Zotefoams plc
Annual Report 2023
Strategic Report
Group at a glance
10
Our brands
12
A unique manufacturing process
18
Our business model
20
Our external context
26
Our strategic objectives
28
Chair’s statement
31
Group CEO’s review
33
Group CFO’s review
38
Risk management and principal risks
45
Viability statement
59
Non-financial information statement
60
S172(1) statement
61
Environmental, social and governance (ESG) report
64
Contents
Governance
Board of Directors
78
Corporate governance
80
A
udit Committee report
83
Nomination Committee repor
t
87
Directors’ Remuneration report
90
Directors’ report
104
Statement of Directors’ responsibilities
107
Financial Statements
Independent auditor’s report
108
Consolidated income statement
113
Consolidated statement of comprehensive income
114
Consolidated statement of financial position
115
Company statement of financial position
116
Consolidated statement of cash flows
117
Company statement of cash flows
118
Consolidated statement of changes in equity
119
Company statement of changes in equity
120
Notes
121
Five-year trading summary
160
Notice of the 2024 Annual General Meeting
161
Company information
165
Financial calendar
165
Return on capital employed
10.3%
Change
20 ppt
2022
10.1%
Net debt
£31.6m
Change
13%
2022
£27.8m
Leverage
1.2x
Change
0%
2022
1.2x
Group revenue
£127.0m
Change
0%
2022
£127.4m
Gross margin
32.3%
Change
190 ppt
2022
30.4%
Operating profit
£15.1m
Change
9%
2022
£13.9m
Profit before tax
£12.8m
Change
5%
2022
£12.2m
Basic earnings per share
19.00p
Change
-8%
2022
20.61p
Total dividend for the year
7.18p
Change
5.6%
2022
6.80p
Financial KPIs
In 2023, Zotefoams delivered its strongest
performance yet – record-breaking profit before
tax, underpinned by strategic consolidation of
revenue towards higher-value product
propositions.
As we drive towards further sustainable growth,
we’re stepping up efforts across our business by
continuing to champion a culture where people
come first, and by setting the stage for continued
innovation and collaboration as we enhance our
product range and bolster our global footprint.
David Stirling
Group CEO
A new basketball
superpower
Nike brings ZoomX foam to a
basketball shoe for the first time
See page 6
A more
sustainable
future
Driving towards
ReZorce
®
mono-material barrier packaging
with MuCell
®
polymer reduction
technology
See page 4
Our brands in action
Innovating to help our customers
meet new challenges
See page 14
03
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
04
Zotefoams plc
Annual Report 2023
Mono-material barrier
packaging with MuCell
®
polymer reduction
technology
ReZorce
®
Supported by a robust framework of patents
and recognised by leading packaging
bodies and technological institutes for its
potential to effect meaningful change, the
goal for ReZorce
®
mono-material barrier
packaging is to become the world’s most
sustainable beverage carton.
In the context of a fast-changing regulatory infrastructure for
packaging, strict targets are now in place to drive post-consumer
waste collection, recycling and reuse of materials back into primary
packages. When we initially assessed the potential applications for
ReZorce, the area we considered to have the largest opportunity for
impact was in liquid paperboard (LPB) cartons. Every year, 300
billion packages are consumed globally, the vast majority of which
are sent to landfill or for incineration. In most regions, there is very
limited kerbside collection and virtually none when it comes to
commercial collection.
Typically, 70% of an LPB carton is virgin fibre and never used
again in a carton – which contrasts with a ReZorce carton, which
can contain up to 100% recycled material. As a mono-material
structure, ReZorce is easy and cost-effective to fully recycle.
When it comes to rapidly scaling any innovation, we understand
that simplicity is key and have designed the ReZorce solution
to be compatible with existing infrastructure, allowing rapid
deployment for brand owners and beverage packers. This
will accelerate the rate of market adoption and reduce
switching costs.
We have also partnered with Biffa, one of the most dynamic
commercial waste management service organisations in Europe.
Extensive tests carried out in partnership with them have
demonstrated that ReZorce cartons can be deposited in the
standard plastics waste stream and will be correctly sorted
for recycling. From a consumer perspective, the widespread
availability of kerbside collection for plastics will make it
extremely convenient to recycle ReZorce cartons.
05
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
Market potential¹
Aseptic cartons
ReZorce
Western Europe
market
7
6
5
4
3
2
1
0
billions
North America
market
Forecast growth
2020–2025 (CAGR)
2.9%
3.3%
1
© Copyright Smithers
Information Ltd
A year of collaboration and progress
By taking a collaborative approach to how we work
with brands and retailers and leveraging our
extended team capabilities following the integration
of Refour ApS into our MuCell Extrusion LLC
business, we have rapidly accelerated the
development of ReZorce in 2023.
A significant step forward
Building on our significant progress, Zotefoams plc
has entered into an exclusive development
agreement with a world-leading packer of
beverages and a retailer to conduct full-scale
production and in-market trials.
In good company
I
n February 2024, Zotefoams proudly joined
RECOUP, the UK’s esteemed authority on plastics
resource efficiency and recycling, signifying our
unwavering commitment to advancing sustainability
in the packaging industry. Together with partners
such as RECOUP, we are determined to drive
meaningful change, not only in how plastics are
utilised but also in how they are managed
throughout their life cycle. Partnerships such as this
crystallise our efforts to create a more sustainable
future, one where innovative solutions like ReZorce
pave the way for a circular economy and reduced
environmental impact.
Evidence of lower environmental impact
An independent Life Cycle Assessment (LCA) of
ReZorce cartons was completed in 2023 and
peer-reviewed by Imperial College London to
benchmark against the current market standard.
The findings were compelling across 26 impact
categories – including a 55% reduction in carbon
footprint, a 53% reduction in energy consumption
and a 51% reduction in water usage. In their words,
“our overall conclusion is that the LCA provides
evidence that the ReZorce beverage carton has a
lower environmental impact than the conventional
liquid paperboard carton”.
Once in a generation change
ReZorce represents a “once in a generation”
structural change to the packaging industry,
with minimal complexity or cost, and we actively
encourage organisations across the supply chain to
step forward and collaborate with us to bring about a
rapid transition to a better beverage carton format.
Beyond beverage cartons
ReZorce is not confined to one packaging
application or sector; its versatility extends
across rigid and flexible packaging, with the
potential for various sizes, shapes, formats
and product categories.
$5.5
bn
$6.3
bn
External recognition & awards
ReZorce has been recognised extensively
across the packaging industry as a game
changer, winning “Best Recycled Plastic
Product of the Year” at the 2023 UK
Packaging Awards, The Prince Philip Award
for “Polymers in the Service of Mankind”
and being recently described as “one of the
most exciting new packaging innovations
for 2024” by the International Fruit and
Vegetable Juice Association.
06
Zotefoams plc
Annual Report 2023
Nike brings
ZoomX foam to
a basketball shoe
for the first time
A New Basketball Superpower
The Nike G.T. Cut 3 is designed to help basketball
athletes create separation from their opponent
as quickly as possible. Its new superpower: a
Nike ZoomX foam midsole – the first time the
innovative foam has appeared in a Nike
basketball shoe.
G.T. Cut 3
With the rocket power
of ZoomX foam, the G.T.
Cut 3 provides next-level
responsiveness for
explosive moves and
quick cuts to the rim.
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Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
Alphafly 3
In an incredible performance at the 2023
Chicago Marathon, Nike athlete Kelvin
Kiptum earned his place in history. Wearing
the new Nike Alphafly 3 with ZoomX foam,
Kiptum set a stunning new men’s marathon
world record with a time of 2:00:35. As
we pay tribute to Kiptum and his coach
Gervais Hakizimana, we celebrate their
unwavering dedication to greatness and
incredible achievements together.
Pushing the boundaries
of ZoomX foam
This year, we’ve continued our
collaboration with Nike scientists,
developers and designers to support
a range of significant projects, most
notably Nike’s adoption of ZoomX foam
in the entirely new category of basketball
footwear. Our partnership remains deeply
rooted in our shared vision to help all
athletes break barriers no matter their
game or pace, by pushing the boundaries
of ZoomX foam to offer ever higher levels
of energy return and cushioning.
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Zotefoams plc
Annual Report 2023
We strive to deliver nothing short of a world-class
customer experience. With a clear focus on
maintaining stronger than ever customer
partnerships, we strive to enhance every facet of
the Zotefoams customer journey, from quality to
service and reliability.
Building on this strong foundation, we leverage
Zotefoams’ position as a global business to invest
in scaling our operations to support the continued
expansion of our customers. We do this by
providing access to additional capacity, further
reducing lead times, and offering extended services
such as specialist fabrication processes, which are
critical to our customers but which they cannot
reliably source elsewhere.
Dan Lumpkin,
President, Zotefoams Inc
Leadership experience: 28 years
Push the
boundaries of
our
unique
technology
Stepping up to…
How we’re stepping
up across Zotefoams
At the core of Zotefoams’ business ethos lies a
belief in the superiority of our products, offering
unrivalled material properties that distinguish us in
the market and, crucially, unlock the success of our
customers.
An ongoing commitment to innovation enables us
to push the boundaries of technology to create new
products and refine existing ones – this ensures
that we remain at the forefront of technological
advancement and gives customers ongoing access
to innovative products and solutions that propel
their success.
