Board representative, meets quarterly to
consider a wide range of matters affecting
employees’ current and future interests.
A recent topic considered by the JCC’s
working groups was the impact of the
cost-of-living crisis. The feedback from these
discussions allowed management to propose
a series of measures to support staff in these
difficult times. In the USA, employee
engagement meetings are held monthly and
the feedback is considered by management
to action change where necessary. In all
Zotefoams locations, feedback is elicited from
leavers in areas such as the key influencing
factors in their decision to leave, whether
sufficient resources were made available to
them, the perceived effective use of their skills,
remuneration and recognition. New employees
are also consulted on their views of the
organisation. Employee health and safety
issues are embedded widely in Group
activities. Further details are available on
page 65.
To gain a better appreciation for the Group’s
performance, employees Group-wide were
invited to join the Group CEO and Group CFO
in live business presentations on interim and
final results delivered through the Investor
Meet Company platform. In January 2022,
the Group CEO also delivered a number of
business updates to all Zotefoams staff,
accommodating shift patterns and
geographical locations, which also included
question and answer sessions. Board
interaction with employees involved a visit to
the Poland plant in October, that enabled
engagement with the local management team,
and a programme of lunches for the Board and
senior managers that coincided with Board
meeting dates throughout the year.
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In line with employees’ desire to become more
involved in sustainability matters, a series of
toolbox talks in the UK were arranged around
waste management and recycling.
The Company compensates its staff in line
with market rates and taking account of
regulatory guidance, which includes paying
employees at or above the rates published by
the Living Wage Foundation in the UK. In other
geographies, the rate of pay for Zotefoams
employees is above the minimum wage
applicable locally.
Recognising the impact of the energy crisis
and broader inflationary pressures, an early
salary increase was granted in the UK in
October 2022 to the majority of staff, ahead of
the annual review in 2023. Similar measures
were implemented in the USA and Poland
during 2022 to ensure that salaries remained
aligned with the market. Trade unions are
consulted in all employee remuneration matters
and are supportive of the measures taken in
2022. An employee assistance programme is
also in place in the UK and the USA, providing
staff with confidential helplines and practical
resources to support their emotional, physical
and financial wellbeing. Group-wide, a team
of mental health first aiders introduced in
2021 is available to offer emotional support to
employees experiencing mental distress and to
signpost them towards appropriate internal
and external resources.
Following a 1% increase in UK employer
pension contributions, effective April 2022, for
staff members of the defined contribution
pension schemes meeting the maximum
employee contribution rate, the Board heard
proposals from Legal & General, the provider
of our Defined Contribution Pension Scheme,
for a fund providing more advantageous
conditions to staff members of that scheme.
My decision to join Zotefoams was simple.
I was looking for a new challenge that
could leverage my background in plastics
and plastic processing while satisfying my
desire to grow and learn new ways plastics
can benefit the world. I quickly recognised
that Zotefoams is poised for growth in
North America, has a loyal customer
base, a premier product with unmatched
performance, a strong brand, and simply
needed leadership that could help scale
the business. It was a perfect match
Dan Lumpkin
Business President of Zotefoams Inc
Opportunities to work with a truly
innovative technology from concept
to commercialisation are rare; this
appointment enables me to do just that
with our ReZorce mono-material barrier
packaging range. I am also excited by the
potential for the technology that underpins
ReZorce: reducing the polymer content of
extruded materials by 15–20% without
compromising performance is an extremely
attractive proposition across a wide range
of applications. From both ethical and
legislative perspectives, many current
packaging solutions are no longer
sustainable. MuCell Extrusion and ReZorce
technologies offer a unique combination
of material reduction and circularity at
a time of unprecedented challenge in the
packaging sector
Neil Court-Johnston
President of MuCell Extrusion LLC
The proposals will be adopted in 2023.
Group-wide, salaries, benefits and conditions
remain under review to promote a positive
employee experience.
2022 also saw the appointment of new business
presidents at both AZOTE North America and
MuCell Extrusion LLC. Dan Lumpkin, Business
President of Zotefoams Inc, brings significant
executive leadership to the Group from a career
including operations, supply chain and technical
experience at companies such as Procter &
Gamble and Apple.
Neil Court-Johnston was appointed President
of MuCell Extrusion LLC in July 2022, a
position that includes responsibility for
Zotefoams Denmark and development of the
ReZorce
®
mono-material barrier packaging
range. Neil had been Vice-President of
Strategy at Zotefoams since 2020 and, prior to
that, his experience was primarily in the food
packaging industry with companies including
Jabil, Nampak and Northern Foods.
Diversity
The Board Diversity Policy adopted in 2021
demonstrates our commitment to fostering
an inclusive culture, where every person is
encouraged to contribute to the organisation
irrespective of their race, ethnicity, gender,
sexual orientation, marital status, disability,
age or religious beliefs. The organisation has
regard, in particular, to female and ethnically
diverse representation in its workforce and
management and aspires to achieve net
annual female joiners into the business of
50% by 31 December 2024.
Some measurable improvements were noted
in 2022 in terms of gender diversity. Female
applicants increased to 32% of the applicants’
pool (2021: 23%). Our graduate management
scheme saw an increase in female candidates
to 21% (2021: 11%). This resulted in an overall
increase in the Group female workforce to
26% (2021: 25%) and an increase in senior
female managers to 28% (2021: 20%).
New diversity initiatives in 2022 included the
targeting of Science, Technology, Engineering
and Mathematics (STEM) students in local
schools and colleges. Zotefoams offers work
experience, graduate role opportunities and
networking with our graduate employees at
career days in our two largest sites in the
UK and the USA. For more senior roles,
Dr Margaret Wegrzyn led an internal project
aimed at eliciting staff’s views on diversity
(see below). It is hoped that blended working
policy practices embedded during the year will
encourage an increase in female applicants.
Our people
Continued
Board visit to the Poland site in October 2022
Scan the QR code to see
the Board Diversity Policy
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73
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Annual Report 2022
Strategic Report
Governance
Financial Statements
We expect our workforce to reflect the world
and local communities in which we operate and
recognising this forms part of our people
strategy. Our principal site, with 63% of Group
employees (2021: 64%), is located in South
London and 36% of the workforce is from a
non-white ethnic group (2021: 36%); this is a
close reflection of the local demographic and
a much higher non-white ethnicity than the UK
as a whole. We see similar locally influenced
patterns in other locations, principally in the
USA, where our employee demographic reflects
local ethnicity in northern Kentucky and the
Boston, MA and Tulsa, OK metropolitan areas.
A new equality and diversity monitoring form
was used to collate information comprising
gender, sexuality, ethnicity, education level
and the highest-earning parent’s occupation,
according to the UK National Statistics
Socio-economic Classification (NS-SEC).
The data will inform diversity initiatives in 2023.
As at 31 December 2022, the Group
employed 534 staff (2021: 499).
Organisation development
As a mature international organisation,
Zotefoams has established key
cross-functional processes in different
locations. This set-up can be complex at times
but has been further complicated by the
emergence of hybrid working. A focus of 2022
was to analyse the value yielded from both
outward and inward facing key processes
and streamline them where possible.
To meet the demands of an increasingly
complex global supply chain, we delivered
an organisational development plan aligned
with our corporate objectives aimed at
improving new product implementation and
strengthening our supply chain, production
and procurement teams. We also continued to
progress the HR strategy established in 2020
to underpin our talent growth agenda. The skill
shortages identified in 2021 in the UK and the
USA were tackled through a review of shift
patterns, workforce planning and reward.
We actively manage a pipeline of future talent.
As a knowledge-based business, we attract
professionals at the beginning of their career
and recognise how the impact of staff turnover
may only be mitigated effectively by the
codification of knowledge and processes to
support effective succession planning. This
year, our talent management strategy focused
on implementing processes and practices to
support knowledge transfer and cross-skilling
in our manufacturing and supply chain areas
and making use of the competencies and skill
matrices developed in 2021.
Performance management
The new performance management system
launched in 2021 for the UK, Poland, China
Role by gender
1
2022
2021
Female
%
Male
%
Prefer
not to
say
%
Female
%
Male
%
Prefer
not to
say
%
Director
2
29
5
71
0
0
2
29
5
71
0
0
Executive team
1
17
5
83
0
0
1
17
5
83
0
0
Direct report to
Executive team
2
15
28
38
72
0
0
8
20
31
80
0
0
Other staff
120
26
348
74
0
0
110
25
337
75
0
0
Total
138
26
396
74
0
0
121
25
378
75
0
0
Number of Senior
Positions (CEO, CFO,
SID or Chair)
0
–
4
–
0
–
0
–
4
–
0
–
1
In calculating headcount, we take into consideration all self-identified genders, including non-binary and intersex.
Staff are also provided with the option of “Prefer not to say” on the equal opportunities form.
2
Following the departure of the HR Director in 2021, the HR function was reorganised with a female Head of HR reporting
directly to the Group CEO.
Age
Age equality forms part of our commitment to equal opportunity in employment and we
have a good spread of age groups across the business.
The average age of our employees is 43 (2021: 43). 30% of our workforce is aged 51
or over (2021: 30%).
Ethnicity distribution of Group workforce
Director
UK
US
China
Poland
India
Group-
wide
Asian
0
53
1
40
–
5
99
Black
0
59
2
–
–
–
61
Hispanic or Latino
0
–
19
–
–
–
19
Mixed
0
9
–
–
–
–
9
White
7
196
86
–
41
–
330
Other
0
5
1
–
–
–
6
Unknown
0
10
–
–
–
–
10
Total
7
332
109
40
41
5
534
Non-white ethnicity
1
0%
36%
21%
100%
0%
100%
36%
Estimate of non-white
ethnicity in the country
–
18%
42%
100%
6%
100%
–
1
Non-white ethnicity calculation excludes unknown and other and includes Directors.
Around 26% of the total workforce is female (2021: 25%). We recognise that, in production
environments, the shift patterns and physical nature of the work present a challenge to
attracting women and this is something which is likely to change only over the longer
term. We also see a gender imbalance across the broader business, with a much higher
proportion of male employees at managerial and professional levels. Our talent pool at more
junior levels, which is more representative of recent recruitment, is more balanced and we
anticipate that over time this will increase the diversity at more senior levels. A blended
working policy is in place in the UK to help us attract a greater number of professional
women, with more flexible working arrangements increasing the pool of candidates with
caring and/or family responsibilities. Our recruitment approach includes the consideration
of pre-selection factors that will make Zotefoams more appealing to all minority candidates.
Our UK Gender Pay Gap has fallen significantly since 2017 and stood at 0.1% in April 2022,
below a UK average of 8.3%.
74
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see our Gender Pay
Gap report
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and India encouraged a high level of employee
engagement in the development of their
performance. Similar established processes in
place in the USA also yielded positive results
and identified skill gaps and development
opportunities. In the UK, staff achieved
competency level for all roles assessed in the
competency framework launched in 2022,
and this will be further developed in 2023.
People development
One of our culture pillars is that we are a
learning organisation. Zotefoams has always
fostered employee development through a
variety of initiatives to equip them with key
job-related skills aligned to the fulfilment of the
Our people
Continued
I have a degree and PhD in Materials
Science & Engineering and it is important
to me to work in a field related to materials.
I joined Zotefoams in 2017 as an AZOTE
®
Business Development Manager and
relate to the Company’s values of reliable,
trustworthy, responsive and pioneering.
I have had many interesting opportunities
since I joined, including being involved in the
development and launching of new product
ranges, developing key customer
relationships, managing an increasingly
larger customer portfolio and supporting
and mentoring younger team members.
It is particularly rewarding to see these
colleagues do well.
I was also a part of the team responsible for
building the business case for our Poland
plant, which was commissioned in 2021.
My early work involved capacity planning
and optimal start dates for the plant and
I continue to support the implementation of
strategic decisions, which requires close
collaboration with our Polish colleagues.
I am a member of the Institute of Materials,
Minerals and Mining (IOM3) and chair its
Women in Materials Committee, which
focuses on female progression in the
industry. The Committee organises events
and literature to support, champion and
inspire women in various fields of
engineering. In parallel, I have been tasked
with a project focusing on gender diversity
at Zotefoams UK, where I have been
interviewing females in all levels of seniority
to understand their views and how we can
improve opportunities to attract and retain
women. I plan to present recommendations
to the Human Resources Steering
Committee in 2023 for adoption.
Dr Margaret Wegrzyn
Group’s objectives and we maintained this
approach in 2022.
UK Graduate Scheme
Our two-year UK Graduate Scheme is aimed
at increasing the organisation’s capability and
enables us to develop young talent with a
broad and strong understanding of the
business. In 2022, we brought six individuals
into the scheme (2021: five). The scheme
comprises two or three development roles for
each individual and was extended from STEM
to consider IT and business graduates in
2022. Graduates undertake a programme of
learning and hands-on exposure to all major
functions in the business, which helps them
build broad business insight and gives them
the experience to progress in their chosen
career path. It also gives them direct and
frequent exposure to senior managers and
executive directors that helps with their
personal development. We plan to extend the
Graduate Scheme to the USA in 2023. Two of
the graduates that completed the scheme in
2022 are now a Technical Support Engineer
and a Section Production Manager of our
Fabrication area.
Training and development
Training opportunities are offered to staff
as part of the personal development plan
established through the performance
management process. In addition, all staff
undergo a programme of compliance and
health and safety training commensurate with
their role. All staff are required to acknowledge
that they have read and understand policies
applicable to them, which are translated as
necessary for employees who are not
proficient in English.
The internal “Management Academy”
established in 2020 focuses on equipping
our people managers with a broad range of
skills, including performance management,
motivating teams, dealing with disciplinary
matters and behavioural safety.
Leadership Academy in the UK
A leadership programme launched in 2022
replaced our previous training approach for
this cadre of staff. The leadership programme
aims to equip managers and early entry talent
with cross-functional skills and provide
training on developing, managing and leading
individuals and teams to achieve Zotefoams’
objectives. Managing change and enhancing
stakeholders’ relationships are key elements.
Looking forward
To ensure that the business is set for success
from a people perspective, we will continue
to develop a positive environment where
employees can grow both professionally
and personally as they support the Group’s
ongoing progress. Our 2023 focus will be
on our reward and benefit strategy to
ensure that we remain an attractive and
competitive employer.
Scan the QR code to see
The Board Diversity Policy
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Strategic Report
Governance
Financial Statements
Since 1 October 2007, the Board has been
required to carry out its statutory duty to
act in a way which it considers, in good
faith, would be most likely to promote the
success of the Company for the benefit of its
members as a whole, and in doing so have
regard to:
X
the likely consequences of any decision
in the long term
X
its environmental impact
X
key stakeholders (including shareholders,
employees, customers, suppliers and
communities) and
X
maintaining a reputation for high standards
of business conduct.
The Board has given due consideration to
these matters in its decision-making process
since the imposition of the duty and made its
first report on compliance in the 2019 Annual
Report in line with legal requirements.
Decision-making
The Board delegates day-to-day
management and decision-making to the
Executive team but maintains oversight of the
Group’s performance and reserves to itself
specific matters for approval, including
significant new business initiatives. It monitors
that management is acting in accordance
with, and making progress on, the agreed
Group strategy through regular Board
meetings supported by information packs
received in advance to enable effective
preparation and consequent discussion,
monthly reporting of business performance,
direct engagement with the Executive team
and employee groups and attendance by
a Board member at the Joint Consultative
Committee representing UK workforce views.
Processes are in place to ensure that the
Board receives all relevant information to
enable it to make well-judged decisions in
support of the Group’s long-term success.
2022 key events
In 2022, Zotefoams continued with its
strategy of investing in flexible assets and
technology that support the organic growth
opportunities afforded by our diverse, and
often unique, products. The majority of the
Group’s investments during the year was
directed towards sustainability initiatives,
essential replacement of aged assets and
product and technology development. In the
case of the latter, the largest focus was
furtherance of the ReZorce
®
mono-material
barrier packaging opportunity. In pursuing
the Company’s purpose, “optimal material
solutions for the benefit of society”, the Board
continued to concentrate on the creation
of sustainable value for all of Zotefoams’
stakeholders and ensure that the Group’s
culture and the interests of all employees
are given due consideration. The Board
continues to take a long-term approach to its
decision-making to ensure that Zotefoams is
able to deliver on its strategy.
Decision
Continued investment in ReZorce
®
mono-material barrier packaging
Context
Using our MuCell
®
extrusion technology, we have developed ReZorce, an easily recycled packaging system
which can be made using a high proportion of recycled raw materials. In 2020, the Board approved a market
assessment that recommended a focus on the aseptic liquid packaging market.
In 2022, revenue from our MEL business unit grew 23% to £2.8m (2021: £2.3m) while the segment loss
widened to £1.9m (2021: £0.7m), a direct result of the non-capitalised investment to develop ReZorce
technology. In line with accounting standards, labour amounting to £0.5m (2021: £0.4m) was redirected from
MEL to ReZorce and capitalised as intangible assets, together with a further £1.0m (2021: £0.6m) of directly
attributable costs. The Group also invested £0.8m (2021: £0.9m) during the year to purchase and develop
equipment, which has been recorded under tangible assets. This amount includes the acquisition of the net
assets of Refour ApS (Skandeborg, Denmark) for £0.3m, which, together with key members of the Refour
team, is expected to accelerate the development of ReZorce across a wide variety of applications. This site
now operates as a development centre within the MEL division, with scope to scale up for initial market launch.
We recognise that launching products into the lower carbon packaging market requires us to overcome
significant market and technical hurdles and is best done with a strategic partner to mitigate the risk, ideally
through a combination of their own experience and financial investment. Late in 2022, we appointed a
USA-based adviser to facilitate the interactions with potential partners and this engagement is progressing.
Stakeholder
considerations
Shareholders
Significant potential opportunities exist, offering sustainable, profitable growth over the medium term.
This provides further evidence that Zotefoams’ ESG planning forms part of its business model.
Employees
Internal promotion of an experienced packaging industry employee to the role of President. The former Refour
CEO and a small team have also joined the Zotefoams Group.
Environment
Our ReZorce product line can be made with significant recycled plastic content and, as it is classified as
a mono-material, can be readily recycled to support a circular economy. The acquisition of assets in Denmark
will support progress towards helping manufacturers meet their obligations and reducing the waste and energy
impact of packaging.
Strategic actions
supported by the Board
Continued investment in the development of the ReZorce proposition and the acquisition of the assets of
Refour ApS in Denmark.
The appointment of a USA-based adviser to facilitate interactions with potential strategic partners.
Impact of these actions
on the long-term
success of the Company
The market opportunity for lower carbon footprint packaging is vast. Cartons and pouches together generate
revenues in excess of $40bn p.a. Zotefoams is well-placed to develop a unique proposition that could capture
some of this demand.
s172(1) statement
Our shareholders and stakeholders
76
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Annual Report 2022
Decision
Supporting our workforce during turbulent times
Context
Rising consumer inflation throughout the year had a significant impact on households’ costs in most regions
where we operate. Maintaining the Group’s momentum in an uncertain world required an understanding of
the challenges faced by our workforce. Our focus this year has been to provide support where needed and
ensure that the right conditions are in place for our people to continue to thrive and adapt to the needs of our
growing business.
Stakeholder
considerations
Employees
Recognising the impact of the energy crisis and broader inflationary pressures, an early salary increase
was granted in the UK in October 2022 to the majority of staff, ahead of the annual review in 2023. Similar
measures were implemented in the USA and Poland during the year to ensure that salaries remained aligned
with the market. An employee assistance programme is also in place in the UK and the USA, providing staff
with confidential helplines and practical resources to support their emotional, physical and financial wellbeing.
Group-wide, a team of mental health first aiders introduced in 2021 is available to offer emotional support
to employees experiencing mental distress and to signpost them towards appropriate internal and
external resources.
To retain and aid recruitment, we offer flexible working arrangements where practical.
Employer contributions to the UK Defined Contribution Pension Scheme were increased in April 2022.
Trade unions, which were engaged in discussions on all above remuneration matters, were supportive of the
measures taken.
Shareholders
Our people are a key asset. Initiatives supporting retention and succession planning contribute to the value of
the business.
Strategic actions
supported by the Board
Award of an early 2023 UK pay increase for the majority of the workforce in October 2022, with similar measures
being implemented in the USA and Poland throughout the year.
Increase in UK employer pension contributions in April 2022.
Impact of these
actions on the long-term
success of the Company
An experienced and loyal workforce whose interests are aligned with those of the business.
Decision
Maintain margins against a background of raw material and energy cost
increases
Context
The significant cost inflation experienced in 2021 continued in 2022. To support margin recovery, a number
of sales price increases, mostly within Polyolefin Foams, were implemented in the first half of 2022. Cost and
energy reduction measures were also key contributory factors. In all cases, these were made in the context
of wider market conditions, including consideration of exchange rates, competitor actions and the impact
on customers.
Stakeholder
considerations
Shareholders
Profit before tax increased 74% to £12.2m (2021: £7.0m).
Environment
Energy usage reduced by 8% in the UK and 4% Group-wide.
Strategic actions
supported by
the Board
Implementation of sales price increases.
Energy management measures forming part of the sustainability targets approved by the Board.
Impact of these actions
on the long-term
success of the Company
Demonstrates pricing power in difficult times.
Provides confidence to shareholders on the growth prospects of the business.
s172(1) statement
continued
77
Zotefoams plc
Annual Report 2022
Strategic Report
Governance
Financial Statements
Decision
Capital investment in nitrogen project
Context
The existing nitrogen booster compressors in Croydon were installed in 1986 and 1997. Replacement with
more efficient high output equipment, coupled with changes to improve the process flow, is anticipated to result
in energy and maintenance cost savings post implementation.
Stakeholder
considerations
Environment
The new equipment is more efficient and is estimated to save 750,000kWh p.a. in energy usage.
Shareholders
Operating costs are reduced due to fewer maintenance requirements and increased efficiency in output and
usage of plant space. Reduced risk of operational disruption resulting from aged critical equipment.
Strategic actions
supported by
the Board
Investment of £2.5m in Croydon.
Impact of these actions
on the long-term
success of the Company
Increased operational efficiency, certainty and opportunity for increased capacity to meet current and future
demand.
2022 content
Decision
New Directors’ Remuneration Policy
Context
The current Remuneration Policy was approved at the 2020 AGM with over 89% support from the Company’s
shareholders. From 2020 to 2022, the Directors’ Remuneration reports were each approved with over 98% of
votes in favour, demonstrating strong shareholder endorsement for Zotefoams’ responsible approach to
Executive pay and remuneration principles. Continuing support from the shareholders for necessary changes
to the Remuneration Policy is key to ensuring that the Company’s approach to managing talent, strategy and
risk is aligned with shareholders’ interests.
Stakeholder
considerations
Shareholders
A consultation process was initiated in November 2022 with the top 20 shareholders, who between them hold
approximately 78% of Zotefoams’ shares. After an initial written communication explaining proposed changes,
calls were arranged with shareholders open to further engagement to dive more deeply into the rationale and
context and answer questions.
Employees
Most shareholders raised the issue of the wider workforce remuneration context. Zotefoams recognises that its
workforce is critical to its success. As a responsible business, the Company offers salaries at the median level
for UK manufacturing jobs and is a living wage employer in the UK. Recognising the difficulties faced by many
employees in the current financial climate, in addition to the 4% pay award in April 2022, the Company granted
an early pay rise for 2023 for staff earning below £50,000 p.a. in October 2022. This cadre constituted 77% of
the UK workforce. Further details are provided in ‘our people’ on pages 70 to 74 and the Directors’
Remuneration report on pages 88 to 109.
Strategic actions
supported by
the Board
Creation of a Remuneration Policy which:
X
supports the delivery of the Group’s long-term strategic ambitions and operational performance
X
provides competitive salaries aligned with the market, reflecting the size and complexity of the business
and the calibre of individuals in each role
X
apportions a significant part of the total package to variable incentives to align management interests with
shareholders’ returns.
Impact of these actions
on the long-term
success of the Company
Attract, reward and retain key executives to support the long-term execution of the Company’s strategy.
David Stirling
Group CEO
Lynn Drummond
Non-Executive Director
and Chair Designate
Douglas Robertson
Senior Independent Director
A
N
R
Alison Fielding
Non-Executive Director
A
N
R
Board of Directors
Diverse skills to build strength
Appointed
September 1997 (Finance Director)
and May 2000 (Group CEO)
Skills
Global leadership, strategy
and commercial experience,
with a specific skillset in intellectual
property, business development,
finance and manufacturing.
He has over 25 years’ plc
board experience.
Experience
David started his career with KPMG
in Scotland, where he qualified as
a Chartered Accountant. He has
worked for Price Waterhouse in the
USA and Poland and with BICC
plc. David is a graduate of Glasgow
University and has an MBA from
Warwick University and an MSc
in Finance from London Business
School. Appointed a Fellow of the
Institute of Materials, Minerals and
Mining in 2022.
External appointments
None
Appointed
January 2023
Skills
Experienced Chair and
Non-Executive Director, with
significant expertise in banking
and the healthcare sector.
Experience
Lynn worked in the Cabinet Office
in London as Private Secretary to
the Chief Scientific Adviser before
spending 16 years as a Managing
Director within Investment Banking
for Rothschild & Co. She has
held non-executive directorships
at Venture Life Group plc, RPC
Group plc, Infirst Healthcare, Shield
Holdings AG, Allocate Software
plc, Consort Medical plc and
Alimentary Health Ireland. She has
also been Chairman of Trustees
for Breast Cancer Haven and
was a member of the University
of Cambridge Centre for Science
and Policy Development Group.
Lynn holds a Bachelor of Science
Degree in Chemistry from the
University of Glasgow and a PhD
in Biochemistry from the University
of London. She is a Fellow of
the Royal Society of Chemistry
and a Fellow of the Royal Society
of Edinburgh.
External appointments
Chair and Pro-Chancellor of the
University of Hertfordshire and a
Board mentor for Criticaleye.
Appointed
August 2017
Skills
Extensive multinational experience
in both public and private
companies, strategic planning,
acquisitions and divestments.
Experience
Doug is a Chartered Accountant
and was Group Finance Director
of SIG plc until his retirement in
January 2017. Prior to joining SIG,
Doug had been Group Finance
Director of Umeco plc and Seton
House Group Limited, having spent
his early career with Williams plc
in a variety of senior financial and
business roles.
External appointments
Non-Executive Director, Chair of
the Audit Committee, member of
the Remuneration and Nomination
Committees, HSS Hire Group plc.
Non-Executive Director, Chair of
the Audit Committee, member of
the Remuneration and Nomination
Committee, Mpac plc.
Appointed
May 2020
Skills
Experienced entrepreneur
and Non-Executive Director,
with significant expertise in
strategy development and
implementation for start-ups,
AIM/main market listed and
not-for-profit organisations.
Experience
Alison spent 13 years with IP
Group plc as Chief Technology
Officer, Chief Operating Officer and
latterly as Director of Strategy and
IP Impact, and brings extensive
investment, strategy development
and execution experience in
fast-growing, science-based
businesses. Alison has a PhD
in Organic Chemistry from
Glasgow University.
External appointments
Non-Executive Director and Chair
of the Remuneration Committee
of Nanoco plc, Non-Executive
Director and Chair of the
Remuneration Committee of Maven
Income and Growth VCT plc.
78
Zotefoams plc
Annual Report 2022
Steve Good
Non-Executive Chair
N
R
Gary McGrath
Group CFO
Jonathan Carling
Non-Executive Director
A
N
R
Catherine Wall
Non-Executive Director
A
N
R
Chair of Committee
A
Member of the Audit Committee
R
Member of the Remuneration Committee
N
Member of the Nomination Committee
Appointed
October 2014 (Board)
and April 2016 (Chair)
Skills
Strong and relevant international
experience in the speciality
chemicals and plastics industries,
manufacturing and diverse industrial
markets, which enables him to
give both guidance and challenge
to management. He also has
significant plc board experience.
Experience
Steve was Chief Executive of Low
& Bonar plc between September
2009 and September 2014. Prior to
that role, he was Managing Director
of its technical textiles division
between 2006 and 2009, Director
of new business between 2005
and 2006 and Managing Director of
its plastics division between 2004
and 2005. Prior to joining Low &
Bonar, he spent 10 years with
BTP plc (now part of Clariant) in
a variety of leadership positions
managing international speciality
chemicals businesses. He is a
Chartered Accountant.
External appointments
Chair of the Remuneration
Committee and member of the
Nomination Committee, Elementis
plc. Chair, Chair of the Nomination
Committee and member of
the Remuneration Committee,
Devro plc.
Appointed
December 2015 (Executive
Director) and February 2016
(Group CFO)
Skills
Diverse international experience
across a range of manufacturing
businesses. He has a track record
of building world-class finance
organisations and delivering
commercial finance support and
effective control environments to
achieve board strategies.
Experience
Gary is a Chartered Accountant,
qualifying with Arthur Andersen.
He spent 11 years with RMC
Group plc before joining Koch
Industries Inc, where he spent
several years in various positions,
including Global Finance Director
of INVISTA Apparel and EMEA Vice
President of Finance, Planning and
Analysis at Georgia Pacific. Before
joining Zotefoams, Gary was CFO
of GC Aesthetics Limited. He has
worked across public, private and
private equity environments in the
UK, Belgium, Germany, the USA
and the Republic of Ireland.
External appointments
None
Appointed
January 2018
Skills
Extensive engineering,
manufacturing, operational and
business experience at board level,
having led the development and
production of a number of luxury
cars and aero engines.
Experience
Jonathan was previously the
CEO of Tokamak Energy Limited,
a technology business developing
a faster route to fusion power,
COO for Civil Large Engines at
Rolls-Royce plc, COO at Aston
Martin Lagonda Limited, and Chief
Engineer with Jaguar Land Rover
Limited. Jonathan has extensive
engineering, operational and
business experience. He was
also a Non-Executive Director
of Aga Rangemaster Group plc
between 2011 and 2015.
External appointments
None
Appointed
May 2020
Skills
Skilled independent Chair and
Non-Executive Director for private
equity owned, quoted and family
companies. Sectors: industrials,
business services, consumer.
Experience
Catherine has 30 years’ experience
in the private equity industry,
primarily with Equistone Partners
Europe, where she led numerous
management buy-outs and later
became UK Portfolio Partner
supervising the management of
all the business’s UK investments.
Catherine also has extensive
industrial markets and Non-
Executive Director experience,
working with and helping develop
many management teams to
deliver ambitious growth plans.
External appointments
Chair of Mortgage and
Surveying Services Limited
Strategic Report
Governance
Financial Statements
79
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80
Zotefoams plc
Annual Report 2022
Dear Shareholder
The Board recognises the importance of being
a well-managed business in the interests of
our shareholders and stakeholders. Sound
governance principles must permeate the entire
organisation, providing a fundamental underpin
to the process of value creation, value protection
and value preservation. Governance drives
the quality of decision-making that will help
Zotefoams achieve its strategic objectives
more efficiently and effectively.
In a difficult global context characterised by
continuing uncertainty, the Board remained
committed throughout the year to the Group’s
strategy and continued alignment with its
purpose of providing ‘optimal material solutions
for the benefit of society’.
The Board has a detailed programme of
activities that ensures that operational and
financial performance, risk, governance,
strategy, culture and stakeholder matters are
discussed frequently, and support Directors’
oversight and understanding. This ensures that
the Board’s discussions and decisions are
appropriate for the business, our stakeholders
and the markets in which we operate.
Strategic sessions, at which members of the
Executive team present on each of our global
business areas, as well as participate in broader
longer-term considerations impacting the
Group, are held annually. This is in addition to
business unit reviews which are led by the
relevant Executive team member. The aim is to
better understand market trends, technology
development, our place in the lower-carbon
economy and people strategies. The culture,
diversity and inclusion supporting the long-term
planning and strategic direction of the Group
are also explored during these sessions.
Key areas of stakeholder focus for 2022 included:
X
a review of the Group’s finance facilities and
negotiation of more favourable terms aligned
with our five-year plan
X
the continued development of ReZorce
®
mono-material barrier packaging technology
X
the support of a wide range of progressive
environmental, social and governance (ESG)
initiatives, which include targets for the
reduction of energy and polymer usage, the
minimisation of waste and the development
of new products that use recycled materials
X
the development of community engagement
considerations in our Ethics Policy
X
measures to support employee engagement,
including considering the wellbeing and
treatment of our staff in China, a review of the
results of the global staff engagement survey,
a continued programme of lunches with
representatives from different departments
and a visit to our Poland plant.
Further details may be found in our s172(1)
statement on
pages 75 to 77
and in our people
on
pages 70 to 74.
I am pleased to present the report on corporate
governance on behalf of the Board.
Statement of compliance with the 2018
UK Corporate Governance Code
Throughout the financial year ended
31 December 2022, the Board has considered
the contents and requirements of the Code and
confirms that the Group has been compliant with
the provisions of the Code, with the exception of
Provision 38 and company pension contributions
for the incumbent Group CEO. An explanation
of how the Company has been brought into line
with the Code in that respect with effect from
1 January 2023 is set out on page 89 of the
Directors’ Remuneration report.
The Code can be downloaded here
https://bit.ly/2AKGqTm.
Further details are provided in this report,
the Board Committee reports and the
Directors’ report that follow on
pages 83 to 112.
The disclosures required by Disclosure and
Transparency Rules DTR 7.2.6R have been
provided in the Directors’ report.
Roles and responsibilities
The Board’s role is to provide entrepreneurial
leadership of the Group within a framework of
prudent and effective controls that enable risk to
be assessed and managed. The Board sets the
strategic aims of the Group, ensures that the
necessary resources are in place to achieve the
Group’s objectives and reviews management
performance. The Board acts as the
representative of the shareholders and other
stakeholders and focuses on the governance of
the Group. Management is delegated to the
Executive Directors and the Executive team.
As part of their role as members of a unitary
Board, the Non-Executive Directors
constructively challenge and develop proposals
on strategy. The Non-Executive Directors
scrutinise the performance of management in
meeting agreed goals and objectives and
monitor the reporting of performance. They
satisfy themselves on the integrity of financial
information and that financial controls and
systems of risk management are robust and
defensible. They are responsible for determining
appropriate levels of remuneration of Executive
Directors and have a prime role in appointing
and, where necessary, removing Executive
Directors and in succession planning.
Three principal Committees report into
the Board, functioning within defined
Terms of Reference. These are the Audit,
Remuneration and Nomination Committees.
The Terms of Reference for these Committees
are available on the Group’s website,
https://www.zotefoams.com/investors/esg/
The Board has put in place a schedule of
matters that are reserved for its determination
or which need to be reported to the Board.
This schedule is reviewed regularly and was
last updated in June 2022.
The Chair is responsible for the leadership of the
Board, ensuring its effectiveness on all aspects
of its role and setting its agenda. The Chair is
also responsible for ensuring that the Directors
receive accurate, timely and clear information.
The Chair facilitates the effective contribution
of the Non-Executive Directors and ensures
constructive engagement between Executive
and Non-Executive Directors.
The Board considers that S Good has sufficient
time to devote to his role as Chair of the Group.
S Good is currently a Non-Executive Director of
Elementis plc and Chair of Devro plc.
The Group CEO is responsible for the running
of the Group’s business. He is supported by
the Group CFO and the Executive team.
Composition and diversity
The Board acknowledges the benefits of
diversity, including that of gender and ethnicity,
and is committed to setting an appropriate
‘tone from the top’ in such matters. The Board
maintained 29% female membership in 2022,
a proportion which will increase to 37% from
January 2023 following the appointment of
a new female Non-Executive Director,
L Drummond. It is intended that she will take
over from S Good as Company Chair from the
2023 AGM, raising the female membership to
43%. The Board has reviewed and updated its
diversity policy to reflect its aim to meet
the following thresholds:
X
at least 40% women on the Board
X
at least one of the senior Board positions
(Chair, Chief Executive, Chief Financial Officer
or Senior Independent Director) is a woman
X
at least one director from a non-white minority
ethnic background.
However, it is acknowledged that, in periods of
Board change, there may be times when this
balance is not maintained.
The Board Diversity Policy informed the process
followed by the Nomination Committee for the
appointment of L Drummond. The policy is
mirrored in Zotefoams’ wider recruitment
strategy and is having a positive impact on
the talent pipeline in what has historically been
a male-dominated industry.
Appointments to the Board are ultimately
proposed by the Nomination Committee and
approved by the Board. New appointments are
made on merit against objective criteria, taking
account of the specific skills and experience,
independence and knowledge needed to ensure
a rounded Board and the benefits each
candidate can bring to the overall Board
composition. Search consultants selected
by Zotefoams are required to cast their
search sufficiently broadly to identify the
best candidates, regardless of background.
Care is taken to ensure that appointees, as well
as the existing Directors, have sufficient time to
devote to their roles.
Corporate governance
Committed to the highest standards
of corporate governance
Strategic Report
Governance
Financial Statements
81
Zotefoams plc
Annual Report 2022
More details can be found in ‘our people’
on pages 70 to 74, and in our Nomination
Committee report on page 86.
The Board members have gained their business
experience across a broad range of industries,
covering industrial, engineering, energy,
technology, medical, intellectual property and
financial services, which results in significant
collective knowledge of business practices and a
high degree of international exposure. The Board
also benefits from the broad cultural, educational
and professional backgrounds of its members.
The structure, diversity and composition of
the Board remain under review to ensure that
we have the appropriate mix of skills and
experience to best serve a dynamic, growing
international company.
For the year ended 31 December 2022, the
Board comprised two Executive Directors,
four independent Non-Executive Directors and
the Non-Executive Chair. L Drummond was
appointed to the Board on 17 January 2023
as Non-Executive Director and Chair Designate.
D Robertson was appointed Senior Independent
Director at the AGM held on 16 May 2018. The
Board considers D Robertson to be independent.
S Good is also Chair of the Nomination
Committee and a member of the Remuneration
Committee. Only the respective Committee
Chairs and members are entitled to be present
at meetings of the Remuneration, Audit and
Nomination Committees, but others may attend
at the invitation of the Committee Chair. During
the year, the Chair met with the Non-Executive
Directors regularly without the Executive
Directors present and the Non-Executive
Directors met without the Chair present to
carry out a review of the Chair’s performance,
in line with the principles of the Code.
Tenure and attendance
Director
Tenure at 31 December 2022
1
J Carling
5 years and 0 months
A Fielding
2 years and 7 months
S Good
8 years and 3 months
G McGrath
7 years and 1 month
D Robertson
5 years and 4 months
D Stirling
25 years and 4 months
C Wall
2 years and 7 months
1
L Drummond was appointed Non-Executive Director and
Chair Designate on 17 January 2023.
Evaluation and development
A formal review of the performance of the Board
and its Committees is carried out each year.
The review of the Chair’s performance is led
by the Senior Independent Director, together
with the other Non-Executive Directors in
consultation with the Executive Directors. The
other Non-Executive Directors’ performance is
evaluated by the Chair in consultation with the
Executive Directors. The Executive team’s
performance is evaluated by the Remuneration
Committee in conjunction with the Group CEO
(except in the case of the Group CEO, when the
Group CEO is not present).
The Board considered the merits of retaining
the services of an external facilitator and
concluded that, given the Group’s size and
the Board’s needs, this was not appropriate.
The matter will be kept under review in 2023.
The 2022 Board evaluation covered all
aspects of the Board’s structure, composition
and operation, Board interactions (external
and internal) and business strategy, risks
and priorities.
The review confirmed that the Board and its
Committees remained effective and continued
to fulfil their remit, that the matters reserved for
the Board were up to date and that appropriate
Committees’ terms of reference were in place.
The process involved the following steps:
X
completion of a combined qualitative
questionnaire for the Board and
its Committees
X
completion of a skills matrix
X
individual interviews and a group discussion
X
feedback from the Executive team on their
interaction with the Board.
The main observations from the evaluation were:
X
Directors were satisfied with the Board’s
operation and cohesiveness. Good progress
had been achieved on engagement due in
part to a return to some meetings being held
in person.
X
Board dynamics were good but would
benefit from more informal discussions.
Board papers continued to improve but could
benefit from being more summarised. The
Chair would discuss these matters with the
Company Secretary. The financial information
provided to the Board was of high quality
and supported effective discussions.