Karl Hewson,
Director of Technology & Development
Leadership experience: 27 years
Deliver a
world-class
customer experience
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Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
We are committed to achieving operational
excellence across all aspects of the Zotefoams
business. By meticulously refining our processes,
optimising resource utilisation and fostering a
culture of continuous improvement, we strive to
enhance efficiency and drive superior performance
throughout our organisation.
Zotefoams’ relentless pursuit of operational
excellence extends beyond mere compliance with
industry standards; it encompasses a holistic
approach to deliver exceptional value to our
customers, stakeholders and those who benefit
from our products. Through disciplined execution
and a focus on operational best practices,
we aim to maximise productivity, minimise waste
and consistently deliver high-quality products
and services.
By upholding the highest standards of operational
excellence, we ensure that we remain agile,
responsive and well-positioned to meet the
evolving needs of our customers and seize new
opportunities for growth and innovation.
Benito Sala,
Managing Director Europe
Leadership experience: 25 years
Drive a
sustainability
revolution
in
packaging
We are proud to lead the way towards a more
environmentally friendly future by bringing the world’s
most sustainable beverage carton to market. In
creating the first ever mono-material alternative to
conventional liquid paperboard, which will enable
widespread recycling of beverage cartons like never
before, the 2024 on-shelf commercial launch of
ReZorce
®
mono-material barrier packaging will
mark one of the most significant milestones in the
beverage packaging industry’s sustainability journey.
Through an extensive programme of research,
innovative design and rigorous testing, we have
developed a breakthrough solution that sets a
new standard of excellence in beverage packaging
while championing environmental stewardship.
The introduction of ReZorce will represent a major
paradigm shift, offering consumers, beverage
manufacturers and brands alike a viable, sustainable
alternative that minimises waste, maximises
recyclability and enables greater circularity.
Neil Court-Johnston,
President, MuCell Extrusion LLC
Leadership experience: 24 years
By ensuring that we are strategically positioned
to seize the growth opportunities of tomorrow,
we strive to lay a robust foundation that will
secure enduring value for our business well into
the future, ensuring that we are agile and
responsive to emerging market demands.
With a focus on proactive identification and
appraisal of key strategic opportunities at the
earliest opportunity, we take a long-term view
and develop strategic capacity growth
programmes across all our key processes.
We also recognise that our sustained success
hinges not only on the capacity and capabilities
of our unique technology and processes but also
on that of our people. We prioritise investing in
our team’s skills and expertise, ensuring that
they possess the necessary capabilities to
support our growth ambitions.
Hugh Morgan,
Director of Strategic Projects
Leadership experience: 25 years
Activate
strategic
capacity growth
Achieve
unrivalled
operational
excellence
10
20
30
40
0
Revenue by industry
%
Product
protection
Transportation
Sports
and leisure
Building and
construction
Industrial
Medical
Other
2023
2022
2022
2023
Polyolefin Foams
HPP
MEL
Revenue by business unit
£m
0
£20
£40
£60
£80
£100
£120
£140
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Zotefoams plc
Annual Report 2023
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
developing ReZorce
®
mono-
material barrier packaging.
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 everyday
applications.
Rest of
the world
44%
(2022: 41%)
Continental
Europe
26%
(2022: 25%)
United
Kingdom
9%
(2022: 11%)
North
America
21%
(2022: 23%)
Share of Group revenue
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Annual Report 2023
Strategic Report
Governance
Financial Statements
Key market drivers
Light-
weighting
Durability
Reduced
toxicity
Fire
safety
Energy
saving
AZOTE
®
Read more
page 13
Read more
page 12
Read more
page 12
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
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
®
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
AUTOCLAVE TECHNOLOGY
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Zotefoams plc
Annual Report 2023
Our brands
Innovating to help our customers meet new challenges
AZOTE
®
ZOTEK
®
POLYOLEFIN
FOAMS
POLYOLEFIN
FOAMS
HPP
AZOTE polyolefin foams are
manufactured using our unique,
high-pressure process. This process
differentiates Zotefoams from
competitors who manufacture similar
foams using low-density polyethylene
(LDPE), which is our main raw material.
Zotefoams produces foams that are
more consistent and lighter 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 have excellent kinetic energy
management properties and, while
they can be used in a variety of
applications, are currently being used
in footwear applications to Nike as part
of our exclusive agreement. 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 – lightweight, 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 LDPE
foams with 30% recycled content.
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Strategic Report
Governance
Financial Statements
T-FIT
®
HPP
MEL
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 has expanded 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 that air conditioning, air filtration
and other process equipment continue
to operate at optimum levels of
performance.
Unique in both its material 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 situ, up to 205°C. Aimed at the utility
and general processing industries
around the world, T-FIT Process
assists project and process engineers
in their quest for ever more durable
and heat-resistant insulation solutions.
ReZorce
®
mono-material barrier
packaging 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 the
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.
For more information on ReZorce
features, see
pages 4 and 5.
MEL licenses microcellular foam
technology and sells related
machinery. MEL’s business model is to
develop and license intellectual
property (IP) and share in the savings
or benefits of the licensee through a
royalty and/or licence fee.
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.
A variation of this technology has
been used to create ReZorce
®
mono-material barrier packaging, a
recyclable solution, and this forms the
current focus of MEL. As we approach
market trials for beverage cartons, our
team becomes more specialist and our
knowledge deepens. The ReZorce
product design is protected by a
robust framework of patents.
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Zotefoams plc
Annual Report 2023
Our brands in action
ZOTEK
®
F
OSU
for aviation
Making smarter material choices
which reduce the weight of an
aircraft is essential to meeting this
objective, and ZOTEK F high-
performance foam is unlocking
significant weight reductions,
making a considerable impact
on total fuel burn.
Thermoforming expert Plastika
Balumag (Hochdorf, Switzerland)
produces parts for a wide range of
aviation applications, including
window blinds, back coverings for
seats, instrument panel coverings
and other critical components. The
most innovative example is a formed,
self-insulating air duct assembly,
which optimises air circulation
through the on-board ventilation
system.
Conventionally, ventilation circulation
systems are comprised of both rigid
ducts, derived from heavier
polycarbonate materials, and
separate insulation products, which
add further weight.
Manufactured solely from lightweight
ZOTEK F OSU XR, an extra-rigid
grade, the Plastika Balumag system
does not require separate insulation
and offers weight savings of 50%
compared with alternatives. As well
as reducing installation hours, the
twin-sheet, self-insulating air duct’s
unique design also includes
integrated breakpoints that make
installation even easier in business
jets which do not have uniform
layouts.
Manufactured using naturally inert
PVDF polymer, ZOTEK F also boasts
exceptional safety credentials. With
outstanding fire, smoke and toxicity
properties, ZOTEK F was selected as
the preferred material for Plastika
Balumag’s air ducts.
Also resistant to UV light, which is far
more intense at high altitude, ZOTEK
F is a material of choice across
several other critical applications
throughout the aircraft such as in
interior finishes and wall panels.
With business jet travel under constant
scrutiny, improving the sustainability of
private aviation is an urgent priority for
aircraft manufacturers.
Weight of business
jet components
reduced
by 50%
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Zotefoams plc
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Governance
Financial Statements
T-FIT
®
advanced
insulation
Reducing energy consumption is a
critical focus for businesses striving for
sustainability and cost-effectiveness,
particularly within energy-intensive
industrial organisations.
Transforming
energy efficiency
in brewing
Upgrading pipe insulation presents
a simple yet impactful solution to
improve energy efficiency and reduce
thermal loss.
Throughout the brewing industry, the
inefficiencies of existing fibre insulation
systems pose significant challenges.
Not only are they ineffective as a
thermal insulator, but they also raise
safety concerns and contributed to
rapid spot corrosion of pipes due to
moisture absorption properties.
Enter T-FIT pipe insulation – a
pioneering solution in energy
efficiency. Unlike traditional insulation
methods, T-FIT insulation is
non-fibrous and dust-free, boasting
a closed-cell structure that renders
it hydrophobic and resistant to
moisture absorption. This unique
feature prevents corrosion and
bacterial growth on pipe surfaces,
ensuring longevity and reliability.
Beyond its moisture-resistant
properties, T-FIT insulation offers a
plethora of benefits. Its integrated
aluminium cladding provides
unparalleled physical protection
around hot pipe works, enhancing
safety and durability.
Additionally, T-FIT insulation excels
against mechanical impact, chemical
exposure, and UV light degradation,
ensuring optimal performance in
diverse industrial environments.
The modular clamshell design of
T-FIT insulation simplifies installation
and ongoing maintenance,
eliminating the need for specialised
tools. This not only reduces
installation time but also enhances
the overall installation experience.
By enabling easy inspection and
maintenance, T-FIT insulation
minimises labour time and optimises
operational efficiency.
The success story of T-FIT pipe
insulation in brewing underscores
its transformative potential for
businesses seeking to enhance
energy efficiency and reduce costs.
As industry leaders embrace
sustainable solutions, T-FIT insulation
stands at the forefront, offering a
reliable and innovative solution to
address energy consumption
challenges effectively.
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Annual Report 2023
Our brands in action
Evazote
®
resilient
foam
In collaboration with our partner
Flextech, Sun Path, the world’s
premier manufacturer of harness
container systems for sport and
military parachuting has developed
an innovative addition to the Javelin
Odyssey parachute container/
harness system which is garnering
acclaim from elite skydivers
worldwide, such as the Red Bull
skydiving team and current world
champions Arizona Airspeed.
Using Evazote foam, the Sun Path
team has designed a system that
redefines how a container/harness
feels on a jumper’s body – setting
new standards for performance,
comfort and security on every jump.
The SPYN Pad System focuses on
three essential elements: fit, form and
function.
By incorporating custom-moulded
foam materials, which adapt to the
skydiver’s unique contours, the
system feels like a second skin by
ensuring a snug, comfortable fit while
minimising pressure points. Also
designed to facilitate seamless
motion, it provides unparalleled
freedom without compromising on
security, empowering skydivers to
push boundaries with confidence.
Each component is precision-
engineered to work in harmony,
delivering stability, agility and
unmatched performance with every
jump, and is built to withstand the
rigours of countless jumps. Skydivers
the world over trust in Sun Path’s
unmatched reliability every time
they take to the skies.
A next-level
skydiving
experience
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Ecozote
®
Sustainability+
foam
As part of our development of ReZorce
®
mono-material barrier packaging,
specialist machine parts have also
been developed to enable easy
modification of existing equipment,
to fill ReZorce beverage cartons.
Pioneering
sustainable
packaging in
transport of
critical machine
parts
During transportation of these
critical, high-value parts it is essential
that they are well protected to ensure
their safe arrival. The design of
specialist packaging was therefore
required.
In collaboration with Polyfoam
Kautschuk, we harnessed the
innovative potential of our own
Ecozote
®
foam technology to create
bespoke packaging materials.
Fabricated using Ecozote LDR foam,
the custom-designed machine parts
protection packaging incorporates
30% post-industrial recycled content
and aligns with ISO 14021 standards.
Designed to mirror the exceptional
properties of Zotefoams’ renowned
AZOTE
®
polyethylene foams,
Ecozote boasts unparalleled levels
of consistency, durability and purity
compared with other sustainable
packaging options – making it the
ideal solution for leading fabricators
such as Polyfoam Kautschuk.
Through our unique three-stage
process and access to high-quality
recycled materials, Ecozote foam
delivers superior performance-to-
weight benefits, ensuring optimal
protection while significantly reducing
environmental impact. The transition
to lighter packaging materials also
directly translates to reduced CO
2
emissions during transportation,
further underscoring our commitment
to sustainability.
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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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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.
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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:
Starting with
a core process
Making the best
use of our assets
High-performance products,
typically branded as
ZOTEK
®
, 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.
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 18 and 19
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 additional manufacturing capacity in
Poland to be closer to our main European markets.
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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.
Installation of
thermal efficient
foam in passenger
bus chassis
China
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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 research and development, 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 with 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 the 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 has been, and continues to be,
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 64 to 77.
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
®
mono-material
barrier packaging is a 100% recyclable mono-
material barrier packaging solution, that has
been designed to replace difficult-to-recycle
laminated paper, pouches and cartons.
Our sustainable
competitive advantages
As described on page 20 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 to 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 35 and 46.
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. The recently developed ReZorce
®
mono-material barrier packaging solution
uses 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 –
lightweight, 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 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 changes in 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 2023 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?
We seek to run at high-capacity utilisation
to optimise the returns from our assets.
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. Polyolefin foams
provide unique solutions to a broad spread
of customers across many industries, serving
as a valuable mitigant against industry and
customer risk. HPP foam sales are typically
more concentrated, with fewer end users, and
we respond to their needs with limited ability
to proactively influence our capacity utilisation.
This year
In 2023, asset utilisation improved by 2.6%
and is calculated using the adjusted
production volume, with the same mix
adjustment factors as used in the selling price
calculation detailed in objective 1 above.
Adjusted production volumes, against which
we calculate asset utilisation, were 4% higher
than adjusted sales volumes as we increased
inventory during the final quarter of the year in
anticipation of strong demand in the first few
months of 2024. Efficiency gains in
manufacturing during the year added 2% to
the effective capacity of the Group.
Next year, and beyond
We are confident that we can continue to
improve capacity utilisation over the economic
and investment cycle. The key drivers of our
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. We review the
demand/capacity relationship in the short to
medium term via our sales and operational
planning processes and in the medium to
longer term via our Capacity Planning
Steering Committee. When we create
capacity through investment in additional
assets (rather than operational improvements),
we accept that capacity utilisation may
decline in the short term, or our mix may
move to more price-elastic products, while
additional business is fully developed.
Why?
We intend, over time, to deliver an improved
mix of products. By this, we mean improved
profitability, and a reasonable proxy is average
selling price per cubic metre of foam, which is
typically higher for HPP products. Products in
the HPP portfolio typically offer higher growth
rates and higher margins than polyolefin
foams. The HPP business uses the same
asset base as the Polyolefin Foams business
and leverage our uniqueness by providing
customers with solutions based on foams
ideally suited to our technology. They offer
larger-scale opportunities than our polyolefin
foams and higher drop-through operating
margins. Adding downstream processing,
such as T-FIT
®
insulation products, enhances
our margin, as does the cutting processes
we perform for multiple customers globally.
These downstream operations are light
on capital and leverage our investment in
foaming technology. Our polyolefin foams
portfolio, under our AZOTE
®
brand, is typically
viewed as best-in-class for performance,
often measured by weight, purity and
durability. When we increase capacity,
we seek to utilise this capacity quickly
(see objective 2 below), and this is most
immediately achieved by offering our products
into markets where the performance benefits
are less valued while, over time, targeting
markets that require specified, technical
foams and offer higher margins.
This year
The HPP share of Group revenue increased
this year from 43% to 46%. We adjust our
HPP volumes to calculate a “capacity
equivalent” to reflect the often-extended
processing times of these products. The
adjusted average selling price during 2023
across all our foam products improved by
2.7% compared with the prior year.
Next year, and beyond
We expect revenues and the Group share of
HPP to continue to grow. We also expect to
increase the share of higher-margin AZOTE
®
foam products. The rate of mix enhancement
will depend on developing new applications in
the portfolio, either from existing or newly
developed products, as well as the level of
footwear sales to Nike, 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 updated the first two of our strategic objectives to better align with our business
strategy and reflect the focus of our management team.
1. Improved mix of products
2. Run at high capacity utilisation
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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 for shareholders.
This year
In 2023, Group operating margin increased
to 11.9% (2022: 10.9%), or 12.1% in constant
currency. Excluding MEL, Group operating
margin was 15.5% (2022: 12.7%), or 15.7%
in constant currency. The full-year impact
of price increases from 2022 and lower
input costs were augmented by improved
efficiencies within manufacturing, offset
somewhat by an increase in technical, sales
and administration costs, some associated
with the increased investment in the ReZorce
®
mono-material barrier packaging opportunity.
Next year, and beyond
Continued progress with improved mix
and asset utilisation, our first two strategic
objectives above, will allow gross margins to
continue to grow and the drop-through effect
on underlying profit to increase. ZOTEK F
sales recovery post pandemic will continue
and grow beyond previous highs, plant
efficiency at the newer USA and Poland
facilities will improve based on experience
and improved utilisation, distribution and
administrative costs will be better absorbed
and our investment behind the T-FIT technical
insulation business will generate enhanced
margins. In addition, across our foams
businesses, we expect the sustainability
objectives that improve energy and polymer
use efficiency to help improve margins.
Beyond our foams businesses, the
opportunity from ReZorce remains significant
and will become clearer as we hit key
milestones during 2024.
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 2023 and 2022, the ROCE has been
materially impacted by our investment in the
ReZorce mono-material barrier packaging
opportunity, which offers the potential for
very high returns but in the development
phase requires significant discretionary cost.
In 2023, the return on capital employed
increased to 10.4% (2022: 10.1%) but
increased to 14.2% (2022: 12.0%) when the
MEL losses of £4.4m (2022: £1.9m) are
excluded. The improvement in ROCE of the
foams businesses is a result of increased
profitability as the Group delivers on its
strategic objectives.
Next year, and beyond
The Group has delivered a large capacity
expansion programme over recent years and
the balance sheet has increased significantly
as a consequence. 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. ROCE
will continue to improve as the Group
successfully delivers on its strategic
objectives. The ReZorce opportunity is
reaching key milestones in 2024, which
should significantly reduce the level of
operational and capital spend incurred in
recent years and immediately impact ROCE,
regardless of the eventual outcome.
3. Increase our operating margins
4. Improve our return on capital (over our investment cycle)
30
Zotefoams plc
Annual Report 2023
Our strategic objectives
Continued
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
Progress continues to be made against
our sustainability targets. In 2023, energy
consumption remained static despite a
significantly higher proportion of HPP
products, having a higher energy intensity,
being manufactured. Excess polymer
consumed was reduced and while we missed
our 2023 target to develop sustainable new
products designed to achieve use-phase
efficiency, we continued the development
of foams containing polymers from both
renewable sources and circular solutions.
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 65.