The Directors’ attendance at meetings of the Board and Committees is as follows:
Attendance at meeting
Board
meetings
Audit Committee
meetings
Remuneration Committee
meetings
Nomination Committee
meetings
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
J Carling
12
12
5
5
8
8
2
2
A Fielding
12
12
5
5
8
8
2
2
S Good
12
12
–
–
8
8
2
2
G McGrath
12
12
–
–
–
–
–
–
D Robertson
12
12
5
5
8
8
2
2
D Stirling
12
12
–
–
–
–
–
–
C Wall
12
12
5
5
8
8
2
2
The review confirmed that the Board and its
Committees remained effective and continued
to fulfil their remit, that the matters reserved for
the Board were up to date and that appropriate
Committees’ Terms of Reference were in place.
All Directors contribute effectively and provide
appropriate commitment to their role.
The Board considers that it is functioning well
and that its current composition contains an
appropriate balance and diversity of views,
qualifications, skills, experience and personal
attributes necessary to carry out its duties
and responsibilities.
Each month, all Directors receive management
reports and briefing papers in relation to Board
matters in a timely manner to ensure that they
have due time to consider the information and
act accordingly. New appointments to the Board
receive an induction and, where appropriate,
training. The Directors have access to the
Company Secretary and independent
professional advisers, at the Group’s expense,
if required for the furtherance of their duties.
The Directors also undertake continuing
professional development activities through the
year to support development areas identified
through the Board evaluation process as well
as to keep themselves up to date with evolving
rules, regulations and guidance.
Relations with shareholders
Our communication strategy with shareholders
is guided by the principle of effective and
transparent engagement.
Meetings with institutional shareholders are
usually held twice a year following the
announcement of the Group’s interim and
preliminary results, in August and March
respectively. Other meetings are held at
institutional shareholders’ request. In 2022,
these meetings continued to be held through
a mix of in-person meetings and virtually.
To ensure that the Board, particularly the
Non-Executive Directors, understands the views
of the shareholders, the Group’s corporate
brokers provide summary feedback from the
investor meetings, in particular from the
meetings held following the interim and
preliminary results announcements. The Chair
and the Senior Independent Director, as well as
the other Non-Executive Directors, are available
to meet institutional shareholders if requested.
82
Zotefoams plc
Annual Report 2022
The Board also recognises the importance
of engaging with individual shareholders,
and the Executive Directors continue to hold
presentations through the Investor Meet
Company digital platform at least twice per year.
The platform provides individual investors with
the same opportunity for two-way engagement
as institutional investors through live, interactive
presentations as part of the investor roadshows.
A shareholder consultation on the proposals for
the Remuneration Policy to be adopted at the
2023 AGM was held in 2022 and early 2023.
This included an outline of the proposals being
sent to the top 20 shareholders of the business,
who at the time accounted for 78% of the
shareholder base, and subsequent engagement
by telephone or through online meetings,
with feedback being taken into account to
ensure the proposals were fully aligned with
shareholders’ expectations. Further details are
provided in the Directors’ Remuneration report
on pages 88 to 109.
The Annual Report, the AGM, the corporate
website www.zotefoams.com and social
media channels also support communication
with investors. The Chairs of the Board
Committees will normally be available at
the AGM to answer questions.
Internal control
Internal control framework
In compliance with the 2018 Code, the Board
monitors the Group’s risk management and
internal control systems and, at least annually,
reviews their effectiveness. The Board’s
monitoring covers all controls, including
financial, operational and compliance controls.
Bi-annually, the effectiveness and the outputs
of the risk management framework, as
documented on pages 39 to 50 of the Principal
Risks and Uncertainties section of this Annual
Report, are reviewed. This is based principally
on reviewing reports from management and the
Internal Controls Committee to consider whether
significant and emerging risks are identified,
evaluated, managed and controlled and whether
any significant weaknesses are promptly
remedied. The Board, via the Audit Committee,
also sets a rolling three-year, risk-based, internal
audit plan and reviews the actions and closure
of report findings. Annually, the Board receives
a report from management on the key financial
policies, processes and controls in place for the
purpose of preparing the consolidated financial
statements and reviews their effectiveness.
The Audit Committee assists the Board in
discharging its review responsibilities.
During the course of its review of the internal
control framework and the principal risks facing
the Group, the Board did not identify, nor was
it advised of, any failings or weaknesses
it determined to be significant. Therefore,
a confirmation in respect of necessary actions
has not been considered appropriate.
Key elements of the Group’s internal control
framework are listed below.
Control environment
The Group has an appropriate organisational
structure for planning, executing, controlling
and monitoring business operations in order
to achieve Group objectives. Overall business
objectives are set by the Board and
communicated through the organisation.
Lines of responsibility and delegations of
authority are clearly documented. The Group’s
ERP IT system is fit for purpose, well maintained
and used whenever possible to automate
controls, including the effective application
of segregation of duties.
Control procedures
The Group has implemented control procedures
designed to ensure complete and accurate
accounting for financial transactions and to limit
the potential exposure to loss of assets or fraud.
Measures taken include physical controls,
segregation of duties, financial authority levels
and reviews by management, the Internal Auditor
and the External Auditor. The effectiveness
of these control procedures is tested by the
Group’s Internal Controls Committee (which is
chaired by the Group CEO), the Audit Committee
and the Board.
A process of control self-assessment and
hierarchical reporting has been established,
which provides for a documented and auditable
trail of accountability. These procedures are
relevant across the Group and provide for
successive assurances to be given at
increasingly higher levels of management
and, finally, to the Board. Planned corrective
actions are independently monitored for
timely completion.
Risk management
Group management is responsible for the
identification and evaluation of key risks
applicable to its areas of business. These risks
are assessed on a continual basis and may
be associated with a variety of internal or
external sources.
The Group’s risk management framework is
detailed on page 40.
Monitoring and corrective action
There are clear and consistent procedures
in place for monitoring the system of internal
financial and non-financial controls. The Audit
Committee normally meets not less than three
times a year and, within its remit, reviews the
effectiveness of the Group’s system of internal
financial controls. The Committee receives
reports from the External Auditor, Internal Auditor
and management.
Non-financial controls are reviewed regularly
by executive management, which reports any
issues and corrective actions taken.
Information and communication with the Board
The annual budget and quarterly forecast
updates are a key part of the planning and
performance management process and the
Board reviews performance against these.
In addition, the Board receives monthly
management reports, which highlight financial
results, performance against key performance
indicators and significant activities and matters
of note during the month under review.
Through these mechanisms, the performance
of the Group is regularly monitored, risks are
identified in a timely manner, their financial
implications assessed, control procedures
evaluated, and corrective actions agreed
and implemented.
Accountability
The Board acknowledges its responsibility to
give a fair, balanced and understandable view
of the financial position and future prospects
of the business. On behalf of the Board, and
at the recommendation of the Audit Committee,
I confirm we believe that the 2022 Annual
Report presents a fair, balanced and
understandable assessment of the Group’s
position, its performance and its prospects,
as well as of its business model and strategy.
Annual General Meeting
Our AGM will be held at our UK plant. Attendees
will have the opportunity to meet the Board
informally and ask questions. Further information
is provided in our Notice of the 2023 AGM.
In addition, a separate virtual presentation,
open to all existing shareholders and other
stakeholders, will take place after the AGM
on the Investor Meet Company platform:
https://www.investormeetcompany.com/
register-investor
The Directors and I look forward to welcoming
shareholders to the AGM.
S P Good
Chair
4 April 2023
Corporate governance
Continued
Strategic Report
Governance
Financial Statements
83
Zotefoams plc
Annual Report 2022
Dear Shareholder
The Audit Committee has reviewed the contents
of the 2022 Annual Report and advised the
Board that it considers the Report to be fair,
balanced and understandable and provides
the information necessary for shareholders to
assess the Group’s position and performance,
business model and strategy.
The Committee remains responsible for keeping
under review the adequacy and effectiveness
of the Group’s internal controls and risk
management systems.
The Group reported strong growth in 2022
despite a difficult global economic climate.
With a background of sharply rising energy
and raw material costs, as well as increased
geopolitical risk, the Audit Committee was
cognisant of how a resilient supply chain can
create a structural advantage over the long term.
To this end, it focused on measures taken by
the business to alleviate procurement risk and,
supported by the work of the Internal Auditor,
considered the effectiveness of mitigation
strategies. The External Auditor was requested
to widen the scope of its audit enquiries to cover
the full breadth of operations in India and China.
The Group’s overall risk profile was reassessed
by the Committee and remained unchanged.
Details of the principal risks and uncertainties
and how the Company mitigates them are
provided in the risk management section on
pages 39 to 50.
The Committee also kept under review risks
arising from the development of ReZorce
®
mono-material barrier packaging. The acquisition
of the assets of Refour ApS has helped mitigate
certain project execution risks and supported
the continued development of a route to market.
The Committee also kept under review the
degree of rigour and challenge applied to
management judgements in relation to the
impairment of intangible assets in MuCell
Extrusion LLC (MEL) (a key audit matter) and
satisfied itself that costs capitalised during the
year were in line with accounting guidelines.
The Committee concluded that the challenge
provided by the External Auditor in respect of
management’s impairment assessment was
robust and its assessment in alignment with
that of management in that no impairment
was required.
Looking ahead to 2023, the Committee will
continue to monitor the macroeconomic and
geopolitical conditions which impact the Group’s
assets. We will also keep under review the
government’s reform proposals on audit and
corporate reporting.
Mitigating geopolitical risks
The Committee has kept under review the
effect of the ongoing conflict in Ukraine on raw
material and energy costs and assessed the
effectiveness of mitigation measures applied
by the Group, in particular how potential
vulnerabilities are identified, monitored and
addressed. The Committee also satisfied itself
with the robustness of the contingency planning
in place in the event that the viability of
Zotefoams’ plant in China was to be weakened
by global events. Further details are provided
under our S172(1) disclosures on page 75.
Environment-related controls
The Committee’s terms of reference were
updated to reflect its responsibility to ensure
that the Annual Report includes disclosures
in line with the recommendations of the Task
Force on Climate-related Financial Disclosures.
The Committee satisfied itself that the SASB
(Sustainability Accounting Standards Board)
framework, implemented through the risk
management framework, ensured that all
business risks relating to sustainability, including
climate change risks, were identified, assessed
and treated at each of the appropriate Control
Committees within the Group. Further details
about Zotefoams’ ESG framework may be
found on pages 54 to 56.
Increased focus on internal controls
Each year, the Audit Committee reviews the
need for an internal audit function and, given the
size of the Group, continues to be of the opinion
that the internal audit function is best performed
by an external audit firm with a broad range of
competencies that complements the services
provided by the External Auditor. As the Group
continues to grow, the matter will be kept under
review. Following a tender process in 2015,
Grant Thornton UK LLP has continued to be
used to provide internal audit services in 2022.
Grant Thornton UK LLP has not undertaken
any other work for the Group and, therefore, the
Audit Committee considers it to be independent
and objective in its judgement. The External
Auditor is aware of the internal audit outsourcing
arrangements, fully supports them and has full
access to their findings.
In recognition of the increased complexity
and scope of the Group’s operations and
developing governance requirements, an
experienced financial controls manager has
been appointed to strengthen, document and
provide frequent testing of the internal financial
control framework. The Committee has also
approved an increase in internal audit frequency
to two per annum under a three-year rolling
programme implemented in 2021.
A Group-wide compliance audit, focused on
anti-bribery and corruption and completed
in 2022, confirmed that the Group had
well-established compliance controls that
functioned effectively. The compliance
framework was found to include well-drafted
policies and procedures, which are readily
available to staff, effective staff training (including
enhanced training for specific roles) and regular
monitoring of future legal developments that
might impact the Group. Although the Group
has a low risk of exposure to money laundering,
a risk-based approach is operated that carries
out appropriate checks on customers and
suppliers in higher risk jurisdictions. The audit
identified opportunities to improve the due
diligence procedures for T-FIT
®
distributors and
agents which have been addressed through
management actions.
An internal audit on the processes and controls
in place for the effective governance of
contracts, covering the UK and the USA,
was initiated towards the end of 2022. The
Committee reviewed the findings in Q1 2023
and approved management actions that mostly
focus on formalising policy and processes
through effective documentation.
The Committee will keep under review and
assess the continued independence and
effectiveness of internal audit in 2023.
Enhanced disclosures
Following implementation of the ESEF initiative
in 2021, the Committee has kept abreast of
requirements for publication and filing of
machine-readable financial statements and the
electronic tagging of basic financial statements
and notes to these financial statements.
Management and operational time has been
devoted to meeting ESEF requirements in the
2022 Annual Report. The Committee supports
all measures which enhance the accessibility of
Zotefoams’ financial data by all its stakeholders
in order to facilitate the process of evaluating the
Group’s performance.
The Committee’s responsibilities
The Committee continues to fulfil a key role in
the Group’s governance framework, providing
valuable independent challenge and oversight
across the Group’s financial reporting and
internal control procedures. In a rapidly evolving
climate, it seeks to ensure that shareholders’
long-term interests are protected and that
long-term value is created.
As a result of its work during the year, the Audit
Committee has concluded that it has acted in
accordance with its Terms of Reference and has
assessed satisfactorily the independence and
objectivity of the External Auditor. I am available
to answer any questions you may have about the
work of the Committee. Please contact the
Company Secretary in this regard.
D G Robertson
Chair of the Audit Committee
4 April 2023
Audit Committee report
Supporting growth in turbulent times
84
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Annual Report 2022
Summary of the role of the
Audit Committee
The main responsibilities of the
Audit Committee are:
X
to monitor significant financial reporting
issues and judgements and the clarity
and completeness of disclosures made
in connection with the preparation of the
Group’s and Company’s financial statements,
assumptions for the going concern and
viability statements, interim reports,
preliminary announcements and related
formal statements, including any matters
which the External Auditor may wish to raise.
Where the Committee is not satisfied with
any aspect of the proposed financial reporting
by the Company, it shall report its views to
the Board
X
to review and challenge, where necessary:
the application of significant accounting
policies and any changes to them; the
methods used to account for significant
or unusual transactions where different
approaches are possible; whether the
Group has adopted appropriate accounting
policies and made appropriate estimates
and judgements, taking into account the
External Auditor’s views on the financial
statements; and the clarity and completeness
of disclosures in the financial statements and
the context in which statements are made
X
to review on behalf of the Board the integrity
of the Group’s internal financial controls
and assess the scope and effectiveness of
the systems established by management
to identify, assess, manage and monitor
financial and non-financial risks and make
recommendations to the Board
X
to keep under review the adequacy and
effectiveness of the Group’s internal financial
controls and internal control and risk
management systems
X
to review the Group’s systems and controls
for the prevention of bribery and receive
reports on non-compliance
X
to review the adequacy and security of the
Group’s arrangements for its employees
to raise concerns, in confidence, about
possible wrongdoing in financial reporting
or other matters
X
to review the Group’s procedures for
detecting fraud
X
to consider and approve the remit of the
internal audit function and ensure that it has
adequate resources and appropriate access
to information to enable it to perform its
function effectively and in accordance with
the relevant professional standards, free from
management or other restrictions
X
to review and approve the terms of
engagement of the External Auditor, including
any engagement letter issued at the start
of each external audit and the scope of any
audit before it begins
X
to assess annually the qualification, skills
and resources, effectiveness, objectivity and
independence of the External Auditor
X
to review tri-annually a policy in relation to
the provision of non-audit services by the
External Auditor and the approval by the
Committee of such services, in order to avoid
any threat to the External Auditor’s objectivity
and independence and the impact that such
services could have on the audited financial
statements, while taking into account any
relevant ethical guidance on the matter
X
to report to the Board on how it has
discharged its responsibilities, including
making recommendations, when necessary,
on any actions or improvements required.
The Audit Committee’s Terms of Reference,
which are available on the Group’s website,
include all matters indicated by the Disclosure
and Transparency Rule 7.1 and the UK Corporate
Governance Code. The Terms of Reference are
reviewed annually by the Audit Committee to
ensure that they remain appropriate and reflect
current best practice. The Terms of Reference
were last reviewed in August 2022.
Composition of the Audit Committee
In line with the Code, the Committee comprises
the four independent Non-Executive Directors
and excludes the Company Chair.
The members of the Audit Committee during
2022 were D Robertson (Chair), J Carling,
A Fielding and C Wall.
Their biographies can be found on
pages
78 and 79.
D Robertson is a Fellow of the Institute of Chartered
Accountants of England and Wales and was
Group Finance Director of SIG plc until January
2017, having previously held that position at both
Umeco plc and Seton House Group Limited. In the
opinion of the Board, D Robertson has significant,
recent and relevant financial experience to fulfil the
requirements of the role. All current members of
the Audit Committee have held, or currently hold,
board-level positions in manufacturing industries
with international reach.
The Audit Committee’s membership, as a whole,
has competence relevant to the sector in which the
Group operates and is able to function effectively
with the appropriate degree of challenge.
Meetings
The Audit Committee has a planned calendar,
linked to events in the Group’s financial calendar.
The Audit Committee met five times in 2022.
The Company Secretary acts as secretary to
the Audit Committee. The Company Chair,
Group CEO, Group CFO, Group Financial
Controller and senior representatives of the
External Auditor and Internal Auditor are invited
to attend relevant meetings of the Committee,
although the Committee reserves the right to
request any of these individuals to withdraw.
At each meeting, the External Auditor is given
the opportunity to raise matters without
management being present. Other senior
managers may be invited to present such
reports as are required for the Committee to
discharge its duties. During the year, on an
informal basis, the Audit Committee Chair liaises
with senior representatives of both the External
Auditor and Internal Auditor to discuss matters
outside the formal Committee meetings.
Overview of the actions taken by the
Audit Committee to discharge its duties
Since the beginning of 2022, the Audit
Committee has:
X
reviewed the financial statements in the
2021 Annual Report, including the going
concern and viability statements and the
stress-testing of the viability statement,
and received the External Auditor’s report
on the 2021 Annual Report
X
satisfied itself that the ESEF requirements
applicable to consolidated primary financial
statements for financial periods beginning
1 January 2021 have been integrated into
the Annual Report planning and appropriate
testing had been carried out in anticipation
of the 2022 Annual Report’s publication.
The Audit Committee also confirmed with
the External Auditor that there was no UK
requirement for them to audit the ESEF format
X
reviewed the Interim Report issued in
August 2022 and received the report from
the External Auditor on its review of the
Interim Report
X
agreed a programme of work for 2022 to be
performed by the Internal Auditor and received
the Internal Auditor’s reports on the work
undertaken and management’s responses
to the recommendations therein
X
reviewed and agreed the scope of the audit
work to be undertaken by the External Auditor
X
agreed the fees to be paid to the External
Auditor for its audit and work on the Annual
Report and Interim Report
X
undertaken an evaluation of the
independence, objectivity and effectiveness
of the External Auditor, including reviewing
the amount of non-audit services provided
by the External Auditor
X
monitored the engagement of audit firms
providing non-audit services to ensure that
the requirement for independence would not
hinder future External Auditor tenders
X
reviewed and approved a three-year rolling
internal audit programme
X
considered the inventory management and
working capital position of the Group
X
considered the geopolitical risks impacting the
Group, its customers and the wider economic
environment, and the Group’s preparations to
mitigate those risks
X
considered the output from the Group-wide
process used to identify, evaluate and mitigate
high-level business risks
X
considered the views of both the External and
Internal Auditor on the effectiveness of the
Group’s internal financial controls
X
reviewed and challenged the effectiveness of
the Group’s internal controls (including, but
not limited to, financial controls and measures
for detecting fraud) to ensure that they remain
appropriate and adequate as the Group grows
Audit Committee report
Continued
Strategic Report
Governance
Financial Statements
85
Zotefoams plc
Annual Report 2022
X
reviewed the Group’s policies on ethics,
anti-bribery, corruption and fraud, and the
arrangements in place for employees to
raise concerns, in confidence, about
possible wrongdoing in financial reporting
or other matters
X
satisfied itself that the requirements of the
Regulations made under section 3 of the
Small Business, Enterprise and Employment
Act 2015 relating to payment practices
reporting had been met, with a focus on
maintaining a high level of compliance
with suppliers’ payment terms in 2022
X
considered the provisions of the 2018
UK Corporate Governance Code and
the FRC Guidance on Audit Committees
X
confirmed with management that Zotefoams
plc and its subsidiaries have paid all applicable
tax in the jurisdictions in which they operate
X
reviewed its own effectiveness by conducting
a confidential evaluation through an online
portal, the anonymised outcome of which was
discussed by the Board. It was agreed that
the Committee remained effective, had fulfilled
its remit and had in place appropriate Terms
of Reference.
Financial reporting and significant
financial issues
The Audit Committee assesses whether suitable
accounting policies have been adopted and
whether management has made appropriate
estimates and judgements. The Committee
reviews accounting papers prepared by
management which provide details on the main
financial reporting judgements. The Committee
reviews reports by the External Auditor on the
full-year and half-year results, which highlight any
issues with respect to the work undertaken on
the audit or review.
During the year, no changes to accounting
policies were made and all new reporting
requirements were implemented. The
Committee considers the correct treatment of,
and potential impairment of, intangible assets in
MEL as well as the pension assumptions applied
to the Company’s closed defined benefit pension
scheme as the most significant financial issues
in 2022.
X
Impairment of intangible assets in MEL.
The Audit Committee received a report from
management on the approach and rationale
behind the capitalisation of intangible assets
as well as the justification for continued full
recognition of the capitalised value in the
Group’s Statement of Financial Position.
Having considered the paper, a report from
the External Auditor on its audit work in this
regard and the Board’s monthly reviews of the
ReZorce opportunity that were held during
2022, the External Auditor is satisfied that the
treatment is appropriate.
X
Pension assumptions. As the Company’s
closed defined benefit pension scheme
represented one of the largest liabilities on the
consolidated statement of financial position
at £3.3m as at 31 December 2022, the Audit
Committee assessed the appropriateness of
the key assumptions used by management to
value the pension liability and is satisfied that
these are appropriate.
External audit tender
The Audit Committee is aware of the requirement
for FTSE 350 companies to put to tender their
external audits at least once every ten years
(as set out in the Competition and Markets
Authority’s Statutory Audit Services for Large
Companies Market Investigation (Mandatory
Use of Competitive Tender Processes and Audit
Committee Responsibilities) Order 2014) and for
audit committees to state their plans for when
they are likely to consider a tender process if the
external audit has not been put to tender in the
past five years.
The Group is, by virtue of the FRC Revised
Ethical Standard 2019, subject to the
requirement to put the audit to tender every ten
years. A tender process for the external audit for
the Group was undertaken in 2020, following
which PKF Littlejohn LLP (PKF) was selected
as the External Auditor. The Committee intends
to monitor PKF’s performance and determine
the most appropriate time to carry out a new
tender process in due course, which will be,
at the latest, in 2030. Given that the rules on
independence may preclude an audit firm from
participating in a tender if it has previously
advised the Group in a non-audit capacity, a
register of firms used by the Group for non-audit
work is maintained by the Group CFO, whose
authorisation is required prior to engaging any
new firm. Any future tender will be carried out in
line with the prevailing best practice. The 2022
Audit was PKF’s third annual audit for the Group
and was led by two Audit Partners, M Ling and
J Archer. J Archer is the Responsible Individual
in charge of the audit and signs the independent
auditor’s report to the members of Zotefoams
plc on behalf of PKF Littlejohn LLP.
The Committee confirms that there were no
contractual obligations that acted to restrict
the Committee’s choice of External Auditor
and that the agreement with PKF will not restrict
the shareholders’ choice of auditor in future
general meetings.
Effectiveness of the External Auditor
The Audit Committee assesses the effectiveness
of the external audit process in a number of
ways. At least annually, the External Auditor
presents a report which includes an assessment
and confirmation of its independence, as well
as the activities that the External Auditor is
undertaking to ensure compliance with best
practice and regulation. At the conclusion of
the annual audit, the Audit Committee
undertakes an assessment of the External
Auditor in relation to its fulfilment of the agreed
audit plan, the robustness and perceptiveness
of the External Auditor in handling key
accounting and audit judgements and the
thoroughness of the External Auditor’s review
of internal financial controls. As part of this
assessment, management’s opinions on
the External Auditor are also considered.
An extended questionnaire aligned with FRC
guidance implemented in 2021 was used in
2022 and continued to evidence that there
was candid and complete dialogue between
the External Auditor and the Committee. The
Committee also considered the processes put in
place by PKF Littlejohn LLP to monitor its quality
and drive improvements consistently. The
Committee noted established practices aimed at
simplifying and standardising processes, strong
supervisory arrangements at all levels of the
organisation and a good degree of professional
scepticism applied to management judgements.
In November 2020, the Committee updated the
policy in relation to the provision of non-audit
services provided by the External Auditor. The
policy requires that no non-audit services will be
provided by the External Auditor without the prior
approval of the Audit Committee, which will only
be granted in compliance with the FRC Revised
Ethical Standard 2019. Other than the review of
the Group’s Interim Report, the External Auditor
did not provide any non-audit services in 2022.
The Audit Committee, having conducted its
review of the External Auditor, concluded that
the External Auditor has performed in a
satisfactory manner and continues to be
objective and independent and, therefore, has
recommended to the Board that a resolution
be put to the shareholders at the 2023 AGM to
re-appoint PKF as the External Auditor.
86
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Annual Report 2022
Dear Shareholder
I am pleased to present my report on the
activities of the Nomination Committee in 2022.
This year, we combined continuing our focus on
long-term succession planning for the Executive
Directors and the Executive team with the search
for a new Company Chair. In preparation for my
nine-year tenure coming to an end, a recruitment
process led by D Robertson, the Senior
Independent Director, and managed by
a sub-committee appointed by the Board,
was initiated, informed by an assessment of
the Board’s existing skillsets against those
required to deliver the strategy. Following a
competitive tender process, independent
search consultancy Korn Ferry was selected
to assist the sub-committee in refining the
role description and identifying key attributes,
including substantial Board experience in
multinational businesses, proficiency in strategy
development and stakeholder management,
familiarity with intellectual property management
and related issues, a sound understanding of
sustainability issues and the ability to credibly
represent Zotefoams in its dealings with investors
and the City.
A comprehensive search process was
undertaken. Given the importance of the
appointment, all Board members were consulted
on the shortlisting process and interviewed
the final shortlisted candidates. Following the
interview process and after consideration of
the appropriate balance of skills, knowledge,
experience, independence and diversity on
the Board, and the attributes sought from the
new Chair, the Committee recommended the
appointment of L Drummond as Chair Designate
with effect from 17 January 2023 and for her
to be proposed for election as Company Chair
at the Annual General Meeting to be held on
24 May 2023.
The principle of diversity is strongly supported
by the Board. In recognition of this, the Board
approved the early adoption of Listing Rules
LR 9.8.6R(9) and LR 14.3.33R(1) from 1 January
2022 and updated the Board Diversity Policy.
Further details are provided below.
Effective succession planning for the Board and
the Executive Leadership team and a rigorous
assessment of the effectiveness of the Board
and its Committees remain key to the long-term
success of the Group. Key position succession
plans are in place for Executive roles and their
direct reports. The Group continues to develop
a pipeline of employees demonstrating high
potential through a talent pool initiative. Further
details are provided in ‘our people’ section on
page 70.
The Board’s annual evaluation process in 2022
was led by the Company Chair and facilitated by
the Company Secretary, who is considered a
suitable and independent person to conduct this
process. The evaluation has demonstrated that
the Board collectively continues to provide an
appropriate balance of skills, knowledge and
experience to ensure that there is robust and
effective challenge and stewardship of the
Group’s purpose and strategy. The Board also
recognises the importance of engaging with the
Executive team and an assessment of the level
and quality of this interaction was included in
the Board evaluation process. Full details are
provided in the corporate governance section
on pages 80 to 82.
Recognising that a people strategy sits at the
core of the future of the Group, the Human
Resources (HR) function is managed through
quarterly risk steering committee meetings,
which focus on the mitigation of HR risks and
optimisation of opportunities that might impact
the Group’s achievement of its business
objectives. These matters include the
consideration of diversity at Group level,
employee engagement and effective succession
planning. The Executive Committee is also
provided with regular updates and reports
are made to the Board at least twice a year
on key HR strategic matters.
The Committee is satisfied that the separation of
Executive and Non-Executive roles at the head
of the Group has been maintained, with the
Company Chair being responsible for leading
the Board and the Group CEO being responsible
for the executive leadership of the business.
Further details are provided in the corporate
governance section on
pages 80 to 82.
The Committee will continue to focus on
succession planning, talent development and
augmenting the Company’s sustainability
expertise in 2023.
S P Good
Chair of the Nomination Committee
4 April 2023
Diversity Listing Rule
Under Listing Rules LR 9.8.6R(9) and LR
14.3.33R(1), Zotefoams plc is required to confirm
whether the Company has met the following
diversity targets for financial years beginning on
or after 1 April 2022 and has chosen to report
on compliance with these requirements for the
financial year beginning 1 January 2022:
X
at least 40% of the Board should be women
X
at least one of the senior Board positions
(Chair, Chief Executive Officer (CEO), Senior
Independent Director (SID) or Chief Financial
Officer (CFO)) should be a woman
X
at least one member of the Board should be
from a minority ethnic background.
The reference date used for the purposes of
this disclosure is 31 December 2022. In 2022,
our Board comprised five male and two female
Directors, giving an overall female membership
of 29%. All Board members are from a white
ethnicity background.
The recruitment process for the Company
Chair position undertaken in 2022 considered
43 candidates, 23% of whom were female and
19% of whom were from a minority ethnic
background. The final shortlist comprised
two males and one female. The recruitment
process was fair and took into consideration
the aspirational targets set by the
Hampton-Alexander review and the Parker
review. A female from a white ethnicity
background, L Drummond, was selected.
From L Drummond’s appointment as Chair
Designate on 17 January 2023, the Board’s
female membership increased to 37% and will
further increase to 43% once she takes over as
Chair from S Good at the 2023 Annual General
Meeting, subject to election by the shareholders.
From the 2023 Annual General Meeting, the
Company will therefore comply with a minimum
40% female Board membership and a senior
Board position held by a female. The Board aims
to improve its ethnic diversity and has amended
its Board Diversity Policy to reflect this aim:
Nomination Committee report
Building resilience through succession planning
Scan the QR code to see
the Board Diversity Policy
zote.info/3FKeYVI
Given the tenure profile of the Board, there are
no immediate vacancies that would allow for the
consideration of ethnically diverse candidates.
The Board is considering initiatives which may
improve the pipeline of ethnically diverse talent
and will report on progress in the 2023 Annual
Report. Further details about the Group’s
approach to diversity are provided in Our people
on pages 70 to 74.
Strategic Report
Governance
Financial Statements
87
Zotefoams plc
Annual Report 2022
Key areas of focus
The Nomination Committee comprises the
Chair and the four independent Non-Executive
Directors as at 31 December 2022.
The Nomination Committee operates within
defined Terms of Reference and is responsible
for putting in place succession plans for the
Board, reviewing the continuation in office
of the Directors and managing the recruitment
of new Board members within criteria set
by the Board. The Committee met twice in
2022. The Committee is supported by the
Company Secretary in planning its activities,
monitoring best practice and meeting its
Terms of Reference.
The main responsibilities of the Committee
are to:
X
evaluate and review the structure, size and
composition of the Board, including the
balance of skills, knowledge, experience and
diversity of the Board, taking into account the
Group’s risk profile and strategy
X
identify and nominate suitable candidates for
appointment to the Board, including the Chair
of the Board and its Committees, against
a specification of the role and capabilities
required for the position
X
lead on the annual performance evaluation
of the Board and its Committees
X
identify and manage any potential conflicts
of Directors’ interests
X
review the external interests and time
commitments of the Directors to ensure
that each has sufficient time to effectively
discharge his/her duties
X
manage succession planning for the Executive
team and Non-Executive Directors
X
seek engagement with shareholders on
significant matters related to the Committee’s
areas of responsibility when appropriate to
do so.
During 2022, the Committee:
X
reviewed its Terms of Reference in line with
current best practice
X
managed the recruitment process for a new
Company Chair, whose appointment will take
effect from the 2023 AGM subject to election
by the shareholders
X
arranged for the Board to review diversity
considerations in succession planning,
having regard to the requirements of the
Hampton-Alexander review and the Parker
review and agreed compliance with Listing
Rules LR 9.8.6R(9) and LR 14.3.33R(1) in
relation to the Board diversity
X
kept the composition of the Board and its
Committees under review
X
considered and recommended to the Board
the re-election of each Director ahead of their
re-election by shareholders at the Company’s
2022 AGM
X
continued to review succession and
development plans for the Executive team
and wider senior management team to ensure
that a suitable talent pool remained in place
and continued to be nurtured to meet the
Group’s strategic objectives
X
ensured that, at least annually, the
Non-Executive Directors met without
the Executive Directors present.
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Directors’ Remuneration report
Our Executive team led the delivery of record revenue
and profit before tax in 2022, as well as progress on our
strategic objectives. Our refreshed Remuneration Policy
and implementation of the policy for 2023 is designed
to reflect the calibre of our executives and commitment
to achieving the Group’s strategic priorities
Dear Shareholder
I am pleased to present the Remuneration report
for the year ended 31 December 2022.
Introduction
2022 was a record year for Zotefoams for
both revenue and profit before tax, with
Group revenue increasing 26% to £127.4m
(2021: £100.8m) and profit before tax increasing
to £12.2m (2021: £7.0m). Our Executive Directors
led the Group effectively throughout the year,
and continued to deliver on our longer-term
strategic objectives, and the Board remains
convinced that retaining and motivating them
is key to achieving those objectives.
2022 incentive outcomes
Annual bonus
Considering the performance delivered in 2022
and strategic progress made, and reflecting
that 75% of the bonus is based on financial key
performance indicators (KPIs), the Committee
determined that 91.6% and 94.6% of the
maximum bonus should be paid to the Group
CEO and Group CFO respectively. A detailed
description of performance against the targets
is set out on pages 102 and 103.
Long-Term Incentive Plan: 2020 outcome
Regarding longer-term performance, the Group
achieved earnings per share before exceptional
items, of which there were none, of 20.6p in
2022 versus 14.9p in 2019, as well as relative
Total Shareholder Return (TSR) performance of
below median against the FTSE SmallCap Index
(excluding investment trusts) over the three-year
performance period and Return on Capital
Employed (ROCE) of 10.1% versus a threshold
target of 11.0%. The Committee therefore
determined that 34.7% of the 2020 Long-Term
Incentive Plan award should be paid to
the Group CEO and Group CFO.
In assessing whether the outcomes generated
by the annual bonus and LTIP scorecards were
fair in the context of broader performance, the
Committee took into account the underlying
financial performance of the Group and the
wider stakeholder experience (including, but not
limited to, the shareholder experience). While,
as set out above, significant progress has been
made to set Zotefoams up to deliver long-term
success, the Committee felt that the formulaic
outcome was an appropriate reflection of
performance delivered. It has, therefore, not
exercised discretion in relation to incentive
outcomes during the year.
Shareholder consultation on Remuneration
Policy and base salaries
In line with the three-year cycle, the Committee
reviewed the current Policy from both a structural
and opportunity perspective, to ensure that it is
reflective of the Group’s strategic priorities and
the calibre of executives in post. The Committee
remains mindful of balancing the need to attract,
retain and motivate Executive Directors and
Executive team to ensure progress against
our strategic goals with the interests of all
stakeholders, including our shareholders
and employees.
We consulted with our top 20 shareholders,
who between them hold approximately 78% of
Zotefoams’ shares. I was delighted to have the
opportunity to meet with six shareholders and
to engage with another five in writing, who
together account for circa 50% of our shares.
As a Committee, it is very important for us
to understand in detail the views of the
Company’s shareholders.
The Committee was pleased that, following this
consultation, shareholders appreciated the
context and rationale for our proposals and that
the feedback we received from investors was
ultimately very supportive in general. The key
themes that arose during the consultation relate
to: i) our approach to supporting our workforce
with the challenges they are facing as a result
of high inflation; ii) the timing and phasing of the
proposed salary increase for the Group CEO
and Group CFO; iii) the mix of short- and
long-term incentives; and iv) the post cessation
shareholding requirement.
Wider workforce context
Zotefoams’ workforce is critical to its success.
As a responsible business, our UK staff are paid
at the median level for UK manufacturing jobs,
and we are a living wage employer in the UK.
Recognising the difficulties faced by many of our
employees in the current financial climate, the
Company accelerated its 2023 pay rises for
lower paid staff, in addition to the 4% annual pay
award in April 2022. With effect from 1 October
2022, all staff in the UK with salaries under
£32,000 were awarded a 4% increase and
those earning £32,000–£50,000 were awarded
a 2% increase. This will count towards the 2023
award, so, for example, a 2023 agreement of
7% would result in the former receiving a further
3% rise and the latter a further 5% rise from
1 April 2023. These arrangements applied to
77% of the UK workforce. Pay inflation is subject
to union negotiation and is implemented with
effect from the April payroll. Similar measures
were implemented in the USA and Poland during
2022 to ensure that salaries remained aligned
with the market.
In addition, on 1 April 2022, the employer’s
direct contribution pension percentage for the
Company’s two main schemes in the UK was
increased by 1% to 6%, for those contributing
5%. This increase adjusts proportionately for
those making lower contributions into the plan.
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From the feedback we received during the
consultation, it was clear that shareholders
appreciated that:
X
our core principle, receiving very strong
shareholder support when it was established
in 2018, remains to remove the significant
discount to the market on Executive Director
base salaries
X
despite previous efforts of the Committee to
address the historically low Executive Director
base salaries, current base salaries remain
rooted significantly below the lower end of the
market compared with companies of a similar
size and complexity, with a consequential
impact on the total compensation opportunity
X
the current position neither reflects the calibre
of the Executive Directors nor the increasing
size and complexity of their roles
X
our Executive Directors are very well regarded
by our investors and critical to the delivery of
our operational performance, strategic goals
and shareholder returns.
Some investors challenged the timing of the
increases and queried whether the Committee
would consider phasing them. While we
acknowledge that this is a more common
approach, and indeed the one we adopted
previously in 2018, we remain convinced that
it is critical to take decisive action now. Phasing
the increases exacerbates and perpetuates the
below-market positioning, which undeniably
would result in unnecessary execution risk to
our strategy.
Several shareholders asked for confirmation
that we would not be making further increases
to Executive Director pay in excess of the
average salary increases for the wider workforce
(in percentage terms). The Committee is pleased
to provide this reassurance.
Pension
Shareholders were pleased with the proposed
and now implemented alignment of the Group
CEO’s pension from his contractual contribution
of 18.75% to that of the wider workforce rate of
6% from 1 January 2023. While the Committee
did not conflate the issues of base salary with
pension, the proposed base salary plus pension
results in a modest overall increase for our Group
CEO of 3%. A phased approach, alongside the
implemented reduction in pension contribution,
would have further heightened retention risk.
Incentive opportunities – balance,
headroom, metrics and targets
Under the current Remuneration Policy,
the overall combined annual bonus and
long-term inventive opportunity is 225% of
salary (75% of salary maximum bonus and
150% maximum long-term incentive). For the
year ending 31 December 2023, the overall
maximum incentive opportunity will continue
to be 225% of salary.
We originally proposed to rebalance the mix
between the annual and long-term variable
pay to an equal weighting (i.e. increasing the
annual bonus maximum to 112.5% of salary
and reducing the maximum long-term incentive
opportunity to 112.5% of salary). Some
shareholders expressed a clear preference
that we retain a greater weighting on long-term
performance. Taking this into account, our
revised approach for 2023 is a maximum
bonus opportunity of 100% of salary and a
maximum long-term incentive opportunity
of 125% of salary. The level of bonus deferred,
which is converted into shares, will be increased
from 25% to 33% to maintain long-term
shareholder alignment.
To ensure that there is appropriate flexibility
in the new Remuneration Policy, we propose
to increase the overall incentive opportunity
headroom to 250% of salary, with a limitation
that no more than 125% of salary can be earned
under the annual bonus. We will proceed with
this increase in the new Policy. The Committee
has confirmed that the additional headroom will
not be used for the current Executive Directors in
2023 and any proposed implementation will be
backed by a specific rationale and detailed
explanation for shareholders.
Details of the metrics for the 2023 annual bonus
are set out on page 100, with 65% of the bonus
based on financial metrics of the core business
excluding MEL, 10% based on strategic and
financial metrics relating to MEL, 15% based on
performance against ESG-related metrics (linked
to Safety 5%, Carbon Emissions Reduction 5%
and Waste Reduction 5%) and 10% based on
other strategic metrics. It was noted that the
sustainability objectives, in particular, were
aligned with the Company’s strategy on reducing
carbon emissions through the optimisation of
resources and waste reduction. The guidance
issued by the Task Force on Climate-related
Financial Disclosures (TCFD) has been
considered in the setting of the objectives.