Next year, and beyond
We have set ambitious longer-term
sustainability objectives, aligned with a
sustainability-backed loan facility, which focus
on three performance indicators: the energy
we use to manufacture the products that 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.
The aim of our objectives is to ensure that
Zotefoams has a more sustainable product
portfolio, which minimises both the energy
used and the polymer waste produced in
its manufacture. Details of these objectives
are presented on our website
https://zote.
info/3mjufjS
. To further embed our drive
towards environmental sustainability,
during 2024 we aim to become accredited
to ISO 50001:2018, the international standard
for energy management, at our Croydon,
UK, site.
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
continues to be on the development of the
ReZorce opportunity. Very good strategic
progress has been made, with advancements
in the technology accelerated by the Group’s
2022 acquisition of complementary
know-how and assets in Denmark and the
benefits of a joint development agreement
with a world-leading packer of beverages
showing immediate results. In addition to a
£4.4m segment loss at MEL (2022: £1.9m)
driven by investment in ReZorce, the Group
also capitalised costs in line with accounting
rules. The net book value of investments
made in this opportunity as at 31 December
2023 amounted to £6.8m (31 December
2022: £4.7m).
Next year, and beyond
We expect 2024 to be a decisive year for
ReZorce, with in-store trials planned at a
major European retailer. In anticipation of
success, we are preparing a roadmap to
deliver scaled-up operational capacity linked
to the significant commercial interest in
ReZorce carton products. We simultaneously
seek to engage with financial and strategic
partners, recognising the limitations of
Zotefoams’ size and experience in this
multi-billion pound industry. Our investment
approach to ReZorce 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. As development proceeds,
we will have greater clarity over the business
model that will capture the most value for
the Group and its shareholders.
5. Clarify and improve the Group approach
to environmental sustainability and climate change
6. Develop and invest in MuCell technology
A year of
stepping up…
31
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Annual Report 2023
Strategic Report
Governance
Financial Statements
L Drummond
Chair
Dear shareholders
2023 was a year of stepping up at Zotefoams,
marked by a significant increase in the
profitability of our foams businesses.
We further solidified our partnership with
Nike through an extension of our exclusivity
agreement and, additionally, we heightened
our commitment to sustainability with
increased investment in our ReZorce
®
mono-material barrier packaging technology,
which is now progressing to the market
trial phase. For a deeper understanding of
our stepping-up journey, our experienced
Executive team members share their own
insights on what stepping up means to them
on pages 8 to 9.
Record profits
I am pleased to report that the Group
achieved record profits for the year, exceeding
market expectations with a profit before tax
of £12.8m (2022: £12.2m) on revenues at a
similar level to the prior year. As we continue
to deliver successfully on our established
autoclave technology strategy, following
significant capital investment across the UK,
USA and Poland, we are aware of the
importance of differentiating between this
business, comprising the Polyolefin Foams
and High-Performance Products business
units, and our high-risk but potentially
high-reward MuCell Extrusion (MEL) business
unit, now primarily dedicated to the
development of the highly innovative ReZorce
technology. In 2023, our autoclave technology
businesses generated an impressive profit
before tax increase of 22% to £17.2m (2022:
£14.1m) on revenues up 1%. Conversely,
increased investment in the ReZorce
opportunity generated a loss of £4.4m
(2022: £1.9m), on lower revenues from the
equipment/royalty part of the business, as we
head into the market-testing phase following
positive progress in the development of our
award-winning technology. The Group CEO
and CFO reviews provide details on our strong
financial performance in the year.
Chair’s statement
Board composition
2023 saw two changes in the composition of
the Board. I joined Zotefoams in early January
and became Chair in May 2023, replacing
Steve Good, who stepped down after nine
years on the Zotefoams Board. In September
2023, Malcolm Swift joined the Board and
took on the Chair of the Remuneration
Committee, replacing Alison Fielding, who
departed on the same date. I would like to
offer my personal thanks to both colleagues
for their valuable support to me, as well as my
thanks on behalf of everyone connected to
Zotefoams for their contributions to the Group.
In November 2023, we announced the
planned retirement of David Stirling, our
Group CEO, after 26 years as a Board
member and 23 years leading the business.
David will leave behind him a growth business
with a clear strategy, strength in depth and
exciting opportunities. The search process
for his replacement concluded with the
appointment of Ronan Cox as Group CEO
Designate on 2 April 2024. Ronan will join the
Board and take over as Group CEO from
David at the Annual General Meeting due to
be held on 22 May 2024.
Dividend
The Board is proposing a final dividend of
4.90p (2022: 4.62p), which, if approved by
shareholders, would make a total dividend for
the year of 7.18p (2022: 6.80p), an increase
of 5.6%. 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. See the Group’s approach to
capital allocation in the Group CFO’s review
on page 38. If approved, the final dividend will
be paid on 3 June 2024 to shareholders on
the register on 3 May 2024.
32
Zotefoams plc
Annual Report 2023
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 our strategy incorporates the
consideration of climate change in terms of
financial and operational impacts. Further
progress was made in 2023 towards our
sustainability targets. See the Group CEO’s
review on page 33 and the ESG report on
page 64.
Acting responsibly
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. We continue to pay particular
attention to the provision of a safe working
environment for our staff across all global
locations and to the empowerment of our
employees. 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.
Our people
Central to the Group’s success is our talented,
diverse and collaborative team. The Board
recognises that it is this which makes
Zotefoams a safe, great, enjoyable and
fulfilling place to work. With travel restrictions
no longer in place across all our geographies,
we see how important and valuable direct
interaction is and how diversity of thought and
the sharing of our knowledge and expertise
across locations accelerates the realisation
of our Group strategy. We have been very
mindful of the impact of the ongoing high-cost
environment on our staff and took appropriate
pay decisions during the year.
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. For the first time as Chair, I warmly
welcome our new employees, extend my
gratitude to our colleagues who have helped
them integrate and thank all our hard-working
people and their supportive families who have
helped the Group continue to make good
strategic progress.
Chair’s statement
Continued
Looking to the future
Zotefoams is well positioned for the future
with well-invested and differentiated assets,
committed, capable and passionate people,
and a clear strategy for delivering profitable
organic growth in a sustainable way. While we
are mindful of ongoing macroeconomic and
geopolitical headwinds, we remain confident
about our future prospects for growth, margin
improvement, return on capital employed and
cash generation.
L Drummond
Chair
5 April 2024
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Strategic Report
Governance
Financial Statements
Zotefoams has delivered
record profits through pricing,
product mix and cost control in
a year of significant investment
in our ReZorce
®
recyclable
packaging solution.
Group CEO’s review
Our business strategy remains focused on the
long-term opportunity for differentiated,
market-leading foams and related products.
This is underpinned by three main beneficial
macro-trends: demographics, where the
global population is more urban and ageing;
regulation, often around the safety of people;
and environmental sustainability.
Sustainability, along with health and safety,
is embedded within everything we do.
Fundamental to our success and goal of
driving improving profitability is product-mix
enrichment and high levels of asset utilisation
over the investment and business cycles. We
therefore invest in a portfolio of opportunities
across products, markets, geographies and
aligned technologies which have a spread of
risk and return.
In 2023, we increased investment in ReZorce
mono-material barrier packaging technology.
Our focus is a market trial of beverage cartons
made from ReZorce substrate and filled with
juice using commercially available packaging
equipment. We have made substantial
progress, with the filling trials scheduled to
begin imminently. There is strong commercial
interest in ReZorce packaging, primarily due
to its sustainability credentials.
Strategic update and progress
Zotefoams invests in assets and technology
with the capability to support the organic
growth opportunities afforded by its diverse
and often unique products. As global markets
evolve, we identify business trends and
emerging technologies, assessing their
impact on our own business and its potential
for growth. Our market knowledge,
experience and customer reach afford us
insights into the emerging needs of many
industries. Zotefoams has the capability to
design and manufacture foams with specific
attributes to meet these needs, and therefore
our portfolio of technologies, products and
customers will evolve over time, often in
partnership along the supply chain. This
translates into an improving product mix, while
in-year capacity utilisation is more dependent
on our own investment timing and the
economic cycle’s impact on our customers.
The volatility seen in demand and input prices
over the past few years was alleviated
somewhat in 2023, allowing better
engagement with customers and alignment of
our product range with their developing
requirements in a higher-priced environment.
This “right product, right price” approach was
particularly evident in our Polyolefin Foams
business, where many customers realigned
their purchasing decisions and the mix of
products changed, resulting in lower volumes
and higher profitability.
Overview
The business today has two distinct elements:
the manufacturing and sale of specialist
foams, which is well-established, profitable
and growing; and ReZorce, which is currently
a development project moving into market
testing, with enormous potential and higher
associated risk.
Group revenue of £127.0m was at a similar
level to the previous year (2022: £127.4m),
with lower demand from industrial and
construction markets, particularly in Europe
and Asia, offset by growth in footwear,
medical and, to a lesser extent, the aviation
and automotive markets.
Input costs, in particular polyolefin raw
materials and energy, declined from the
record-high prices experienced in 2022,
allowing our margins to recover as sales
prices aligned with these input costs
throughout the period.
2023
United
Kingdom
Continental
Europe
North
America
Rest of
the world*
Total
Change %
(13)%
0%
(7)%
6%
0%
Group revenue (£000’s)
11,879
32,514
27,195
55,387
126,975
% of Group revenue
9%
26%
21%
44%
100%
2022
Group revenue (£000’s)
13,702
32,374
29,127
52,166
127,369
% of Group revenue
11%
25%
23%
41%
100%
*
Rest of the world comprises China: £27.1m (2022: £30.0m) and other countries: £28.3m (2022: £22.2m).
David Stirling
Group CEO
34
Zotefoams plc
Annual Report 2023
Our extrusion technology business, MEL,
is now substantially focused on ReZorce
mono-material barrier packaging, a recyclable
and circular solution for beverage cartons.
The team’s initial focus is on the market for
liquid-containing cartons. This is an enormous
market globally, offering retailers and
consumers an efficient and convenient
solution for packing liquids, such as fruit juice,
milk and increasingly other products such as
dairy alternatives, water, soup and even
household cleaning products. We believe the
ReZorce solution offers a better alternative to
current technologies: one which has a lower
carbon footprint, clear recyclability credentials
and which will use a high proportion of
recycled materials in its manufacture. Our
technical ability to meet the packaging
requirements of sterility, low oxygen and
moisture transmission and packaging
functionality has existed for some time now.
Investment in 2023 has primarily been
focused on our ability to deliver this solution all
the way to the retailer, and in July a strategic
cooperation agreement was signed with a
world-leading packager of beverages to
facilitate this. At the time of writing this report,
we are preparing to fill 150,000 cartons, which
will then be subject to stringent sterility testing
in preparation for a market trial mid-year.
Given the scale of the opportunity, we will be
seeking a strategic investing partner for
ReZorce, a process which the Board believes
is best timed around this market trial. Key
milestones such as this trial will enable us to
determine the optimal path to realise value.
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. Their insulation, longevity and
light weight often form a positive element of
our customers’ own sustainability agendas. In
2023, there was a notable trend towards
lighter foams in certain markets in our
Polyolefin Foams business, using less
material, being less expensive to manufacture
and offering lower cost to our customers.
Targets are in place to manage our own
Scope 1 and 2 emissions through the
reduction of energy consumption, material
used in manufacturing processes and waste.
We met these internal targets for 2023,
reducing energy consumption and waste
while increasing the proportion of remaining
waste recycled, often into new foams. The
core markets for our products are frequently
where a “best in class” foam delivers our
stated purpose: optimal material solutions for
the benefit of society. Examples are
performance and longevity in industrial
applications and consumer durables such as
footwear, medical devices, insulation for
planes, cleanrooms, construction and cars,
2022 content
Segment revenue
£67.6m
Change
(4%)
2022
£70.1m
Segment profit margin
11.1%
2022
7.0%
Segment profit
£7.5m
Change
53%
2022
£4.9m
as well as military and marine uses. We follow
the guidance provided by IAO 14021:2016
when making environmental claims and,
where appropriate, have products certified by
independent organisations when making
claims such as those related to recycled
content. We have not yet set a net zero target;
however, we are committed to specifically
reviewing this during our 2024 Board strategy
session.
In 2023, 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. There were no sales
for the ReZorce product during the year, due
to its stage of development, but its
considerable potential as a sustainable
packaging solution is discussed in depth in
the MEL section below.
In 2023, the Polyolefin Foams business
delivered much improved profitability against
a backdrop of lower sales volumes, improved
pricing, lower polymer costs and better cost
management.
Group CEO’s review
Continued
Sales declined 4%, with a 7% volume drop
partially offset by a 3% average price
improvement. Volumes globally were
impacted by slower industrial markets
generally, although we experienced growth
in some of our smaller, more specialist
segments, such as medical and aviation.
All regions were impacted by lower demand,
particularly in the latter part of the year.
Pricing improvement was primarily a result
of the full-year impact of price increases
implemented part-way through 2022.
These benefited margins, as did some
changes in product mix, often to lower-cost
products, which can deliver cost savings to
customers while being less expensive to
manufacture.
Regionally, demand patterns were relatively
consistent, with differences more apparent in
the specific applications for our foams. With
high transportation costs due to their bulk,
most polyolefin foams are sold in Europe
(62% of segment sales, 2022: 62%) and North
America (32% of segment sales, 2022: 31%)
as these are efficiently served by our local
manufacturing capability in these regions.
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 in the context of
long-term storage solutions, construction,
sport and leisure, automotive, aviation,
marine, military and healthcare. The segments
that performed relatively better during the year
were generally those still in recovery from
previous years, for example automotive,
where improved demand in 2023 was in
comparison to a 2022 that had represented
the lowest level for many years.
Our input costs are predominantly polymers,
labour and energy, with nitrogen, which we
use as our environmentally friendly blowing
agent to expand the foams, largely linked to
the energy price.
The main polymers used in our Polyolefin
Foams business are low-density polyethylene
(LDPE) and other similar polyolefins. During
the year, the price of LDPE in Europe was
trending around its long-term average, which
was around 30% lower than the high prices
experienced in 2022. LDPE pricing is related
to the pricing of its feedstock and ethylene,
and the regional supply vs demand balance.
Overall, depressed industrial markets led to an
oversupply situation and, alongside lower
ethylene feedstock costs, this caused a fall in
the polymer price in Europe, more marked in
the second half of the year. Generally, this high
correlation between industrial demand and
polymer pricing provides a natural hedge to
volume increases or declines in the Polyolefin
Foams business.
POLYOLEFIN
FOAMS
AZOTE
®
35
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
variety of foams with specific properties,
delivered through a combination of raw
material selection and our unique foaming
technology. Sales volumes of ZOTEK F
materials increased 9%, translating into a 6%
value increase to £6.5m (2022: £6.2m). We
experienced high input cost inflation in the
most common materials used, although this
had relatively little profit impact in the year as
previously purchased inventory was
consumed. Pricing adjustments have been
made, mostly effective from 2024, and we
recognise some associated risk due to these
higher prices.
ZOTEK foam sheet sales accounted for 11%
(2022: 11%) of HPP segment sales.
T-FIT insulation is made using Zotefoams’ own
HPP products and is designed for clean
processing environments, such as in
pharmaceutical, biotech and food and drink
manufacture. Sales grew 1% to £5.9m (2022:
£5.8m), and 6% in constant currency. In
China, one of the main markets, we delivered
sales growth in food processing but activity in
the biotech and pharmaceutical sector was
slower, and we experienced a lower success
rate on some targeted larger projects. In India,
sales grew strongly, with good progress
across our portfolio. Outside these
geographies, we are looking to improve our
performance with investment in staff and a
renewed focus on our sales processes. We
manufacture common T-FIT insulation
manufacturing products locally, either at
Zotefoams facilities or outsourced to trusted
partners, to support North American and
European business, while our facility in China
supplies all other markets as well as the
complete range of product dimensions globally.
T-FIT sales represent 10% (2022: 11%) of HPP
segment sales.
Segment profit increased to £15.4m (2022:
£15.3m), a segment profit margin of 26.5%
(2022: 28.1%). Segment margin is slightly
lower than the previous year due to
product-mix changes and foreign exchange
rate movements.
Average prices for energy and nitrogen, which
have a much higher impact on polyolefin
foams than on the products within our HPP
business unit, increased by an average of
around 8% compared with 2022, although
there has been a marked decrease in the
volatility of pricing. We hedge energy costs by
fixing prices on a proportion of our expected
usage up to twelve months in advance.
We manufacture polyolefin foams in three
facilities, with full-process manufacture in the
UK and USA and foam expansion, fabrication
and logistics in Poland. An increasing
proportion of European business is served
through our Polish facility, which is now
operating 24 hours, five days per week.
Segment revenue
£58.1m
Change
7%
2022
£54.4m
Segment profit margin
26.5%
2022
28.1%
Segment profit
£15.4m
Change
1%
2022
£15.3m
Segment profit margin has grown to 11% of
sales (2022: 7%) through improved efficiency
and pricing more aligned with input costs.
We have delivered cost improvements, most
notably through waste reduction, including
internal recycling of polymer waste and
logistics cost improvements alongside
incremental gains from continuous
improvement in our UK facility. In the USA, our
factory has built on the efficiency gains
delivered in 2022, seeing gains in
right-first-time quality and many other aligned
metrics such as waste. Globally, there is
scope over time for further improvement,
primarily through improved asset utilisation,
operational efficiency and mix enrichment.
Sales in our HPP business unit grew 7% to
£58.1m (2022: £54.4m). The main product
groups are footwear, ZOTEK
®
fluoropolymer
foams and T-FIT
®
technical insulation. Overall
volumes were 12% ahead of 2022, with a
slight adverse impact from currency and
product mix. In footwear, where we have
extended our exclusive arrangement with
Nike, our materials are primarily used in
midsoles for running shoes but, in a new
development during the year, first sales were
made into their basketball segment. In 2023,
sales grew 7% to £45.3m (2022: £42.1m). This
exclusive arrangement allows Zotefoams to
work closely with Nike on foam innovation
related to their specific needs as well as better
align on supply chain, production efficiency,
scrap reduction and cost. Currently, there is
almost zero waste in this production process,
with most scrap re-incorporated into products
within the footwear supply chain. Pricing to
Nike – covered in our exclusive agreement,
which, in June 2023, was extended to
31 December 2029 – reflects our material
input costs, production costs and efficiencies,
and foreign exchange rates.