The metrics and targets for the 2023 LTIP
award are set out on page 100. Awards will
be based 45% on adjusted earnings per share
(EPS) growth, 15% on average ROCE, 30%
on relative TSR against the FTSE Small Cap
Index excluding investment trusts and 10%
on the environmental target of Sustainable
Product Development. Performance targets
for incentive plans have been set reflecting the
importance of appropriately stretching targets
to ensure that increased incentive opportunities
are commensurate with the performance
delivered and the long-term sustainable
success of the Group.
Post-employment shareholding
requirements
Our current approach is to require the
Executive Directors to retain their full “in-service”
shareholding requirement (200% of salary) for
one year post cessation of employment and
50% of that requirement (i.e. 100% of salary)
for two years after leaving. We have enhanced
the post-employment shareholding requirement.
Under the new Remuneration Policy, our
Executive Directors will be required to retain
such of their “relevant shares” as are worth
200% of salary for the full two-year period.
For the purposes of the new approach, “relevant
shares” are those acquired from share plan
awards granted after 1 January 2023.
We greatly appreciate the feedback and level of
support we have received from our shareholders
during the consultation process.
Executive Directors’ basic salaries
The following increases to the Group CEO’s salary and the Group CFO’s salary will take effect from
1 April 2023.
Base salary
Current
Proposed
(w.e.f. 1 April 2023)
Positioning
Group CEO
£344,318
£410,000 (19%)
Between lower quartile and median
of the market-competitive range
Group CFO
£229,190
£260,000 (13%)
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Implementation of Remuneration Policy in 2023
The Committee has reviewed the current Policy to take into account shareholder feedback, the views of the Executive Directors and management
(including the key themes from our workforce engagement), the Group strategy and market practice. The Committee also considered how the
proposed remuneration framework appropriately addresses the following principles set out in Provision 40 of the 2018 UK Corporate Governance Code.
The following table sets out how the Committee has addressed these factors:
Clarity
Incentive arrangements are based on clearly defined financial, non-financial and personal performance objectives which are
aligned with the Group’s long-term strategy.
Incentive payments operate across the Group (with participation in the LTIP based on seniority) to ensure that there is
alignment on key priorities throughout the Group.
Simplicity
Remuneration arrangements are simple to understand for both participants and shareholders, comprising the following
key elements:
X
fixed pay: comprises base salary, benefits and pension
X
annual bonus: incentivises the delivery of financial, non-financial and personal performance objectives
X
LTIP: incentivises financial performance over a three-year period, promoting long-term sustainable value creation for
shareholders. Awards are subject to a two-year holding period post vesting.
Risk
Performance targets for incentive plans are designed to reward outperformance, while at the same time being calibrated to
ensure that they do not encourage excessive risk taking by the Executive Directors.
Deferral of part of the annual bonus into shares and the holding period applying to LTIP awards ensures that variable
remuneration is linked to sustainable performance and discourages short-term behaviours.
The Remuneration Committee retains the flexibility to review formulaic outcomes under incentive plans to ensure that they
are appropriate in the context of the overall performance of the Group and all annual bonus and LTIP awards to Executive
Directors include provisions for malus and clawback.
Predictability
The Remuneration Policy sets out the threshold targets and maximum level of pay that the Executive Directors may earn in
any given year (and the potential remuneration that can be earned in several performance scenarios is set out in the illustrative
scenario charts). The actual incentive outcomes will vary depending upon the level of performance against pre-determined
performance measures.
Proportionality
The Committee is satisfied that the remuneration framework does not reward poor performance. Incentives are directly
aligned with the Group’s strategic objectives, with performance targets calibrated to reward outperformance both over the
short and long term.
The Committee also takes account of the pay and conditions for the wider workforce when considering executive remuneration.
Alignment with
culture
The Remuneration Policy has been set in the context of the nature, size and complexity of the Group. It has been designed
to support the delivery of the Group’s key strategic priorities and is in the best interests of the Group and its stakeholders.
The Committee is focused on ensuring that the remuneration framework and practices support Zotefoams’ culture pillars
and ensure that employees across the Group are appropriately recognised and rewarded for efforts and financial results.
Conclusion
The Committee strongly believes that the proposed changes to the Remuneration Policy and base salaries are fair, consistent with our wider remuneration
principles and in the best interests of shareholders and other key stakeholders.
The Committee and I would like to thank you for your continued engagement and hope you will be able to support the resolutions in respect of the
Remuneration Policy and the Annual Remuneration report at the 2023 AGM.
Dr A M Fielding
Chair of the Remuneration Committee
4 April 2023
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
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Directors’ Remuneration report
The Directors’ Remuneration report has been prepared in accordance with the relevant provisions of the Listing Rules, section 421 of the Companies Act
2006 and Schedule 8 to the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013.
Directors’ Remuneration
Policy Report – Introduction
Our proposed new Directors’ Remuneration Policy, for which approval will be sought at the 2023 Annual General Meeting, is set out below under the
heading “Directors’ Remuneration Policy”. During 2022, the Committee thoroughly reviewed the Remuneration Policy approved at the 2020 Annual
General Meeting, from both a structural and opportunity perspective, to ensure that the new Remuneration Policy is reflective of the Group’s strategic
priorities and the calibre of our Executive Directors. The differences between the Remuneration Policy approved at the 2020 Annual General Meeting
and the new Remuneration Policy set out below are summarised in the Committee Chair’s statement.
In developing the Remuneration Policy, the Committee was mindful of balancing the need to attract, retain and motivate our Executive Directors and
Executive team to ensure progress against our strategic goals with the interests of all stakeholders, including our shareholders and employees. As part
of this process, the Committee was guided by three key principles, which are consistent with the principles that guided the Committee previously.
Remuneration principles
Strategic and operational delivery
X
The Remuneration Policy should support the delivery of the Group’s long-term strategic ambitions and operational performance.
Competitive salaries
X
Base salaries should be set to be market-competitive, reflecting the size and complexity of the business and the calibre of individuals in each role.
Focus on long-term performance
A significant element of the total package should be delivered through long-term incentives, increasing the focus on long-term performance and
aligning management with growth for the shareholders. Within this:
X
short-term incentives should continue to focus management on the delivery of annual results
X
long-term incentives should focus management on both the delivery of operational performance and the growth potential of the Group.
In finalising the new Remuneration Policy, the Committee followed a robust process, which included discussions on the content of the Policy at
six Remuneration Committee meetings. The Committee considered input from management (although Committee meetings where decisions were
made were not attended by management to avoid conflicts of interest) and from our independent advisers, as well as best practice and shareholder
guidance from major shareholders and proxy advisory bodies. The Committee consulted with shareholders in relation to the Policy as described on
pages 88 and 89.
Directors’ Remuneration Policy
The following part sets out the Remuneration Policy for our Executive and Non-Executive Directors.
This Policy will be put to shareholders for approval at the Annual General Meeting to be held on 24 May 2023.
Remuneration Policy for Executive Directors
Purpose and link to strategy
Maximum opportunity
Operation
Performance measures
Base salary
To provide a core reward
for undertaking the role,
positioned at a level needed
to recruit and retain Executive
Directors of the calibre
required to develop and
deliver the business strategy.
Base salaries for Executive Directors
are set at an appropriate level to be
market-competitive, reflecting the
size and complexity of the business,
and to attract and retain the calibre
of individuals required for each role.
While there is no maximum
opportunity for base salary, any
increases for Executive Directors
will be considered in the context
of the increases awarded to other
employees in the Group.
In appropriate circumstances, the
Committee may award increases
above the range of increases
awarded to other employees,
including but not limited to:
X
where the Committee has set the
base salary for a newly appointed
Executive Director at lower than
the market level for such a role to
allow the individual to progress
into the role; or
X
where, in the Committee’s opinion,
there has been a significant
increase in the size or scope of
an Executive Director’s role or
responsibilities.
The Committee sets base salary
while taking into consideration
a range of factors, including:
X
the individual’s experience,
performance and skills
X
the scope of the role
X
pay and conditions elsewhere
in the Group
X
remuneration levels at companies of
a comparable size and complexity.
Base salary is normally reviewed
annually, with increases effective from
1 April. However, the Committee may
review base salary at other times
where it considers this appropriate.
Base salaries are paid in cash.
N/A
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Purpose and link to strategy
Maximum opportunity
Operation
Performance measures
Benefits
To provide market-competitive
benefits for the Executive
Directors to assist in carrying
out their duties effectively.
There is no maximum or minimum
level of benefits, as they are
dependent on the individual’s
circumstances and the cost to
the Company.
Participation in all-employee share
plans that the Company establishes
from time to time will be on the same
basis as all other UK employees.
Relocation/international assignment
benefits: the level of such benefits will
be set at an appropriate level taking
into account the circumstances of the
individual and typical market practice.
The Committee’s policy is to
provide Executive Directors with a
market-competitive level of benefits,
taking into consideration benefits
offered to other senior managers
within the Group, the individual’s
circumstances and prevailing
market practice.
X
Core benefits currently provided
to Executive Directors include, but
are not limited to, a car allowance,
private medical insurance (for the
Executive Directors, their spouse/
partner and dependent children)
and death in service cover.
X
Participation in all-employee share
plans that the Company establishes
from time to time is on the same
terms as all other UK employees.
X
Relocation/international assignment
benefits, where an Executive
Director is required to relocate
to take up their position, may be
provided including, but not limited
to, assistance for housing, school
fees, travel assistance, relocation
costs, insurance cover and
assistance with tax advice.
N/A
Pension
To provide Executive
Directors with competitive
post-retirement benefits and
reward sustained contribution.
The maximum level of contribution
(either as a contribution to the
Company’s Defined Contribution
Pension Scheme (“the DC Scheme”)
or as a cash allowance in lieu of such
a contribution or as a combination
of a DC Scheme contribution and
a cash allowance) will be set in line
with the rate received by the majority
of the workforce in the relevant
jurisdiction (currently 6% for each
of D Stirling and G McGrath).
The Company’s Defined Benefit
Pension Scheme (“the DB Scheme”)
is closed to future accruals, but legacy
arrangements will continue to be
honoured, including for D Stirling.
Executive Directors are eligible to
participate in the DC Scheme or
receive a cash allowance in lieu of
a contribution to the DC Scheme
(or receive a combination of
a DC Scheme contribution and
a cash allowance).
D Stirling is also a deferred member
of the closed DB Scheme.
N/A
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Purpose and link to strategy
Maximum opportunity
Operation
Performance measures
Annual bonus
To incentivise Executive
Directors to achieve specific
financial and strategic goals
aligned with the Group’s
annual business plan.
A deferred proportion
of annual variable pay
provides a retention
element and alignment
with shareholders’ interests.
The maximum opportunity in respect
of any financial year is 125% of
base salary.
The combined annual bonus and
LTIP opportunities in respect of
any financial year may not exceed
250% of salary.
For 2023, the annual bonus will be
an opportunity of 100% of salary, and
the combined annual bonus and LTIP
opportunities will be 225% of salary.
Awards are based on a balanced
scorecard combining Group financial
and non-financial performance targets.
Performance is normally assessed
over one financial year.
Performance targets are normally
set annually by the Remuneration
Committee to ensure that they are
appropriately stretching.
Bonus out-turns are determined by the
Committee, taking into consideration
actual performance against targets
and the underlying performance of
the business.
The Committee has the discretion
to adjust bonus out-turns should the
formulaic output not produce a result,
which, in the view of the Committee,
fairly reflects overall performance.
For bonuses earned in respect of
2023 and future years, 33% of the
earned bonus is normally deferred
under the Deferred Bonus Share
Plan (DBSP). Awards under the DBSP
will vest after a period set by the
Committee, which will normally be
three years from the date of award.
Deferred awards are normally
granted in the form of conditional
awards of shares, although awards
may take other forms if it is
considered appropriate.
Deferred awards will accrue dividend
equivalents during the deferral period.
These will normally be paid in shares
on a reinvested basis.
Deferred awards are subject to
malus and clawback provisions
(see page 95).
The Committee may adjust and
amend awards in accordance with
the DBSP Rules.
Performance is measured
based on an appropriate mix of
financial, strategic and personal
performance measures.
At least 50% of the bonus opportunity
will be based on financial performance
targets and no more than 20% of the
bonus opportunity will be based on
personal performance measures.
The split between financial, strategic
and personal performance measures
will be kept under review and set
annually by the Committee.
Normally no more than 20% of the
bonus is payable at the trigger point,
dependent on the stretch in the
targets, with a graduated scale
operating thereafter through to the
maximum bonus being payable for
outperforming the Group’s targets
for the year.
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Purpose and link to strategy
Maximum opportunity
Operation
Performance measures
2017 Long-Term Incentive
Plan (LTIP)
To incentivise the delivery
of long-term sustainable
operational performance
and the growth potential
of the Group.
To align the interests
of Executive Directors
and shareholders.
To attract and retain
executives of the calibre
required to drive the Group’s
long-term strategic ambitions.
The normal maximum award
permitted in respect of any financial
year is 150% of base salary.
The combined LTIP and annual
bonus opportunities in respect of
any financial year may not exceed
250% of salary.
For 2023, the LTIP awards will be
125% of salary, and the combined
annual bonus and LTIP opportunities
will be 225% of salary.
Awards are subject to a performance
period of normally no less than three
years, with a subsequent holding
period of up to two years.
Performance targets are normally
set annually by the Remuneration
Committee to ensure that they are
appropriately stretching.
The Committee has the discretion
to adjust the final level of vesting of
awards if it does not consider that it
reflects underlying performance.
LTIP awards are normally in the
form of conditional awards of
shares, although the Remuneration
Committee may decide to make
awards in other forms, such as nil-cost
options, if considered appropriate.
Dividend equivalent payments accrue
during the performance period and
holding period. These will normally be
paid in shares on a reinvested basis.
LTIP awards are subject to malus and
clawback provisions (see page 95).
The Committee may adjust and
amend awards in accordance with
the 2017 LTIP Rules.
Awards vest based on an appropriate
balance of financial, shareholder return
and strategic measures.
Not less than 75% of an award will be
based on financial and/or shareholder
return measures.
Up to 20% of the award vests for
performance at the trigger point,
increasing to 100% of the maximum
for maximum performance.
The performance measures selected
by the Committee may change
from time to time in appropriate
circumstances, for example to reflect
any change in the Group’s strategy.
If the Committee were to introduce
a new performance measure,
it would consult with the Company’s
largest shareholders in advance,
as appropriate.
The performance measures will
be disclosed in the Directors’
Remuneration report for the
relevant year.
Shareholding guidelines
To align the interests of the Executive Directors with shareholders, the Company operates a shareholding guideline for Executive Directors of 200%
of salary. A newly appointed Executive Director will have five years from the date of his or her appointment to the Board to build up such a holding.
With effect from 1 January 2023, the Committee has adopted a new post-employment shareholding policy. Shares are subject to this policy only if they
are acquired from LTIP and DBSP awards granted from 1 January 2023 onwards. Following cessation of employment, an Executive Director must retain
for two years such of their shares which are subject to this policy as have a value equal to 200% of salary. If an Executive Director’s relevant shares have
a value of less than 200% of salary then, in line with the company’s previous approach, Executive Directors will be expected to retain their full “in-service”
shareholding requirement for one year post cessation of employment and 50% for two years after leaving. The Committee retains discretion to vary the
application of the post-employment shareholding policy in compassionate circumstances.
Shares subject to LTIP awards for which the performance period has ended (i.e. which are in a holding period) and shares subject to DBSP awards can
be counted towards the required level of shareholding, in each case on a net of assumed tax basis.
Notes to the policy table
The deferred share element of the Annual Bonus Plan and the 2017 Long-Term Incentive Plan shall be operated in accordance with the rules of the
respective plan.
The Committee reserves the right to make any remuneration payments and/or payments for loss of office (including exercising any discretion available to
it in connection with such payments), notwithstanding that they are not in line with the policy set out above, where the terms of the payment were agreed:
(i) before the policy set out above and any previous policy came into effect; or (ii) at a time when a previous policy, approved by shareholders, was in place,
provided the payment is in line with the terms of that policy; or (iii) at a time when the relevant individual was not a director of the Company and, in the
opinion of the Committee, the payment was not in consideration of the individual becoming a director of the Company. For these purposes, “payments”
includes (but is not limited to) the Committee satisfying awards of variable remuneration and, in relation to an award over shares (including legacy awards
under the 2008 Approved Share Option Plan (ASOP)), the terms of the payment being “agreed” at the time the award is granted.
Changes to the Policy
The key changes that have been made to this Policy, compared with the last Policy approved by shareholders, are summarised in the Committee
Chair’s statement.
Committee discretion in relation to future operation of the Remuneration Policy
For share awards, in the event of a variation of the Company’s share capital or a demerger, delisting, special dividend, rights issue or any other event
that may affect the Company’s share price, the number of shares subject to an award and/or any exercise price applicable to the award and/or any
performance condition attached to the award may be adjusted.
The Committee may amend any performance conditions applicable to ASOP or LTIP awards if any event occurs which causes the Committee to consider
an amended performance condition would be more appropriate and not materially less difficult to satisfy.
The Committee may make minor amendments to the Policy set out above for, for example, regulatory, exchange control, tax or administrative purposes
or to take account of a change in legislation, without obtaining shareholder approval for that particular amendment.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
95
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Performance measures and approach to target setting
Annual bonus
Performance measures for the short-term incentive arrangements are selected annually by the Committee to align with Zotefoams’ annual business plan.
Performance targets for the financial element are set to be appropriately stretching, by reference to the Group’s internal business plan, and to align with
the delivery of returns to shareholders. Performance targets for the strategic element are determined annually by the Committee and set to incentivise
the delivery of key strategic priorities over the course of the year.
Long-Term Incentive Plan
Performance measures for the long-term incentive arrangements are selected annually by the Committee to align with Zotefoams’ long-term business
strategy and to reflect the Group’s growth ambitions and desire to efficiently manage capital employed and returns to shareholders.
The performance targets for the Long-Term Incentive Plan are reviewed annually and set by taking into account market conditions, external market
forecasts, internal business forecasts and market practice.
Malus/clawback arrangements for the DBSP and LTIP
The Remuneration Committee may, in its absolute discretion and in circumstances where the Remuneration Committee considers such action is
appropriate, determine at any time prior to the fifth anniversary of the date of grant of an award under the DBSP or LTIP to:
a) reduce the number of shares to which an award relates;
b) cancel an award;
c) impose further conditions on an award;
d) require a cash repayment; or
e) require a transfer of shares delivered under incentive plans.
Such circumstances include, but are not limited to:
a) a material misstatement of the Group’s (or any subsidiaries’) audited financial results;
b) corporate failure (2020 awards onwards);
c) deliberately misleading management, the market and/or shareholders regarding financial performance;
d) overpayments due to material abnormal write-offs;
e) payments based on erroneous or misleading data (2020 awards onwards);
f) reputational damage resulting from misconduct or otherwise; and
g) serious misconduct or conduct which causes significant financial loss.
Remuneration structure for employees below the Board
The remuneration for senior management immediately below the Board has a similar structure to that used for the Executive Directors. UK-based
middle management participates, at the discretion of the Remuneration Committee, in the 2018 Approved Share Option Plan, subject to the Plan’s rules.
There are also general staff discretionary bonus schemes globally which are based on the performance of the Group or local entity and other factors.
Other arrangements are also in place for specific areas of the Group, including a Share Incentive Plan open to all UK employees under which they
currently receive a free share for every four shares purchased.
Illustration of application of Remuneration Policy
The chart below shows how the composition of each of the Executive Directors’ remuneration packages varies at different levels of performance achievement.
0
400,000
200,000
1,000,000
800,000
600,000
1,600,000
1,400,000
1,200,000
1,800,000
2,000,000
Fixed pay
Minimum
performance
Mid-point
performance
Group CEO
Group CFO
Maximum
performance
Maximum
performance + 50%
share price growth
Minimum
performance
Mid-point
performance
Maximum
performance
Maximum
performance + 50%
share price growth
100%
£431,619
£975,267
£1,337,699
£1,593,949
£280,175
£626,554
£857,473
£1,019,973
44%
33%
27%
100%
45%
33%
27%
24%
32%
29%
38%
25%
32%
16%
24%
31%
29%
38%
25%
32%
16%
Annual bonus
LTIP
Share price growth
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The assumptions used in the chart above are as follows:
Minimum
performance
Mid-point
performance
Maximum performance
Maximum performance +
50% share price growth
Fixed pay
1, 2
✔
✔
✔
✔
Annual bonus
✘
✔
(60% of maximum)
✔
(100% of salary
2
)
✔
(100% of salary
2
)
Long-term incentive
✘
✔
(60% of maximum)
✔
(125% of salary
3
)
✔
(125% of salary
3
plus 50%
share price growth
4
)
1
Comprises base salary for 2023, benefits (as per the 2022 single figure) and pension contribution/cash in lieu of pension for 2023.
2
Based on salary expected to be earned over the full year taking into account the increase with effect from 1 April 2023.
3
Based on salary applying with effect from 1 April 2023.
4
An additional maximum performance scenario is provided showing the maximum performance with an additional 50% share price growth on the long-term incentive, as required by the
UK reporting regulations.
The chart above does not take into account share price appreciation, unless otherwise stated, or dividends.
Remuneration Policy on recruitment
Area
Policy and operation
Principles
The Remuneration Committee takes into consideration all relevant factors, including local market practice in the
individual’s home country, appropriate market data, internal relativities, the current remuneration arrangements
applicable for other Executive Directors on the Board and the Committee’s desire to recruit an Executive Director of
the required calibre to develop and deliver the business strategy, while at the same time ensuring that remuneration
arrangements offered are in the best interests of both Zotefoams and its shareholders.
The Committee endeavours to align the remuneration arrangements of new recruits with the Policy outlined on the
previous pages.
In the event that an internal candidate was promoted to the Board, legacy terms and conditions would normally
be honoured.
The Committee will make every effort to explain the rationale for the remuneration arrangements for a new recruit in
the Remuneration report following the recruitment of a new Director.
Base salary
Set at a level to recruit the candidate with the required calibre, skills and experience to deliver the Group’s strategy.
Benefits and pension
To be provided in line with normal policy.
In the event that an Executive Director is required to re-locate to undertake the role, the Committee may provide
additional benefits to reflect the relevant circumstances (on a one-off or ongoing basis).
Incentive awards
When appointing a new Executive Director, existing incentive arrangements will be used where possible.
The Committee has the discretion to include any other remuneration component or award which it feels is appropriate,
taking into account the specific commercial circumstances, and subject to the limit on variable remuneration set out
below. The key terms and rationale for any such component would be appropriately disclosed.
The maximum level of annual variable pay and long-term incentive awards which may be awarded to a new Executive
Director in respect of their recruitment, excluding any buy-out awards, is 250% of salary. Such variable remuneration
may be made in the form of cash or shares, subject to performance conditions as selected by the Committee, and may
vest immediately or at a future point in time.
Buy-outs
To facilitate recruitment, the Remuneration Committee may “buy out” any remuneration arrangements forfeited by
the new Executive Director on leaving his or her former employment. In doing so, the Committee will consider all
relevant factors, including the form of the awards (i.e. cash or equity), performance conditions attached to the awards,
the likelihood of such conditions being met and the timeframe of the awards.
Typically, any buy-outs will be made on a like-for-like basis.
On recruitment, the Committee retains discretion to grant awards under Listing Rule 9.4.2, which allows for the grant
of awards specifically to facilitate, in unusual circumstances, the recruitment of an Executive Director.
Non-Executive Directors
The Remuneration Committee will normally align the remuneration arrangements for new Non-Executive Directors with
those outlined in the Policy table on page 99.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
97
Zotefoams plc
Annual Report 2022
Service contracts and termination policy
When determining leaving arrangements for an Executive Director, the Committee takes into account any pre-established contractual agreements
including the provisions of any incentive plans, pension entitlements, typical market practice, the performance and conduct of the individual and the
commercial justification for any payments.
The following summarises our policy in relation to Executive Director service contracts and payments in the event of loss of office.
Area
Policy and operation
Notice period
X
D Stirling, Group CEO – twelve months’ notice by either party.
X
G McGrath, Group CFO – twelve months’ notice by either party.
X
For new recruits, the Committee’s policy is that Executive Director contracts will normally provide up to
twelve months’ notice by the Company and up to twelve months’ notice by the Executive Director.
Contract commencement
date
X
D Stirling, Group CEO – 1 September 1997 (contract last updated 13 May 2019).
X
G McGrath, Group CFO – 1 December 2015 (contract updated 15 April 2019).
Expiry date
X
The contracts for the Executive Directors are rolling service contracts with no expiry date.
Termination payments
X
If the Company terminates an Executive Director’s contract without full notice, then the Executive Director has
the right to a termination payment to reflect the unexpired term of the notice.
X
A payment in lieu of notice can be made of no more than one year’s base salary.
X
Our policy for new appointments is that termination payments in lieu of notice will be based on base salary.
X
Termination payments may be subject to mitigation and may be paid in instalments.
X
Rights to an annual bonus, DBSP awards, LTIP awards and ASOP awards are governed by the respective plan rules.
X
The Committee reserves the right to make any other payments in connection with a Director’s cessation of office/
employment where the payments are made in good faith in the discharge of an existing legal obligation (or by way
of damages for breach of such an obligation) or by way of settlement of any claim arising in connection with the
cessation of the Director’s office/employment. Any such payments may include, but are not limited to, payments
in respect of accrued but untaken holiday, any fees for outplacement assistance and/or the Director’s legal and/or
professional advice fees in connection with his cessation of office/employment.
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Area
Policy and operation
Other information
Annual bonus
X
Under the Annual Bonus Plan, the Remuneration Committee would normally treat someone as a “good leaver”
if they leave employment because of death, disability, ill health, injury, retirement, their employing company or
business being sold/transferred out of the Group, redundancy or any other circumstance at the discretion of the
Remuneration Committee.
X
A “bad leaver” is someone who leaves employment for any other reason.
X
For “good leavers”, rights to any outstanding annual bonus in the year of cessation will be determined at the discretion
of the Remuneration Committee, normally after the end of the financial year, and taking into account the level of
performance achieved during the performance period. Any payments will be made in such proportions of cash
and shares as the Committee considers appropriate. Outstanding DBSP awards will normally vest at the end of the
normal vesting period, although the Remuneration Committee may, in its discretion, allow the award to vest earlier.
X
For “bad leavers”, rights to an annual bonus and unvested DBSP awards will normally be forfeited.
2017 Long-Term Incentive Plan
Leavers during the performance period
X
Under the 2017 Long-Term Incentive Plan, a “good leaver” is someone who leaves employment because of death,
disability, injury, ill health, redundancy, retirement, their employing company or business being sold/transferred out
of the Group, or any other circumstance at the discretion of the Remuneration Committee.
X
A “bad leaver” is someone who leaves employment for any other reason.
X
For “good leavers”, rights to any awards under this plan will normally, unless the Remuneration Committee determines
otherwise, be pro-rated by reference to the proportion of the performance period that has elapsed on cessation and
will vest, subject to performance, at the normal time.
X
The Remuneration Committee retains the discretion to accelerate vesting in certain circumstances, e.g. death.
X
For “bad leavers”, rights to unvested awards under this plan will normally be forfeited.
Leavers during the holding period
X
Where a participant who is subject to a further holding period in relation to his / her award ceases to be employed by
the Group, the award will normally be delivered at the end of the holding period or the expiry of such shorter period as
the Committee may determine. In cases where the individual leaves employment, and where the Company is entitled
to dismiss the individual without notice, the award will lapse on cessation of employment.
2008 Approved Share Option Plan (ASOP)
X
Under the 2008 Approved Share Option Plan, a “good leaver” is someone who leaves employment because of death,
disability, injury, redundancy, retirement, their employing company or business being sold or transferred out of the
Group or any other circumstance at the discretion of the Committee.
X
A “bad leaver” is someone who leaves employment for any other reason.
X
For “good leavers”, rights to any awards under this plan will normally be pro-rated from the start of the performance
period to cessation and will vest based on performance to the date of cessation. The Remuneration Committee has
the discretion to adjust the final level of vesting of these awards.
X
For “bad leavers”, rights to unvested awards under this plan will normally be forfeited.
X
G McGrath currently has 10,344 awards exercisable from 5 April 2019 subject to the above provisions.
All-employee share plans
In the event of a cessation of employment, the treatment of any Executive Director’s awards under any all-employee
share plans that the Company establishes from time to time will be determined in accordance with the rules of the
relevant plan.
Change of control
X
The Committee will determine the treatment of any annual bonus award at the time, taking into account such
circumstances as it considers appropriate.
X
In the event the Company is taken over, ASOP, DBSP and LTIP awards vest early. The extent to which LTIP
awards granted after the date of the 2017 AGM vest will be determined by the Committee, taking into account the
performance conditions and, unless the Committee determines otherwise, the proportion of the performance period
that has elapsed.
X
In the event of a change of control or other relevant event, the treatment of any Executive Director’s awards under any
all-employee share plans that the Company establishes from time to time will be determined in accordance with the
rules of the relevant plan.
X
If there is a demerger, special dividend, delisting or any other event that may materially affect the Company’s share
price, the Committee may allow awards to vest on the same basis as for a takeover.
X
Awards may be exchanged for new awards if the Committee considers this appropriate.
Copies of the Executive Directors’ service contracts and deeds of indemnity in favour of the Directors are available for inspection at the Company’s
registered office.
External appointments
Executive Directors may be invited to become Non-Executive Directors of other companies. These appointments provide an opportunity to gain broader
experience outside Zotefoams and therefore benefit the Group. Providing that appointments are not likely to lead to a conflict of interest and the Board
agrees, Executive Directors may accept non-executive appointments and retain the fees received. There are currently no such appointments.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
99
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Remuneration Policy for Non-Executive Directors
Approach to fees
Operation
Other items
Fees for the Company Chair and Non-Executive
Directors (NEDs) are set at an appropriate level
to reflect:
X
the time commitment required to fulfil the role
X
the responsibilities and duties of the positions
X
typical practice in other companies.
Fees are reviewed at appropriate intervals by
the Board.
Base fees are subject to the aggregate limit in the
Company’s Articles of Association for fees paid
to NEDs.
Our NED fee policy is to pay:
X
a base fee for membership of the Board
X
an additional fee for being Chair of a
Committee and/or Senior Independent
Director to reflect the additional responsibilities
and time commitments of the role.
The Company Chair receives an inclusive fee for
the role.
Additional fees for membership of a committee,
chairing or membership of subsidiary boards
for a time commitment significantly greater
than anticipated at the start of the year,
or other fixed fees, may be introduced if
considered appropriate.
Fees can be paid in cash and/or shares
as appropriate.
The Company Chair and NEDs are not eligible
to participate in the bonus or any long-term
incentive arrangements.
NEDs do not currently receive any
taxable benefits.
Benefits (such as travel and accommodation
allowances to allow the NEDs to fulfil their
duties along with any tax liability arising on
such allowances) may be provided in the
future if the Board considers this appropriate.
Non-Executive Directors and the Company Chair have appointment letters setting out their duties and the time commitment expected.
Appointment letters are currently for terms of three years. Appointments may be terminated by either party with six months’ written notice.
Considering employment conditions elsewhere in the Group
Budgeted salary increases for the wider employee group are taken into consideration when determining increases for the Executive Directors.
The Remuneration Committee does not consult with employees directly when formulating the Remuneration Policy for Executive Directors but takes
account of pay levels within the Group and seeks feedback from the Head of Human Resources where appropriate. In addition, J Carling is a member
of the Remuneration Committee and also the Board representative to the Group’s UK Joint Consultative Committee (“the JCC”), which comprises an
employee representative from each department. J Carling attends meetings of the JCC to provide employees with an opportunity to engage with the
Board, ensuring that the views of the JCC can also be relayed to the Remuneration Committee.
Considering shareholders’ views
The Remuneration Committee is committed to engaging in an open dialogue with the Company’s shareholders and will seek views and opinions on
significant matters relating to the remuneration of the Executive Directors as appropriate. As part of formulating the Remuneration Policy, a consultation
was undertaken with our top 20 shareholders, who between them hold approximately 78% of Zotefoams’ shares, and the Committee refined the
approach to the Policy to take account of feedback received. The Committee would like to thank shareholders for the time they provided and their input
into the consultation.
The Company Chair and the Chair of the Remuneration Committee are available to answer requests, should a shareholder wish to raise a matter on
remuneration. Such requests should be made to the Company Secretary.
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Directors’ Remuneration Policy and implementation in 2023
A resolution to approve the new Remuneration Policy detailed on pages 91 to 99 will be proposed at the 2023 AGM. A summary of the Remuneration
Policy and how it will be implemented in 2023 has been set out below.
Element and purpose/
link to strategy
Implementation for 2023
Salary
Positioned at a level needed to recruit
and retain Executive Directors of the
calibre required to develop and deliver
the business strategy.
The base salaries for the Executive Directors will be increased on 1 April 2023 to:
D Stirling – £410,000 (an increase of 19%)
G McGrath – £260,000 (an increase of 13%)
In light of the strong progress and performance being delivered, as well as our strategic priorities and ambitions
for the future, the Committee believes that now is the right time to address base salaries to ensure that they are
reflective of both the size and complexity of the Group and the calibre of individuals in role. This move will bring
their base salaries from below lower quartile to between lower quartile and median. Further details and rationale
are set out above.
Benefits
Provide market-competitive benefits
for the Executive Directors to assist
in carrying out their duties effectively.
Benefits to be provided in line with approved policy.
Retirement benefits
Provide competitive post-retirement
benefits and reward sustained
contribution.
D Stirling – 6% of salary
G McGrath – 6% of salary
Annual bonus
Incentivise Executive Directors
to achieve specific financial and
predetermined strategic goals aligned
with the Group’s annual business plan.
Deferred proportion of annual variable
pay provides a retention element and
alignment with shareholders.
Maximum opportunity – up to 100% of salary.
33% of the bonus is deferred into shares in the Company for three years under the deferred bonus share plan.
For 2023, the bonus will be assessed against the following measures for both Executive Directors:
Measure
Weighting – D Stirling %
Weighting – G McGrath %
Profit before tax
50
50
Free cash flow delivery
15
15
MEL/ReZorce
®
opportunity
10
10
Strategic financial
10
10
ESG
15
15
The underlying performance targets for these measures have not been disclosed in advance as they are
considered to be commercially sensitive. Underlying targets will be provided, where appropriate, in next year’s
Directors’ Remuneration report.
Long-Term Incentive Plan
To incentivise the delivery of long-term
sustainable operational performance
and the growth potential of the Group.
To align the interests of Executive
Directors and shareholders.
To attract and retain executives of the
calibre required to drive the Group’s
long-term strategic ambitions.
Maximum opportunity – up to 125% of salary.
Awards granted are subject to a three-year performance period and a subsequent two-year holding period
such that no shares will normally be released until the end of year five.
Awards will be subject to three performance conditions:
Measure
Weighting
Threshold
(20% vesting)
1
Maximum
(100% vesting)
1
Adjusted EPS
2
45%
5% per annum compound
growth
15% per annum compound
growth
Average ROCE
15%
11%
15%
Relative TSR
3
30%
Median
Upper quartile
Sustainable Product Development
10%
4% of revenue
5% of revenue
1
Straight-line vesting occurs between threshold and maximum.
2
In previous years, the reported tax rate has deviated significantly. In line with the approach to the 2021 and 2022 LTIP award, the EPS targets
have been set and will be measured based on a constant tax rate of 19%. The Committee retains the discretion to override this where it
considers it appropriate.
3
Relative to the FTSE SmallCap Index excluding investment trusts.
Non-Executive Director fees
The Non-Executive Directors (excluding the Company Chair) will receive a fee increase to £45,000 p.a. effective
1 April 2023. Chairs of the Audit and Remuneration Committee will also receive a fee increase of £7,500 p.a.
in addition to their Non-Executive Director fee.
A new Chair Designate proposed to take office at the end of the 2023 AGM will receive a fee of £140,000 p.a.
Shareholding requirement and
post cessation shareholding policy
Aligns the interests of Executive
Directors and shareholders.
Executive Directors are required to hold shares in the Company equivalent to 200% of base salary.
Executive Directors are expected to retain their full shareholding requirement for one year post cessation
of employment and 50% for two years after leaving, unless the shares were acquired from LTIP and DBSP
awards granted from 1 January 2023. If the shares were acquired from LTIP and DBSP awards granted from
1 January 2023, Executive Directors are expected to retain their full shareholding requirement for two years
post cessation of employment.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
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Single total figure of remuneration (audited)
The following tables set out the single figure for total remuneration for Directors for the 2022 and 2021 financial years.
Executive Directors
Salary
(£)
Benefits
(£)
Matching
Shares
(£)
Bonus
(£)
LTIP
(£)
Pension
(£)
Total
fixed pay
(£)
Total
variable
pay
(£)
Total
(£)
D Stirling
2022
341,007
14,425
442
1
236,546
92,285
51,151
407,025
328,831
735,856
2021
324,258
14,119
422
2
54,627
nil
48,365
387,164
3
54,627
441,791
3
G McGrath
2022
226,986
12,740
439
1
162,696
61,067
26,091
266,256
223,763
490,019
2021
215,406
12,517
426
2
26,445
nil
23,054
251,403
3
26,445
277,848
3
1
The Matching Shares’ value has been calculated on the basis of the average share price over the three months to 31 December 2022 of £3.03.
2
The Matching Shares’ value has been calculated on the basis of the average share price over the three months to 31 December 2021 of £4.02.
3
The total fixed pay and total pay for 2021 has been restated to include the value of the Matching Shares.
Non-Executive Directors
1,2
Fees paid in respect of 2022 (£)
Fees paid in respect of 2021 (£)
J Carling
38,560
37,613
S Good
115,204
3
85,333
D Robertson
43,712
42,667
A Fielding
43,712
42,667
C Wall
38,560
37,638
1
Non-Executive Directors who also chair a Board Committee receive an additional fee.
2
The Non-Executive Directors (excluding the Company Chair) will receive a fee increase to £45,000 p.a. effective 1 April 2023. Chairs of the Audit and Remuneration Committee will also receive a fee
increase of £7,500 p.a. in addition to their Non-Executive Director fee.
3
S Good’s annual fee was increased to £125,000 p.a. effective 1 April 2022 to reflect the size and scale of the Group’s operations and the calibre of the individual in role. A new Company Chair,
L Drummond, has joined the Board as a Non-Executive Director and Chair Designate on 17 January 2023. Subject to approval by the shareholders at the Annual General Meeting to be held
on 24 May 2023, she will be appointed Company Chair from that date and receive a fee of £140,000 p.a. Prior to appointment as Company Chair, L Drummond received the basic fee for
Non-Executive Directors.
Achieved in full or predominantly achieved
Partially achieved
Not achieved
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Annual Report 2022
Notes to the table (audited)
Base salary and pension contributions
The Company operates a Defined Contribution Pension Scheme (the “DC Scheme”) or a cash contribution equivalent. When participating in the
DC Scheme, individuals may elect to enter a salary sacrifice arrangement, whereby their salary is reduced and the Company makes a corresponding
contribution into their DC Scheme. G McGrath opted for the salary sacrifice arrangement and the amounts shown for his base salary are after salary
sacrifice. Similarly, the amounts shown for pension include the amounts of salary that were sacrificed. As at 31 December 2022, the base salary
(before salary sacrifice) for G McGrath was £229,190 p.a. (£220,375 p.a. as at 31 December 2021).
D Stirling receives a cash contribution in lieu of pension contributions in accordance with the rules of the DC Scheme, which apply to all members.
As at 31 December 2022, the base salary for D Stirling was £344,318 p.a. (£331,075 p.a. as at 31 December 2021).
Benefits
Benefits include a company car allowance, private medical insurance and the value of the Matching Shares (at dates when awarded) acquired during
the year under the Share Incentive Plan (SIP).
Annual bonus 2022
The targets for the annual bonus for 2022 for D Stirling and G McGrath are as set out in the table below.
Measure
Weighting (% max)
Targets
Performance
achieved
Pay-out
D Stirling
G McGrath
Trigger point
Maximum
D Stirling
G McGrath
Profit before tax and any
exceptional items
1
60%
60%
£7.4m
£9.9m
£12.2m
60%
60%
Meet Group operating
cash flow budget
15%
15%
£6.0m
£8.1m
£15.3m
15%
15%
Strategic financial – MEL
8%
5%
See below
See below
See below
1.6%
1.6%
Strategic financial – S&OP planning
5%
0%
See below
See below
See below
5%
n/a
Strategic financial – Refinancing
0%
5%
See below
See below
See below
n/a
5%
Organisational development
0%
5%
See below
See below
See below
n/a
5%
Sustainability
7%
5%
See below
See below
See below
7%
5%
Safety
5%
5%
See below
See below
See below
3%
3%
Total
100%
100%
n/a
n/a
n/a
91.6%
94.6%
1
The reported PBT was £12.2m. There were no exceptional items.
The table below sets out the targets and performance for the Executive Directors.
Strategic financial metrics – D B Stirling & G C McGrath
Measure
Weighting (% max)
Objective
Scoring
D Stirling
G McGrath
D Stirling
G McGrath
Strategic financial
– MEL
8%
5%
Deliver to critical milestones a Board-approved implementation plan
for MEL (ReZorce
®
product line).
Strategic financial
– S&OP planning
5%
0%
Deliver an integrated assessment and proposal to the Board for next
stage capacity investment which reflects all stages of the product
range. The proposal must be adopted by the Board.
n/a
Strategic financial
– Refinancing
0%
5%
Complete, to the Board’s satisfaction and approval, refinancing of the
Group’s debt facility on favourable terms.
n/a
Organisational
development
0%
5%
Analyse Zotefoams plc’s overhead spend by cost centre to confirm
effective spend or identify cost-saving opportunities. Agree and present
plans to the Executive Committee.
n/a
Safety
5%
5%
Meet commitments of the senior leadership engagement initiative, with
an underpin based on RIDDOR/DART performance. Further details are
provided in our ESG section on page 65.
Sustainability
7%
5%
Deliver TARGET 1 per sustainability section of 2021 Annual Report
(page 61). Implement improvements to reduce the polymer waste rate
by 2.5% in 2022.
Deliver TARGET 2 (part 1) per sustainability section of 2021 Annual
Report (page 61). Develop AZOTE
®
products that will allow us to
reincorporate 50% of solid polymer waste produced at the UK site.
Deliver TARGET 2 (part 2) per sustainability section of 2021 Annual
Report (page 61). Find applications that reuse 90% of all AZOTE
®
foam
waste produced at the UK site.
Directors’ Remuneration report
Continued
103
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Annual Report 2022
Strategic Report
Governance
Financial Statements
The annual bonus was based on base salary before salary sacrifice. The maximum opportunity for the bonus was 75% of salary. 25% of the bonus is
deferred into shares held in trust for three years under the DBSP. Full details of the operation of the DBSP are set out in the Directors’ Remuneration Policy.
2022
Cash bonus (£)
Deferred bonus (£)
Total bonus (£)
D Stirling
177,410
59,136
236,546
G McGrath
122,022
40,674
162,696
In assessing whether the outcome generated by the annual bonus was fair in the context of broader performance, the Committee took into account the
underlying financial performance of the Group and the wider stakeholder experience (including, but not limited to, the shareholder experience) over the
course of the year. As set out above, significant progress has been made over the year to set Zotefoams up to deliver long-term success, the Committee
felt that the formulaic outcome was an appropriate reflection of performance delivered. It has, therefore, not exercised discretion in relation to incentive
outcomes during the year.
LTIP
The 2020 LTIP award was subject to three performance conditions measured over the three financial years ended 31 December 2022. 30% of the
award was subject to relative total shareholder return against the FTSE SmallCap Index (excluding investment trusts). 50% of the award was subject to
an EPS growth target. 20% of the award was subject to a ROCE growth target (excluding large asset investments not yet commissioned). Performance is
measured over a three-year period and the restricted shares will be released to the participant after two years, to the extent that TSR, EPS and ROCE
targets over the period have been met, together with additional shares that represent the dividends that would have been paid during the performance
period on the restricted shares that have been released.
The total award vesting is the sum of the awards for TSR, EPS and ROCE. Where performance is below the threshold point for any performance
condition, then no part of the award vests in relation to that performance condition. If performance is below the TSR threshold point, then no part of
the TSR award vests. If performance is below the ROCE threshold point, then no part of the ROCE award vests. Between the threshold point and the
maximum, the award vests on a sliding scale basis.
The table below summarises the performance criteria for the 2020 award, which is due to vest on 21 September 2023.
Trigger point
Maximum
Achievement
Level of vesting
(% maximum)
Performance
target
% of award
vesting
Performance
target
% of award
vesting
Relative TSR performance
Median
performance
against peer
group
6
Upper quartile
performance
against peer
group
30
Below median
performance
against peer
group
0%
Annualised EPS growth
5%
10
15%
50
11.0%
34.74%
ROCE
11%
4
12.5%
20
10.1%
0%
Based on the above level of performance, the 2020 LTIP will vest at 34.74%. The Committee considered the formulaic out-turns under the LTIP relative to
Group and individual performance and determined that no discretion should be exercised.
104
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Annual Report 2022
Scheme interests granted during 2022 (audited)
The table below sets out details of scheme interests granted to the Executive Directors during 2022:
Type
of award
Date
of grant
Number of
shares
granted
Face value¹
(£)
D Stirling
Deferred
bonus
2
(Unconditional
shares)
29.04.2022
4,207
13,673
G McGrath
2,036
6,617
Type
of award
Date
of grant
Number of
shares
granted
Face value
1
(£)
Face value
(% of salary)
Performance
condition
Trigger point
for vesting
(% of face value)
End of
performance
period
D Stirling
LTIP
3
(Conditional
shares)
29.04.2022
159,111
517,111
150
30% based on relative
TSR growth.
4
50% on
adjusted EPS
5
and 20%
on average ROCE
6
0% of the maximum
EPS and ROCE
elements and 20% of
the maximum TSR
element for meeting
the threshold points
specified in notes
4, 5 and 6 below
31.12.2024
G McGrath
105,910
344,207
150
1
Face value calculated using the average share price for the period 22 April 2022 to 28 April 2022 (£3.25). The share price was £3.32 on 3 May 2022.
2
Awards vest on the third anniversary of grant. There are no performance conditions for these awards.
3
Award is subject to a three-year performance period and, subject to performance, is released after a two-year holding period.
4
Relative TSR growth is measured against the FTSE SmallCap Index (excluding investment trusts). The threshold point for relative TSR performance is median performance against the peer group,
where 6% of the award will vest, to upper quartile performance against the peer group, where the maximum of 30% of the award will vest.
5
Adjusted EPS is the EPS for the financial year ending 31 December 2024, adjusted for acquired intangibles. The threshold point is 15p, where 0% of the award will vest, to the maximum of 25p,
where 50% of the award will vest. In line with the approach taken in 2021 and 2022, targets have been set and will be evaluated assuming a constant tax rate of 19% and the Committee retains
the discretion to override this where it considers it appropriate.
6
ROCE is defined as operating profit before exceptional items for the year, divided by the average sum of its equity, net debt and other non-current liabilities for the beginning and end of the year.
This measure excludes acquired intangible assets and their amortisation cost. The threshold point is average ROCE of 9%, where 0% of the award will vest. Maximum vesting occurs for average
ROCE of 15%, where 20% of the award will vest.
Total pension entitlements (audited)
The Zotefoams Defined Benefit Pension Scheme (the “DB Scheme”) was closed to the future accrual of benefits as from 31 December 2005. At this time,
all active members left the DB Scheme and were granted preserved pensions payable from their normal retirement age (or immediately, if the member
had reached normal retirement age).
The following Director was a member of the DB Scheme during the year.
Accrued pension at
31 December 2022
(£ p.a.)
Gross increase
in pension
(£)
Increase in accrued
pension net of
CPI inflation
(£)
Change in value
over the year
(£)
D Stirling
23,113
695
0
0
Notes
(1) The pension entitlement shown is that which would be paid annually on retirement at normal retirement age (or immediately upon late retirement where applicable), based on service to 31 December
2005 (the date the DB Scheme was closed to future accrual), pensionable salary increases to 31 March 2018 (the date salary linkage ceased) and including statutory increases to the year end but
excluding any future increases under the Rules of the Scheme.
(2) As required by the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the pension input amount has been calculated using the method set
out in section 229 of the Finance Act 2004(a) where:
– “pension input period” is the year ended 31 December 2022; and
– in the application of section 234 of the Act, the figure 20 is substituted for the figure 16.
(3) The following is additional information relating to the Director’s pension from the DB Scheme:
(a) Normal retirement age is 65.
(b) On death before retirement, a spouse’s pension is payable of one half of the member’s preserved pension at leaving, revalued from leaving to the date of death. On death in retirement, a spouse’s
pension is payable of one half of the member’s pension at death, without reduction for any part of the member’s pension commuted for cash at retirement.
(c) Members’ Guaranteed Minimum Pensions increase at statutory rates. Other pensions increase in payment at 5% p.a., or the increase in the Retail Prices Index if lower.
(d) From 1 January 2006, active employee members were able to pay contributions to the Defined Contribution Pension Scheme set up by the Company in order to receive retirement benefits. The
Company also contributes to this arrangement. Details of the contributions made into this Scheme have been disclosed in the single figure calculation and are not included in the above disclosure.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
105
Zotefoams plc
Annual Report 2022
Payments made to past Directors (audited)
No payments were made during 2022.
Payments for loss of office (audited)
No payments were made during 2022.
Statement of Directors’ shareholding and share interests (audited)
Executive Directors are required to hold shares in the Company equivalent to 200% of base salary, with a five-year period to build up this holding from:
(1) appointment to the Board; or (2) the date of the 2017 AGM (17 May 2017) for the current Executive Directors. The Remuneration Policy adopted at the
2020 AGM also requires 100% of the shareholding requirement to be held for one year following cessation of employment with the Group and 50% of the
shareholding requirement to be held for two years following cessation of employment with the Group. As set out in the proposed Remuneration Policy,
for 2023 we have enhanced the post-employment shareholding requirement and Executive Directors will be required to retain such relevant shares as
are worth 200% of salary for the full two year period. Throughout 2022, D Stirling complied with the Policy, holding 460% of base salary at 31 December
2022. G McGrath is making progress towards meeting the requirement and holds 164% of base salary at 31 December 2022.
1
1
Includes shares owned outright and interests in share incentive scheme without performance conditions. Calculated on the basis of the average share price over the three months to 31 December
2022 of £3.03.
The tables below set out the Directors’ interests (including those of their connected persons) in Zotefoams shares as at 31 December 2022. There were
no changes in the Directors’ interests between the year end and the date of this report.
Executive Directors
Shares owned outright¹
Interest in share incentive
schemes without
performance conditions
2
Interest in share incentive
schemes with performance
conditions
3
D Stirling
493,029
55,192
274,303
G McGrath
94,747
47,187
182,586
1
Includes Partnership Shares, Dividend Shares and vested Matching Shares under the SIP.
2
Comprises: vested CSOP awards; DBSP shares; unvested Matching Shares under the SIP, the unvested portions of the 2018 LTIP awards due to vest 24 May 2023 and 2020 LTIP awards due to vest
21 September 2023 respectively.
3
Comprises: unvested LTIP shares.
Non-Executive Directors
Shares owned outright
J Carling
3,323
A Fielding
9,121
S Good
30,047
D Robertson
7,302
C Wall
7,936
106
Zotefoams plc
Annual Report 2022
Scheme interests (audited)
The table below provides details of the current position of outstanding awards made to the Executive Directors who served in the year under review:
Scheme
As at
31 Dec
2021
Date of
exercise or
release
Granted
during
the year
Exercised
or released
Lapsed or
cancelled
As at
31 Dec
2022
Market
price on
exercise
date
Exercise
price
Date from
which
exercisable
Expiry
date
D Stirling
LTIP (2017)
1
18,144
07.06.2022
–
(18,144)
–
–
£3.07
–
01.06.2021
2
n/a
LTIP (2018)
10,478
07.06.2022
–
(5,240)
–
5,238
£3.07
–
24.05.2021
n/a
LTIP (2019)
73,070
14.03.2022
–
–
(73,070)
–
–
–
20.05.2022
n/a
LTIP (2020)
87,674
–
–
–
–
87,674
–
–
21.09.2023
n/a
LTIP (2021)
115,192
–
–
–
–
115,192
–
–
26.04.2024
n/a
LTIP (2022)
–
–
159,111
–
–
159,111
–
29.04.2025
n/a
DBSP (2018)
2,677
07.06.2022
–
(2,677)
–
–
£3.07
–
20.05.2022
n/a
DBSP (2019)
4
25%
11,835
–
–
–
–
11,835
–
–
20.04.2023
n/a
DBSP (2020)
3,678
–
–
–
–
3,678
–
–
08.04.2024
n/a
DBSP (2021)
–
–
4,207
–
–
4,207
–
–
29.04.2025
n/a
SIP
3
714
–
146
–
–
860
–
–
–
n/a
G McGrath
CSOP
10,344
–
–
–
–
10,344
–
£2.90
05.04.2019
05.04.2026
LTIP (2017)
1
11,906
07.06.2022
–
(11,906)
–
–
£3.07
–
01.06.2021
2
n/a
LTIP (2018)
7,061
07.06.2022
–
(3,531)
–
3,530
£3.07
–
24.05.2021
n/a
LTIP (2019)
48,352
14.03.2022
–
–
(48,352)
–
–
–
20.05.2022
n/a
LTIP (2020)
58,015
–
–
–
–
58,015
–
–
21.09.2023
n/a
LTIP (2021)
76,676
–
–
–
–
76,676
–
–
26.04.2024
n/a
LTIP (2022)
–
–
105,910
–
–
105,910
–
–
29.04.2025
n/a
DBSP (2018)
2,497
07.06.2022
–
(2,497)
–
–
£3.07
–
20.05.2022
n/a
DBSP (2019)
25%
7,444
–
–
–
–
7,444
–
–
20.04.2023
n/a
DBSP (2019)
4
75%
22,335
05.12.2022
–
(22,335)
–
–
–
–
See below
4
n/a
DBSP (2020)
3,303
–
–
–
–
3,303
–
–
08.04.2024
n/a
DBSP (2021)
–
–
2,036
–
–
2,036
–
–
29.04.2025
n/a
SIP
3
667
–
145
–
–
812
–
–
–
n/a
1
30% based on relative TSR. 70% based on EPS growth. As set out in the 2019 Annual Report and Accounts, this award vested at 46.99% of maximum based on performance in the period ending
31 December 2019.
2
Matching Shares under the SIP. Participants buy Partnership Shares monthly under the SIP. The Company provides one Matching Share for every four Partnership Shares purchased. These Matching
Shares are first available for vesting three years after being awarded or on leaving if the person is considered to be a “good leaver”.
3
None of the 2019 bonus was paid in cash. At the request of the Executive Directors, the proportion of the bonus that would normally have been paid in cash (75% of the award) was deferred into
shares for a period of up to one year. The proportion of the bonus that would normally be deferred into shares (25%) will continue as normal and will be released after three years.
4
Not subject to Good Leaver/Bad Leaver provisions as defined under the DBSP rules. May not be exercised prior to 1 January 2021 and must be exercised by 20 April 2023.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
107
Zotefoams plc
Annual Report 2022
Details of Directors’ service contracts and appointment letters (unaudited)
The following table sets out the details of the service contracts and appointment letters for the Directors as at 31 December 2022:
Director
Date of current service contract
or appointment letter
Unexpired terms at
31 December 2022
J Carling
10 August 2020
5 months
A Fielding
19 March 2020
5 months
S Good
14 March 2022
5 months
G McGrath
15 April 2019
–
D Robertson
6 August 2020
5 months
D Stirling
13 May 2019
–
C Wall
19 March 2020
5 months
Copies of the Directors’ service contracts and appointment letters are available for inspection at the Company’s registered office.
External appointments
During 2022, Executive Directors did not receive any fees from external appointments.
Change in remuneration of Group Directors and employees (unaudited)
The table below illustrates the percentage change in salary and benefits for the Group Directors from the prior year compared with the average
percentage change for the UK workforce.
The employee subset consists of an average of the UK workforce employees for the period under review.
This group has been selected as this employee representative group is the largest group of employees within the organisation. The Non-Executive
Directors receive no taxable benefits or annual bonus.
% change in
base salary
(2022 to 2021)
% change in
taxable benefit
(2022 to 2021)
% change in
annual bonus
UK employees
only
(2022 to 2021)
% change in
base salary
(2021 to 2020)
% change in
taxable benefit
(2021 to 2020)
% change in
annual bonus
UK employees
only
(2021 to 2020)
D Stirling
5.1
2.2
10.4
7.0
-3.5
-14.1
G McGrath
5.4
1.8
10.1
7.4
-1.9
-53.7
J Carling
2.5
n/a
n/a
2.5
n/a
n/a
S Good
35.0
n/a
n/a
1.7
n/a
n/a
D Robertson
2.5
n/a
n/a
1.7
n/a
n/a
A Fielding
2.5
n/a
n/a
61.6
1
n/a
n/a
C Wall
2.5
n/a
n/a
61.6
1
n/a
n/a
Average employee
4.66
0
512.1
2
2.5
0
4.7
1
A Fielding and C Wall were appointed to the Board in May 2020. Their 2021 increases reflect that they were only paid their respective fees for part of the prior year.
2
The mean staff bonus in the UK was 7.24% of base salary in relation to 2022 (2021: 1.07% of base salary).
The UK employees’ salary review is negotiated with the unions and a 4.0% increase was agreed in relation to 2022. For 2023, a salary increase of 7.0%
has been agreed for UK employees. Those employees with salaries below £50,000 per annum received part of the 2023 increase in October 2022;
further details are provided on page 88.
CEO pay ratio
Companies with more than 250 employees are required to publish the CEO-to-employee pay ratio. The ratio compares the total remuneration of the
Group CEO against the remuneration of the median employee, and employees in the lower and upper quartiles. These pay ratios form part of the
information that is provided to the Committee on broader employee pay policies and practices. The Committee has considered the pay data and
concluded that the current ratio is proportionate and allows the business to retain high calibre individuals capable of delivering the growth strategy.
The ratios set out below were calculated using the Option A methodology, which uses the pay and benefits of all UK employees as it provides the
most accurate information and representation of the ratios. The employee pay data used was based on the total remuneration of all Zotefoams plc’s
full-time employees as at 31 December 2022. The Group CEO’s total remuneration has been taken from the single total figure of remuneration for 2022,
as disclosed on page 101.
The Committee considers that the median CEO pay ratio is consistent with the relative roles and responsibilities of the Group CEO and the identified
employees. Base salaries of all employees, including our Executive Directors, are set with reference to a range of factors, including market practice,
location, experience and performance in role. The Group CEO’s remuneration package is weighted towards variable pay (including the annual bonus,
LTIP and DBSP) due to the nature of the role, which means that the ratio is likely to fluctuate depending on the outcomes of incentive plans in each year.
The increase in the total pay ratio at the 25th, 50th and 75th percentiles in comparison with 2021 is due to no LTIP vesting in 2021.
108
Zotefoams plc
Annual Report 2022
Year
Method
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
2022 – Base salary
Option A
11:1
10:1
7:1
2022 – Total pay
22:1
19:1
15:1
2021 – Total pay
15:1
12:1
10:1
2020 – Total pay
17:1
14:1
10:1
Pay data (£’000)
Base salary
Total pay
CEO’s remuneration
341,007
735,856
UK employees 25th percentile
31,524
32,795
UK employees 50th percentile
35,700
37,764
UK employees 75th percentile
47,787
50,719
Historical TSR performance and Group CEO remuneration outcomes (unaudited)
The graph below compared the TSR of Zotefoams against the FTSE SmallCap Index (excluding investment trusts), which is considered the most
appropriate choice of index by the Remuneration Committee due to the Group’s size and membership of this index.
Zotefoams
FTSE SmallCap Index
350
250
300
200
150
100
50
0
450
400
Dec 22
Dec 21
Dec 20
Dec 19
Dec 18
Dec 17
Dec 16
Dec 15
Dec 14
Dec 13
Dec 12
Workforce alignment
While it remains important to set base salaries on a market-competitive basis reflective of the size and complexity of the business, the Committee
has considered alignment of executive remuneration with workforce reward structures.
The table below illustrates the Group CEO’s single figure for total remuneration, annual bonus pay-out, LTIP vesting as a percentage of maximum
opportunity, the EPS and the average share price for the final quarter for the same ten-year period.
Group CEO’s
single figure of
remuneration (£)
Annual
bonus pay-out
(% of maximum)
LTIP vesting
(% of maximum)
EPS (p)
Average share
price for the final
quarter (p)
2022
735,856
91.6
34.7
20.6
303.0
2021
441,369
22.0
0.0
9.0
402.0
2020
491,548
28.0
23.5
14.9
415.5
2019
637,473
37.1
47.0
14.9
375.4
2018
794,905
35.1
100.0
18.7
570.5
2017
676,816
84.4
58.0
16.6
1
389.2
2016
497,545
55.0
37.7
13.7
252.5
2015
418,568
44.4
50.0
11.1
344.3
2014
439,452
44.0
66.0
10.7
237.8
2013
270,687
–
24.8
8.0
182.4
1
While basic earnings per share before exceptional items for 2017 was 16.04p, the Remuneration Committee decided to eliminate the impact on deferred tax (the net operating losses which are carried
forward) of the change in expected future US corporate tax rates, which resulted in an EPS of 16.59p before exceptional items being used for calculating the satisfaction of the EPS target for the vesting of
the 2015 LTIP awards.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
109
Zotefoams plc
Annual Report 2022
Relative importance of spend on pay (unaudited)
The table below illustrates the year-on-year change in total Executive Directors’ remuneration and Executive Directors’ remuneration compared with profit
after tax and distributions to shareholders for 2022 and 2021.
% change
2021/2022
2022
£’000
2021
£’000
Total remuneration¹
14
25,227
22,040
Executive Directors’ remuneration
71
1,226
719
Profit after tax
129
10,006
4,376
Shareholder distributions
2
4
3,188
3,074
1
Social security costs paid by the Group have been excluded from this figure.
2
Shareholder distributions refer to the dividends paid during the year.
Committee role and advisers (unaudited)
The Group has established a Remuneration Committee, which is constituted in accordance with the recommendations of the UK Corporate Governance
Code. A Fielding, S Good, D Robertson, J Carling and C Wall were members of the Committee during 2022 to the date of this report. All the members are
independent Non-Executive Directors, with the exception of S Good, who was independent on appointment as Chair of the Company. The Committee
was chaired by A Fielding throughout the year. The Committee’s Terms of Reference were last updated in August 2022 and may be found on the Group’s
website.
None of the Committee members have any personal financial interest (other than fees paid as disclosed on page 101 and as shareholders) in the
Company, nor do they have any interests that may conflict with those of the Group, such as cross directorships. None of the Committee members are
involved in the day-to-day management of the business. The Committee makes recommendations to the Board on remuneration matters. No Director
is involved in any decision concerning his or her own remuneration.
The Remuneration Committee met eight times in 2022, with full attendance at each meeting. The Company Secretary acts as secretary to the Committee.
In 2022, the Remuneration Committee carried out the following work:
X
completed a review of the remuneration arrangements for the Executive Directors and the wider workforce and consulted with the Group’s largest
shareholders in relation to the proposed Remuneration Policy put forward for approval at the 2023 AGM
X
approved the 2021 Directors’ Remuneration report
X
considered and approved the annual bonus for the Executive team
X
considered and approved the grant of awards under the Long-Term Incentive Plan and the Deferred Bonus Share Plan in 2022 and the vesting
of awards made in 2019 under the Long-Term Incentive Plan
X
considered the salary reviews of the Executive team and concluded that no increase would be awarded above the salary review applicable to the
general workforce
X
considered the salary review of the Company Secretary and awarded a pay increase commensurate with market rates of pay
X
considered the performance targets for the 2022 Executive Directors’ bonus and Long-Term Incentive Plan awards.
Deloitte LLP (Deloitte) was engaged in 2016 to assist and provide advice to the Remuneration Committee in relation to Directors’ remuneration.
Following a retendering exercise involving three firms, they continued to work with the Committee through 2022 in respect of general remuneration advice.
Deloitte is a member of the Remuneration Consultants Group and adheres to its Code on Executive Remuneration Consulting in the UK. The Committee
is comfortable that Deloitte does not have connections with Zotefoams plc that may impair its objectivity and independence. Deloitte provided no other
services to the Company.
Total fees for advice provided to the Committee amounted to the following:
2022
(£)
2021
(£)
Deloitte LLP
64,450
24,500
Total
64,450
24,500
Shareholder voting (unaudited)
The table below sets out the results of the votes received on the 2021 Directors’ Remuneration report at the 2022 AGM as well as the previous Directors’
Remuneration Policy (approved at the 2020 AGM):
Directors’ Remuneration
Policy
%
Report on
remuneration
%
Votes in favour
20,542,091
89.76
30,712,010
99.60
Votes against
2,331,595
10.19
123,706
0.40
Discretion
12,699
0.05
12,322
0.04
Total votes
22,886,385
100.00
30,848,038
100.00
Votes withheld
4,520
–
11,631
–
110
Zotefoams plc
Annual Report 2022
Directors’ report
The Directors present their Annual Report and
audited consolidated financial statements for
the year ended 31 December 2022
Results and dividends
Profit attributable to shareholders for the year
amounted to £10.0m (2021: £4.4m). An interim
dividend of 2.18p (2021: 2.10p) per share was
paid on 7 October 2022. The Directors
recommend that a final dividend of 4.62p
(2021: 4.40p) per share be paid on 2 June 2023
to shareholders who are on the Company’s
register at the close of business on 5 May 2023,
resulting in a total dividend of 6.80p per share
for the year (2021: 6.50p). For further information
on the performance of the Company refer
to the Strategic Report on pages 1 to 77,
which should be read as forming part of the
Directors’ report.
Directors
The Directors who were in office during the
year were:
S Good (Company Chair)
J Carling
A Fielding
G McGrath
D Robertson
D Stirling
C Wall
L Drummond was appointed as a Non-Executive
Director and Chair Designate on 17 January 2023.
All Directors were in office up to the date of
signing of the financial statements. Their details
are set out on pages 78 and 79.
The appointment, replacement and powers of
the Directors are governed by the Company’s
Articles of Association (the “Articles”), the UK
Corporate Governance Code, the Companies
Act 2006, prevailing legislation and resolutions
passed at the Annual General Meeting (AGM)
or other general meetings of the Company.
The Articles give the Directors power to appoint
and replace Directors. Under the Terms of
Reference of the Nomination Committee, any
appointment must be recommended by the
Nomination Committee for approval by the
Board of Directors. The Articles also require
Directors to retire and, if they so wish, submit
themselves for election at the first AGM following
their appointment and normally every three years
thereafter. Since 2012, the Board has required
Directors to stand for re-election each year.
D Stirling and G McGrath, the Executive
Directors, have service contracts which
are terminable on twelve months’ written
notice. All other Directors have letters of
appointment which are terminable on
six months’ written notice.
The Company maintained Directors’ and
Officers’ Liability Insurance cover throughout
2022. The Company has issued Deeds of
Indemnity in favour of all Directors. These Deeds
were in force throughout the year ended
31 December 2022 and remain in force as at the
date of this report. These Deeds, as well as the
service contracts and the Company’s Articles
of Association, are available for inspection during
normal business hours at the Company’s
registered office and will be available at the AGM.
Conflicts of interest
All Directors submit details to the Company
Secretary of any new situations, or changes to
existing ones, which may give rise to an actual
or potential conflict of interest with those of
the Company.
Where an actual, or potential, conflict is
approved by the Board, the Board will normally
authorise the situation on the condition that the
Director concerned abstains from participating
in any discussion or decision affected by the
conflicted matter. Authorisation of a conflict is
only given to Directors who are not interested in
the matter. No new conflicts of interest were
noted during 2022 or between the year end and
the date of signing of the financial statements.
Amendment to the Articles of Association
The Company’s Articles of Association may
only be amended by a special resolution of the
shareholders passed in general meeting and
were last amended in May 2021.
Corporate governance report
The corporate governance report on
pages
80 to 82
should be read as forming part of the
Directors’ report.
Employees
To ensure employee welfare, the Group has
documented and well-publicised policies on
occupational health and safety, the environment
and training. The Group operates an equal
opportunities, single-status, employment policy
and an open management style.
Zotefoams operates an equal opportunities
policy and we believe diversity (ethnicity, age,
gender, language, sexual orientation, gender
re-orientation, religion and socio-economic
status) of the employees promotes a better
working environment, which in turn leads to
innovation and business success. Applications
for employment by disabled persons are always
fully considered and, in the event of an employee
becoming disabled, every effort is made to
ensure that their employment with Zotefoams
continues and that appropriate training is
provided where necessary. Zotefoams’ policy
is that the training, career development and
promotion of disabled persons should, as far as
possible, be identical to that of other employees.
Zotefoams places considerable value on the
involvement of its people and holds formal and
informal meetings to brief them on matters
affecting them as employees and on the various
factors (including financial and economic factors)
affecting the performance of the Group; it also
ensures that their views are taken into account in
making decisions which are likely to affect their
interests. In the UK, there is a Joint Consultative
Committee (JCC), which comprises an employee
representative from each department. The JCC
meets regularly and considers a wide range of
matters affecting the employees’ current and
future interests. From January 2019, J Carling
has attended meetings of the JCC in his
capacity as Board representative, to provide
employees with an opportunity to engage with
the Board and allow the Board to have regard
to employees’ views in their decision-making.
In order to encourage employees to share in the
success of Zotefoams, an all-employee share
incentive scheme was established in 2015 in
the UK. Under the scheme, employees can
purchase shares each month directly from their
salary. For every four shares bought, one further
share is awarded. The shares vest on the third
anniversary of award and are normally exempt
from tax after five years.
The Company operates to a number of
recognised industry standards, including Quality
(ISO 9001), Environmental (ISO 14001) and
Occupational Health and Safety (ISO 45001).
Further details of our certifications are provided
in our Safety, Health & Environment (SHE)
section on
page 63.
Relationships with others
The Board has had regard to the fostering
of the Group’s business relationships with
suppliers, customers and others in its
decision-making process in order to
achieve good-quality outcomes.
Further information on this topic can be found
on pages 75 to 77 of the Strategic Report
(the s172(1) statement), which is incorporated
into this Directors’ report by cross-reference.
Strategic Report
Governance
Financial Statements
111
Zotefoams plc
Annual Report 2022
Human rights
Zotefoams does not, at present, have a specific
policy on human rights; however, it believes in
recognising and respecting all human rights as
defined in international conventions. This belief is
embedded within the organisation’s values and
ethical policies. We conduct every aspect of our
business with honesty, integrity and openness,
respecting human rights and the interests of our
employees, customers and other stakeholders,
according to the principles set out in our Ethics
Policy, which covers:
X
ensuring our employees have the freedom to
join a union, associate or bargain collectively
without fear of discrimination against the
exercising of such freedoms
X
not using forced labour or child labour
X
prohibiting the use of worker-paid fees and
the confiscation of workers’ original
identification documents and
X
respecting the rights of privacy of our
employees and protecting access and
use of their personal information.
The Company operates an Equal Opportunities
Policy and a Dignity at Work Policy, which
promote the right of every employee to be
treated with dignity and respect and not be
harassed or bullied. We work hard to ensure
that goods and services are from sources that
do not jeopardise human rights, safety or the
environment, and expect our suppliers to
observe business principles consistent with
our own.
Business ethics
Zotefoams is committed to high standards of
business conduct and aims to maintain these
standards across all of our operations
throughout the world. Under our Ethics
Policy, we state that we will:
X
operate within the law
X
not tolerate any discrimination or harassment
X
not make any political donations or grant
public donation for the purpose of political
advocacy of any kind
X
not make or receive bribes
X
avoid situations that might give rise to
conflicts of interest
X
not enter into any activity that might be
considered anti-competitive
X
aim to be a responsible company within
our local communities
X
support and encourage our employees
to report, in confidence, any suspicions
of wrongdoing.
Supporting our Ethics Policy, we have policies
on anti-bribery and corruption, anti-fraud,
anti-competitive behaviour, employee share
trading and whistleblowing.
In 2020, we introduced a declaration of
adherence to the principles laid out in the
Anti-Bribery and Corruption, Anti-Fraud and
Ethics policies in the business dealings of all
new suppliers. Suppliers’ ethical matters were
further reviewed in 2022 through the analysis of
the top 50 suppliers by turnover as part of the
work to compile our modern slavery statement:
Scan the QR code to see
our Modern Slavery
statement
zote.info/3z1huTC
Suppliers’ ethical disclosures will remain under
review.
Substantial shareholdings
In accordance with the Disclosure and
Transparency Rules DTR 5, the Company,
as at 3 April 2023, had received notices of
the following material interests of 3% or more
in the issued ordinary share capital:
Ordinary
shares of
5.0p
Percentage
of issued
share
capital
Schroders plc
7,007,957
14.41
Canaccord Genuity
Group, Inc
5,203,462
10.70
Invesco
(Oppenheimer Funds)
4,000,000
8.23
Premier Miton
Group plc
2,613,649
5.38
Mr Nicholas
Beaumont-Dark
1,938,352
3.99
Highclere International
Investors LLP
1,790,601
3.68
BGF Investments LP
1,735,620
3.57
Mr Marc & Mrs Claire
Downes
1,547,610
3.18
Charles Stanley
& Co Ltd
1,521,114
3.13
Interactive Investor Ltd
1,516,565
3.12
Directors’ shareholdings are shown in the
Directors’ Remuneration report on
pages 105
and 106.
Research and development
The amount spent by the Group on R&D in
the year was £787k (2021: £806k). In the opinion
of the Directors, £767k (2021: £627k) of
this expenditure met the requirements for
capitalisation under IAS 38, while £20k
(2021: £179k) did not and was consequently
expensed in the consolidated income statement.
Share capital and reserves
The Company has one class of ordinary shares,
which has no right to fixed income. Each share
carries the right, on a poll, to one vote at general
meetings of the Company. There are no specific
restrictions on the size of a holding nor on the
transfer of shares, which are both governed
by the general provisions of the Articles of
Association and prevailing legislation. The
Directors are not aware of any agreements
between holders of the Company’s shares that
may result in restrictions on the transfer of
securities or on voting rights. No person has
any special rights of control over the Company’s
share capital and all issued shares are fully paid.
At 31 December 2022, the Zotefoams
Employees’ Benefit Trust (EBT) held 107,130
shares (approximately 0.2% of issued share
capital) (2021: 196,888 shares) to satisfy
share plans as described in the Directors’
Remuneration report. During the year, the EBT
released 89,758 shares in respect of these share
plans. In accordance with best practice, the
voting rights on the shares held in the EBT are
not exercised and the right to receive dividends
has been waived.
At the AGM held on 25 May 2022, authority was
given to the Directors to allot unissued shares
in the Company up to a maximum amount
equivalent to approximately two-thirds of the
issued share capital of the Company. Authority
was also given to the Directors to allot equity
securities in the Company for cash without
regard to the pre-emption provisions of the
Companies Act 2006. Both authorities expire
at the AGM to be held on 24 May 2023.
The Directors seek new authorities for
a further year, in line with market practice.
The Company was given authority at the
2022 AGM to purchase up to 4,862,123 of its
ordinary shares. This authority will also expire
on 24 May 2023 and, at the date of this Report,
had not been used. In accordance with normal
practice for listed companies, a special
resolution will be proposed at this year’s AGM
to seek a new authority to make market
purchases up to a maximum of 10% of the
issued share capital of the Company.
112
Zotefoams plc
Annual Report 2022
Directors’ report
Continued
Subsidiaries and branches
Details of the joint ventures, subsidiaries and
branches within the Group are given in the
financial statements.
Treasury and financial instruments
Information in respect of the Group’s policies on
financial risk management objectives, including
policies for hedging, as well as an indication of
exposure to financial risk, is given in note 21 to
the financial statements.
Future developments
Information on future developments for the
Group has been set out in the Introduction
from our Chair and the Group CEO’s review
on pages 25 to 31.
Greenhouse gas emissions
Information on the Group’s greenhouse gas
emissions may be found in the ESG report
on page 66.
Pension schemes
Refer to the post-employment benefits section
of the Group CFO’s review on pages 32 to 38
and note 23 to the financial statements for
information related to the Company’s pension
schemes.
In the UK, Zotefoams plc runs a number of
defined contribution pension schemes.
New joiners are eligible to join the Zotefoams
Stakeholder Pension Scheme.
Finance costs capitalised
Refer to note 6 to the financial statements for
details of any borrowing costs capitalised by
the Group.
Events after the reporting period
Refer to note 27 to the financial statements for
details of any events after the reporting period
affecting the Group.
Disclosure of information to Auditor
The Directors who held office at the date of
approval of this Directors’ report confirm that,
in so far as they are each aware, there is
no relevant audit information of which the
Company’s External Auditor is unaware, and
each Director has taken all the steps that they
ought to have taken as a Director in order to
make themselves aware of any relevant audit
information and to establish that the Company’s
External Auditor is aware of that information.
Independent Auditor
A resolution to re-appoint PKF Littlejohn LLP
as the Company’s External Auditor will be
proposed at the forthcoming AGM.
On behalf of the Board,
G C McGrath
Director
4 April 2023
Strategic Report
Governance
Financial Statements
113
Zotefoams plc
Annual Report 2022
Statement of Directors’ responsibilities
in respect of the financial statements
The Directors consider the Annual Report, taken
as a whole, to be fair, balanced and understandable
The Directors are responsible for preparing the
Annual Report and the financial statements in
accordance with applicable law and regulation.
Company law requires the Directors to prepare
financial statements for each financial year.
Under that law, the Directors have prepared the
Group and Company financial statements in
accordance with UK-adopted international
accounting standards. 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 Company and of the profit or
loss of the Group and Company for that period.
In preparing the financial statements, the
Directors are required to:
X
select suitable accounting policies and then
apply them consistently
X
state whether applicable UK-adopted
international accounting standards have
been followed subject to any material
departures disclosed and explained in
the financial statements
X
make judgements and accounting estimates
that are reasonable and prudent
X
prepare the financial statements on the
going concern basis unless it is inappropriate
to presume that the Group and Company
will continue in business.
The Directors are responsible for safeguarding
the assets of the Group and Company and
hence for taking reasonable steps for the
prevention and detection of fraud and
other irregularities.
The Directors are responsible for keeping
adequate accounting records that are sufficient
to show and explain the Group’s and Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of
the Group and Company and enable them to
ensure that the financial statements and the
Directors’ Remuneration report comply with
the Companies Act 2006.
The Directors are also 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.
Directors’ confirmations
The Directors consider that the Annual Report,
taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
position and performance, business model
and strategy of the Group and Company.
Each of the Directors, whose names and
functions are listed on pages 78 and 79 of
the Annual Report, confirm that, to the best
of their knowledge:
X
the Consolidated and Company financial
statements, which have been prepared in
accordance with UK-adopted international
accounting standards, give a true and fair
view of the assets, liabilities, financial position
and profit of the Group and Company
X
the Group CEO’s review includes a fair review
of the development and performance of the
business and the position of the Group and
Company. A description of the principal risks
and uncertainties faced by the Group and the
Company is provided on pages 39 to 50.
Opinion
We have audited the financial statements of Zotefoams plc (the “parent company”) and its subsidiaries (the ‘group’) for the year ended 31 December 2022
which comprise the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and Parent Company
statements of financial position, the Consolidated and Parent Company statement of cash flows, the Consolidated and Parent Company statement of
changes in equity, and notes to the financial statements, including significant accounting policies. The financial reporting framework that has been applied
in their preparation is applicable law and UK-adopted international accounting standards and as regards the parent company financial statements,
as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
X
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2022 and of
the group’s profit for the year then ended
X
the group financial statements have been properly prepared in accordance with UK-adopted international accounting standards
X
the parent company financial statements have been properly prepared in accordance with UK-adopted international accounting standards and
as applied in accordance with the provisions of the Companies Act 2006
X
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those
standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the
group and parent company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including
the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these
requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Conclusions relating to going concern
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the financial
statements is appropriate. Our evaluation of the directors’ assessment of the group’s and parent company’s ability to continue to adopt the going concern
basis of accounting included:
X
confirming our understanding of the directors’ going concern assessment process, including the controls over the review and approval of the budget
and five-year plan
X
assessing the appropriateness of the duration of the going concern assessment period to 30 June 2024 and considering the existence of any
significant events or conditions beyond this period based on our procedures on the group’s five-year plan and knowledge arising from other areas
of the audit
X
evaluating management’s historical forecasting accuracy and the consistency of the going concern assessment with information obtained from other
areas of the audit, such as our audit procedures on management’s impairment assessments
X
testing the assessment, including forecast liquidity, for mathematical accuracy
X
agreeing the underlying cash flow projections to management-approved forecasts, recalculating the impact on banking covenants and liquidity
headroom for the base case scenario
X
assessing whether key assumptions made were reasonable and appropriately severe, in light of the group’s relevant principal risks and uncertainties
and our own independent assessment of those risks
X
performing independent sensitivity analysis on management’s key assumptions, including applying incremental adverse cash flow sensitivities.