Other than footwear products, we offer a
range of foamed sheet materials to technically
demanding applications globally under the
ZOTEK
®
brand. The main market is aviation,
where insulation and fire performance at
minimal weight is paramount, driven by safety
and sustainability. Other markets include
space, healthcare, packaging, military and
personal protection. Zotefoams offers a
HPP
ZOTEK
®
T-FIT
®
36
Zotefoams plc
Annual Report 2023
Aligned with a world-leading packager of
beverages and a retailer with leading-edge
sustainability ambition, we are preparing to fill
the first ReZorce cartons with fruit juice on
commercial-scale equipment.
Over the past two years, substantially all the
activity in our MEL business unit has been
focused on the very significant opportunity in
sustainable barrier packaging. We have
developed the ReZorce mono-material barrier
packaging technology to meet the needs of
brands and retailers seeking a more
sustainable solution to food packaging that
requires protection from moisture and/or
oxygen (hence the term “barrier packaging”).
Current barrier packaging systems require a
combination of different materials in the same
pack. The carton format of these systems is
very effective and cost-efficient and therefore
widespread; however, it is 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%, as well as lower water and energy
consumption, factors that are increasingly
important to the global sustainability agenda.
During 2023, our focus has been to move
from technical possibility to market reality.
Many innovations fail at this stage as
implementation requires large investment or
change to adopt the new solution. With this in
mind, we have worked closely with existing
industry players and in July 2023 signed a
development agreement with a world-leading
packager of beverages. Throughout the entire
development process, we have considered
the likely barriers to implementation and have
assembled a team of industry experts with
experience in downstream processes and
commercial norms to deliver our technology
solution and related intellectual property
development. This team is augmented by a
US-based strategic adviser with dedicated
packaging expertise.
Revenue from our MEL business unit declined
56% to £1.2m (2022: £2.8m), with reduced
equipment sales and reduced royalties
affected by the Group’s focus on realising the
ReZorce initiative, while the segment loss
widened to £4.1m (2022: £1.6m) before
amortisation of acquired intangibles, a direct
result of the non-capitalised investment to
develop ReZorce technology. In addition to
this, we capitalised £2.8m (2022: £2.2m).
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
less flexible.
In the UK, most investment is focused on
cost reduction and efficiency, linked to
sustainability, as well as on the replacement of
older assets with upgraded equipment. The
UK site manufactures all the 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.
In the USA, we see good potential to increase
sales and have therefore approved the
purchase of a second low-pressure autoclave,
used for foam expansion, which will increase
capacity and reduce reliance on the current
vessel which was installed in 2000. Linked to
this capacity increase, we are upgrading
some associated systems and increasing
warehousing space. The total cost of these
investments is c. £10m, funded from existing
cash resources and expected to be incurred
primarily during 2024–25.
Our facilities in the USA and Poland have the
flexibility for further investment to support
longer-term growth.
Zotefoams is also investing in the
development of the ReZorce mono-material
barrier packaging technology, which is
explained in more detail above.
Measuring strategic progress
Zotefoams products are sold into a wide
variety of applications globally. These markets
are driven by global trends – environment,
regulation and demographics – which we
believe offer the potential for high rates of
market growth as well as an opportunity for
our disruptive technology solutions.
We assess progress on six separate metrics.
The first two metrics have been updated, to
better reflect the focus of our management
team and align with the business strategy:
1.
We intend, over time, to deliver an improved
mix of products. By this we mean improved
profitability, and a reasonable proxy is
average selling price per m
3
of foam, which
is typically higher for the HPP products.
Adding downstream processing such as
T-FIT insulation products enhances our
margin, as does the cutting processes we
perform for multiple customers globally.
These downstream operations are
capital-light and leverage our investment in
foaming technology. We adjust our HPP
volumes to calculate a “capacity equivalent”
to reflect the often-extended processing
times of these products. The adjusted
average selling price during 2023 improved
by 2.7% compared with the prior year.
2.
We seek to run at high-capacity utilisation
to optimise the returns from our assets.
Asset utilisation in the year improved by
2.6%, and is calculated using the adjusted
production volume, with the same mix
adjustment factors as used in the selling
price calculation. Adjusted production
volumes, against which we calculate asset
utilisation, were 4% higher than adjusted
sales volumes as we increased inventory
during the final quarter of the year in
anticipation of strong demand in the first
few months of 2024. Efficiency gains in
manufacturing during the year added 2%
to the effective capacity of the Group.
Group CEO’s review
Continued
MEL
MuCell
®
ReZorce
®
37
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
3.
Group operating margin increased to 11.9%
(2022: 10.9%). In constant currency, the
operating margin was 12.1%. The full-year
impact of price increases from 2022 and
lower input costs were augmented by
improved efficiencies within manufacturing,
offset somewhat by an increase in
technical, sales and administration costs,
some associated with the increased
investment in ReZorce. Excluding MEL/
ReZorce, operating margin was 15.5%
(2022: 12.7%) or 15.7% in constant
currency.
4.
Group return on capital employed improved
to 10.3% (2022: 10.1%), with increased
profitability of the Polyolefin Foams and
HPP business units offset by the increased
losses of MEL as noted above. Excluding
MEL/ReZorce, return on capital employed
was 14.2% (2022: 12.0%). Working capital
at the year end accounted for 45% of net
assets (2022: 38%), with this significant
increase due primarily to investment in
inventory in anticipation of increased
demand in Q1 2024 and higher raw
material prices for certain HPP products.
5.
Our approach to environmental
sustainability and climate change is
paramount to our business. Led by the
Board and with an executive steering
committee, sustainability is embedded in
decision-making Group-wide. A detailed
environmental, social and governance
(ESG) report is included within the Annual
Report and further information is available
at www.zotefoams.com. Targets are linked
to our bank financing arrangements, and
these are supplemented by internal targets
in relation to other ESG metrics. We have
not yet set a “net zero” target as we believe
that detailed measurement of Scope 3
emissions reduction using our products is
complex and ever-changing, when
compared with the best-available alternative
technology, while the validity of offsetting
arrangements are increasingly being
challenged. However, we are committed to
specifically reviewing this during our annual
Board strategy session and the Executive
team, through our Group Sustainability
Steering Committee, is evaluating the
approach to net zero.
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 specifically for beverage
cartons. With initial market trials imminent,
we are turning our focus to full-scale
commercialisation and engagement with
potential strategic partners to facilitate this.
People
Our top priority 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. We monitor both leading and lagging
indicators to improve safety performance and
behaviours across the Group. At Board level,
the main safety metric in our business is
reportable lost time incidents and, regrettably,
we had one such incident during the year
(2022: two). 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, have now been significantly
below industry benchmarks for six years,
representing the time elapsed since we
began using this form of measurement,
with measured incidents around one third
of the rate of comparable companies.
Employee engagement is another priority and
is delivered through clear communication of
our strategy, objectives and progress, which
includes interactive sessions and staff surveys
to facilitate feedback. Employee engagement
activities included Group CEO “all-staff
briefings” across all regions with a Q&A
session.
On behalf of the Board and my executive
colleagues, I would like to thank all Zotefoams
employees and their families for their support
over the past year.
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.
Current trading and outlook
We have made a positive start to 2024, with
overall sales ahead of the previous year’s
record first quarter. Sales of HPP products
have, thus far, been strongly ahead of the prior
year, with expectations for continued strength
in H1 2024 and more muted growth after this,
mainly linked to in-year footwear demand
patterns and underlying improvements in the
markets for aviation and T-FIT insulation
products. To date, sales of polyolefin foams
are below the comparative period in the prior
year, with European customers particularly
impacted by weaker industrial demand,
partially offset by more robust conditions in
North America. We are cautiously optimistic
about the underlying demand environment for
polyolefin foams later in the year, supported
by a business focus on application-specific
initiatives to increase market share. Currently,
polymer and energy input prices remain
relatively stable and therefore, other than in
non-footwear HPP where prices have
increased based on raw material price inflation
experienced in 2023, we do not anticipate any
uplift in selling prices this coming year.
Improved asset utilisation, product mix and
operational efficiency are our key drivers of
margin enhancement. In our MEL business
unit, we continue to make good progress
against the commercialisation objectives we
have set for ReZorce, with some important
milestones expected to be reached in Q2.
Investment to support this will continue during
2024 as we determine the optimal pathway to
realising the opportunity presented by this
technology. As a result, and while we remain
mindful of the uncertain economic backdrop,
2024 is expected to be another year of good
progress for Zotefoams.
D B Stirling
Group CEO
5 April 2024
38
Zotefoams plc
Annual Report 2023
Group CFO’s review
Overview
Group revenue was broadly similar year on year at £127.0m (2022:
£127.4m), with £0.5m favourable currency impact. Margin management
in the Polyolefin Foams business and a challenging H2 2023 environment
took revenue 4% and volumes 7% below the previous year, while HPP
revenue grew 7% on 12% volume growth. Excluding MuCell Extrusion
LLC (MEL), Group revenue grew 1% to £125.7m (2022: £124.6m).