The sensitivity analysis included the impact of certain severe but plausible scenarios, evaluated as part of management’s work on the group’s viability,
including pandemic disruption, operational disruption, technology displacement, loss of key customer in HPP, increase in cost of inflation, the war
in Ukraine leading to soaring energy prices, and the development of ReZorce
X
evaluating the amount and timing of identified mitigating actions available to respond to a severe downside scenario, such as ability to restrict capital
expenditure, cash payments associated with dividends, bonus and share options and whether those actions are feasible and within the group’s control
X
considering the appropriateness of management’s downside scenario, to understand how severe conditions would have to be to breach liquidity and
whether the reduction in EBITDA required has no more than a remote possibility of occurring.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively,
may cast significant doubt on the group’s or parent company’s ability to continue as a going concern for a period of at least twelve months from when
the financial statements are authorised for issue.
In relation to the entities reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention
to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the going concern
basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.
Independent auditor’s report to
the members of Zotefoams plc
114
Zotefoams plc
Annual Report 2022
Our application of materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements
as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Company financial statements
Overall materiality
£900,000 (2021: £350,000)
£810,000 (2021: £315,000)
Performance materiality
£630,000 (2021: £245,000)
£567,000 (2021: £220,500)
Basis of materiality
7.5% (2021: 5%) of profit before tax (PBT)
7.5% (2021: 5%) of PBT capped at 90% of group
Rationale
PBT is the primary key performance
indicator used by management in assessing
the performance of the group. As a profit
generating group, we consider the users of
the financial statements, such as investors,
will also consider PBT to be a key metric.
PBT is the primary key performance indicator
used by management in assessing the
performance of the parent company. As a profit
generating company, we consider the users
of the financial statements, such as investors,
will also consider PBT to be a key metric.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality
allocated across components was between £251,000 and £429,000 (2021: £68,000 and £315,000). Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report on the misstatements identified during our audit above £45,000 (group audit) and £40,500
(parent company audit) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons.
Our approach to the audit
As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the financial statements. In particular, we
looked at areas involving significant accounting estimates and judgement by the directors and considered future events that are inherently uncertain
such as the impairment of intangible assets and assumptions used in calculating the defined benefit pension scheme. We also addressed the risk of
management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk
of material misstatement due to fraud.
The group has ten trading companies (including joint ventures) within the consolidated financial statements, two based in the UK, two based in Europe,
three in Asia and three in the USA. We identified four significant components: the parent company – Zotefoams plc; and the subsidiaries – Zotefoams Inc,
MuCell Extrusion LLC and Zotefoams Poland Sp.z.o.o., which were subject to a full scope audit by a team with relevant sector experience undertaken
from our office based in London. We engaged the assistance of PKF network firms to assist with inventory count procedures, as we were not able to
visit some of the overseas components, and with wages procedures for Poland.
In addition, we identified components which were neither material nor significant to the group and we performed an audit of specific account balances
and classes of transactions to ensure that balances which were material to the group were subject to audit procedures, including:
X
inventories, revenue, cost of sales and expenses in Zotefoams Midwest LLC
X
inventory, revenue, cost of sales, expenses, bank and receivables in Zotefoams T-FIT Material Technology (Kunshan) Limited
X
inventories, revenue, cost of sales and bank in T-FIT Insulation Solutions India Private Limited
X
revenue, cost of sales and bank in Zotefoams Operations Limited.
The components identified as not significant and not material were subject to review procedures undertaken by the same audit team. The approach gave
the audit team the following coverage:
Coverage of PBT
Full
Specific
Analytical
Coverage of gross assets
Full
Specific
Analytical
Strategic Report
Governance
Financial Statements
115
Zotefoams plc
Annual Report 2022
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current
period and include the most significant assessed risks of material misstatement (whether or not due to fraud) we identified, including those which had the
greatest effect on: the overall audit strategy, the allocation of resources in the audit; and directing the efforts of the engagement team. These matters were
addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion
on these matters.
Key audit matter
How our scope addressed this matter
Impairment of intangible assets in MuCell Extrusion LLC
(“MuCell”):
The consolidated statement of financial position as at
31 December 2022 includes intangible assets with a carrying
value of $7.8m (2021: $6.2m) in respect of the group’s
cash-generating unit, MuCell. These are comprised of
goodwill that arose on the acquisition of MuCell in a previous
accounting period and capitalised development costs
relating to the new MuCell 2.0 technology, ReZorce.
MuCell has historically been loss-making and has continued
to incur losses in 2022. Progress is being made in respect
of the ReZorce technology, which is seeking to be a new,
breakthrough product for an established packaging market.
Per IAS 36
Impairment of Assets
, goodwill is required to be
tested for impairment annually. Other intangible assets are
required to be tested for impairment when an indication of
impairment exists, and the losses being incurred in MuCell
are an example of a potential impairment trigger.
The impairment reviews undertaken require judgements and
estimates to be made by management.
We have assessed this to be a key audit matter due to the
financial significance of the balance and the level of judgement
and estimation required in considering the recoverable amount
of the intangible assets.
The group’s assessment of the value in use (VIU) of MuCell
involves estimation about the future performance of the
ReZorce technology when fully operational and upon achieving
commercial success. In particular, the determination of the
ReZorce forecasts was sensitive to projected profit before
tax, growth rate, estimated market size, the timeliness of
successful trials and discount rate. Auditing the group’s
annual impairment test was complex and involved significant
auditor judgement, given the estimation uncertainty related to
the significant assumptions described above used in the VIU
models, in addition to the sensitivity of certain VIU models to
fluctuations in those assumptions and tracking the progress
of technology development.
For more details refer to notes 12 and 26.
Our work in this area included:
X
obtaining an understanding of, evaluating the design and implementation of, and
testing the operating effectiveness of controls over the group’s impairment review
process, including management’s controls over the significant assumptions used in
the review
X
reviewing the assumptions used in the model for reasonableness and obtaining
supporting evidence, including internally approved budgets and external data, such
as economic and industry forecasts for the relevant markets, where available. We also
reviewed the assumptions for consistency with evidence obtained from other areas of
our audit
X
performing our own sensitivity analysis on the model to understand the effect that
key assumptions used have on the headroom to the model
X
gaining an understanding of the potential market size for the ReZorce product,
management’s strategy to break into the market and potential customer appetite
for ReZorce
X
challenging management on the development of ReZorce and obtaining an in-depth
understanding of the status of ongoing trials with key customers
X
obtaining and reviewing the asset purchase agreements relating to the acquisition
of the assets of ReFour, a company incorporated in Denmark, which management
expects will result in the acceleration of the development activities of MuCell, to ensure
appropriate accounting of the transaction
X
gaining an understanding of management’s plan for the utilisation of ReFour assets
and how the assets are to be utilised for supporting development activities of
MuCell technology
X
ensuring that there are no indicators of impairment to the technology as per
IAS 36 and that the asset is not carried in the financial statements at more than
its recoverable amount.
Key observations
During the year, the parent company has engaged with companies specialising in
products that can use ReZorce technology. Activities have expanded to new locations
with the ReFour acquisition and this is assisting in accelerating development and
product testing.
Based on management’s impairment assessment the carrying value of the intangible
asset is reasonable as at 31 December 2022.
Valuation of defined benefit obligation
The liabilities relating to the group’s closed defined benefit
pension scheme totalled £3,290k at 31 December 2022,
representing 5% of total liabilities on the consolidated
statement of financial position. The valuation of the scheme’s
liabilities requires management to use their judgement in
making several highly sensitive assumptions, being the
rate of inflation Consumer Price Index (CPI) and Retail Price
Index (RPI), the discount rate and the life expectancy of the
scheme members.
Given the financial significance and the inherent judgements
and estimates within the calculation, this has been assessed
as a key audit matter.
For more details refer to notes 23 and 26.
Our work in this area included:
X
an assessment of the independence and competence of management’s actuary to
calculate the pension scheme liability
X
involvement of a valuation specialist in our team to assist with the assessment of
the assumptions used in the actuarial valuation of pension liabilities
X
a comparison of key assumptions against benchmarks performed by the PKF
Actuarial team
X
obtaining confirmations and control reports from the investment manager and
custodian to confirm the existence and accuracy of the pension scheme assets
X
testing employee data used by the actuary
X
tracing contributions and payments/claims paid to the pension fund to
bank statements
X
an assessment of whether adequate disclosures have been included in the annual
report, and whether the accounting treatment of the pension scheme liabilities is
in line with IAS 19
Employee Benefits
.
Key observations
We are satisfied that the overall methodology is appropriate, and the assumptions
applied in relation to determining the pension valuation are within an acceptable range.
Independent auditor’s report to the members of Zotefoams plc
Continued
116
Zotefoams plc
Annual Report 2022
Other information
The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon.
The directors are responsible for the other information contained within the annual report. Our opinion on the group and parent company financial
statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of
assurance conclusion thereon. Our responsibility is to read the other information and, in doing so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge obtained in the course of the audit, or otherwise appears to be materially misstated. If we
identify such material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement
in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact.
We have nothing to report in this regard.
Opinions on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
X
the information given in the strategic report and the directors’ report for the financial year for which the financial statements are prepared is consistent
with the financial statements
X
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.
Matters on which we are required to report by exception
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the course of the audit,
we have not identified material misstatements in the strategic report or the directors’ report.
We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if, in our opinion:
X
adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches
not visited by us; or
X
the parent company financial statements and the part of the directors’ remuneration report to be audited are not in agreement with the accounting
records and returns; or
X
certain disclosures of directors’ remuneration specified by law are not made; or
X
we have not received all the information and explanations we require for our audit.
Corporate governance statement
We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance statement relating
to the group’s and parent company’s compliance with the provisions of the UK Corporate Governance Code specified for our review by the Listing Rules.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate Governance statement is
materially consistent with the financial statements or our knowledge obtained during the audit:
X
Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set
out on page 38 and note 2.1i of this annual report;
X
Directors’ explanation as to their assessment of the group’s prospects, the period this assessment covers and why the period is appropriate set out on
page 51 of this annual report;
X
Directors’ statement on whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities set out on
page 38, 51 and note 2.1i of this annual report;
X
Directors’ statement that they consider the annual report and the financial statements, taken as a whole, to be fair, balanced and understandable set
out on page 113 of this annual report;
X
the Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 82 of this annual report;
X
the section that describes the review of effectiveness of risk management and internal control systems set out on page 82 of this annual report;
X
the section describing the work of the audit committee set out on page 83 to 85 of this annual report.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the group and parent company
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Strategic Report
Governance
Financial Statements
117
Zotefoams plc
Annual Report 2022
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud, is detailed below.
X
We obtained an understanding of the group and parent company and the sector in which they operate to identify laws and regulations that could
reasonably be expected to have a direct effect on the financial statements. We obtained our understanding in this regard through discussions with
management, internal audit, those responsible for legal and compliance procedures, the company secretary and through application of cumulative
audit knowledge and experience of the sector. We corroborated our enquiries through our review of board minutes and papers provided to the
Audit Committee, correspondence received from regulatory bodies and attendance at all meetings of the Audit Committee, as well as consideration
of the results of our audit procedures across the group and parent company.
X
We determined the principal laws and regulations relevant to the group and parent company in this regard to be those arising from Listing Rules,
Companies Act 2006, Disclosure and Transparency Rules, UK Corporate Governance Code, The Chemicals (Hazard Information and Packaging for
Supply) (Amendment) Regulations 2008, The Institution of Chemical Engineers (CA) Order 2004, The Offshore Chemical Regulations 2002, The Export
and Import of Dangerous Chemicals Regulations 2005, Industry and Exports (Financial Support) Act 2009, Export Control Act 2002, Import and Export
Control Act 1990, The Consumer Protection Act 1987, Anti-money laundering regulations, EU Registration, Evaluation, Authorisation and Restriction
of Chemicals regulations, Pressure Systems Safety Regulations 2000 and The UK Chemical Industries Association regulations GDPR.
X
Our audit procedures were designed to ensure that the audit team considered whether there were any indications of non-compliance by the group and
parent company with those laws and regulations. The group and parent company are subject to laws and regulations that directly affect the financial
statements including financial reporting legislation, pensions legislation, distributable profits legislation, and taxation legislation and we assessed the
extent of compliance with these laws and regulations as part of our procedures on the related financial statement items.
X
In addition, the group and parent company are subject to many other laws and regulations where the consequences of non-compliance could have a
material effect on amounts or disclosures in the financial statements, for instance through the imposition of fines or litigation. We identified the following
areas as those most likely to have such an effect: health and safety; various regulation around the handling of chemicals and general environmental
protection legislation; fraud; bribery and corruption; export control; Consumer Rights Act; and employment law recognising the nature of the group and
parent company’s activities. Our audit procedures to identify non-compliance with these laws and regulations included enquiry of the directors and
other management and inspection of regulatory and legal correspondence, if any.
X
We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting with
management and reviewing the risk and uncertainties committee minutes to understand where it considered there was susceptibility to fraud. We also
considered performance targets and their propensity to influence on efforts made by management to manage earnings. We considered controls that
the group has established to address risks identified, or that otherwise prevent, deter and detect fraud; and how senior management monitors those
programmes and controls. Where the risk was considered to be higher, we performed audit procedures to address each identified fraud risk.
X
As in all of our audits, we addressed the risk of fraud arising from management override of controls by performing audit procedures which included, but
were not limited to: the testing of journals with a focus on manual consolidation journals and journals indicating large or unusual transactions based on our
understanding of the business; reviewing accounting estimates for evidence of bias; reviewing minutes of meetings of those charged with governance
and internal audit reports; and evaluating the business rationale of any significant transactions that are unusual or outside the normal course of business.
X
Because of the inherent limitations of an audit, there is a risk that we will not detect all irregularities, including those leading to a material misstatement in the
financial statements or non-compliance with regulation. This risk increases the more that compliance with a law or regulation is removed from the events
and transactions reflected in the financial statements, as we will be less likely to become aware of instances of non-compliance. The risk is also greater
regarding irregularities occurring due to fraud rather than error, as fraud involves intentional concealment, forgery, collusion, omission or misrepresentation.
Other matters which we are required to address
We were appointed by the Audit Committee on 6 October 2020 to audit the financial statements for the period ending 31 December 2020 and
subsequent financial periods. Our total uninterrupted period of engagement is three years, covering the periods ending 31 December 2020 to
31 December 2022.
The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain independent of
the group and the parent company in conducting our audit.
Our audit opinion is consistent with the additional report to the audit committee.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work
has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor’s report and for no
other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone, other than the company and the company’s
members as a body, for our audit work, for this report, or for the opinions we have formed.
Joseph Archer (Senior Statutory Auditor)
For and on behalf of PKF Littlejohn LLP
Statutory Auditor
15 Westferry Circus
Canary Wharf
London E14 4HD
4 April 2023
Independent auditor’s report to the members of Zotefoams plc
Continued
118
Zotefoams plc
Annual Report 2022
Consolidated income statement
For the year ended 31 December 2022
Note
2022
£’000
2021
£’000
Revenue
3
Cost of sales
(88,639 )
(74,184 )
Gross profit
Distribution costs
(8,037 )
(7,316 )
Administrative expenses
(16,762 )
(11,117 )
Operating profit
Finance costs
6
(1,814 )
(1,116 )
Finance income
6
Share of profit/(loss) from joint venture
9
(20 )
Profit before income tax
Income tax expense
7
(2,217 )
(2,632 )
Profit for the year
Profit attributable to:
Equity holders of the Company
Earnings per share:
Basic (p)
8
Diluted (p)
8
All activities of the Group are continuing.
The notes on pages 127 to 165 form an integral part of these financial statements.
The Company has elected to take the exemption under section 408 of the Companies Act 2006 from presenting the Company income statement and
other comprehensive income.
Company number: 2714645
Strategic Report
Governance
Financial Statements
119
Zotefoams plc
Annual Report 2022
Consolidated statement
of comprehensive income
For the year ended 31 December 2022
Note
2022
£’000
2021
£’000
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains on defined benefit pension schemes
23
Tax relating to items that will not be reclassified
(146 )
(444 )
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation gains/(losses) on investments in foreign subsidiaries
(96 )
Change in fair value of hedging instruments
(3,025 )
(344 )
Hedging gains/(losses) reclassified to profit or loss
(1,251 )
Tax relating to items that may be reclassified
Total items that may be reclassified subsequently to profit or loss
(1,315 )
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the Company
Total comprehensive income for the year
The notes on pages 127 to 165 form an integral part of these financial statements.
120
Zotefoams plc
Annual Report 2022
Consolidated statement
of financial position
As at 31 December 2022
Note
2022
£’000
2021
£’000
Non-current assets
Property, plant and equipment
10
Right-of-use assets
11
Intangible assets
12
Investment in joint venture
9
Trade and other receivables
15
Deferred tax assets
19
Total non-current assets
Current assets
Inventories
14
Trade and other receivables
15
Derivative financial instruments
21
Cash and cash equivalents
16
Total current assets
Total assets
Current liabilities
Trade and other payables
17
(13,500 )
(9,242 )
Derivative financial instruments
21
(1,550 )
(600 )
Current tax liability
(226 )
(83 )
Lease liabilities
11
(509 )
(486 )
Interest-bearing loans and borrowings
18
(37,446 )
(26,564 )
Total current liabilities
(53,231 )
(36,975 )
Non-current liabilities
Lease liabilities
11
(454 )
(643 )
Interest-bearing loans and borrowings
18
(14,710 )
Deferred tax liabilities
19
(3,846 )
(3,155 )
Post-employment benefits
23
(3,290 )
(4,657 )
Total non-current liabilities
(7,590 )
(23,165 )
Total liabilities
(60,821 )
(60,140 )
Total net assets
Equity
Issued share capital
20
Share premium
20
Own shares held
(5 )
(10 )
Capital redemption reserve
Translation reserve
Hedging reserve
(285 )
(310 )
Retained earnings
Total equity
The notes on pages 127 to 165 form an integral part of these financial statements.
G C McGrath
Company number: 2714645
Strategic Report
Governance
Financial Statements
121
Zotefoams plc
Annual Report 2022
Company statement
of financial position
As at 31 December 2022
Note
2022
£’000
2021
£’000
Non-current assets
Property, plant and equipment
10
40,838
41,401
Right-of-use assets
11
347
519
Intangible assets
12
641
1,010
Investments in subsidiaries
13
30,822
30,822
Trade and other receivables
15
122
11
Total non-current assets
72,770
73,763
Current assets
Inventories
14
18,732
18,695
Trade and other receivables
15
57,526
54,337
Derivative financial instruments
21
486
173
Cash and cash equivalents
16
7,288
5,034
Total current assets
84,032
78,239
Total assets
156,802
152,002
Current liabilities
Trade and other payables
17
(10,039)
(6,667)
Derivative financial instruments
21
(1,550)
(600)
Current tax liability
(75)
–
Lease liabilities
11
(245)
(251)
Interest-bearing loans and borrowings
18
(37,446)
(26,564)
Total current liabilities
(49,355)
(34,082)
Non-current liabilities
Lease liabilities
11
(101)
(274)
Interest-bearing loans and borrowings
18
–
(14,710)
Deferred tax liabilities
19
(3,846)
(3,155)
Post-employment benefits
23
(3,290)
(4,657)
Total non-current liabilities
(7,237)
(22,796)
Total liabilities
(56,592)
(56,878)
Total net assets
100,210
95,124
Equity
Issued share capital
20
2,431
2,431
Share premium
20
44,178
44,178
Capital redemption reserve
15
15
Hedging reserve
(285)
(310)
Retained earnings
53,871
48,810
Total equity
100,210
95,124
The notes on pages 127 to 165 form an integral part of these financial statements.
The financial statements on pages 119 to 126 were authorised for issue by the Board of Directors on 4 April 2023 and were signed on its behalf by:
G C McGrath
Group CFO
Company number: 2714645
122
Zotefoams plc
Annual Report 2022
Consolidated statement
of cash flows
For the year ended 31 December 2022
Note
2022
£’000
2021
£’000
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
10,11,12
Disposal of assets
4
Finance costs
6
Share of (profit)/loss from joint venture
9
(50 )
Net exchange differences
Equity-settled share-based payments
24
Taxation
7
Operating profit before changes in working capital and provisions
Increase in trade and other receivables
(4,818 )
(1,636 )
Decrease/(increase) in inventories
(2,843 )
Increase in trade and other payables
Employee defined benefit contributions
23
(859 )
(779 )
Cash generated from operations
Interest paid
(1,255 )
(789 )
Income taxes paid, net of refunds
(659 )
(1,087 )
Net cash flows generated from operating activities
Cash flows from investing activities
Interest received
6
Interest paid
6
(32 )
Purchases of intangibles
12
(1,724 )
(1,069 )
Proceeds from disposal of property, plant and equipment
Purchases of property, plant and equipment
(5,368 )
(6,002 )
Net cash used in investing activities
(7,036 )
(7,004 )
Cash flows from financing activities
Proceeds from exercise of share options
Repayment of borrowings
(50,883 )
(7,739 )
Proceeds from borrowings
Payment of principal portion of lease liabilities
11
(499 )
(543 )
Dividends paid to equity holders of the Company
8
(3,188 )
(3,074 )
Net cash used in financing activities
(11,526 )
(4,342 )
Net increase/(decrease) in cash and cash equivalents
(428 )
Cash and cash equivalents at 1 January
Exchange gains/(losses) on cash and cash equivalents
(20 )
Cash and cash equivalents at 31 December
16
Cash and cash equivalents comprise cash at bank and short-term highly liquid investments with a maturity date of less than three months, per the
breakdown in note 21.
assets under IAS 23 “Capitalisation of Borrowing Costs”. The interest paid has been split between operating activities of £1,255 k (2021: £789 k) and
The net exchange differences of £871 k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts
in the income statement (2021: £376 k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 127 to 165 form an integral part of these financial statements.
Strategic Report
Governance
Financial Statements
123
Zotefoams plc
Annual Report 2022
Company statement
of cash flows
For the year ended 31 December 2022
Note
2022
£’000
2021
£’000
Cash flows from operating activities
Profit for the year
7,010
6,038
Adjustments for:
Depreciation and amortisation
10,11,12
4,166
4,185
Disposal of assets
212
105
Finance costs
1,119
628
Net exchange differences
3,880
(438)
Equity-settled share-based payments
24
809
360
Taxation
1,942
2,608
Operating profit before changes in working capital and provisions
19,138
13,486
Increase in trade and other receivables
(4,258)
(2,536)
Increase in inventories
(37)
(1,841)
Increase in trade and other payables
3,505
572
Employee defined benefit contributions
23
(859)
(779)
Cash generated from operations
17,489
8,902
Interest paid
(1,251)
(783)
Income taxes paid, net of refunds
(534)
(981)
Net cash flows generated from operating activities
15,704
7,138
Cash flows from investing activities
Interest paid
–
(32)
Loans repaid by/(given to) subsidiaries, net of prepayments
1,174
(1,334)
Purchases of intangibles
12
(149)
(132)
Purchases of property, plant and equipment
(3,183)
(2,831)
Net cash used in investing activities
(2,158)
(4,329)
Cash flows from financing activities
Proceeds from exercise of share options
–
40
Repayment of borrowings
(50,883)
(7,739)
Proceeds from borrowings
43,044
6,974
Payment of principal portion of lease liabilities
(265)
(304)
Dividends paid to equity holders of the Company
8
(3,188)
(3,074)
Net cash used in financing activities
(11,292)
(4,103)
Net increase/(decrease) in cash and cash equivalents
2,254
(1,294)
Cash and cash equivalents at 1 January
5,034
6,328
Cash and cash equivalents at 31 December
16
7,288
5,034
Cash and cash equivalents comprise cash at bank and short-term highly liquid investments with a maturity date of less than three months, per the
breakdown in note 21.
During the year, the Company paid interest of £1,251k, of which it capitalised £nil (2021: paid interest of £815k, of which it capitalised £32k) on qualifying
assets under IAS 23 “Capitalisation of Borrowing Costs”. The interest paid has been split between operating activities of £1,251k (2021: £783k) and
investing activities of £nil (2021: £32k) to reflect the Group’s utilisation of the interest paid.
The net exchange differences of £3,880k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts
in the income statement (2021: £438k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 127 to 165 form an integral part of these financial statements.
124
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Annual Report 2022
Consolidated statement
of changes in equity
For the year ended 31 December 2022
Note
Share
capital
£’000
Share
premium
£’000
Own
shares
held
£’000
Capital
redemption
reserve
£’000
Translation
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance as at 1 January 2021
(23 )
Profit for the year
Other comprehensive income for the year
Foreign exchange translation losses on investment
in subsidiaries
(96 )
(96 )
Change in fair value of hedging instruments
recognised in other comprehensive income
(344 )
(344 )
Reclassification to income statement –
administrative expenses
(1,251 )
(1,251 )
Tax relating to effective portion of changes in
fair value of cash flow hedges, net of recycling
Actuarial gain on defined benefit pension scheme
23
Tax relating to actuarial gain on defined benefit
pension scheme
(444 )
(444 )
Total comprehensive income for the year
(96 )
(1,219 )
Transactions with owners of the Parent
Options exercised
Equity-settled share-based payments net of tax
Dividends paid
8
(3,074 )
(3,074 )
Total transactions with owners of the Parent
(2,748 )
(2,735 )
Balance as at 31 December 2021
(10 )
(310 )
Balance as at 1 January 2022
(10 )
(310 )
Profit for the year
Other comprehensive income for the year
Foreign exchange translation losses on investment
in subsidiaries
Change in fair value of hedging instruments
recognised in other comprehensive income
(3,025 )
(3,025 )
Reclassification to income statement –
administrative expenses
Tax relating to effective portion of changes in
fair value of cash flow hedges, net of recycling
Actuarial gain on defined benefit pension scheme
23
Tax relating to actuarial gain on defined benefit
pension scheme
(146 )
(146 )
Total comprehensive income for the year
Transactions with owners of the Parent
Options exercised
(5 )
Equity-settled share-based payments net of tax
Dividends paid
8
(3,188 )
(3,188 )
Total transactions with owners of the Parent
(2,392 )
(2,387 )
Balance as at 31 December 2022
(5 )
(285 )
The aggregate current and deferred tax relating to items that are credited to equity is £31k (2021: debited £129k).
The notes on pages 127 to 165 form an integral part of these financial statements.
Strategic Report
Governance
Financial Statements
125
Zotefoams plc
Annual Report 2022
Company statement
of changes in equity
For the year ended 31 December 2022
Note
Share
capital
£’000
Share
premium
£’000
Capital
redemption
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
Balance as at 1 January 2021
2,431
44,178
15
909
42,434
89,967
Profit for the year
–
–
–
–
6,038
6,038
Other comprehensive income for the year
Change in fair value of hedging instruments recognised in other
comprehensive income
–
–
–
(344)
–
(344)
Reclassification to income statement – administrative expenses
–
–
–
(1,251)
–
(1,251)
Tax relating to effective portion of changes in fair value of cash flow hedges,
net of recycling
–
–
–
376
–
376
Actuarial gain on defined benefit pension scheme
23
–
–
–
–
3,517
3,517
Tax relating to actuarial gain on defined benefit pension scheme
–
–
–
–
(444)
(444)
Total comprehensive income for the year
–
–
–
(1,219)
9,111
7,892
Transactions with owners
Options exercised
–
–
–
–
40
40
Equity-settled share-based payments net of tax
–
–
–
–
299
299
Dividends paid
8
–
–
–
–
(3,074)
(3,074)
Total transactions with owners
–
–
–
–
(2,735)
(2,735)
Balance as at 31 December 2021
2,431
44,178
15
(310)
48,810
95,124
Balance as at 1 January 2022
2,431
44,178
15
(310)
48,810
95,124
Profit for the year
–
–
–
–
7,010
7,010
Other comprehensive income for the year
Change in fair value of hedging instruments recognised in other
comprehensive income
–
–
–
(3,025)
–
(3,025)
Reclassification to income statement – administrative expenses
–
–
–
2,865
–
2,865
Tax relating to effective portion of changes in fair value of cash flow hedges,
net of recycling
–
–
–
185
–
185
Actuarial gain on defined benefit pension scheme
23
–
–
–
–
584
584
Tax relating to actuarial gain on defined benefit pension scheme
–
–
–
–
(146)
(146)
Total comprehensive income for the year
–
–
–
25
7,448
7,473
Transactions with owners
Options exercised
–
–
–
–
–
–
Equity-settled share-based payments net of tax
–
–
–
–
801
801
Dividends paid
8
–
–
–
–
(3,188)
(3,188)
Total transactions with owners
–
–
–
–
(2,387)
(2,387)
Balance as at 31 December 2022
2,431
44,178
15
(285)
53,871
100,210
The aggregate current and deferred tax relating to items that are credited to equity is £31 k (2021: debited £129 k).
The notes on pages 127 to 165 form an integral part of these financial statements.
126
Zotefoams plc
Annual Report 2022
Notes
listed on the London Stock Exchange and incorporated and domiciled in
“Group”) are engaged in the manufacturing and sale of high-performance
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been
consistently applied to all the years presented, unless otherwise stated.
prepared in accordance with UK adopted International Accounting
Standards (“UK adopted IAS”) and as applied in accordance with the
statements have been prepared under the historical cost convention
except for derivative financial instruments, which are measured at fair
value through profit or loss.
The preparation of financial statements in conformity with UK adopted
IAS requires the use of certain critical accounting estimates. It also
requires management to exercise its judgement in the process of applying
the Group’s accounting policies. The areas involving a higher degree of
judgement or complexity, or areas where assumptions and estimates are
significant to the financial statements, are disclosed in note 26.
The Group’s business activities, together with the factors likely to affect its
future development, performance and position, are set out in the Strategic
Report on pages 1 to 77 and the section entitled “Risk management
and principal risks” on pages 39 to 50. These also describe the financial
position of the Group, its cash flows and liquidity position. In addition,
note 21 to the financial statements includes the Group’s objectives, policies
and processes for managing its capital, its financial risk management
objectives, details of its financial instruments and hedging activities,
borrowing facilities, and its exposure to credit risk and liquidity risk.
At 31 December 2022 , the Group’s gross finance facilities were
£50.0m (2021: £47.3m), consisting entirely of a multi-currency term loan.
At 31 December 2021, the Group’s gross finance facilities consisted of a
multi-currency term loan of £20.0m, a multi-currency revolving credit facility
of £25.0m and a remaining balance of £2.3m of a further £7.5m sterling
annually renewable term loan, repayable in equal quarterly instalments.
In March 2022, the Group completed a retender of its debt facility and
selected Handelsbanken and NatWest, the incumbents, to continue as
its lenders. Under the terms of the new facility, the Group’s gross finance
facility now comprises a £50m multi-currency revolving credit facility with
a £25m accordion, on a 4+1 tenor, with an interest rate ratchet on slightly
improved terms to the previous facility and including an element related
to the achievement of sustainability targets. The finance cost and leverage
covenants remain in place, with the former remaining at a multiple of 4
and the latter increasing to 3.5 from 3.0. In January 2023, the Group
successfully extended the facility by a year in line with the term option,
resulting in an end term date now of March 2027.
The Directors believe that the Group is well placed to manage its business
risks and, after making enquiries including a review of forecasts and
predictions, taking account of reasonably possible changes in trading
performance and considering the existing banking facilities, have a
reasonable expectation that the Group has adequate resources to continue
in operational existence for the next twelve months following the date of
approval of the financial statements. The Directors have also drawn upon
the experiences of reacting to the challenges of COVID-19 through its
safety protocols and cost and cash management, all of which could be
replicated in a similar scenario.
After due consideration of the range and likelihood of potential outcomes,
the Directors continue to adopt the going concern basis of accounting in
The consolidated financial statements comprise the financial statements of
the Company, its subsidiaries and joint ventures as at 31 December 2022.
Subsidiaries are all entities over which the Group has control. The Group
controls an entity when the Group is exposed to, or has rights to, variable
returns from its involvement with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group.
If the Group loses control over a subsidiary, it derecognises the related
assets (including goodwill), liabilities, non-controlling interest and other
components of equity, while any resultant gain or loss is recognised in
ii) Transactions eliminated on consolidation
All intra-group balances and transactions, including any unrealised gains
and losses or income and expenses arising from such transactions,
are eliminated in full on preparing the consolidated financial statements.
Unrealised losses are eliminated in the same way as unrealised gains,
but only to the extent that there is no evidence of impairment. Where
necessary, amounts reported by subsidiaries have been adjusted to
conform with the Group’s accounting policies.
The Group applies IFRS 11 to its joint arrangements. Under IFRS 11,
investments in joint arrangements are classified as either joint operations
or joint ventures, depending on the contractual rights and obligations of
each investor. The Group has assessed the nature of its joint arrangements
and determined them to be joint ventures. Interests in the joint ventures
are accounted for using the equity method, after initially being recognised
iv) Equity method
Under the equity method of accounting, the investment is initially
recognised at cost and the carrying amount is increased or decreased to
recognise the investor’s share of the change in net assets of the investee
after the date of acquisition.
If the ownership interest in the joint venture is reduced but joint control
is retained, only a proportionate share of the amounts previously
recognised in other comprehensive income is reclassified to profit or
loss where appropriate.
The Group’s share of post-acquisition profit or loss is recognised in the
income statement, and its share of post-acquisition movements in other
comprehensive income is recognised with a corresponding adjustment to
the carrying value of the investment. Where the Group’s share of losses in
the joint venture equals or exceeds its interest in the joint venture, including
any other unsecured receivables, the Group does not recognise further
losses unless it has incurred legal or constructive obligations or made
payments on behalf of the joint venture. Distributions received from the
joint venture reduce the carrying value of the investment.
The Group determines at each reporting date whether there is any
objective evidence that the investment in the joint venture is impaired.
If this is the case, the Group calculates the amount of impairment as the
difference between the recoverable amount of the joint venture and its
carrying value, and recognises the amount adjacent to “share of profit/
(loss) of joint venture” in the income statement.
Gains and losses resulting from upstream and downstream transactions
between the Group and the joint venture are recognised in the Group’s
financial statements only to the extent of an unrelated investor’s interests
in the joint venture. Unrealised losses are eliminated unless the transaction
provides evidence of an impairment of the asset transferred. Accounting
policies of the joint venture have been aligned where necessary to ensure
consistency with the policies adopted by the Group.
Strategic Report
Governance
Financial Statements
127
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
Business combinations are accounted for using the acquisition method
as at the acquisition date, which is the date on which control is transferred
to the Group. Control is the power to govern the financial and operating
policies of an entity so as to obtain benefits from the activities. In assessing
control, the Group takes into consideration potential voting rights that are
currently exercisable.
The Group measures goodwill at the acquisition date as:
X
the fair value of the consideration transferred; plus
X
the recognised amount of any non-controlling interests in the
acquiree; plus
X
if the business combination is achieved in stages, the fair value
remeasured at acquisition date of the existing interest in the
acquiree; less
X
the net recognised amount of the identifiable assets acquired and
liabilities assumed.
Goodwill is initially measured at cost. After initial recognition, goodwill
is measured at cost less any accumulated impairment losses. For
the purpose of impairment testing, goodwill acquired in a business
combination is, from the acquisition date, allocated to each of the
Group’s cash-generating units (CGUs) that are expected to benefit
from the combination, irrespective of whether other assets or liabilities
of the acquiree are assigned to those units.
Where goodwill has been allocated to a CGU and part of the operation
within that unit is disposed of, the goodwill associated with the disposed
operation is included in the carrying amount of the operation when
determining the gain or loss on disposal. Goodwill disposed of in these
circumstances is measured based on the relative values of the disposed
operation and the portion of the CGU retained.
The cost of an acquisition is measured as the aggregate of the
consideration transferred, which is measured at fair value at the acquisition
date. When the excess is negative, a bargain purchase gain is recognised
immediately in the income statement. The consideration transferred does
not include amounts related to the settlement of pre-existing relationships.
Such amounts are generally recognised in the income statement. Costs
related to the acquisition, other than those associated with the issue
of debt or equity securities, that the Group incurs in connection with a
business combination are expensed as incurred.
When share-based payment awards (replacement awards) are required
to be exchanged for awards held by the acquiree employees (acquiree
awards) and relate to past services, then all or a portion of the amount
of the acquirer replacement awards are included in measuring the
consideration transferred in the business combination. This determination
is based on the market-based value of the replacement awards compared
with the market-based value of the acquiree awards and the extent to
vi) Investments in subsidiaries and joint arrangements
The Company’s investments in subsidiaries and joint arrangements are
The Group’s consolidated financial statements are presented in sterling,
which is the Group’s functional currency. For each entity, the Group
determines the functional currency, and items included in the financial
statements of each entity are measured using that functional currency.
The Group uses the direct method of consolidation and, on disposal
of a foreign operation, the gain or loss that is reclassified to profit or loss
reflects the amount that arises from using this method.
The Company’s financial statements are prepared and presented in
ii) Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of the transactions or
valuation (where items are remeasured). Monetary assets and liabilities
denominated in foreign currencies are translated at the functional currency
spot rates of exchange at the reporting date. Foreign exchange gains
and losses resulting from the settlement of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement,
except when deferred in other comprehensive income as qualifying cash
flow hedges. All foreign exchange gains and losses are presented in the
income statement within administrative expenses.
Translation differences related to items classified through other
comprehensive income are recognised in other comprehensive income
(OCI), while remaining translation differences are recognised in the
income statement.
Non-monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rates at the dates of the
initial transactions. Non-monetary items measured at fair value in a foreign
currency are translated using the exchange rates at the date when the fair
value is determined. The gain or loss arising on translation of non-monetary
items measured at fair value is treated in line with the recognition of the gain
or loss on the change in fair value of the item (i.e. translation differences on
items whose fair value gain or loss is recognised in OCI or profit or loss are
also recognised in OCI or profit or loss respectively).
In determining the spot exchange rate to use on initial recognition of
the related asset, expense or income (or part of it) or the derecognition
of a non-monetary asset or non-monetary liability relating to advance
consideration, the date of the transaction is the date on which the Group
initially recognises the non-monetary asset or non-monetary liability arising
from the advance consideration. If there are multiple payments or receipts
in advance, the Group determines the transaction date for each payment
or receipt of advance consideration.
iii) Group companies
The results and financial position of all the Group entities (none of which
has the currency of a hyper-inflationary economy) that have a functional
currency different from the presentation currency are translated into the
presentation currency as follows:
X
assets and liabilities of foreign operations are translated at the closing
rate of exchange prevailing at the reporting date
X
income and expenses for each income statement are translated
at average exchange rates (unless this average is not a reasonable
approximation of the cumulative effect of the rates prevailing on the
transaction dates, in which case income and expenses are translated
at the rate on the dates of each transaction).
All resulting exchange differences are recognised in other comprehensive
income. On disposal of a foreign operation, the component of OCI relating
to that particular foreign operation is reclassified to profit or loss.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity, and they are
translated at the closing rate. Exchange differences arising are recognised
The Group uses derivative financial instruments to hedge its exposure to
foreign currency risks arising from operational, financing and investment
activities. The Group does not hold or issue derivative financial instruments
for trading purposes. However, derivatives that do not qualify for hedge
accounting are accounted for as trading instruments.
Derivatives are initially recognised at fair value on the date when a derivative
contract is entered into, and they are subsequently remeasured at their
fair value. Derivatives are carried as financial assets when the fair value
is positive and as financial liabilities when the fair value is negative. The
method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument and, if so, the nature of
the item being hedged. The Group designates all derivatives as hedges of
a particular risk associated with a recognised asset or liability or a highly
probable forecast transaction (cash flow hedge).
Notes
Continued
128
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
At the inception of the transaction, the Group designates and documents
the relationship between hedging instruments and hedged items, as well
as its risk management objectives and strategy for undertaking various
hedging transactions. The Group also documents its assessment, both at
hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes
in fair values or cash flows of hedged items.
The fair values of various derivative instruments used for hedging purposes
are disclosed in note 21. The full fair value of a hedging derivative is
classified as a non-current asset or liability where the remaining maturity
of the hedged item is more than twelve months, and as a current asset or
liability where the remaining maturity of the hedged item is less than twelve
months. Trading derivatives are classified as a current asset or liability.
The fair value of forward exchange contracts is their quoted market price
at the statement of financial position date, being the present value of the
quoted forward price.
The effective portion of changes in the fair value of derivatives that
are designated and qualify as cash flow hedges is recognised in the
hedging reserve within equity. The gain or loss relating to the ineffective
portion is recognised immediately in the income statement within
administrative expenses.
When forward contracts are used to hedge forecast transactions, the
Group generally designates only the change in fair value of the forward
contract related to the spot component as the hedging instrument.
Gains or losses relating to the effective portion of the change in the spot
component of the forward contracts are recognised in the cash flow
hedging reserve within equity. The change in the forward element of the
contract that relates to the hedged item (“aligned forward element”) is
recognised within other comprehensive income in the costs of hedging
reserve within equity. In some cases, the entity might designate the full
change in fair value of the forward contract (including forward points)
as the hedging instrument. In such cases, the gains or losses relating
to the effective portion of the change in fair value of the entire forward
contract are recognised in the cash flow hedging reserve within equity.
When a hedging instrument expires or is sold or terminated, or when a
hedge no longer meets the criteria for hedge accounting, any cumulative
deferred gain or loss and deferred costs of hedging in equity at that time
remain in equity until the forecast transaction occurs, resulting in the
recognition of a non-financial asset. When the forecast transaction is
no longer expected to occur, the cumulative gain or loss and deferred
costs of hedging that were reported in equity are immediately reclassified
i) Owned assets
Items of property, plant and equipment are stated at cost or deemed cost
less accumulated depreciation and any impairment losses. Such costs
include those directly attributable to making the asset capable of operating
as intended. The carrying amount of the replaced part is derecognised.
When parts of an item of property, plant and equipment have different
useful lives, those components are accounted for as separate items of
property, plant and equipment.
Subsequent costs are included in the asset’s carrying amount or
recognised as a separate asset, as appropriate, only when it is probable
that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs
and maintenance are charged to the income statement during the financial
year in which they are incurred.
An item of property, plant and equipment and any significant part initially
recognised is derecognised upon disposal (i.e. at the date the recipient
obtains control) or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of the asset
(calculated as the difference between the net disposal proceeds and the
carrying amount of the asset) is included in the statement of profit or loss
when the asset is derecognised.
The cost of assets under construction includes the cost of materials and
direct labour, and any other costs directly attributable to bringing the asset
to a working condition for its intended use.
Land is not depreciated. Depreciation is charged to the income statement
on a straight-line basis over the estimated useful lives of each part of
the item of property, plant and equipment. The estimated useful lives are
as follows:
Buildings
20–40 years
Plant and equipment
5–20 years
Fixtures and fittings
3–5 years
Assets under construction are depreciated from the month in which the
asset is ready for its intended use.
The assets’ residual values and expected useful lives are reviewed,
Expenditure on research activities undertaken with the prospect of gaining
new scientific or technical knowledge and understanding is recognised in
the income statement as an expense as incurred.
Development costs that are directly attributable to the design and testing
of identifiable and unique products controlled by the Group are recognised
as intangible assets where the following criteria are met:
X
it is technically feasible to complete the asset so that it will be available
for use
X
management intends to complete the asset and use or sell it
X
there is an ability to use or sell the asset
X
it can be demonstrated how the asset will generate probable future
economic benefits
X
adequate technical, financial and other resources to complete the
development and to use or sell the asset are available
X
the expenditure attributable to the asset during its development can
be reliably measured.
Directly attributable costs that are capitalised as part of the asset include
the product development employee costs and an appropriate portion of
relevant overheads.
Following initial recognition of the development expenditure as an asset,
the asset is carried at cost less any accumulated amortisation and
accumulated impairment losses. Amortisation of the asset begins when
development is complete, and the asset is available for use. It is amortised
over the period over which future economic benefits are expected to be
derived. Amortisation is recorded in cost of sales. During the period of
development, the asset is tested for impairment annually.
Other development expenditures that do not meet these criteria
are recognised as an expense as incurred. Development costs
previously recognised as an expense are not recognised as an asset
Goodwill represents the excess of the cost of acquisition over the fair value
of the Group’s interest in the identifiable assets, liabilities and contingent
liabilities acquired in a business combination. Goodwill is stated at the
amount recognised on the date of acquisition less any accumulated
impairment losses. Goodwill is tested annually for impairment or more
iii) Software
Acquired computer software licences are capitalised on the basis of
the costs incurred to acquire and bring to use the specific software.
Following initial recognition, items of software are carried at cost less
any accumulated amortisation and accumulated impairment losses.
Strategic Report
Governance
Financial Statements
129
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
iv) Patents
Patents are initially measured at purchase cost and are amortised on a
straight-line basis over their estimated useful economic lives.
Intangible assets acquired from a business combination are capitalised at
fair value as at the date of acquisition and amortised over their estimated
useful economic life. Their carrying value is the fair value at acquisition less
cumulative amortisation and any impairment. An intangible asset acquired
as part of a business combination is recognised outside goodwill if the
asset is separable or arises from contractual or other legal rights and its
fair value can be measured reliably.
Development costs that are directly attributable to the design and
development of internally generated intangible assets controlled by
the Group are recognised when the relevant criteria are met. Internally
generated intangible assets are amortised from the point at which the
asset is ready for use.
Expenditure on internally generated goodwill and brands is recognised in
the income statement as an expense as incurred. Research expenditure
and development expenditure that do not meet the criteria above are
recognised as an expense as incurred. Development costs previously
recognised as an expense are not recognised as an asset in a
vi) Amortisation
The estimated useful lives of the Group’s intangible assets are as follows:
Marketing related
5–15 years
Customer related
2–10 years
Technology related
5–20 years
Software related
3–10 years
Capitalised development
3–10 years, from the date the patent
is granted
Amortisation methods, useful lives and residual values are reviewed at
The Group classifies its financial assets in the following categories:
a) those to be measured subsequently at fair value, and b) those to be
measured at amortised cost.
The classification depends on the purpose for which the financial assets
were acquired. Management determines the classification of its financial
assets at initial recognition.
a) Financial assets measured at fair value through profit or loss
Financial assets measured at fair value through profit or loss are financial
assets held for trading. A financial asset is classified in this category
if acquired principally for the purpose of selling it in the short term.
Derivatives are also categorised as held for trading unless they are
designated as hedges.
b) Financial assets measured at amortised cost
Financial assets measured at amortised cost are held for collection of
contractual cash flows where those cash flows represent solely payments
of principal and interest.
c) Financial assets measured at fair value through other
comprehensive income
Purchases and sales of financial assets measured at fair value through
other comprehensive income are recognised on settlement date with
any change in fair value between trade date and settlement date being
recognised in the fair value through other comprehensive income reserve.
ii) Recognition and measurement
Financial assets not carried at fair value through profit or loss are initially
recognised at fair value plus transaction costs. Financial assets carried
at fair value through profit or loss are initially recognised at fair value,
and transaction costs are expensed in the income statement. Financial
assets are derecognised when the rights to receive cash flows from the
investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Interest income
from financial assets at amortised cost is included in finance income using
the effective interest rate method. Any gain or loss arising on derecognition
is recognised directly in profit or loss and presented in other gains/(losses)
together with foreign exchange gains and losses. Impairment losses are
presented as a separate line item in the statement of profit or loss.
Gains or losses arising from changes in the fair value of the “financial assets
at fair value through profit or loss” category are presented in the income
statement within administrative expenses in the financial year in which
they arise.
iii) Impairment of financial assets carried at amortised cost
The Group assesses on a forward-looking basis the expected credit
losses associated with its debt instruments carried at amortised cost.
The impairment methodology applied depends on whether there has been
a significant increase in credit risk. For trade receivables, the Group applies
the simplified approach permitted by IFRS 9, which requires expected
lifetime losses to be recognised from initial recognition of the receivables.
iv) Derecognition of financial assets
The Group derecognises a financial asset only when the contractual rights
to the cash flows from the asset expire, or when it transfers the financial
asset and substantially all the risks and rewards of ownership of the asset
to another entity. If the Group neither transfers nor retains substantially all
the risks and rewards of ownership and continues to control the transferred
asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains
substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also
Financial liabilities are recognised when the Group becomes party to the
contractual provisions of the instrument. The Group derecognises financial
liabilities when the obligation specified in the contract is discharged,
cancelled or expired. The measurement of financial liabilities depends
on their classification, as follows:
a) Financial liabilities measured at fair value through profit or loss
Financial liabilities that meet the definition of being held for trading are
classified as measured at fair value through profit or loss. Such liabilities are
carried on the balance sheet at fair value with gains or losses recognised in
the income statement. Derivatives, other than those designated as effective
hedging instruments, are included in this category.
b) Financial liabilities measured at amortised cost
All other financial liabilities are initially recognised at fair value, net of directly
attributable transaction costs. For interest-bearing loans and borrowings,
this is typically equivalent to the fair value of the proceeds received, net of
issue costs associated with the borrowing. After initial recognition, other
financial liabilities are subsequently measured at amortised cost using
the effective interest method. Amortised cost is calculated by taking into
account any issue costs and any discount or premium on settlement.
Gains and losses arising on the repurchase, settlement or cancellation of
liabilities are recognised in finance income and finance costs respectively.
Notes
Continued
130
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
vi) Offsetting of financial assets and liabilities
Financial assets and liabilities are presented gross in the balance sheet
unless both of the following criteria are met: the Group currently has a
legally enforceable right to offset the recognised amounts, and the Group
intends to either settle on a net basis or realise the asset and settle the
liability simultaneously. A right of offset is the Group’s legal right to settle an
amount payable to a creditor by applying against it an amount receivable
from the same counterparty. The relevant legal jurisdiction and laws
applicable to the relationships between the parties are considered when
assessing whether a legally enforceable right to offset currently exists.
vii) Current versus non-current classification
The Group classifies assets and liabilities in the statement of financial
position as either current or non-current.
An asset is classified as current when it is:
X
expected to be realised or intended to be sold or consumed in the
normal operating cycle
X
held primarily for the purpose of trading
X
expected to be realised within twelve months after the reporting
period; or
X
cash or cash equivalent unless restricted from being exchanged or used
to settle a liability for at least twelve months after the reporting period.
All other assets are classified as non-current.
A liability is classified as current when it is:
X
expected to be settled in the normal operating cycle
X
held primarily for the purpose of trading
X
due to be settled within twelve months after the reporting period; or
X
there is no unconditional right to defer the settlement of the liability for
at least twelve months after the reporting period.
The terms of the liability that could, at the option of the counterparty,
result in its settlement by the issue of equity instruments do not affect
its classification.
The Group classifies all other liabilities as non-current. Deferred tax assets
Trade receivables are amounts due from customers for goods sold or
services performed in the ordinary course of business. They are generally
due for settlement within 30–90 days and are therefore all classified
as current. Trade receivables are recognised initially at the amount of
consideration that is unconditional, unless they contain significant financing
components, in which case they are recognised at fair value. The Group
holds the trade receivables with the objective of collecting the contractual
cash flows, and so it measures them subsequently at amortised cost using
the effective interest method.
Due to the short-term nature of current receivables, their carrying amount
is considered to be the same as their fair value. Information about the
impairment of trade receivables and the Group’s exposure to credit risk
Inventories are stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary course of
business, less the estimated costs of completion and selling expenses.
In determining the cost of raw materials, consumables and goods
purchased for resale, the weighted average purchase price is used.
The cost of finished goods and work in progress comprises design costs,
raw materials, direct labour, other direct costs and related production
overheads (based on normal operating capacity) but excludes borrowing
costs. For work in progress and finished goods manufactured by the
Group, cost is taken as production cost, which includes an appropriate
Cash and cash equivalents comprise cash balances and short-term
highly liquid investments with an original maturity of three months or less,
that are readily convertible to a known amount of cash and subject to an
The carrying amounts of the Group’s non-financial assets are reviewed
at each statement of financial position date where there is an indication
that the asset may be impaired. If any such indication exists, the asset’s
recoverable amount is estimated (see below).
For goodwill, property, plant and equipment and intangible assets that have
indefinite useful lives or that are not yet available for use, the recoverable
amount is estimated each year at the same time. An impairment loss is
recognised if the carrying amount of an asset or its related CGU exceeds
its estimated recoverable amount.
i) Calculation of recoverable amount
With the exception of the current development investment in ReZorce
®
,
a mono-material barrier technology solution for the packaging industry
that uses MuCell
®
technology, the recoverable amount of an asset or
CGU is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted
to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the
asset or CGU. For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGUs. Subject to an
operating segment ceiling test, for the purposes of goodwill impairment
testing, CGUs to which goodwill has been allocated are aggregated so that
the level at which impairment testing is performed reflects the lowest level
at which goodwill is monitored for internal reporting purposes. Goodwill
acquired in a business combination is allocated to groups of CGUs that
are expected to benefit from the synergies of the combination.
In the case of ReZorce, management judgements based on factors such
as market potential, customer interest, technology development status,
funding capability and Board appetite form the basis for assessing the
recoverable amount.
The Group’s corporate assets do not generate separate cash inflows and
are utilised by more than one CGU. Corporate assets are allocated to
CGUs on a reasonable and consistent basis and tested for impairment as
part of the testing of the CGU to which the corporate asset is allocated.
ii) Impairment losses
Impairment losses are recognised in the income statement. Impairment
losses recognised in respect of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated to the CGU (or group of CGUs),
and then to reduce the carrying amounts of the other assets in the CGU
(or group of CGUs) on a pro rata basis.
iii) Reversal of impairment
An impairment loss in respect of goodwill is not reversed. In respect of
other assets, impairment losses recognised in prior years are assessed at
each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of
Final dividends are recognised as a liability in the financial year in which
they are approved, and the corresponding amount is recognised directly
Strategic Report
Governance
Financial Statements
131
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
Interest-bearing borrowings are recognised initially at fair value less
attributable transaction costs. Subsequent to initial recognition, interest-
bearing borrowings are stated at amortised cost with any differences
between cost and redemption values being recognised in the income
statement over the period of the borrowings on an effective interest basis,
i) Defined contribution plans
A defined contribution plan is a pension plan under which the Group
pays fixed contributions into a separate entity. The Group has no legal or
constructive obligations to pay further contributions if the fund does not
hold sufficient assets to pay all employees the benefits relating to employee
service in the current and prior periods. Obligations for contributions to
defined contribution pension plans are recognised as an expense in the
income statement as incurred.
For defined contribution plans, the Group pays contributions to publicly
or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The Group has no further payment
obligations once the contributions have been paid. The contributions are
recognised as an employee benefit expense when they are due. Prepaid
contributions are recognised as an asset to the extent that a cash refund
or reduction in future payments is available.
ii) Defined benefits plans
A defined benefit plan is a pension plan that is not a defined contribution
plan. Typically, defined benefit plans define an amount of pension benefit
that an employee will receive on retirement, usually dependent on one or
more factors, such as age, years of service and compensation.
The liability recognised in the statement of financial position in respect of
defined benefit pension plans is the present value of the defined benefit
obligation at the end of the financial year, less the fair value of plan assets.
The defined benefit obligation is calculated annually by independent
actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future
cash outflows using AA credit-rated bonds that have terms to maturity
approximating to the terms of the related pension obligation.
The current service cost of the defined benefit plan, recognised in
“staff expenses” in the income statement, except where included in the
cost of an asset, reflects the increase in the defined benefit obligation
resulting from service in the current year, benefit changes, curtailments
and settlements.
Past service costs are recognised immediately in the income statement.
The net interest cost is calculated by applying the discount rate to the net
balance of the defined benefit obligation and the fair value of plan assets.
This cost is included in finance costs in the income statement.
Actuarial gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity in
i) Equity settled transactions
The Company operates a number of equity-settled, share-based
compensation plans, under which the entity receives services from
employees as consideration for equity instruments (share awards) of the
Company. The fair value of the employee services received in exchange
for the grant of the share awards is recognised as an expense. The total
amount of the share award to be valued is determined by reference to
the fair value of the share awards granted:
X
including any market performance conditions (for example, an entity’s
share price)
X
excluding the impact of any service and non-market performance
vesting conditions (for example, profitability, sales growth targets, and
remaining an employee of the entity over a specified time period); and
X
including the impact of any non-vesting conditions (for example,
the requirement for employees to save or hold shares for a specific
period of time).
Where material, share awards granted since 1 January 2006 with
market-based vesting conditions are valued using the Black-Scholes
model. Per the standard, these have no revisions to original estimates.
At the end of each reporting period, the Company revises its estimates
of the number of share awards that are expected to vest based on the
non-market vesting conditions and service conditions. It recognises the
impact of the revision to original estimates, if any, in the income statement,
with a corresponding adjustment to equity.
In addition, in some circumstances, employees might provide services in
advance of the grant date, and so the grant date fair value is estimated
for the purposes of recognising the expense during the period between
service commencement and grant date.
When the share awards vest or are exercised, the Employee Benefit Trust
(EBT) will normally release the shares to the participant. This may involve
selling all, or a portion of, the shares. The proceeds received from the sale,
net of any directly attributable transaction costs, are credited to share
capital (nominal value) and share premium.
Any social security contributions payable in connection with the grant of
the share awards are considered an integral part of the grant itself, and the
charge will be treated as a cash-settled transaction.
ii) Own shares held by the EBT
Transactions of the EBT are treated as being those of the Group and are
therefore reflected in the financial statements. In particular, the EBT’s
purchase and sale of shares in the Company are debited and credited
Trade and other payables are obligations to pay for goods or services that
have been acquired in the ordinary course of business from suppliers.
Trade and other payables are classified as current liabilities if payment
is due within one year or less (or in the normal operating cycle of the
business, if longer). If not, they are presented as non-current liabilities.
Trade and other payables are stated at cost.
Trade and other payables are recognised initially at fair value and
subsequently measured at amortised cost using the effective
General and specific borrowing costs directly attributable to the acquisition,
construction or production of qualifying assets, which are assets that
necessarily take a substantial period of time to get ready for their intended
use or sale, are added to the cost of those assets until such time as the
assets are substantially ready for their intended use or sale.
Investment income earned on the temporary investment of specific
borrowings, pending their expenditure on qualifying assets, is deducted
from the borrowing costs eligible for capitalisation. All other borrowing
costs are recognised in the income statement in the period in which they
Revenue comprises the sale of finished goods (foam), trading goods
(equipment) and licence and royalty income. All these revenue streams
are revenues arising from contracts with customers. The recognition and
measurement principles of IFRS 15 are applied as set out below.
Revenue excludes inter-company revenues and value added taxes and
is stated net of discounts and returns.
Notes
Continued
132
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
i) Sale of finished goods (foam)
Revenue from the sale of foam is recognised when control of the goods
has been transferred to a customer at an amount that reflects the
consideration to which the Group expects to be entitled in exchange for
those goods. This usually occurs when the title passes to the customer,
either on shipment or on receipt of goods by the customer, depending
on agreed trading terms. Payment is due within credit terms which are
consistent with industry practices, with no financing components.
ii) Sale of trading goods (equipment)
Revenue from the sale of equipment is recognised when control of the
goods has been transferred to a customer. This usually occurs when
the title passes to the customer, either on shipment or on receipt of the
goods by the customer, depending on agreed trading terms.
iii) Licence and royalty income
Revenue from usage-based royalties in exchange for a licence of the
Group’s technology is recognised when the performance obligation is
satisfied, which is at the time when the sale or usage occurs. Licence
revenue from contracts, which include a minimum royalty guarantee to
provide use of the Group’s technology, is recognised at a point in time
when the uptake of the minimum royalty becomes unconditional.
Royalty income which does not include a minimum royalty guarantee
The Group leases offices and various equipment. Rental contracts are
typically between two and seven years. Lease terms are negotiated on an
individual basis and contain a wide range of different terms and conditions.
The lease agreements do not impose any covenants, but leased assets
may not be used as security for borrowing purposes.
Leases are recognised as a right-of-use asset and a corresponding liability
at the date at which the leased asset is available for use by the Group.
Each lease payment is allocated between the liability and finance cost.
The finance cost is charged to the income statement over the lease period
to produce a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is depreciated over the
shorter of the asset’s useful life and the lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially measured on a present
value basis. Lease liabilities include the net present value of the following
lease payments:
X
fixed payments (including in-substance fixed payments), less any lease
incentives receivable
X
variable lease payments that are based on an index or a rate
X
the exercise price of a purchase option if the lessee is reasonably certain
to exercise that option
X
payments of penalties for terminating the lease, if the lease term reflects
the lessee exercising that option.
The lease payments are discounted using the Group’s incremental
borrowing rate, being the rate that the Group would have to pay to borrow
the funds necessary to obtain an asset of similar economic environment
within similar terms and conditions. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying value of
lease liabilities is remeasured if there is a modification, a change in the lease
term, a change in the lease payments (e.g. changes to future payments
resulting from a change in an index or rate used to determine such lease
payments) or a change in the assessment of an option to purchase the
underlying asset.
Right-of-use assets are measured at cost comprising the following:
X
the amount of initial measurement of lease liability
X
any lease payments made at or before the commencement date,
less any lease incentives received
X
any initial direct costs
X
restoration costs.
Payments associated with short-term leases and leases of low value are
recognised on a straight-line basis as an expense in the income statement.
Short-term leases are leases with a lease term of twelve months or less.
The tax expense for the period comprises current and deferred tax.
Tax is recognised in the income statement except to the extent that it
relates to items recognised directly in other comprehensive income or
directly in equity, in which case it is recognised in other comprehensive
income or directly in equity respectively.
The current tax charge is calculated on the basis of the tax laws enacted
at the statement of financial position date in the countries where the
Group operates and generates taxable income. Management periodically
evaluates positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation. It establishes
provisions, where appropriate, on the basis of amounts expected to be
paid to the tax authorities.
tax bases of assets and liabilities and their carrying amounts in the financial
statements. However, deferred tax liabilities are not recognised if they arise
from the initial recognition of goodwill; deferred tax is not accounted for
if it arises from the initial recognition of an asset or liability in a transaction
other than a business combination that, at the time of the transaction,
affects neither accounting nor taxable profit or loss. Deferred tax
is determined using tax rates (and laws) that have been enacted or
substantively enacted by the statement of financial position date and
are expected to apply when the related deferred tax asset is realised,
or the deferred tax liability is settled.
Deferred tax assets are recognised only to the extent that it is probable
that future taxable profit will be available against which the temporary
differences can be utilised.
Deferred tax liabilities are provided on taxable temporary differences
arising from investments in subsidiaries and joint arrangements, except for
any deferred tax liability where the timing of the reversal of the temporary
difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.
Deferred tax assets are recognised on deductible temporary differences
arising from investments in subsidiaries and joint arrangements only to
the extent that it is probable that the temporary difference will reverse in
the future and there is sufficient taxable profit available, against which the
temporary difference can be utilised.
Deferred tax assets and liabilities are offset when there is a legally
enforceable right to offset current tax assets against current tax liabilities
and when the deferred tax assets and liabilities relate to income taxes
levied by the same taxation authority on either the same taxable entity or
different taxable entities and there is an intention to settle the balances
Strategic Report
Governance
Financial Statements
133
Zotefoams plc
Annual Report 2022
2. Significant accounting policies (continued)
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares or options are shown in equity as
a deduction, net of tax, from the proceeds.
incremental costs (net of income tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled or reissued.
Where such ordinary shares are subsequently reissued, any consideration received, net of any directly attributable incremental transaction costs and
Exceptional items are disclosed separately in the financial statements where it is necessary to do so to provide further understanding of the financial
performance of the Group. These are items that are material, either because of their size or their nature, or that are non-recurring, and are presented
The IASB and IFRS Interpretations Committee have issued the following standards and interpretations with an effective date of implementation for
accounting periods beginning after the date on which the Group’s financial statements for the current year commenced.
i) New standards and amendments – applicable 1 January 2022
The following standards and interpretations apply for the first time to financial reporting periods commencing on or after 1 January 2022:
Effective for accounting
periods beginning on
or after
Impact
Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16
1 January 2022
None
Reference to the Conceptual Framework – Amendments to IFRS 3
1 January 2022
None
Onerous Contracts: Cost of Fulfilling a Contract – Amendments to IAS 37
1 January 2022
None
Annual Improvements to IFRS Standards 2018–2020
1 January 2022
None
ii) Forthcoming requirements
As at 31 December 2022, the following standards and interpretations had been issued but were not mandatory for annual reporting periods ending on
31 December 2022.
Effective for accounting
periods beginning on
or after
Expected
Impact
IFRS 17 Insurance Contracts
1 January 2023
None
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
1 January 2023
See below
Definition of Accounting Estimates – Amendments to IAS 8
1 January 2023
See below
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS Practice Statement 2
1 January 2023
None
Deferred Tax related to Assets and Liabilities arising from a Single Transaction – Amendments to IAS 12
1 January 2023
None
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
The Group is currently assessing the impact the amendments will have on current practice and whether existing loan agreements may require reclassification.
Definition of Accounting Estimates – Amendments to IAS 8
Notes
Continued
134
Zotefoams plc
Annual Report 2022
The Group’s operating segments are reported in a manner consistent with the internal reporting provided to and regularly reviewed by the Group Chief
Executive Officer, David Stirling, who is considered to be the “chief operating decision maker” for the purpose of evaluating segment performance
and allocating resources. The Group Chief Executive Officer primarily uses a measure of profit for the year (before exceptional items) to assess the
performance of the operating segments.
The Group manufactures and sells high-performance foams and licenses related technology for specialist markets worldwide. The Group’s activities are
categorised as follows:
X
Polyolefin Foams: these foams are made from olefinic homopolymer and copolymer resin. The most common resin used is polyethylene.
X
High-Performance Products (HPP): these foams exhibit high performance on certain key properties, such as improved chemical, flammability,
temperature or energy management performance. Revenue in the segment is currently mainly derived from products manufactured from three main
polymer types: polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and thermoplastic elastomers. Foams are sold under the brand name
ZOTEK
®
, while technical insulation products manufactured from certain materials are branded as T-FIT
®
.
X
MuCell Extrusion LLC (MEL): licenses microcellular foam technology and sells related machinery. It is also currently developing a fully circular solution
for mono-material barrier packaging, which it has branded ReZorce
®
.
Polyolefin Foams
HPP
MEL
Consolidated
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Group revenue
70,123
56,166
54,439
42,294
2,807
2,290
127,369
100,750
Segment profit/(loss) pre-amortisation of acquired intangibles
4,883
684
15,321
8,732
(1,634)
(456)
1
18,570
8,960
1
Amortisation of acquired intangible assets
–
–
–
–
(258)
(232)
1
(258)
(232)
1
Segment profit/(loss)
4,883
684
15,321
8,732
(1,892)
(688)
18,312
8,728
Foreign exchange (losses)/gains
–
–
–
–
–
–
(1,844)
1,168
Unallocated central costs
–
–
–
–
–
–
(2,537)
(1,763)
Operating profit
13,931
8,133
Financing costs
–
–
–
–
–
–
(1,814)
(1,116)
Financing income
–
–
–
–
–
–
56
11
Share of profit/(loss) from joint venture
50
(20)
–
–
–
–
50
(20)
Taxation
–
–
–
–
–
–
(2,217)
(2,632)
Profit for the year
10,006
4,376
Segment assets
116,426
107,633
40,358
40,189
13,165
9,601
169,949
157,423
Unallocated assets
–
–
–
–
–
–
410
492
Total assets
170,359
157,915
Segment liabilities
(39,814)
(40,795)
(15,508)
(15,224)
(1,427)
(883)
(56,749)
(56,902)
Unallocated liabilities
–
–
–
–
–
–
(4,072)
(3,238)
Total liabilities
(60,821)
(60,140)
Depreciation of property, plant and equipment
5,422
4,793
1,079
1,052
369
133
6,870
5,978
Depreciation of right-of-use assets
306
302
70
90
156
133
532
525
Amortisation
386
584
1
144
289
312
248
1
842
1,121
Capital expenditure:
Property, plant and equipment (PPE)
3,584
4,093
888
743
785
1,160
5,257
5,996
Intangible assets
112
98
43
34
1,569
937
1,724
1,069
1
Prior year amortisation of acquired intangibles amended from £194k reported in 2021 to £232k.
Unallocated assets made up of deferred tax assets are £410k for the year (2021: £492k). Unallocated liabilities are made up of corporation tax £226k
(2021: £83k) and deferred tax liabilities £3,846k (2021: £3,155k).
Segment profit/(loss) is made up of operating profit/(loss) before exceptional items, foreign exchange gains/(losses) and unallocated central costs.
Unallocated central costs are not directly attributable to or cannot be allocated to a segment. Hedging gains/(losses) are not allocated to the segment
but are instead recorded under unallocated central costs.
Segment profit/(loss) pre-amortisation only excludes amortisation on acquired intangible assets.
Strategic Report
Governance
Financial Statements
135
Zotefoams plc
Annual Report 2022
3. Segment reporting (continued)
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis but operate from UK, USA, European and Asian locations. In presenting information
on the basis of geographical segments, segmental revenue is based on the geographical location of customers. Segment assets are based on the
geographical location of assets.
United
Kingdom
£’000
Continental
Europe
£’000
North
America
£’000
Rest of
the world
£’000
Total
£’000
For the year ended 31 December 2022
Group revenue from external customers
13,702
32,374
29,127
52,166
127,369
Non-current assets
41,951
20,943
39,869
367
103,130
Capital expenditure – PPE
3,057
559
1,618
23
5,257
For the year ended 31 December 2021
Group revenue from external customers
10,768
28,200
19,959
41,823
100,750
Non-current assets
42,944
19,830
35,521
445
98,740
Capital expenditure – PPE
2,776
798
2,391
31
5,996
Non-current assets do not include deferred tax assets or investments in joint ventures.
Major customer
Revenue from one customer located in ‘Rest of the world’ contributed £42,176k to the Group’s revenue (2021: one customer located in ‘Rest of the world’
contributed £33,850k to the Group’s revenue).
Breakdown of revenues by products and services for the Group:
2022
£’000
2021
£’000
Sale of finished goods (foam)
124,562
98,460
Licence and royalty income
1,528
1,066
Sale of equipment
1,279
1,224
Group revenue
127,369
Notes
Continued
136
Zotefoams plc
Annual Report 2022
£’000
2021
£’000
Included in profit for the year are:
Changes in inventories of finished goods and work in progress
1,926
1,958
Changes in raw materials and consumables used
(1,742)
963
Inventory write-down/(back)
489
(1)
Staff costs (note 5)
29,264
25,196
Operating lease charges (note 11)
185
192
Amortisation (note 12)
842
1,121
Depreciation of PPE and right-of-use assets (note 10 and note 11)
7,402
6,503
Loss on disposal of assets
283
53
Research and development costs expensed
787
806
Development costs capitalised (note 12)
(1,192)
(627)
Net exchange losses/(gains)
1,844
(1,168)
External Auditor’s remuneration:
Group – Fees payable to the Group’s External Auditor and its associates for the audit of the Company and consolidated
financial statements
PKF Littlejohn LLP
224
177
Fees payable to the External Auditor and its associates in respect of other services:
Interim Review fee
18
18
Total cost of sales, distribution costs and administrative expenses
113,438
The monthly average number of people employed by the Group and Company (including Executive Directors) during the year, analysed by category,
was as follows:
Number of employees
Group
Company
2022
2021
2022
2021
Production
280
258
169
166
Maintenance
38
36
25
25
Distribution and marketing
83
87
44
49
Administration and technical
117
115
83
90
518
496
321
330
The aggregate payroll costs of these persons were as follows:
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Wages and salaries*
23,852
20,842
16,048
14,462
Social security costs*
3,228
2,796
1,691
1,495
Share options granted to directors and employees (note 24)
809
360
809
360
Pension costs, including past service costs
1,375
1,198
958
855
29,264
25,196
19,506
17,172
* Net of directly attributable costs capitalised
884
820
337
284
Strategic Report
Governance
Financial Statements
137
Zotefoams plc
Annual Report 2022
5. Staff numbers and expenses (continued)
Details of aggregate Directors’ emoluments are provided below:
2022
£’000
2021
£’000
Aggregate emoluments
994
648
Aggregate gains made on the exercise of share options
83
159
Aggregate amounts receivable under long-term incentive schemes
153
–
Company contribution to money purchase pension scheme
77
71
1,307
878
2022
£’000
2021
£’000
Interest income
56
Finance costs
2022
£’000
2021
£’000
Interest on borrowings
1,714
1,014
Interest on lease liabilities
24
32
Amount capitalised
–
(32)
Finance costs expensed
1,738
1,014
Interest on defined benefit pension obligation (note 23)
76
102
1,814
2022
£’000
2021
£’000
UK corporation tax
1,137
673
Overseas tax
232
79
Adjustment for tax for prior years
44
(272)
Total current tax
1,413
480
Deferred tax
804
2,152
Income tax expense
2,217
2,632
Notes
Continued
138
Zotefoams plc
Annual Report 2022
7. Income tax expense (continued)
Factors affecting the tax charge
The weighted average applicable tax rate for the Group is 19.50% (2021: 18.96%). The main elements of the income tax expense are as follows:
2022
£’000
2021
£’000
Tax reconciliation
Profit before tax
12,223
7,008
Tax at the UK tax rate of 19% (2021: 19%)
2,335
1,332
Effects of:
Expenses not deductible for tax purposes
223
173
Research and development and other tax credits
(115)
(199)
(Utilisation of) tax losses for which no deferred income tax asset recognised
(68)
420
Effect of different overseas tax rates
60
20
Changes in tax rates
206
1,024
Capital allowance super deductions
(146)
(101)
Special Economic Zone Relief (Poland)
(373)
–
Other differences
29
(53)
Adjustments to prior year UK corporation tax charge
66
16
2,217
2,632
The main rate of UK corporation tax substantively enacted for the period was 19%. The Group has not identified any uncertain tax positions as at
31 December 2022 (2021: none).
2022
£’000
2021
£’000
Prior year final dividend of 4.40p (2021: 4.27p) per 5.0p ordinary share
2,131
2,058
Interim dividend of 2.18p (2021: 2.10p) per 5.0p ordinary share
1,057
1,016
Dividends paid during the year
3,188
3,074
The proposed final dividend for the year ended 31 December 2022 of 4.62p per share (2021: 4.40p) is subject to approval by shareholders at the AGM
and has not been recognised as a liability in these financial statements. The proposed dividend would amount to £2,241k if paid to all shareholders on the
Earnings per ordinary share is calculated by dividing consolidated profit after tax attributable to equity holders of the Company of £10,006k (2021: £4,376k) by
the weighted average number of shares in issue during the year and excluding own shares held by the EBT which are administered by independent trustees.
The number of shares held in the trust at 31 December 2022 was 107,130 (2021: 196,888). Distribution of shares from the trust is at the discretion of the
trustees. Diluted earnings per ordinary share adjusts for the potential dilutive effect of share option schemes in accordance with IAS 33 “Earnings per Share”.
2022
2021
Weighted average number of ordinary shares in issue
48,551,379
48,577,945
Adjustments for share options
987,750
755,954
Diluted number of ordinary shares issued
49,539,129
During 2013, the Group entered into joint-venture arrangements with INOAC Corporation. As a result, the Group had a 50% interest in Azote Asia Limited
(a private company incorporated in Hong Kong) and Inoac Zotefoams Korea Limited (incorporated in South Korea). Azote Asia Limited commenced
trading in 2014 and is the exclusive distributor of Zotefoams’ AZOTE
®
products in the Far East. The registered address and principal place of business
is 1318-22, Park-In Commercial Centre, 56 Dundas Street, Kowloon, Hong Kong. Inoac Zotefoams Korea Limited remained non-trading until closure in
2022. As at the end of the year, there were no contingent liabilities or commitments relating to the Group’s interest in the joint venture.
The joint venture has share capital consisting solely of ordinary shares which are held directly by the Group. Azote Asia Limited is a private company and
there is no quoted market price available for its shares.
Strategic Report
Governance
Financial Statements
139
Zotefoams plc
Annual Report 2022
9. Investments in joint venture (continued)
Set out below is the summarised financial information for Azote Asia Limited, which is accounted for using the equity method.
Summarised statement of financial position:
As at 31 December
2022
£’000
2021
£’000
Cash and cash equivalents
664
323
Other current assets (excluding cash)
1,190
1,102
Disposal of Inoac Zotefoams Korea Ltd
(120)
–
Total current assets
1,734
1,425
Financial liabilities (excluding trade payables)
(173)
(79)
Other current liabilities (including trade payables)
(1,256)
(1,021)
Total current liabilities
(1,429)
(1,100)
Net assets
305
325
Summarised statement of comprehensive income:
As at 31 December
2022
£’000
2021
£’000
Revenue
4,382
3,766
Finance costs
–
(2)
Profit/(loss) before tax
100
(41)
Income tax expense
–
–
Profit/(loss) after tax
100
(41)
Other comprehensive income
–
–
Total comprehensive income
100
(41)
Dividend received from joint venture
–
–
The information above reflects the amounts presented in the financial statements of the joint venture. There are no material differences in accounting
policies between the Group and the joint venture.
A reconciliation of the summarised financial information presented to the carrying amount of the interest in the joint venture is provided below:
2022
£’000
2021
£’000
Opening net assets
325
366
Profit/(loss) for the year
100
(41)
Other comprehensive income
–
–
Disposal of Inoac Zotefoams Korea Ltd
(120)
–
Closing net assets
305
325
Interest in joint venture @ 50%
153
163
2022
£’000
2021
£’000
Information of the joint venture
Carrying value at 1 January
163
183
Share of profit/(loss) for the year
50
(20)
Disposal of Inoac Zotefoams Korea Ltd
(60)
–
Carrying value at 31 December
153
Notes
Continued
140
Zotefoams plc
Annual Report 2022
Group
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures and
fittings
£’000
Under
construction
£’000
Total
£’000
Cost
Balance at 1 January 2021
32,793
99,037
4,031
24,733
160,594
Additions
16
404
254
5,322
5,996
Disposals
(88)
(122)
(133)
–
(343)
Transfers
13,346
11,239
(291)
(24,774)
(480)
Effect of movement in foreign exchange
(291)
233
10
(815)
(863)
Balance at 31 December 2021
45,776
110,791
3,871
4,466
164,904
Balance at 1 January 2022
45,776
110,791
3,871
4,466
164,904
Additions
13
441
37
4,766
5,257
Transfers
346
5,699
196
(6,241)
–
Disposals
(535)
(3,336)
(683)
–
(4,554)
Effect of movement in foreign exchange
1,798
4,996
141
57
6,992
Balance at 31 December 2022
47,398
118,591
3,562
3,048
172,599
Accumulated depreciation
Balance at 1 January 2021
12,578
52,195
2,896
–
67,669
Depreciation charge for the year
1,479
4,184
315
–
5,978
Disposals
–
(87)
(114)
–
(201)
Transfers
51
(79)
(125)
–
(153)
Effect of movement in foreign exchange
52
148
10
–
210
Balance at 31 December 2021
14,160
56,361
2,982
–
73,503
Balance at 1 January 2022
14,160
56,361
2,982
–
73,503
Depreciation charge for the year
1,374
5,176
320
–
6,870
Transfers
–
–
–
–
–
Disposals
(521)
(3,139)
(680)
–
(4,340)
Effect of movement in foreign exchange
640
1,521
110
–
2,271
Balance at 31 December 2022
15,653
59,919
2,732
–
78,304
Net book value
At 1 January 2021
20,215
46,842
1,135
24,733
92,925
At 31 December 2021 and 1 January 2022
31,616
54,430
889
4,466
91,401
At 31 December 2022
31,745
58,672
830
3,048
94,295
Depreciation is included in cost of sales in the income statement.
During the year, the Group has capitalised borrowing costs amounting to £nil (2021: £32k) on qualifying assets.
Bank borrowings are secured on property, plant and equipment. Refer to note 18 for details.