Gary McGrath
Group CFO
A significant increase in profitability
within the foams businesses, as
we fill our new capacity and enrich
our product mix. This is offset by
increased costs in our ReZorce
®
mono-material barrier packaging
solution as we reach late-stage
development and market testing.
Summary P&L
Zotefoams Group
Foams business units only
2023
2022
Change (%)
2023
2022
Change (%)
Net revenue
127.0
127.4
0
125.7
124.6
1
Gross profit
41.1
38.7
6
42.5
38.6
10
Distribution and administrative costs
(25.9)
(24.8)
(5)
(23.1)
(22.8)
(1)
Operating profit
15.1
1
13.9
9
19.5
15.8
23
Finance costs
(2.3)
(1.8)
(34)
(2.3)
(1.8)
(34)
Profit before tax
12.8
12.2
5
17.2
14.1
22
Tax
(3.6)
(2.2)
(62)
Earnings per share
19.00
20.61
(8)
1
Adjusted for rounding.
Operating profit for the year grew 9% to
£15.1m and profit before tax (PBT) increased
5% to a Group record of £12.8m, after higher
interest charges. The underlying foams
business, comprising the Polyolefin Foams
and High-Performance Foams business units,
achieved a significant increase in PBT of 22%
to £17.2m (2022: £14.1m), while MEL losses
increased to £4.4m (2022: £1.9m).
Basic earnings per share fell 8% to 19.00p
as a result of the higher tax charge of £3.6m
(2022: £2.2m), which reflects the increase in
corporation tax in the UK that took effect from
1 April 2023 and the mix of profits across
Group entities. Currency movements
negatively impacted PBT by £0.5m.
Return on capital employed (ROCE, see
below for definition) increased to 10.3% (2022:
10.1%). Excluding MEL, which is generating
losses as the Group invests in ReZorce, but
with continued investment contingent on
progress and expected outcome, ROCE
increased to 14.2% (2022: 12.0%).
The Group’s balance sheet at 31 December
2023 remains strong, with the leverage
multiple (calculated as a multiple of net debt to
EBITDA using definitions under the bank
facility agreement, see section “Debt facility”)
unchanged at 1.2x (31 December 2022: 1.2x)
and financial headroom of £19.4m (31
December 2022: £22.9m). This is after a
£1.7m (7%) increase in EBITDA to £24.7m
(2022: £23.0m), increased investment in
working capital of £11.1m (2022: £0.3m), see
“Cash flow” below, capital expenditure of
£8.5m (2022: £7.1m) and total dividends of
£3.4m (2022: £3.2m).
39
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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
in, and prioritise, 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 decreased by £0.1m, or 1%, to £7.9m
(2022: £8.0m) during the year, with lower offsite
warehousing costs offsetting inflationary costs
such as labour. 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.
Revenue performance
Polyolefin Foams business unit sales fell 4%
to £67.6m (2022: £70.1m) and, at constant
currency, by 5% to £66.7m. This reflects
a drive to maintain margins through close
collaboration with customers and identify
the right product for the right application,
including promotion of the Group’s recycled
Ecozote
®
foam range. European revenues
grew 2% and US revenues were unchanged,
while the UK declined 18% as key customers
reduced inventory. HPP sales increased 7%
to £58.1m (2022: £54.4m), and by 8% to
£58.6m at constant currency. Footwear is the
largest application within HPP, and revenue
in this market grew a further 7% to £45.3m
(2022: £42.1m), resulting in this business
division accounting for 36% of Group sales
(2022: 33%). ZOTEK
®
F fluoropolymer foam
sales closed the year 6% up at £6.5m (2022:
£6.2m), still significantly below the 2019 peak
of £10.0m as the recovery in aviation
continues. T-FIT
®
advanced insulation sales
growth stalled at £5.9m (2022: £5.8m), with
a downturn in demand in China following the
withdrawal of support for the pharmaceutical
industry by the country’s government fully
offset by very strong growth in India. MEL
sales fell sharply during the year, by £1.6m to
£1.2m (2022: £2.8m), with reduced equipment
sales and reduced royalties impacted by the
Group’s focus on realising the ReZorce
mono-material barrier packaging initiative.
Gross profit
Gross margin increased to 32.3% (2022: 30.4%),
representing an increase of £2.3m in absolute
terms to £41.1m. Excluding MEL, gross margin
was 33.9% (2022: 31.0%), or a £4.0m increase
in absolute terms.
The Polyolefin Foams business unit in the UK
and Europe focused on maintaining the
operating margins it was achieving by the end of
the previous year, which came after a number of
price increases had been implemented to offset
the rapid cost inflation experienced across most
inputs. While raw material costs reverted to
more normal levels during 2023, the inflationary
effects of almost every other input cost,
including labour, offset much of the benefit.
Energy costs held at historic high levels,
amounting to £8.0m in the year (2022: £7.3m),
after having been £4.8m in 2021. Labour costs
rose significantly, with the annual pay increase in
the UK, the largest employer across the Group,
being 7% to help alleviate the cost-of-living crisis.
Margin management for the business unit
included working closely with our customers to
find the optimal product at the optimal price
point for the customer’s need. The US business
focused on and succeeded in identifying and
implementing operational efficiencies, with the
support of a stronger local team and increased
collaboration with the UK-based team.
Revenue by segment (£m)
2023
Reported
2023
Adjusted
1
2022
Reported
Net change %
Reported Adjusted
Polyolefin Foams
67.6
66.7
70.1
(4)
(5)
UK
10.9
10.9
13.2
(18)
(18)
Europe
30.7
30.0
30.2
2
(1)
USA
22.5
22.4
22.4
0
0
Rest of the world
3.5
3.4
4.3
(17)
(19)
HPP
58.1
58.6
54.4
7
8
Footwear
45.3
45.3
42.1
7
7
ZOTEK
®
F
6.5
6.7
6.2
6
9
T-FIT
®
5.9
6.1
5.8
1
6
Other
0.4
0.5
0.3
–
–
Group excluding MEL
125.7
125.3
124.6
1
1
MEL
1.2
1.3
2.8
(56)
(54)
Group
127.0
2
126.6
127.4
0
(1)
1
Constant currency, adjusting 2023 values to 2022 rates. See exchange rates table.
2
Adjusted for rounding.
Revenue by market (%)
2023
2022
Sports and leisure
39
37
Product protection
22
23
Building and construction
12
13
Transportation*
11
12
Industrial
5
6
Medical
6
5
Other
5
4
*
Within the transportation segment, aviation represented 6.4% (2022: 7.6%) and automotive 5.0% (2022: 4.8%) of Group revenue.
These costs increased in 2023 by £1.2m, or
7%, to £18.0m (2022: £16.8m). However, after
stripping out foreign exchange effects, which
generated a movement of £0.3m (2022:
£1.8m), these administrative costs increased by
19%, or £2.7m, to £17.7m (2022: £15.0m), with
£0.9m of the increase related to the Group’s
investment in its ReZorce technology and the
majority of the rest related to labour additions
and cost increases. 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 2023, central plc costs
were £3.1m (2022: £2.5m).
40
Zotefoams plc
Annual Report 2023
Operating profit
Operating profit was £15.1m, 9% above 2022
(£13.9m) and the operating margin increased
to 11.9% from 10.9%. Operating profit of the
foams businesses alone, excluding MEL, was
£19.5m, 23% above 2022 (£15.8m), and the
operating margin increased to 15.5% from
12.7%.
Finance costs
Gross finance costs for the year increased
40% to £2.5m (2022: £1.8m) and include
£0.1m (2022: £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, while the prior year
comparative included £0.3m related to
unamortised costs of the previous banking
facility, replaced in March 2022. Net finance
costs, after finance income, increased 34%
to £2.3m (2022: £1.8m).
Profit before tax
Profit before tax increased 5% to £12.8m
(2022: £12.2m). The foams businesses
increased 22% to £17.2m (2022: £14.1m),
while the MEL loss increased to £4.4m
(2022: £1.9m).
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars
and euros. The exchange rates used to
translate the key flows and balances were:
2023
2022
Average Closing
Average
Closing
Euro/
sterling
1.150
1.150
1.173
1.129
US dollar/
sterling
1.243
1.271
1.238
1.204
Distribution and administrative costs breakdown
2023
2022
Change
(%)
Distribution costs
7.9
8.0
1
Administrative costs excluding hedging movements
17.7
15.0
(19)
Hedging movements
0.3
1.8
84
Administrative costs
18.0
16.8
(7)
Distribution and administrative costs
25.9
24.8
(5)
While movements in foreign exchange rates
can have a significant impact on Group
results, the impact in 2023 was limited. During
the year, the sterling average exchange rate
year on year against the US dollar
strengthened by 0.4% and the sterling
average exchange rate against the euro
weakened by 2.0%. The sterling spot rate
against the US dollar from 31 December 2022
to 31 December 2023 strengthened by 5.6%,
while the sterling spot rate against the euro
from 31 December 2022 to 31 December
2023 strengthened by 1.9%.