Strategic Report
Governance
Financial Statements
141
Zotefoams plc
Annual Report 2022
10. Property, plant and equipment (continued)
Company
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures and
fittings
£’000
Under
construction
£’000
Total
£’000
Cost
Balance at 1 January 2021
24,056
64,242
3,016
3,245
94,559
Additions
–
96
203
2,477
2,776
Disposals
(88)
(78)
(128)
–
(294)
Transfers
104
2,894
(457)
(2,949)
(408)
Balance at 31 December 2021
24,072
67,154
2,634
2,773
96,633
Balance at 1 January 2022
24,072
67,154
2,634
2,773
96,633
Additions
13
21
20
3,003
3,057
Transfers
785
3,393
156
(4,334)
–
Disposals
(535)
(3,337)
(679)
–
(4,551)
Balance at 31 December 2022
24,335
67,231
2,131
1,442
95,139
Accumulated depreciation
Balance at 1 January 2021
7,959
42,501
2,139
–
52,599
Depreciation charge for the year
856
1,901
218
–
2,975
Disposals
–
(78)
(111)
–
(189)
Transfers
50
(49)
(154)
–
(153)
Balance at 31 December 2021
8,865
44,275
2,092
–
55,232
Balance at 1 January 2022
8,865
44,275
2,092
–
55,232
Depreciation charge for the year
847
2,361
200
–
3,408
Transfers
–
–
–
–
–
Disposals
(521)
(3,139)
(679)
–
(4,339)
Balance at 31 December 2022
9,191
43,497
1,613
–
54,301
Net book value
At 1 January 2021
16,097
21,741
877
3,245
41,960
At 31 December 2021 and 1 January 2022
15,207
22,879
542
2,773
41,401
At 31 December 2022
15,144
23,734
518
1,442
Notes
Continued
142
Zotefoams plc
Annual Report 2022
(i) Amounts recognised in the statement of financial position relating to leases:
Right-of-use assets
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Property
574
494
–
–
Equipment
365
610
347
519
939
1,104
347
519
Lease liabilities
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Lease liability falls due within 1 year
509
486
245
251
Lease liability falls due within 1-3 years
454
553
101
274
Lease liability falls due in more than 3 years
–
90
–
–
963
1,129
346
525
Additions to the right-of-use assets during the financial year were £309k (2021: £230k) for the Group and £78k (2021: £28k) for the Company.
(ii) Amounts recognised in the income statement relating to leases:
Amortisation charge of right-of-use assets
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Property
224
194
–
–
Equipment
308
331
250
288
532
525
250
288
Interest expenses (included in finance costs)
24
39
11
17
Expense relating to short-term leases (included in cost of sales and
administrative expenses)
185
192
91
13
Expense relating to leases of low-value assets that are not shown above
as short-term leases (included in administrative expenses)
21
72
21
15
The total cash outflow for leases
499
543
265
Strategic Report
Governance
Financial Statements
143
Zotefoams plc
Annual Report 2022
Group
Marketing
related
£’000
Customer
related
£’000
Technology
related
£’000
Software
related
£’000
Goodwill
£’000
Capitalised
development
£’000
Total
£’000
Cost
Balance at 1 January 2021
232
379
5,026
3,273
2,228
718
11,856
Additions
–
–
277
165
–
627
1,069
Transfer
–
–
–
466
–
14
480
Effect of movement in foreign exchange
3
3
63
(3)
26
12
104
Balance at 31 December 2021
235
382
5,366
3,901
2,254
1,371
13,509
Balance at 1 January 2022
235
382
5,366
3,901
2,254
1,371
13,509
Additions
–
–
378
154
–
1,192
1,724
Disposals
–
–
–
(129)
–
–
(129)
Effect of movement in foreign exchange
29
32
668
8
275
122
1,134
Balance at 31 December 2022
264
414
6,412
3,934
2,529
2,685
16,238
Accumulated amortisation
Balance at 1 January 2021
232
379
2,912
2,355
–
90
5,968
Charge for the year
–
–
194
743
–
184
1,121
Transfer
–
–
–
148
–
5
153
Effect of movement in foreign exchange
3
3
37
–
–
–
43
Balance at 31 December 2021
235
382
3,143
3,246
–
279
7,285
Balance at 1 January 2022
235
382
3,143
3,246
–
279
7,285
Charge for the year
–
–
303
511
–
28
842
Disposals
–
–
–
(120)
–
–
(120)
Effect of movement in foreign exchange
29
32
400
(4)
–
–
457
Balance at 31 December 2022
264
414
3,846
3,633
–
307
8,464
Net book value
At 1 January 2021
–
–
2,114
918
2,228
628
5,888
At 31 December 2021 and 1 January 2022
–
–
2,223
655
2,254
1,092
6,224
At 31 December 2022
–
–
2,566
301
2,529
2,378
7,774
Amortisation is included in cost of sales in the income statement.
Goodwill arising on acquisition is allocated to the CGU that is expected to benefit, this being MEL. The recoverable amount of the CGU has been
determined based on an assessment of the MuCell
®
technology and the potential of the ReZorce mono-material barrier packaging solution.
The business has prepared financial models approved by management which support the carrying value of intangibles. Please see the Group CFO’s
review on page 32 for more detail. The assessment of the potential of ReZorce has been made based on:
X
the technology and current stage of development
X
its link to MuCell technology
X
the potential market size for the solution
X
management plans to access this market
X
potential customer appetite
X
sufficient funding
X
board risk appetite.
Notes
Continued
144
Zotefoams plc
Annual Report 2022
12. Intangible assets (continued)
Company
Customer
related
£’000
Software
related
£’000
Capitalised
development
£’000
Total
£’000
Cost
Balance at 1 January 2021
121
3,271
718
4,110
Additions
–
132
–
132
Transfer
–
393
14
407
Balance at 31 December 2021
121
3,796
732
4,649
Balance at 1 January 2022
121
3,796
732
4,649
Additions
–
149
–
149
Disposals
–
(129)
–
(129)
Balance at 31 December 2022
121
3,816
732
4,669
Accumulated amortisation
Balance at 1 January 2021
121
2,354
89
2,564
Charge for the year
–
737
185
922
Transfer
–
148
5
153
Balance at 31 December 2021
121
3,239
279
3,639
Balance at 1 January 2022
121
3,239
279
3,639
Charge for the year
–
480
28
508
Disposals
–
(119)
–
(119)
Balance at 31 December 2022
121
3,600
307
4,028
Net book value
At 1 January 2021
–
917
629
1,546
At 31 December 2021 and 1 January 2022
–
557
453
1,010
At 31 December 2022
–
216
425
Company
2022
£’000
2021
£’000
Shares in Group undertakings – at cost
30,822
30,822
Strategic Report
Governance
Financial Statements
145
Zotefoams plc
Annual Report 2022
13. Investment in subsidiaries (continued)
The following is a complete list of the subsidiary undertakings of the Company:
Registered office
Ownership
Incorporated in:
Zotefoams International Limited
675 Mitcham Road, Croydon CR9 3AL
100%
Great Britain
Zotefoams Pension Trustees Limited
675 Mitcham Road, Croydon CR9 3AL
100%
Great Britain
Zotefoams Inc (indirectly owned)
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, Delaware
100%
USA
Zotefoams Midwest LLC (indirectly owned)
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, Delaware
100%
USA
MuCell Extrusion LLC (indirectly owned)
Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle, Delaware
100%
USA
Zotefoams Operations Limited (indirectly owned)
675 Mitcham Road, Croydon CR9 3AL
100%
Great Britain
Zotefoams Technology Limited (indirectly owned)
675 Mitcham Road, Croydon CR9 3AL
100%
Great Britain
KZ Trading and Investment Limited (indirectly owned)
15/F OTB Building, 160 Gloucester Road, Hong Kong
100%
Hong Kong
Zotefoams T-FIT Material Technology (Kunshan) Limited
(indirectly owned)
181 Huanlou Road, Kunshan, Jiangsu
100%
China
Zotefoams France SAS (indirectly owned)
29 Boulevard Albert Einstein, Nantes
100%
France
Zotefoams Poland Sp. z.o.o. (indirectly owned)
ul. Grzybowska 2/29, 00-131, Warszawa
100%
Poland
T-FIT Insulation Solutions India Private Limited
(indirectly owned)
335 Udyog Vihar Phase IV Gurgaon, Gurgaon, Haryana 122015
100%
India
Zotefoams Denmark ApS (indirectly owned)
Niels Bohrs Vej 36, 8660 Skanderborg
100%
Denmark
The principal activities of the subsidiary undertakings are as follows:
Zotefoams International Limited is a holding company. Zotefoams Pension Trustees Limited and Zotefoams Technology Limited are currently inactive.
Zotefoams Inc is a wholly owned subsidiary of Zotefoams International Limited and purchases, manufactures and distributes cross-linked block foams.
Zotefoams Midwest LLC, a wholly owned subsidiary of Zotefoams Inc, is a trading company with operations in Oklahoma, USA and supplies specialist
materials, based on AZOTE
®
foams, for the construction industry. MuCell Extrusion LLC, a wholly owned subsidiary of Zotefoams Inc, holds and develops
microcellular foam technology which it licenses to customers and is also developing a mono-material barrier packaging solution branded ReZorce
®
.
Zotefoams Operations Limited, a wholly owned subsidiary of Zotefoams International Limited, is a trading company and distributes T-FIT
®
technical
insulation products. KZ Trading and Investment Limited, a wholly owned subsidiary of Zotefoams International Limited, is a holding and trading company
for Zotefoams T-FIT Material Technology (Kunshan) Limited (previously known as Kunshan Zotek King Lai Limited), which is a trading company based
in Kunshan, China, processing Zotefoams foams into T-FIT technical insulation products and distributing them. Zotefoams France SAS, a wholly owned
subsidiary of Zotefoams International Limited, did not engage in any trading activities in 2022. Zotefoams Poland Sp. z.o.o. is a wholly owned subsidiary of
Zotefoams International Limited which purchases, manufactures and distributes cross-linked block foams. T-FIT Insulation Solutions India Private Limited,
majority owned by Zotefoams International Limited with a one percent shareholding held by Zotefoams Operations Limited in line with local legislation,
distributes T-FIT technical insulation products. Zotefoams Denmark ApS Limited was incorporated in 2022, is a wholly owned subsidiary of Zotefoams
International and engaged in no trading activities during 2022. 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 statement of financial position.
Zotefoams plc Employee Benefit Trust (EBT) is a wholly owned entity with its registered office JTC House, 28 Esplanade, St Helier, Jersey, Channel
Islands, JE2 3QA. The EBT releases shares in the Company when share awards vest or are exercised.
Zotefoams International Limited, Zotefoams Technology Limited and Zotefoams Operations Limited are relying upon the exemption from audit of individual
financial statements as permitted by section 479A of the Companies Act 2006. All outstanding liabilities as at 31 December 2022 of these companies
have been guaranteed by the Company and no liability is expected to arise under this guarantee.
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Raw materials and consumables
12,895
14,637
9,803
11,759
Work in progress
7,645
5,704
6,573
4,342
Finished goods
5,599
5,613
2,356
2,594
26,139
25,954
18,732
18,695
Inventories are shown net of:
Provision for impairment losses
(2,261)
1,772
(1,042)
1,051
In 2022, the value of inventory recognised by the Group as an expense in cost of goods sold was £57,336k (2021: £46,878k).
Notes
Continued
146
Zotefoams plc
Annual Report 2022
14. Inventories (continued)
Movements in the inventory provision during the financial year are set out below:
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Provision for impairment losses as at 1 January
1,772
1,773
1,051
1,100
Inventories written off against provision
(173)
(138)
(144)
(119)
Additional provisions recognised
662
169
135
102
Unused amounts reversed
–
(32)
–
(32)
Provision for impairment losses as at 31 December
2,261
1,772
1,042
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Amounts falling due over one year:
Prepayments and accrued income
122
11
122
11
Amounts falling due within one year:
Trade receivables
25,803
20,885
16,040
14,356
Amounts owed by Group undertakings
–
–
39,787
37,746
Other receivables
1,867
2,438
1,294
1,903
Prepayments and accrued income
1,777
1,015
405
332
29,569
24,349
57,648
Trade receivables are generally on terms of 30 to 90 days.
Amounts owed by Group undertakings are payable on demand. The trading portion does not attract any interest. Unsecured loans provided to Group
undertakings totalling £24,840k (2021: £25,327k) attract an interest charge of 6.10% for loans linked to US dollar, 4.00% for euro and 4.45% for sterling
(2021: 1.73% for loans linked to US dollar, 1.60% for euro and 1.83% for sterling). Bank borrowings are secured on the trade receivables of the Group.
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Cash at bank and in hand
10,594
8,055
7,288
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Trade payables
5,706
4,322
4,672
3,459
Amounts owed to Group undertakings
–
–
30
30
Other taxation and social security
560
921
454
413
Other payables
3,276
1,042
2,119
680
Accruals and deferred income
3,958
2,957
2,764
2,085
13,500
9,242
10,039
Strategic Report
Governance
Financial Statements
147
Zotefoams plc
Annual Report 2022
Note
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Current bank borrowings
37,446
26,564
37,446
26,564
Non-current bank borrowings
–
14,710
–
14,710
21
37,446
41,274
37,446
41,274
In March 2022, the Group completed a debt refinancing and selected Handelsbanken and NatWest, the incumbents, to continue as its lenders. Under the
terms of the new facility, secured against the property, plant and equipment and trade receivables, the Group’s gross finance facility consists of a £50m
multi-currency revolving credit facility with a £25m accordion. With a 4+1 tenor, the extending year option was taken up in January 2023.
At the end of the financial year, the Group has utilised £37.4m (31 December 2021: £41.3m) of its multi-currency revolving credit facility of £50m. The total
amount of £37.4m, repayable on the last day of each loan interest period, which is of either a three- or six-month duration, is net of £0.5m origination fees
paid up front and being amortised over four years. The Group has headroom of £22.9m, being £10.6m cash and cash equivalents, as per note 16, and
the undrawn facility of £12.3m, being the facility of £50m less the drawn-down balance of £37.4m, less £0.3m of exchange rate differences between the
Group and the banks.
The interest rates on the debt facility ranged between 1.60% and 6.00% in 2022 (2021: between 1.60% and 2.35%).
The Group and the Company have the following undrawn borrowing facilities as per the bank at the end of the financial year:
2022
£’000
2021
£’000
Floating rate:
Expiring within one year
–
5,307
Expiring beyond one year
12,295
–
Total
12,295
5,307
Reconciliation of liabilities arising from financing activities:
Group
2021
£’000
Non-cash changes
2022
£’000
Net cash
inflows
£’000
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
Long-term borrowings
14,710
–
73
(14,749)
–
(34)
–
Short-term borrowings
26,564
7,826
(373)
–
–
3,429
37,446
Total liabilities
41,274
7,826
(300)
(14,749)
–
3,395
37,446
Group
2020
£’000
Non-cash changes
2021
£’000
Net cash
(outflows)/
inflows
£’000
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
Long-term borrowings
19,263
(4,739)
156
–
–
30
14,710
Short-term borrowings
23,430
3,974
(12)
–
–
(828)
26,564
Total liabilities
42,693
(765)
144
–
–
(798)
41,274
Notes
Continued
148
Zotefoams plc
Annual Report 2022
18. Interest-bearing loans and borrowings (continued)
Company
2021
£’000
Non-cash changes
2022
£’000
Net cash
inflows
£’000
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
Long-term borrowings
14,710
–
73
(14,749)
–
(34)
–
Short-term borrowings
26,564
7,826
(373)
–
–
3,429
37,446
Total liabilities
41,274
7,826
(300)
(14,749)
–
3,395
37,446
Company
2020
£’000
Non-cash changes
2021
£’000
Net cash
(outflows)/
inflows
£’000
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
Long-term borrowings
19,263
(4,739)
156
–
–
30
14,710
Short-term borrowings
23,430
3,974
(12)
–
–
(828)
26,564
Total liabilities
42,693
(765)
144
–
–
(798)
Recognised deferred tax assets and liabilities – Group
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Property, plant and equipment
–
–
4,450
3,810
4,450
3,810
Rolled-over gain
–
–
806
806
806
806
Inventories
(255)
(321)
–
–
(255)
(321)
Derivative financial instruments
(266)
(81)
–
–
(266)
(81)
Defined benefit pension scheme
(822)
(1,164)
–
–
(822)
(1,164)
Share-based payments
(322)
(216)
–
–
(322)
(216)
Losses available for offsetting against future taxable
income
(155)
(171)
–
–
(155)
(171)
(1,820)
(1,953)
5,256
4,616
3,436
2,663
Offset
1,410
1,461
(1,410)
(1,461)
–
–
Net deferred tax (assets)/liabilities
(410)
(492)
3,846
3,155
3,436
2,663
Unrecognised deferred tax assets
The Group has tax losses carried forward in the USA of $2,885k (2021: $2,885k), which expire between 2023 and 2037 under prevailing tax legislation.
In addition to this, the Group has further tax losses in the USA of $27,256k (2021: $22,661k), which are carried forward indefinitely. At year-end exchange
rates, these tax losses translate to £25,043k (2021: £18,913k). Applying the enacted US corporation tax rate of 21% (2021: 21%), the Group has taken
a prudent approach and recognised a deferred tax asset of £138k (2021: £138k) on such tax losses expected to be utilised in future periods.
The Group can potentially recover £521k (2021: £402k) of the deferred tax asset within twelve months of the reporting period. The remainder of the
deferred tax asset will potentially be recovered more than twelve months after the reporting period.
The Group can potentially settle none (2021: none) of the deferred tax liability within twelve months of the reporting period. The remainder of the deferred
tax liability will potentially be settled more than twelve months after the reporting period.
Strategic Report
Governance
Financial Statements
149
Zotefoams plc
Annual Report 2022
19. Deferred tax assets and liabilities (continued)
Movement in deferred tax
Property,
plant and
equipment
£’000
Rolled-over
gain
£’000
Inventories
£’000
Derivative
financial
instruments
£’000
Defined
benefit
pension
scheme
£’000
Share
option
charges
£’000
Tax value of
recognised
losses carried
forward
£’000
Total
£’000
Balance at 1 January 2021
1,986
613
(374)
295
(1,681)
(317)
(140)
382
Charged/(credited) to the income
statement
1,824
193
53
–
73
40
(31)
2,152
Recognised in other
comprehensive income and
equity
–
–
–
(376)
444
61
–
129
Balance at 31 December 2021
3,810
806
(321)
(81)
(1,164)
(216)
(171)
2,663
Balance at 1 January 2022
3,810
806
(321)
(81)
(1,164)
(216)
(171)
2,663
Charged/(credited) to the income
statement
640
–
66
–
196
(114)
16
804
Recognised in other
comprehensive income and
equity
–
–
–
(185)
146
8
–
(31)
Balance at 31 December 2022
4,450
806
(255)
(266)
(822)
(322)
(155)
3,436
Deferred tax assets and liabilities – Company
Deferred tax assets and liabilities are attributable to the following:
Assets
Liabilities
Net
2022
£’000
2021
£’000
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Property, plant and equipment
–
–
4,450
3,810
4,450
3,810
Rolled-over gain
–
–
806
806
806
806
Derivative financial instruments
(266)
(81)
–
–
(266)
(81)
Defined benefit pension scheme
(822)
(1,164)
–
–
(822)
(1,164)
Share option charges
(322)
(216)
–
–
(322)
(216)
(1,410)
(1,461)
5,256
4,616
3,846
3,155
Offset
1,410
1,461
(1,410)
(1,461)
–
–
Deferred tax (assets)/liabilities
–
–
3,846
3,155
3,846
3,155
Movement in deferred tax
Property,
plant and
equipment
£’000
Rolled-over
gain
£’000
Derivative
financial
instruments
£’000
Defined
benefit
pension
scheme
£’000
Share
option
charges
£’000
Total
£’000
Balance at 1 January 2021
1,986
613
290
(1,681)
(317)
891
Charged to the income statement
1,824
193
5
73
40
2,135
Recognised in other comprehensive income and equity
–
–
(376)
444
61
129
Balance at 31 December 2021
3,810
806
(81)
(1,164)
(216)
3,155
Balance at 1 January 2022
3,810
806
(81)
(1,164)
(216)
3,155
Charged to the income statement
640
–
–
196
(114)
722
Recognised in other comprehensive income and equity
–
–
(185)
146
8
(31)
Balance at 31 December 2022
4,450
806
(266)
(822)
(322)
Notes
Continued
150
Zotefoams plc
Annual Report 2022
Issued, allotted and fully paid ordinary shares of 5p each:
Number of
shares
Par value
£’000
Share
premium
£’000
Total
£’000
At 1 January 2022 and 31 December 2022
48,621,234
2,431
44,178
46,609
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled, on a poll, to one vote per share at meetings
of the Company.
Capital redemption reserve
On the buy-back and cancellation of preference shares, an amount equal to the par value was transferred from retained earnings to the capital redemption
reserve for capital maintenance purposes.
Translation reserve
Exchange differences arising on translation of the foreign controlled entities are recognised in other comprehensive income and accumulated in
a separate reserve within equity. The cumulative amount is reclassified to the income statement when the net investment is disposed of.
Hedging reserve
The hedging reserve includes the cash flow hedge reserve and the costs of the hedging reserve (see note 21 for details). The cash flow hedge reserve is
used to recognise the effective portion of gains or losses on derivatives that are designated and qualify as cash flow hedges. Amounts are subsequently
purpose of which is to provide finance for the Group’s and Company’s operations. Foreign exchange derivatives are used to help manage the Group’s
The main risks arising from the Group’s and Company’s financial instruments are credit risk, interest rate risk, liquidity risk and foreign currency risk.
The Board reviews and agrees policies for managing each of these risks and they are summarised below. These policies have remained consistent
Credit risk is managed on a Group basis, except for credit risk relating to accounts receivable balances. Each local entity is responsible for managing
and analysing the credit risk for each of their new customers before standard payment and delivery terms and conditions are offered. Credit risk arises
from cash and cash equivalents and derivative financial instruments with banks and financial institutions, as well as credit exposures to customers,
including outstanding receivables and committed transactions. A financial asset is considered in default when the counterparty fails to pay its contractual
obligations. Financial assets are written off when there is no expectation of recovery.
Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed for customers
offered credit over a certain amount. The Group and Company do not require collateral in respect of financial assets.
At the statement of financial position date there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by
Strategic Report
Governance
Financial Statements
151
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
Credit quality of financial assets
Counterparties without external credit rating:
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Existing customers with no defaults in the past
25,198
20,529
15,715
14,039
Existing customers with some defaults in the past, net of impairment allowance
605
356
325
317
25,803
20,885
16,040
14,356
Cash at bank
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Moody’s P-1
10,195
7,849
7,288
5,034
Moody’s P-3
399
206
–
–
10,594
8,055
7,288
5,034
Derivative financial assets
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Moody’s P-1
486
92
486
92
Moody’s P-2
–
81
–
81
486
173
486
173
While cash and cash equivalents are subject to impairment review under IFRS 9 “Financial Instruments”, the identified impairment loss was immaterial
(2021: immaterial).
Trade receivables are analysed as follows:
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Gross carrying amount
26,017
20,980
16,051
14,367
– due for less than 60 days
25,296
20,132
16,051
14,248
– due for more than 60 days
721
848
–
119
Expected loss rate
– due for less than 60 days
0.36%
0.05%
0.00%
0.08%
– due for more than 60 days
23.22%
9.91%
0.00%
0.00%
Loss allowance
214
95
11
11
Trade receivables net of allowances
25,803
20,885
16,040
14,356
Notes
Continued
152
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
Group
£’000
Company
£’000
At 1 January 2021
32
11
Increase in loss allowance recognised in profit or loss during the year
96
11
Receivables written off during the year as uncollectable
–
–
Reversal of loss allowance on collection of dues
(33)
(11)
At 31 December 2021
95
11
At 1 January 2022
95
11
Increase in loss allowance recognised in profit or loss during the year
144
11
Receivables written off during the year as uncollectable
–
–
Reversal of loss allowance on collection of dues
(25)
(11)
At 31 December 2022
214
The normal terms of trade are between 30 and 90 days from the end of the month of invoice.
The credit quality of trade receivables that are neither past due nor impaired is assessed individually based on credit history and experience. In 2022
and 2021, the Group and Company insured a material portion of its trade receivable balances to mitigate credit risk. The uninsured exposure as at
31 December 2022 for the Group was £17,572k (2021: £13,011k) and for the Company was £9,104k (2021: £7,183k). The Group and the Company make
provisions against trade receivables, such provisions being based on the debtor’s prior credit history and knowledge of any adverse conditions affecting
the debtor (e.g. receivership or liquidation). The Directors believe an adequate provision has been made for trade receivables at the year-end. None of the
amounts owed by Group undertakings are impaired.
Interest rate risk
The Group’s and Company’s interest rate risk arises from long-term borrowings and short-term borrowings. Borrowings issued at variable rates expose
the Group and Company to cash flow interest rate risk. Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
The Group and Company have strong cash generation from their operations and closely monitor borrowing levels to manage the interest rate risk.
The interest rate profile of the Group’s and Company’s borrowings at 31 December is shown below:
Group
2022
2021
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Dollar short-term borrowings
3.73%
–
21,603
1.86%
–
4,812
Sterling short-term borrowings
–
–
–
1.84%
–
6,750
Euro short-term borrowings
2.21%
–
16,391
1.81%
–
14,675
Dollar long-term borrowings
–
–
–
2.03%
–
15,284
Total*
–
37,994
–
41,521
Company
2022
2021
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Dollar short-term borrowings
3.73%
–
21,603
1.86%
–
4,812
Sterling short-term borrowings
–
–
–
1.84%
–
6,750
Euro short-term borrowings
2.21%
–
16,391
1.81%
–
14,675
Dollar long-term borrowings
–
–
–
2.03%
–
15,284
Total*
–
37,994
–
41,521
*
The total amount of £37,994k is gross of an outstanding amount of £548k of loan origination fees paid upfront and being amortised over the period of the loan (2021: £41,521k is gross of £247k of loan
origination fees).
The impact on post-tax profit of a 1% shift in the variable rate borrowings would be £308k (2021: £336k).
Strategic Report
Governance
Financial Statements
153
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
Group Finance performs cash flow forecasting in the operating entities of the Group, which is then aggregated. Group Finance monitors rolling forecasts
of the Group’s liquidity requirements to ensure that it has sufficient cash to meet operational needs, while maintaining sufficient headroom on its undrawn
committed borrowing facilities (note 18) at all times, so that the Group does not breach borrowing limits or covenants (where applicable) on any of its
borrowing facilities. Such forecasting takes into consideration the Group’s debt financing plans, covenant compliance, compliance with internal balance
sheet ratio targets and any applicable external regulatory or legal requirements.
The following are the contractual maturities of financial liabilities, including estimated payments and excluding the effect of netting agreements:
Group
2022
2021
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Non-derivative
financial liabilities
Interest-bearing loans
and borrowings
(37,446)
(37,994)
(37,994)
–
–
(41,274)
(42,052)
(27,212)
(14,840)
–
Trade and other payables
(8,982)
(8,982)
(8,982)
–
–
(5,364)
(5,364)
(5,364)
–
–
Lease liabilities
(963)
(983)
(513)
(470)
–
(1,129)
(1,130)
(479)
(363)
(288)
Total non-derivative
financial liabilities
(47,391)
(47,959)
(47,489)
(470)
–
(47,767)
(48,546)
(33,055)
(15,203)
(288)
Derivative financial liabilities
(1,550)
(1,550)
(1,550)
–
–
(600)
(600)
(600)
–
–
Company
2022
2021
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Non-derivative
financial liabilities
Interest-bearing loans
and borrowings
(37,446)
(37,994)
(37,994)
–
–
(41,274)
(42,052)
(27,212)
(14,840)
–
Trade and other payables
(6,821)
(6,821)
(6,821)
–
–
(4,139)
(4,139)
(4,139)
–
–
Lease liabilities
(346)
(299)
(228)
(71)
–
(524)
(516)
(249)
(200)
(67)
Total non-derivative
financial liabilities
(44,613)
(45,114)
(45,043)
(71)
–
(45,937)
(46,707)
(31,600)
(15,040)
(67)
Derivative financial liabilities
(1,550)
(1,550)
(1,550)
–
–
(600)
(600)
(600)
–
Foreign currency risk
The Group and Company operate internationally and are exposed to foreign exchange risk arising from various currency exposures, primarily with respect
to the euro and US dollar. Foreign exchange risk arises from recognised assets and liabilities and future commercial transactions.
Foreign exchange risk is managed centrally by Group Finance and arises when future commercial transactions or recognised assets or liabilities are
denominated in a currency that is not the Company’s functional currency.
The Group’s policy is to use forward currency contracts to cover approximately two-thirds of the estimated net cash foreign exchange trading exposure
for the euro and US dollar for the next twelve months, as well as approximately 25% of the estimated net cash foreign exchange trading exposure
for the following six months. The Group also hedges its exposure to foreign currency denominated assets, where possible, by offsetting them with
same-currency liabilities, primarily through borrowing in the relevant currency. These foreign currency denominated assets, which are translated on a
mark to market basis every month and with the resulting movement being taken to the income statement, include loans made by the Company to, and
intercompany trading balances with, its overseas subsidiaries, the effect of which is cash neutral. They also include non-sterling accounts receivable,
held on the Company’s statement of financial position, which are impacted by foreign exchange movements between revenue recognition and cash
receipt, the impact of which is mitigated through further hedging activities but remains exposed to the exact timing of cash receipts.
Notes
Continued
154
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
The euro and US dollar rates used in preparing the financial statements are as follows:
2022
2021
Average
Closing
Average
Closing
Euro/sterling
1.173
1.129
1.163
1.192
US dollar/sterling
1.238
1.204
1.376
1.351
In respect of other monetary assets and liabilities held in currencies other than the euro and the US dollar, the Group and the Company ensure that the
net exposure is kept to a manageable level by buying or selling foreign currencies at spot rates, where necessary, to address short-term imbalances.
Where possible, the Group tries to hold the majority of its cash and cash equivalent balances in the local currency of the respective entity or,
for borrowings, in a currency which provides an offset, albeit often partial, against monetary working capital net assets in that currency.
Recognised assets and liabilities
The table below shows non-derivative financial instruments of the Group and Company in currencies other than sterling:
Group – 2022
Euro
£’000
US dollar
£’000
Other
£’000
Total
£’000
Cash and cash equivalents
2,256
1,871
1,234
5,361
Trade receivables
4,598
12,777
1,289
18,664
Trade payables
(4,082)
(941)
(233)
(5,256)
Group – 2021
Euro
£’000
US dollar
£’000
Other
£’000
Total
£’000
Cash and cash equivalents
1,483
2,056
436
3,975
Trade receivables
3,494
11,212
1,242
15,948
Trade payables
(3,016)
(540)
(317)
(3,873)
Company – 2022
Euro
£’000
US dollar
£’000
Other
£’000
Total
£’000
Cash and cash equivalents
1,340
780
80
2,200
Trade receivables
3,293
7,202
145
10,640
Trade payables
(3,945)
(262)
(16)
(4,223)
Company – 2021
Euro
£’000
US dollar
£’000
Other
£’000
Total
£’000
Cash and cash equivalents
512
390
78
980
Trade receivables
3,288
6,378
248
9,914
Trade payables
(2,601)
3
–
(2,598)
Strategic Report
Governance
Financial Statements
155
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
Forecast transactions
The Group and the Company classify their forward exchange contracts used to hedge forecast transactions as cash flow hedges. The fair value of such
forward exchange contracts is shown in the table below:
31 December 2022
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Assets
Forward exchange contracts
–
486
–
486
Total assets
–
486
–
486
Liabilities
Forward exchange contracts
–
(1,550)
–
(1,550)
Total liabilities
–
(1,550)
–
(1,550)
31 December 2021
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
Assets
Forward exchange contracts
–
173
–
173
Total assets
–
173
–
173
Liabilities
Forward exchange contracts
–
(600)
–
(600)
Total liabilities
–
(600)
–
(600)
The hedged highly probable forecast transactions denominated in foreign currency are expected to occur at various dates during the next twelve months.
Gains and losses recognised in the hedging reserve in equity on forward foreign exchange contracts as of 31 December 2022 are recognised in the
income statement in the period or periods during which the hedged forecast transaction affects the income statement. This is generally within twelve
months of the end of the reporting period.
Hedge ineffectiveness
Hedge effectiveness is determined at the inception of the hedge relationship and through periodic prospective effectiveness assessments to ensure that
an economic relationship exists between the hedged item and hedging instrument. In hedges of forward exchange contracts, ineffectiveness mainly
arises if the timing of the forecast transaction changes from what was originally estimated. There was no ineffectiveness during 2022 or 2021 in relation
to the forward exchange contracts.
Estimation of fair values
The following summarises the major methods and assumptions used in estimating fair values of financial instruments reflected in the table above.
They are classified according to the following fair value hierarchy:
X
Level 1: quoted process (unadjusted) in active markets for identical assets or liabilities
X
Level 2: inputs other than quoted process included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly
(derived from prices)
X
Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Derivative financial instruments are valued using Handelsbanken and NatWest mid-market rates (2021: Handelsbanken and NatWest mid-market rates)
at the statement of financial position date.
The maturity profile of the forward contracts as at 31 December is as follows:
Group and Company:
2022
2021
Foreign
currency
$’000
Contract
value
£’000
Transaction
fair value
£’000
Contract
fair value
£’000
Foreign
currency
$/€’000
Contract
value
£’000
Transaction
fair value
£’000
Contract
fair value
£’000
Sell EUR
–
–
–
–
€3,000
2,554
2,522
32
Buy EUR
–
–
–
–
–
–
–
–
Sell USD
$47,900
38,563
39,628
(1,065)
$38,300
27,968
28,427
(459)
Notes
Continued
156
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
In managing currency risks, the Group and Company aim to reduce the impact of short-term fluctuations on their earnings. Over the longer term, however,
changes in foreign exchange would have an impact on earnings.
In respect of retranslation of monetary items, at 31 December 2022, it is estimated that an increase of one percentage point in the value of sterling
against the US dollar would decrease the Group’s profit before tax by approximately £418k (2021: £240k) before forward exchange contracts and £144k
Financial instruments by category
Group
2022
2021
Financial
assets at
amortised
cost
£’000
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
Financial
assets at
amortised
cost
£’000
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
Trade and other receivables
27,670
–
–
23,323
–
–
Cash and cash equivalents
10,594
–
–
8,055
–
–
Derivative financial instruments
– assets
–
486
–
–
173
–
– liabilities
–
(1,550)
–
–
(600)
–
Interest-bearing loans and borrowings
–
–
(37,446)
–
–
(41,274)
Trade and other payables
–
–
(8,982)
–
–
(5,364)
Lease liability
–
–
(963)
–
–
(1,129)
Company
2022
2021
Financial
assets at
amortised
cost
£’000
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
Financial
assets at
amortised
cost
£’000
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
Trade and other receivables
57,121
–
–
54,008
–
–
Cash and cash equivalents
7,288
–
–
5,034
–
–
Derivative financial instruments
– assets
–
486
–
–
173
–
– liabilities
–
(1,550)
–
–
(600)
–
Interest-bearing loans and borrowings
–
–
(37,446)
–
–
(41,274)
Trade and other payables
–
–
(6,821)
–
–
(4,139)
Lease liability
–
–
(346)
–
–
(524)
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, in order to provide returns for shareholders
and benefits for other stakeholders, and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital
structure, the Group can adjust the amount of dividends paid to shareholders, issue new shares or redeem existing ones or borrow funds from
financial institutions.
The Group monitors capital on the basis of the following leverage ratio: net borrowings divided by EBITDA (as per bank facility agreement).
Loan covenants
Under the terms of its borrowing facilities, the Group is required to comply with the following financial covenants:
X
the ratio of net borrowings on the last day of the relevant period to earnings before interest, tax, depreciation and amortisation, share of profit/(loss)
from joint venture, equity-settled share-based payments and exceptional items (EBITDA) shall not exceed 3.50:1.00 (until 9 March 2022, 3.00:1.00,
under the terms of the previous debt facility)
X
the ratio of EBITDA to net finance charges in respect of the relevant period shall not be less than 4.00:1.00.
The Group has complied with its covenants throughout the financial year.
Net borrowings comprise current and non-current interest-bearing loans and borrowings of £37,446k, as per note 18, and cash and cash equivalents
of £10,594k as per note 16.
Strategic Report
Governance
Financial Statements
157
Zotefoams plc
Annual Report 2022
21. Financial instruments and financial risk management (continued)
As at
31 December
2022
£’000
As at
31 December
2021
£’000
Net borrowings
26,852
33,219
EBITDA
22,985
16,117
Net borrowings/EBITDA
1.17
2.06
Net finance charges
1,682
1,002
EBITDA/Net finance charges
13.67
16.08
EBITDA comprises:
Note
2022
£’000
2021
£’000
Profit for the year
10,006
4,376
Depreciation and amortisation
10,11,12
8,245
7,624
Finance costs
6
1,758
1,105
Share of loss/(profit) from joint venture
9
(50)
20
Equity-settled share-based payments
24
809
360
Taxation
7
2,217
2,632
22,985
16,117
Net finance charges comprise interest income of £56k and finance costs expensed of £1,738k as per note 6.
The Group’s objective is to maintain leverage below the Board’s appetite of 2.0. However, it is prepared to accept increases in this ratio at times of
sizeable, capacity-related, capital expenditure to support continued growth. Subject to short-term macroeconomic and geopolitical volatility, this is always
expected to reduce quickly back below the Board’s appetite, and to significantly lower levels, as capacity utilisation improves.
The bank covenant definition does not include the impact of IFRS 16 “Leases”, which would have moved the ratio from 1.17 to 1.21.
The Group defines its return on capital as operating profit before exceptional items divided by the average sum of its equity, net debt and other
non-current liabilities. This measure excludes acquired intangible assets and their amortisation costs. The Group also excludes significant capacity
investments under construction until they enter production. In 2022, the return on capital was 10.1% (2021: 6.1%), mostly reflecting improved profitability
Group
Company
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Capital expenditure contracted for at the end of the reporting period but not yet incurred
is as follows:
Property, plant and equipment
1,470
1,383
1,214
Notes
Continued
158
Zotefoams plc
Annual Report 2022
The Company operates a UK registered trust-based pension scheme that provides defined benefits. In 2001, the Company closed the Defined Benefit
Pension Scheme (“DB Scheme”) to new members, while in 2005 the DB Scheme was closed to the future accrual of benefits, and all active members at
that time transferred to a defined contribution scheme, substantially de-risking the Company’s financial and accounting exposure to the DB Scheme’s
obligations. Following legal advice in 2017 that the closure had not been complete with respect to the breaking of linkage with future increases in salary,
amendments were made in 2018 and the linkage duly broken.
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 DB Scheme in accordance with the DB Scheme’s Trust Deed and Rules, which set out their powers. The Trustees of the DB
Scheme are required to act in the best interests of the beneficiaries of the DB Scheme. There is a requirement that one-third of the Trustees are nominated
by the members of the DB Scheme.
There are three categories of pension scheme members:
X
deferred members with salary linkage: current employees of the Company who have not consented to the break in their salary link
X
deferred members: former and current employees of the Company not yet in receipt of pension
X
pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best estimate of future benefit outgoings (allowing for future salary increases for deferred
members with salary linkage, revaluation to retirement for deferred members and annual pension increases for all members) and then discounting
to the statement of financial position date. The majority of benefits receive increases in line with inflation (subject to a cap of no more than 5% per annum).
The valuation method is known as the Projected Unit Method. The approximate overall duration of the DB Scheme’s defined benefit obligation as at
Future funding obligation
The Trustees are required to carry out an actuarial valuation every three years.
The last actuarial valuation of the DB Scheme was performed by the DB Scheme Actuary for the Trustees as at 5 April 2020. This valuation revealed
a funding shortfall of £7.7 million.
In respect of the deficit in the DB Scheme as at 5 April 2020, the Company has agreed to pay £643,200 p.a. from 1 July 2021 for 5 years and 4 months.
In addition, the Company will pay £216,000 p.a. to cover administration expenses, Payment Protection Fund levies and premiums for death in service
lump sums associated with the Scheme. The Company therefore currently expects to pay £859,200 to the Scheme during the calendar year beginning
1 January 2023.
Method and assumptions
The initial results of the valuation as at 5 April 2020 have been updated to 31 December 2022 by a qualified independent actuary.
The assumptions used were as follows:
As at
31 December 2022
As at
31 December 2021
Discount rate
4.80%
1.80%
RPI inflation
3.10%
3.40%
CPI inflation
2.70%
2.90%
Salary increases
2.70%
2.90%
Pension increases
– Post 88 GMP
2.30%
2.40%
– Non GMP
3.10%
3.30%
Revaluation of deferred pensions in excess of GMP
2.70%
2.90%
Mortality (pre- and post-retirement)
100% S3PMA_M/
100% S3PFA_M
CMI_2021_M/F
1.25% (yob)
100% S3PMA_M/
100% S3PFA_M
CMI_2020_M/F
1.25% (yob)
Life expectancies (in years):
Year ended 31 December 2022
Year ended 31 December 2021
Males
Females
Males
Females
For an individual aged 65 in 2022
21.3
23.8
21.3
23.7
At age 65 for an individual aged 45 in 2022
22.7
25.2
22.6
25.2
Strategic Report
Governance
Financial Statements
159
Zotefoams plc
Annual Report 2022
23. Post-employment benefits (continued)
Risks
Through the Scheme, the Company is exposed to a number of risks:
X
asset volatility: the Scheme’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields; however,
the Scheme invests significantly in equities and other growth assets. These assets are expected to outperform corporate bonds in the long term,
but are subject to increased volatility and risk in the short term
X
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
X
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 are
only loosely correlated with inflation, therefore an increase in inflation would also increase the deficit
X
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:
X
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
X
investment strategy: the Trustees are required to review their investment strategy on a regular basis
X
asset-liability matching (ALM): the Scheme invests in an ALM framework that aims to achieve long-term investment returns in line with the obligations
under the Scheme. This is achieved through around 25% of assets being invested in Liability Driven Investment funds.
Change in assumption
Change in defined
benefit obligation
Discount rate
+0.5%/–0.5% p.a.
–6%/+6%
RPI inflation
+0.5%/–0.5% p.a.
+5%/–5%
Assumed life expectancy
+1 year
+3%
These calculations provide an approximate guide to the sensitivity of results and may not be as accurate as a full valuation carried out on these
assumptions. Each assumption change is considered in isolation, which in practice is unlikely to occur, as changes in some of the assumptions are
correlated.
The assets of the Scheme are invested as follows:
Asset class
Year ended 31 December 2022
Year ended 31 December 2021
Market
value
£’000
% of total
Scheme
assets
Market
value
£’000
% of total
Scheme
assets
Equities and other growth assets
7,985
35%
17,831
52%
Diversified Credit Funds
5,745
25%
6,312
19%
Liability Driven Investments
8,156
36%
8,312
24%
Cash
226
1%
705
2%
Other
660
3%
997
3%
Total
22,772
100%
34,157
100%
Actual return on assets over the year
(10,910)
2,674
Note: All assets listed above have a quoted market price in an active market (except for the reserve for insured pensioners).
The amounts recognised in the statement of financial position are determined as follows:
2022
£’000
2021
£’000
Market value of plan assets
22,772
34,157
Present value of defined benefit pension scheme obligation
(26,062)
(38,814)
Deficit – recognised as a liability in the statement of financial position
(3,290)
(4,657)
Notes
Continued
160
Zotefoams plc
Annual Report 2022
23. Post-employment benefits (continued)
The movement in the defined benefit obligation over the year is as follows:
2022
£’000
2021
£’000
Value of defined benefit obligation at the start of the year
38,814
40,769
Interest cost
687
482
Benefits paid
(1,334)
(1,214)
Actuarial losses: experience differing from that assumed
1,360
186
Actuarial gains: changes in demographic assumptions
(25)
(81)
Actuarial gains: changes in financial assumptions
(13,440)
(1,328)
Value of defined benefit obligation at the end of the year
26,062
38,814
The movement in the value of the plan assets over the year is as follows:
2022
£’000
2021
£’000
Market value of plan assets at the start of the year
34,157
31,918
Interest income
611
380
Actual return on plan assets
(11,521)
2,294
Employer contributions
859
779
Benefits paid
(1,334)
(1,214)
Market value of assets at the end of the year
22,772
34,157
The table below outlines where the Company’s post-employment amounts and activity are included in the financial statements.
2022
£’000
2021
£’000
Statement of financial position for:
– Defined benefit pension scheme obligations
(3,290)
(4,657)
Income statement charge for:
– Defined benefit pension scheme interest cost
(76)
(102)
Actuarial gains recognised in other comprehensive income for:
– Defined benefit pension scheme
584
3,517
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. In
addition to the above, the Company created two further stakeholder schemes for future joiners. The contributions paid by the Company in 2022
were £954k (2021: £855k).
For certain non-UK based employees of the Company, the Company makes contributions into individual schemes. The contributions paid by the
Company in 2022 were £5k (2021: £5k).
Strategic Report
Governance
Financial Statements
161
Zotefoams plc
Annual Report 2022
The Company has a share option scheme that entitles senior management personnel to purchase shares in the Company. Options are exercisable at
a price equal to the lower of the mid-market price of the Company’s shares the day before the option is granted or the average mid-market price for the
three dealing days before the option is granted. The vesting period is three years. If the options remain unexercised after a period of ten years from the
date of grant, the options will expire. Depending on the circumstances, options are normally forfeited if the employee leaves the Company before the
options vest.
In 2007, the Company introduced an LTIP scheme for senior management personnel. Shares are awarded in the Company and vest after three years to
the extent that performance conditions are met. Dependent on the circumstances, awards are normally forfeited if the employee leaves the Company
before the award vests. A new LTIP scheme was introduced in 2017, which operates in a similar way to the LTIP scheme introduced in 2007. No new
awards are made under the 2007 scheme. Depending on the circumstances, options are normally forfeited if the employee leaves the Company before
the options vest.
In 2007, the Company introduced a Deferred Bonus Share Plan. Under the terms of this plan, executive bonuses with a value equivalent to over 40%
of eligible salary were held as deferred shares for three years. In 2014, the Remuneration Committee amended the Deferred Bonus Share Plan for
bonuses awarded since 2014, such that 25% of executive bonuses are held as deferred shares for three years with no minimum value. Depending on
the circumstances, awards are normally forfeited if the employee leaves the Company before the award vests. A new Deferred Bonus Share Plan scheme
was introduced in 2017, which operates in a similar way to the old Plan introduced in 2007, as amended in 2014. No new awards are made under the 2007
Plan. Depending on the circumstances, awards are normally forfeited if the employee leaves the Company before the award vests.
Details of the vesting conditions for the share, share option and LTIP awards are given in the Directors’ Remuneration report on pages 88 to 109.
Movements in share options during the year are as follows:
The options outstanding at 31 December 2022 have an exercise price between 245.7p and 432.5p and a weighted contractual life of seven years
(2021: seven years).
There were no cancellations or modifications to the awards in 2022 or 2021.
The fair value received in return for share options granted is measured by reference to the fair value of share options granted using a Black-Scholes model.
The contractual life of the option (ten years) is used as an input into this model. No allowance is made for early leavers.
2022
2021
Number
of share
options
Weighted
average
exercise
price (p)
Number
of share
options
Weighted
average
exercise
price (p)
Outstanding at the beginning of the year
101,926
364
89,266
327
Exercised during the year
–
–
(14,694)
270
Granted during the year
31,489
325
40,690
433
Forfeited during the year
(14,121)
464
(13,336)
426
Outstanding at the end of the year
119,294
342
101,926
364
Exercisable at the end of the year
54,546
293
57,994
293
Movements in LTIP awards during the year are as follows:
2022
2021
Number
of share
options
Weighted
average
exercise
price (p)
Number
of share
options
Weighted
average
exercise
price (p)
Outstanding at the beginning of the year
653,656
–
827,665
–
Exercised during the year
(38,819)
–
(155,084)
–
Granted during the year
484,520
–
354,372
–
Forfeited during the year
(91,399)
–
(373,297)
–
Outstanding at the end of the year
1,007,958
–
653,656
–
Exercisable at the end of the year
–
–
–
–
Notes
Continued
162
Zotefoams plc
Annual Report 2022
24. Share-based payments (continued)
Movement in Deferred Bonus Share Plan awards during the year are as follows:
2022
2021
Number
of share
options
Weighted
average
exercise
price (p)
Number
of share
options
Weighted
average
exercise
price (p)
Outstanding at the beginning of the year
91,079
–
155,884
–
Exercised during the year
(39,570)
–
(79,289)
–
Granted during the year
12,193
–
14,790
–
Forfeited during the year
–
–
(306)
–
Outstanding at the end of the year
63,702
–
91,079
–
Exercisable at the end of the year
–
–
–
–
Fair value of share options and assumptions
The expected volatility is based on historic volatility for a three-year period prior to the award.
27-Mar-17
24-Aug-17
16-Apr-19
08-Apr-21
19-Apr-22
Share price (p)
305.5
305.5
572.0
415.0
325.0
Exercise price (p)
305.5
327.5
572.0
433.0
325.0
Expected volatility
35%
35%
25%
40%
48%
Option life
Five years
Five years
Three years
Three years
Three years
Expected dividends (p) (assumed to be increasing at 2.5% p.a.)
5.7
5.7
5.5
6.3
6.5
Risk free interest rate (based on national government bonds)
2.00%
2.00%
2.00%
2.00%
2.00%
Fair value at grant date (p)
103.1
111.1
103.0
99.0
98.0
The Company’s employee share option awards are granted under a service condition and a performance condition. There are no market conditions
associated with the share options. The LTIP awards are granted under a service condition and a performance condition, part of which is a market
condition. The Deferred Bonus Plan awards are granted under a service condition.
The amounts recognised in the income statement for equity-settled share-based payments are as follows:
2022
£’000
2021
£’000
Within administrative expenses – share-based payment charge
809
360
– related National Insurance
140
36
Strategic Report
Governance
Financial Statements
163
Zotefoams plc
Annual Report 2022
Directors
of the Company. Details of Directors’ pay and remuneration are given in the Directors’ Remuneration report on pages 88 to 109. Executive Directors
Subsidiaries and joint venture
Details of the joint venture and subsidiaries of the Company are set out in notes 9 and 13. These companies are considered to be related parties.
The following material transactions were carried out with related parties:
2022
£’000
2021
£’000
Sale of goods: subsidiaries of the Company
3,875
3,857
Sale of services: subsidiaries of the Company
2,537
1,246
Loans given (net of repayments): subsidiaries of the Company
(2,419)
2,748
Interest income: subsidiaries of the Company
657
468
Sale of goods: joint venture of the Company
3,444
2,951
Sale of services: joint venture of the Company
232
733
Total
8,326
12,003
Balances between the Company and its active subsidiaries and joint venture are as follows:
Receivable from/(payable to)
Investment in
2022
£’000
2021
£’000
2022
£’000
2021
£’000
Zotefoams Inc
13,163
12,541
–
–
KZ Trading and Investment Limited
–
247
–
–
Azote Asia Limited
1,304
1,065
–
–
MuCell Extrusion LLC
6,511
4,410
–
–
Zotefoams International Limited
16,370
17,037
30,822
30,822
Zotefoams T-FIT Material Technology (Kunshan) Limited
3,438
2,993
–
–
Zotefoams Poland Sp. z.o.o.
291
304
–
–
Zotefoams France SAS
(59)
(39)
–
–
T-FIT Insulation Solutions India Private Limited
75
253
–
Notes
Continued
164
Zotefoams plc
Annual Report 2022
In the application of the Group’s accounting policies, which are described in note 2, the Directors are required to make judgements, estimates and
assumptions about the carrying amounts of assets and liabilities which are not readily apparent from other sources. The estimates and associated
assumptions are based on historical experience and other facts that are considered relevant. Actual amounts may differ from these estimates.
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
Key sources of estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the statement of financial position date that have a
significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are disclosed below.
i) Estimated impairment of goodwill and intangibles
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 2.11.
The determination of impairment in the carrying value of goodwill and intangible assets requires judgements to be made by Directors. These assets are
assessed on an ongoing basis to determine whether circumstances exist that could lead to the conclusion that the carrying value of such assets is not
supportable. In relation to the operational MuCell business that licenses technology and sells related technology, the Directors use a model that includes
the use of this technology within ReZorce. In relation to the ReZorce solution and given the stage of its development, the Directors consider different
factors, such as the potential market size, the ability to penetrate this market, potential customer interest, development partnerships with potential
customers and future delivery partners, current technological development status, Group funding availability and the Board’s commitment to the project.
Based on the judgements and estimates above, the Directors have concluded that the opportunity and strategy supports the carrying value of the
underlying intangible assets.
ii) Pension assumptions
The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of
assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company engages an independent actuary
to perform the valuation and assist in determining appropriate assumptions at the end of each year. The valuation is prepared by an independent qualified
actuary, but significant judgements are required in relation to the assumptions for pension increases, inflation, the discount rate applied, investment returns
and member longevity, all of which underpin the valuations. Note 23 contains information about the assumptions relating to retirement benefit obligations.
iii) General provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.
When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as
a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss
net of any reimbursement.
If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific
to the liability. When discounting is used, the increase in the provision due to the passage of time is recognised as a finance cost.
iv) Leases estimating the incremental borrowing rate
The Group cannot readily determine the interest rate implicit in the lease, therefore it uses its incremental borrowing rate (IBR) to measure lease liabilities.
The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an
asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which
requires estimation when no observable rates are available (such as for subsidiaries that do not enter into financing transactions) or when they need to be
adjusted to reflect the terms and conditions of the lease (for example, when leases are not in the subsidiary’s functional currency). The Group estimates
the IBR using observable inputs (such as market interest rates) when available and is required to make certain entity-specific estimates (such as the
subsidiary’s stand-alone credit rating).
v) Share-based payments
Estimating fair value for share-based payment transactions requires determination of the most appropriate valuation model, which depends on the terms
and conditions of the grant. This estimate also requires determination of the most appropriate inputs to the valuation model, including the expected life
of the share option or appreciation right, volatility and dividend yield, and making assumptions about them. The Group uses the Black-Scholes-Merton
model to estimate the fair value of instruments. The Black-Scholes-Merton formula has been adjusted to take account of certain characteristics of share
options, such as the probability of vesting and meeting the performance conditions of LTIPs. The assumptions and models used for estimating fair value
for share-based payment transactions are disclosed in note 24.
Key judgements
i) Unrecognised deferred tax assets
At year-end exchange rates, the Group has tax losses carried forward of £25,043k in the USA, while tax losses of £657k have been recognised on
the statement of financial position. Based on projections, the Group expects to use all these carried forward tax losses; however, management has
taken a prudent approach based on historical performance by the entities in this tax jurisdiction and recognised a lower figure. If the Group makes
Strategic Report
Governance
Financial Statements
165
Zotefoams plc
Annual Report 2022
Five-year trading summary
2022
£m
2021
£m
2020
£m
2019
£m
2018
£m
Group revenue
127.4
100.8
82.7
80.9
81.0
Operating profit (before exceptional item)
13.9
8.1
9.1
9.1
11.6
Profit before tax (before exceptional item)
12.2
7.0
8.3
8.8
10.8
Profit before tax
12.2
7.0
8.3
9.8
9.9
Profit after tax
10.0
4.4
7.2
8.2
7.9
Capital expenditure (including intangibles)
7.0
7.0
12.7
24.4
16.1
Cash generated from operations
23.0
12.2
13.0
11.8
7.1
Basic earnings per share before exceptional item (p)
20.61
9.01
14.87
14.91
18.66
Basic earnings per share (p)
20.61
9.01
14.87
17.10
16.96
Dividends per ordinary share (p)
6.43
6.50
6.30
2.03
6.12
166
Zotefoams plc
Annual Report 2022
Notice of the 2023
Annual General Meeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES
YOUR IMMEDIATE ATTENTION
If you are in any doubt as to the action you should take, it is recommended
to seek your own financial advice from your stockbroker, bank manager,
solicitor, accountant or other independent adviser authorised under the
Financial Services and Markets Act 2000 if you are resident in the UK or,
if you reside elsewhere, another appropriately authorised financial adviser.
If you have sold or otherwise transferred your shares in Zotefoams plc,
you should forward this document and other documents enclosed as
soon as possible either to the purchaser or transferee or to the person
who arranged the sale or transfer so they can pass these documents
to the person who now holds the shares.
ZOTEFOAMS PLC
Notice of Annual General Meeting
Zotefoams plc considers it vital to engage with investors and other
stakeholders through the most appropriate channels. Shareholders’
views are important and we want to ensure that they are given
as much information as possible in good time to enable them
to participate in the decision-making process.
Zotefoams intends to hold its AGM in person. Any changes
to the AGM arrangements will be published on our website
www.zotefoams.com/investors/ and announced through the
London Stock Exchange. Please monitor the website for any
announcement and updates.
A presentation open to all existing and potential shareholders will be
given after the AGM on 24 May 2023 at 1.30pm on the Investor Meet
Company platform: www.investormeetcompany.com/register-investor.
Investors who already follow Zotefoams plc on the Investor Meet
Company platform will automatically be invited.
Notice is hereby given that the Annual General Meeting (AGM) of
Zotefoams plc (the “Company”) will be held at the registered office of the
Company,
675 Mitcham Road, Croydon, CR9 3AL, on 24 May 2023
at 10.00 am
for the following purposes.
Ordinary business
1.
To receive the Annual Report of the Company for the year ended
31 December 2022.
2.
To approve the new Directors’ Remuneration Policy set out on
pages 91 to 99 of the Annual Report.
3.
To approve the Annual Statement by the Chair of the Remuneration
Committee and the Annual Report on Remuneration for the year
ended 31 December 2022 set out on pages 88 to 109 of the
Annual Report.
4.
To declare a final dividend for the year ended 31 December 2022
of 4.62 pence per ordinary share, such dividend to be payable on
2 June 2023 to shareholders on the register of members of the
Company at the close of business on 5 May 2023.
5.
To elect L Drummond as a Director.
6.
To re-elect D B Stirling as a Director.
7.
To re-elect G C McGrath as a Director.
8.
To re-elect J D Carling as a Director.
9.
To re-elect A M Fielding as a Director.
10. To re-elect D G Robertson as a Director.
11. To re-elect C A Wall as a Director.
12. That PKF Littlejohn LLP be and is hereby re-appointed as Auditor of
the Company to hold office from the conclusion of the AGM until the
conclusion of the next general meeting at which accounts are laid
before the Company.
13. To authorise the Audit Committee to determine the Auditor’s remuneration.
Special business
To consider and, if thought fit, to pass the following resolutions, of which
resolution 14 will be proposed as an ordinary resolution and resolutions 15,
16, 17 and 18 will be proposed as special resolutions.
14. That, in substitution for any equivalent authorities and powers granted
to the Directors prior to the passing of this resolution, the Directors be,
and are generally and unconditionally, authorised pursuant to Section
551 of the Companies Act 2006 (the “Act”):
(a)
to exercise all powers of the Company to allot shares in the
Company and grant rights to subscribe for or to convert any
security into shares of the Company (such shares, and rights
to subscribe for or to convert any security into shares of the
Company, being “relevant securities”) up to an aggregate nominal
amount of £810,353 (such amount to be reduced by the nominal
amount of any allotments or grants made under paragraph (b)
below in excess of £810,353); and further
(b)
to allot equity securities (as defined in Section 560 of the Act) up to
an aggregate nominal amount of £1,620,706 (such amount to be
reduced by the nominal amount of any allotments or grants made
under paragraph (a) above) in connection with an offer by way of
rights issue:
(i)
in favour of holders of ordinary shares in the capital of the
Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly
as practicable) to the respective number of ordinary shares in
the capital of the Company held by them; and
(ii)
to holders of any other equity securities as required by
the rights of those securities or as the Directors otherwise
consider necessary;
but subject to such exclusions or other arrangements as the
Directors may deem necessary or expedient to deal with
treasury shares, fractional entitlements or legal, regulatory or
practical problems arising under the laws or requirements of
any overseas territory or by virtue of shares being represented
by depository receipts or the requirements of any regulatory
body or stock exchange or any other matter whatsoever;
(c)
provided that, unless previously revoked, varied or extended,
this authority shall expire on the earlier of 30 June 2024 and the
conclusion of the next AGM of the Company, except that the
Company may at any time before such expiry make an offer or
agreement which would or might require relevant securities to
be allotted after such expiry and the Directors may allot relevant
securities in pursuance of such an offer or agreement as if this
authority had not expired.
15. That, if resolution 14 is passed, the Directors be authorised to allot
equity securities (as defined in Section 560 of the Act) for cash under
the authority given by that resolution and/or to sell ordinary shares
held by the Company as treasury shares for cash as if Section 561
of the Act did not apply to any such allotment or sale, such authority
to be limited:
(a)
in favour of holders of ordinary shares in the capital of the
Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly
as practicable) to the respective number of ordinary shares in
the capital of the Company held by them; and
(b)
to the allotment of equity securities or sale of treasury shares
(otherwise than under paragraph (a) above) up to a nominal
amount of £121,553;
such authority to expire at the conclusion of the next AGM of the
Company (or, if earlier, on 30 June 2024) but, in each case, prior to
its expiry the Company may make offers, and enter into agreements,
which would, or might, require equity securities to be allotted
(and treasury shares to be sold) after the authority expires and the
Directors may allot equity securities (and sell treasury shares) under
any such offer or agreement as if the authority had not expired.
Strategic Report
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Financial Statements
167
Zotefoams plc
Annual Report 2022
16. That, if resolution 14 is passed, the Directors be authorised in addition
to any authority granted under resolution 15 to allot equity securities
(as defined in Section 560 of the Act) for cash under the authority given
by that resolution and/or to sell ordinary shares held by the Company
as treasury shares for cash as if Section 561 of the Act did not apply
to any such allotment or sale, such authority to be:
(a)
limited to the allotment of equity securities or sale of treasury
shares up to a nominal amount of £121,553; and
(b)
used only for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors determine to be an
acquisition or other capital investment of a kind contemplated by
the Statement of Principles on Disapplying Pre-Emption Rights
most recently published by the Pre-Emption Group prior to the
date of this notice,
such authority to expire at the conclusion of the next AGM of the
Company (or, if earlier, on 30 June 2024) but, in each case, prior to
its expiry the Company may make offers, and enter into agreements,
which would, or might, require equity securities to be allotted (and
treasury shares to be sold) after the authority expires and the Directors
may allot equity securities (and sell treasury shares) under any such
offer or agreement as if the authority had not expired.
17. That the Company be and is hereby unconditionally and generally
authorised for the purposes of Section 701 of the Act to make market
purchases (within the meaning of Section 693(4) of the Act) of its
ordinary shares of 5 pence each (“ordinary shares”) provided that:
(a)
the maximum number of ordinary shares authorised to be
purchased is 4,862,123, representing approximately 10% of the
issued ordinary share capital as at 3 April 2023;
(b)
the minimum price which may be paid for any such ordinary share
is 5 pence;
(c)
the maximum price which may be paid for an ordinary share
shall be an amount equal to 105% of the average middle market
quotations for an ordinary share as derived from the London Stock
Exchange Daily Official List for the five business days immediately
preceding the day on which the ordinary share is contracted to be
purchased; and
(d)
this authority shall, unless previously renewed, revoked or
varied, expire on the earlier of 30 June 2024 and the conclusion
of the next AGM, but the Company may enter into a contract
for the purchase of ordinary shares before the expiry of this
authority which would or might be completed (wholly or partly)
after its expiry.
18. That a general meeting other than an Annual General Meeting may be
called on not less than 14 clear days’ notice.
Dated: 4 April 2023
By order of the Board
Registered Office:
675 Mitcham Road
Croydon
CR9 3AL
L Harratt
Company Secretary
The following notes are subject to any applicable social distancing
measures prohibiting physical attendance of the AGM by a Member
or Proxy.
(i)
Pursuant to Part 13 of the Companies Act 2006 and to Regulation
41 of the Uncertificated Securities Regulations 2001 (as amended),
only those members registered in the register of members of the
Company at the close of business on 22 May 2023 (or if the AGM is
adjourned, 48 hours before the time fixed for the adjourned AGM) shall
be entitled to attend and vote at the AGM in respect of the number of
shares registered in their name at that time. In each case, changes
to the register of members after such time shall be disregarded in
determining the rights of any person to attend or vote at the AGM.
(ii)
If you wish to attend the AGM in person, please bring some form of
identification (such as driver’s licence or bankcard) and present this
to the Company’s reception desk on arrival.
(iii)
A member who is entitled to attend, speak and vote at the AGM
may appoint a proxy to attend, speak and vote instead of him or her.
A member may appoint more than one proxy, provided each proxy
is appointed to exercise rights attached to different shares (so a
member must have more than one share to be able to appoint more
than one proxy). A proxy need not be a member of the Company but
must attend the AGM in order to represent you. A proxy must vote in
accordance with any instructions given by the member by whom the
proxy is appointed. Appointing a proxy will not prevent a member from
attending in person and voting at the AGM (although voting in person
at the AGM will terminate the proxy appointment). A proxy form is
enclosed or has been sent to you separately. The notes to the proxy
form include instructions on how to appoint the Chair of the AGM or
another person as a proxy. You can only appoint a proxy using the
procedures set out in these notes and in the notes to the proxy form.
(iv)
To be valid, a proxy form, and the original or duly certified copy of the
power of attorney or other authority (if any) under which it is signed or
authenticated, should reach the Company’s registrars, Computershare
Investor Services plc, The Pavilions, Bridgwater Road, Bristol BS99
6ZY, by no later than 10.00 am on 22 May 2023.
(v)
CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
meeting and any adjournment(s) thereof by using the procedures
described in the CREST Manual. CREST personal members or other
CREST sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST
service to be valid, the appropriate CREST message (a CREST
Proxy Instruction) must be properly authenticated in accordance with
Euroclear UK & Ireland Limited’s specifications and must contain the
information required for such instruction, as described in the CREST
Manual (available via www.euroclear.com/CREST). The message,
regardless of whether it constitutes the appointment of a proxy, or
is an amendment to the instruction given to a previously appointed
proxy must, in order to be valid, be transmitted so as to be received by
the issuer’s agent (ID 3RA50) by the latest time(s) for receipt of proxy
appointments specified in Note 3 above. For this purpose, the time of
receipt will be taken to be the time (as determined by the time stamp
applied to the message by the CREST Application Host) from which
the issuer’s agent is able to retrieve the message by enquiry to
CREST in the manner prescribed by CREST. After this time, any
change of instructions to proxies appointed through CREST
should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors
or voting service providers should note that Euroclear UK & Ireland
Limited does not make available special procedures in CREST for
any particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy Instructions.
It is the responsibility of the CREST member concerned to take (or,
if the CREST member is a CREST personal member or sponsored
member or has appointed a voting service provider(s), to procure his
CREST sponsor or voting service provider(s) take) such action as shall
be necessary to ensure that a message is transmitted by means of the
Notice of the 2023 Annual General Meeting
Continued
168
Zotefoams plc
Annual Report 2022
CREST system by any particular time. In this connection,
CREST members and, where applicable, their CREST sponsors
or voting service providers are referred, in particular, to those
sections of the CREST Manual concerning practical limitations of
the CREST system and timings (www.euroclear.com/CREST).
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001 (as amended).
(vi)
In the case of joint holders of shares, the vote of the first named in
the register of members who tenders a vote, whether in person
or by proxy, shall be accepted to the exclusion of the votes of other
joint holders.
(vii) The following information is available at www.zotefoams.com:
(1) the matters set out in this notice of AGM; (2) the total numbers
of shares in the Company, and shares in each class, in respect of
which members are entitled to exercise voting rights at the AGM;
(3) the totals of the voting rights that members are entitled to exercise
at the AGM, in respect of the shares of each class; and (4) members’
statements, members’ resolutions and members’ matters of business
received by the Company after the first date on which notice of the
AGM was given.
(viii) If you are a person who has been nominated by a member to enjoy
information rights in accordance with Section 146 of the Companies
Act 2006, notes (iii) to (v) above do not apply to you (as the rights
described in these notes can only be exercised by members of the
Company) but you may have a right under an agreement between you
and the member by whom you were nominated to be appointed or to
have someone else appointed, as a proxy for the meeting. If you have
no such right or do not wish to exercise it, you may have a right under
such an agreement to give instructions to the member as to
the exercise of voting rights.
(ix)
A member that is a company, or other organisation not having a
physical presence, cannot attend in person but can appoint someone
to represent it. This can be done in one of two ways: either by the
appointment of a proxy (described in notes (iii) to (v) above) or of a
corporate representative. Members considering the appointment of
a corporate representative should check their own legal position, the
Company’s Articles of Association and the relevant provision of the
Companies Act 2006.
(x)
Members attending the AGM have the right to ask, and, subject to the
provisions of the Companies Act 2006, the Company must cause to
be answered, any questions relating to the business being dealt with
at the AGM.
(xi)
As at the close of business on 3 April 2023 (being the latest practicable
date before publication of this notice), the Company’s issued share
capital comprised 48,621,234 ordinary shares of 5 pence each. Each
ordinary share carries the right to one vote at a general meeting of the
Company. No ordinary shares were held in treasury and accordingly
the total number of voting rights in the Company as at the close of
business on 3 April 2023 is 48,621,234.
(xii) Shareholders should note that it is possible that, pursuant to requests
made by shareholders of the Company under Section 527 of the
Companies Act 2006, the Company may be required to publish on
a website a statement setting out any matter relating to: (1) the audit
of the Company’s accounts (including the auditor’s report and the
conduct of the audit) that are to be laid before the AGM; or (2) any
circumstance connected with the Auditor of the Company ceasing to
hold office since the previous meeting at which annual accounts and
reports were laid in accordance with Section 437 of the Companies
Act 2006. The Company may not require the shareholders requesting
any such website publication to pay its expenses in complying with
Section 527 or 528 of the Companies Act 2006. Where the Company
is required to place a statement on a website under Section 527 of the
Companies Act 2006, it must forward the statement to the Company’s
Auditor not later than the time when it makes the statement available
on the website. The business which may be dealt with at the AGM
includes any statement that the Company has been required, under
Section 527 of the Companies Act 2006, to publish on a website.
(xiii) Copies of the Executive Directors’ service contracts with the Company
and any of its subsidiary undertakings, deeds of indemnity in favour of
the Directors and letters of appointment of the Non-Executive Directors
are available for inspection at the registered office of the Company
during the usual business hours on any weekday (Saturday, Sunday
or public holidays excluded) from the date of this notice until the
conclusion of the AGM.
Explanatory notes to the resolutions
Ordinary business
Resolution 1 – Receiving the Annual Report
Shareholders will be asked to receive the Company’s Annual Report for
the financial year ended 31 December 2022, as required by law.
Resolutions 2 and 3 – Directors’ Remuneration report
Resolution 2 seeks shareholder approval for the new Directors’
Remuneration Policy, which can be found on pages 91 to 99 of the
Annual Report. The new Directors’ Remuneration Policy will replace the
current Directors’ Remuneration Policy which was approved at the AGM
held on 8 June 2020. The new Directors’ Remuneration Policy sets out
the Company’s future policy on Directors’ remuneration, including the
setting of the Directors’ pay and the granting of share awards. Details
on how the policy will be applied in practice in 2023 are set out in the
Directors’ Remuneration report on pages 88 to 109 of the Annual Report.
If Resolution 2 is approved, the new Directors’ Remuneration Policy will
become effective immediately.
Resolution 3 seeks shareholder approval of the Remuneration report for
the year ended 31 December 2022, which can be found on pages 88 to
109 of the Annual Report. The Company’s Auditors, PKF Littlejohn LLP,
have audited those parts of the Directors’ Remuneration report that are
required to be audited and their report may be found on pages 114 to 118
of the Annual Report.
Resolution 4 – Declaration of dividend
This resolution concerns the Company’s final dividend payment. The
Directors are recommending a final dividend of 4.62 pence per ordinary
share in respect of the year ended 31 December 2022 which, if approved,
will be payable on 2 June 2023 to the shareholders on the register of
members on 5 May 2023.
Resolutions 5 to 11 – Re-election of Director
In line with the provisions of the UK Corporate Governance Code, the
Company Chair, S Good, will retire from the Board and L Drummond will
be appointed as Company Chair subject to election as Non-Executive
Director by the shareholders. Further details are provided on page 80 of the
Annual Report.
The Company’s Articles of Association require each Director of the
Company to retire from office at each annual general meeting of the
Company and, if they are willing, to offer themselves for re-appointment by
the shareholders. Biographies for the Directors are set out on pages 78 to
79 of the Annual Report for the year ended 31 December 2022. With the
Chair having undertaken performance reviews of the Directors, and the
Non-Executive Directors having undertaken a performance review of the
Chair, the Board is satisfied that each Director continues to be effective and
demonstrates commitment to the role and recommends that each Director
should be re-elected.
Resolutions 12 and 13 – Re-appointment of Auditor and its remuneration
Resolution 12 concerns the re-appointment of PKF Littlejohn LLP as the
Company’s Auditor, to hold office until the conclusion of the Company’s
next general meeting where accounts are laid. Resolution 13 authorises the
Audit Committee to determine the Auditor’s remuneration.
Strategic Report
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Financial Statements
169
Zotefoams plc
Annual Report 2022
Special business
Resolution 14 – Power to allot shares
This resolution grants the Directors authority to allot shares in the capital
of the Company and other relevant securities up to an aggregate nominal
value of £810,353, representing approximately one-third of the nominal
value of the issued ordinary share capital of the Company as at 3 April
2023, being the latest practicable date before publication of this notice. In
addition, in accordance with the latest institutional guidelines issued by the
Investment Association, paragraph (b) of resolution 14 grants the Directors
authority to allot further equity securities up to an aggregate nominal value
of £1,620,706 representing approximately two-thirds of the nominal value of
the issued ordinary share capital of the Company as at 3 April 2023, being
the latest practicable date before publication of this notice. This additional
authority may only be applied to fully pre-emptive rights issues.
The intention of the authority granted pursuant to paragraph (b) of
resolution 14 is to preserve maximum flexibility and if the Directors do
exercise this authority, they intend to follow best practice as regards its use.
The Company does not currently hold any shares as treasury shares
within the meaning of Section 724 of the Companies Act 2006
(“Treasury Shares”).
The Directors consider it desirable that the specified amount of authorised
but unissued share capital is available for issue so that they can more
readily take advantage of possible opportunities, which may include the
allotment of shares to the Employee Benefit Trust for the purpose of
fulfilling future potential awards.
Unless revoked, varied or extended, this authority will expire at the
conclusion of the next AGM of the Company or 30 June 2024, whichever
is the earlier.
Resolutions 15 and 16 – Authority to allot shares disregarding
pre-emption rights
These resolutions authorise the Directors in certain circumstances to
allot equity securities for cash other than in accordance with the statutory
pre-emption rights (which require a company to offer all allotments for cash
first to existing shareholders in proportion to their holdings). Resolution
15 authorises the Directors to issue shares either where the allotment
takes place in connection with a rights issue or the allotment is limited to
a maximum nominal amount of £121,553, representing approximately 5%
of the nominal value of the issued ordinary share capital of the Company
as at 3 April 2023, being the latest practicable date before publication of
this notice. Resolution 16 authorises the Directors to issue a further 5%
of the issued ordinary share capital of the Company, but only to be used
to raise finance for an acquisition or a specified capital investment (within
the meaning given in the Pre-Emption Group’s Statement of Principles)
which is announced contemporaneously with the allotment, or which
has taken place in the preceding six-month period and is disclosed in the
announcement of the allotment.
Unless revoked, varied or extended, these authorities will expire at the
conclusion of the next AGM of the Company or 30 June 2024, whichever
is the earlier.
The Directors consider that the powers proposed to be granted by these
resolutions are necessary to retain flexibility, although they do not have any
intention at the present time of exercising them. In accordance with the
Pre-Emption Group’s Statement of Principles, the Directors confirm that
they do not intend to issue more than 7.5% of the issued ordinary share
capital of the Company on a non-pre-emptive basis in any rolling three-year
period without prior consultation with shareholders.
Resolution 17 – Authority to purchase shares (market purchases)
This resolution authorises the Board to make market purchases of up
to 4,862,123 ordinary shares (representing approximately 10% of the
Company’s issued ordinary shares as at 3 April 2023, being the latest
practicable date before publication of this notice). Shares so purchased
may be cancelled or held as treasury shares. The authority will expire
at the end of the next AGM of the Company or 30 June 2024, whichever
is the earlier. The Directors intend to seek renewal of this authority at
subsequent AGMs.
The minimum price that can be paid for an ordinary share is 5 pence, being
the nominal value of an ordinary share. The maximum price that can be
paid is 5% over the average of the middle market prices for an ordinary
share, derived from the Daily Official List of the London Stock Exchange,
for the five business days immediately before the day on which the share
is contracted to be purchased.
The Directors intend to exercise this right only when, in light of the market
conditions prevailing at the time and taking into account all relevant factors
(for example, the effect on earnings per share), they believe that such
purchases are in the best interests of the Company and shareholders in
general and will result in an increase in earnings per ordinary share. The
overall position of the Company will be taken into account before deciding
upon this course of action. The decision as to whether any such shares
bought back will be cancelled or held in treasury will be made by the
Directors on the same basis at the time of the purchase.
As at 3 April 2023, being the latest practicable date before publication of
this notice, there were outstanding awards under the Company’s long-
term incentive schemes (excluding the Share Incentive Plan) in respect of
1,190,954 ordinary shares in the capital of the Company representing 2.4%
of the Company’s issued ordinary share capital. If the authority to purchase
the Company’s ordinary shares were exercised in full, such awards would
represent 2.7% of the Company’s issued ordinary share capital.
Resolution 18 – Notice period for general meetings
Under the Companies Act 2006, a listed company must give at least
21 days’ notice of its general meetings. However, the Act enables general
meetings (other than AGMs) to be held on shorter notice of not less
than 14 days, provided the shareholders have given their consent at the
previous AGM or a general meeting held since the last AGM. Resolution
18 seeks such approval similar to the resolution that was passed last
year. The approval will be effective until the Company’s next AGM, when
it is intended that a similar resolution will be proposed. The Directors will
always endeavour to give as much notice as possible of general meetings,
but would like to have the flexibility to call a general meeting on the shorter
permitted notice period for time-sensitive matters that are clearly in the
shareholders’ interests and otherwise for non-routine business, where
merited, in the interests of shareholders as a whole. If the authority is used,
the Company will offer the ability, as required by the Companies Act 2006,
to vote electronically.
Recommendation
The Directors consider that the proposals being put to the shareholders at
the AGM are in the best interests of the Company and of the shareholders
as a whole. Accordingly, the Directors recommend that you vote in favour
of the resolutions set out in the Notice of the AGM, as they intend to do in
respect of their own beneficial holdings of ordinary shares.
Notice of the 2023 Annual General Meeting
Continued
170
Zotefoams plc
Annual Report 2022
Company information
Registered office
675 Mitcham Road
Croydon CR9 3AL
cosec@zotefoams.com
Registered number
2714645
Joint brokers
Peel Hunt LLP
7th Floor, 100 Liverpool Street
London EC2M 2AT
Singer Capital Markets
Advisory LLP
One Bartholomew Lane
London EC2N 2AX
Financial public relations
IFC Advisory Limited
Birchin Court, 20 Birchin Lane
London EC3V 9DU
Auditor
PKF Littlejohn LLP
15 Westferry Circus
Canary Wharf
London E14 4HD
Bankers
Handelsbanken plc
3 Thomas More Square
London E1W 1WY
National Westminster Bank plc
Turnpike House, 123 High Street
Crawley RH10 1DD
Solicitors
Osborne Clarke LLP
One London Wall
London EC2Y 5EB
Collyer Bristow LLP
140 Brompton Road
London SW3 1HY
Registrars
Computershare Investor
Services plc
The Pavilions
Bridgwater Road
Bristol BS13 8AE
www.computershare.com
Financial calendar
AGM
24 May 2023
Payment of final dividend
2 June 2023 to shareholders
on the register at the close of
business on 5 May 2023
Payment of interim dividend
October 2023
Announcement of 2023 results
March 2024
Website
The Company has a website (www.zotefoams.com) which provides
information on the business and products.
Zotefoams
®
, AZOTE
®
, ZOTEK
®
, T-FIT
®
, Plastazote
®
, Evazote
®
,
Supazote
®
, ReZorce
®
, Refour
®
and Ecozote
®
are registered
trademarks of Zotefoams plc.
MuCell
®
is a registered trademark of Trexel Inc.
Registrars
Enquiries concerning the holding of ordinary shares in the Company
should be addressed to the registrars who should also be notified of any
changes in a holder’s address.
The registrars are: Computershare Investor Services plc, The Pavilions,
Bridgwater Road, Bristol BS13 8AE.
Telephone: 0370 707 1424
www.investorcentre.co.uk/contactus
Strategic Report
Governance
Financial Statements
171
Zotefoams plc
Annual Report 2022
Notes
172
Zotefoams plc
Annual Report 2022