Zotefoams is a predominantly UK-based
exporter which invoices in local currency, with
the exception of Asia where all business is
invoiced in US dollars. In 2023, approximately
92% of sales (2022: approximately 90%) were
denominated in currencies other than sterling,
mostly US dollars or euros. While operating
costs at the Croydon, UK, site are incurred in
sterling, the main raw materials for polyolefin
foams used for production in the UK are
euro-denominated and US subsidiary
production and operating costs, most other
subsidiaries’ staff and operating costs and
some HPP raw materials are US
dollar-denominated. Poland operating costs
are incurred in zloty. The Group uses forward
exchange contracts to hedge up to 80% 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 gain on forward
exchange contracts in the year of £0.2m
(2022 loss: £2.9m).
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 recent
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 managed
by further hedging activities, but their
effectiveness is subject to the accuracy of
forecasting cash receipts. The Group
recorded a translation loss in the year of
£0.5m (2022 gain: £1.0m).
Currency movements during the year
positively impacted Group revenue by £0.5m
(2022: £7.6m positive impact). They negatively
impacted operating costs by £0.7m (2022:
£3.2m negative impact), resulting in a net
negative impact of £0.2m (2022: positive
impact £4.3m) before hedging. After
deducting the net hedging loss of £0.3m
(2022: loss of £1.8m), the currency net
negative impact on profit before tax for the
year was £0.5m (2022: positive impact
£2.5m).
We 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 2023 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 £0.6m unhedged and £0.2m
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.
Group CFO’s review
Continued
41
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
Profit by segment (£m)
2023
Reported
2023
Adjusted*
2022
Reported
Net change %
Reported Adjusted
Polyolefin Foams
7.5
7.0
4.9
52
42
HPP
15.4
16.1
15.3
1
5
MEL
(4.4)
(4.3)
(1.9)
(130)
(127)
Subtotal Business units
18.5
18.8
18.3
1
2
Central costs
(3.1)
(3.1)
(2.5)
(22)
(22)
Hedging
(0.3)
–
(1.8)
–
–
Finance costs
(2.3)
(2.3)
(1.8)
(34)
(32)
Subtotal Other
(5.7)
(5.4)
(6.1)
(7)
(12)
Group excluding MEL
17.2
17.7
14.1
22
25
Group
12.8
13.4
12.2
5
9
*
Constant currency, adjusting 2023 values to 2022 rates. See exchange rates table above.
Taxation charge and earnings
per share
The tax charge for the year is £3.6m (2022:
£2.2m). The effective tax rate for the year is
28.0% (2022: 18.1%) and the Group’s
weighted average corporate tax rate for the
year is 24.8% (2022: 19.5%). The tax charge
reflects the increase in the UK corporation tax
rate to 25% that came into force on 1 April
2023 and the Group’s prudent approach
to not recognising tax losses in its US
subsidiaries (that are driven by MEL).
Impacted by the tax charge and despite
increased PBT, basic earnings per share was
19.00p (2022: 20.61p), a decrease of 8%.
Diluted earnings per share was 18.55p
(2022: 20.20p).
ReZorce
The 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”, £2.5m (2022: £1.4m) was invested in
labour and other directly attributable costs
and capitalised. The Group also invested
£0.3m (2022: £0.8m) during the year to
purchase and develop equipment, which has
been recorded under tangible assets. In total,
capitalised investment in ReZorce amounted
to £2.8m during 2023 (2022: £2.2m), and the
net book value at 31 December 2023 of
amounts capitalised over the life of the project
amounts to £6.8m (2022: £4.7m). In addition
to the investment capitalised and driven by
the focus on ReZorce and developments and
progress made during the year, MEL reported
a loss before tax of £4.4m (2022: £1.9m).
The total cash outflow from MEL in the year
amounted to £5.5m (2022: £3.9m).
The Board does not currently consider any
of these assets to be impaired, given the
progress made in technical development,
the signing of a joint development agreement
with a global packaging company and the
contributions this is making to progress, the
preparations under way for an imminent
in-store trial at a recognised supermarket
chain in northern Europe, the assessed size
of the commercial opportunities, and the
Board’s continuing commitment to the
initiative.
Capital allocation
The discipline with which a company allocates
capital is a key determinant of growth and
sustained financial returns. The Board is
actively engaged in this process. Zotefoams
focuses on achievable sustainable profit
growth by investing and developing its
business in the following ways.
Capital expenditure in foam manufacturing
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 the risk of operational disruption
(see section in this Annual Report on principal
risks), and opportunities to improve energy
efficiency and further reduce health and safety
risk, particularly at the older UK facility. The
annual and five-year capital requirements
planning outcomes, as well as progress
against them, are reviewed by the Board and
individual projects of a certain expenditure
level require Board approval beyond that given
in the normal annual Budget cycle.
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.
Research and development
Zotefoams is an innovator in advanced
technical foams and pursues a strategy to
continuously develop a portfolio of products
that leverages its unique technology.
Dedicated teams actively pursue raw material
and new product development opportunities
that further the technical performance and
sustainability attributes of the product
portfolio. Performance is reviewed at quarterly
risk and opportunity steering committees,
which include the Executive team, and the
Director of Technology and Development
engages frequently with the Board.
The Group is currently pursuing, and investing
significantly behind, 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 loss as well as the
capital investments made, but the initiative
offers significant potential if the technology is
adopted.
42
Zotefoams plc
Annual Report 2023
Cash flow
The Group is by its nature highly cash
generative and, this year, net cash from
operations before investment in working
capital and provisions was £24.1m, in line
with the previous year (2022: £24.1m). This
includes the increased loss in MEL of £2.5m
as we progress to in-store trials in H1 2024.
Out of this, £11.1m (2022: £0.3m) was
reinvested in working capital. Trade and
other receivables increased £3.8m (2022:
increased £4.8m), reflecting increased sales
in November and December against the
previous year and the year-end timing of
certain sizeable Footwear customer receipts.
Inventories increased £6.3m (2022: decreased
£0.4m), with £2.2m reflecting a strategic build
of footwear and European polyolefin foam to
capitalise on available capacity in H2 2023
and in anticipation of high levels of capacity
utilisation in 2024. It also reflected a significant
increase in ZOTEK F inventory value as a
result of a near doubling of unit purchase
price during the year. Trade and other
payables decreased £1.0m (2022: increased
£4.1m) reflecting general payment timings.
Zotefoams recognises the importance of its
supplier relationships and has improved its
performance with respect to honouring
agreed payment terms. As a result of the
above, cash generated from operations was
significantly lower than the previous year at
£12.1m (2022: £23.0m).
During the year, the Group paid interest on its
borrowings of £2.1m (2022: £1.3m), reflecting
increased base rates on similar average debt
levels across much of the year. Net taxation
paid during the year, net of refunds, amounted
to £2.2m (2022: £0.7m), reflecting higher
profits at the Company alongside an
increased corporation tax rate, and compared
against a 2022 tax credit of £0.8m from a tax
computation refund and capital allowance
recovery from previous years.
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 £5.8m (2022: £5.4m).
Expenditure was split across several
categories, the most significant being 41% on
essential replacement and 26% on capacity
expansion. ESG initiatives were a key
component of capital expenditure in the year
with 65% of expenditure offering benefits
through improved energy efficiency, safety
or reduced waste. Geographically, 68% was
directed to our Croydon, UK, plant and 18%
to our Walton, USA, plant.
Group CFO’s review
Continued
Working capital
The business requires investment in working
capital to achieve high levels of customer
service and targeted margins. Customer
payment terms reflect the competitive
environment of each of the geographical and
industrial markets in which the Group plays,
as well as historical terms with long-term
customers who have been integral to growth
over the past one to two decades. Inventory
levels reflect the value of the raw materials,
the length of the supply chain and the volume
of inventory required to achieve targeted
customer satisfaction levels. Growing beyond
the space-restricted site in the UK, as well as
growing HPP at a faster rate than Polyolefin
Foams, where supply chains are longer,
technical testing is required, the customer
is often more strategic, and raw material
purchase costs are significantly higher,
is increasing the investment required in
inventory. The Group’s main suppliers
are either large multinational polymer
manufacturers or energy companies, where
the ability to negotiate credit terms is limited.
The Board receives monthly financial updates,
which include performance on working capital
against the annual budget and the quarterly
forecasts, both of which are reviewed and
approved by the Board.
Dividend
The Board has a progressive dividend
policy, recognising the importance to our
shareholders of the dividend as part of their
overall return while ensuring sufficient capital
and liquidity to pursue its growth ambition.
A minimum earnings cover of 2 times is
targeted. The Board regularly reviews this
policy as the Group grows and capital
expenditure demands a lower share of the
cash generated.
Non-organic growth
The Group’s strategy focuses on leveraging its
unique technology, filling assets and enriching
the product sales mix. While it is open to
non-organic opportunities, it has not pursued
them in the past. This may change with the
availability of capital from a growing business
with reducing debt, the long lead-time
associated with major capacity expansion,
and the ambition to maintain a rate of growth
that generates high shareholder returns.
Recent investment in capacity
Starting in 2015 with a programme to add
the first and second stages of the Zotefoams
manufacturing process into the USA,
continuing with the addition of HPP
capacity in the UK to support the Footwear
opportunities and ending with the
commissioning of the Brzeg, Poland,
manufacturing facility in 2021, Zotefoams
experienced a period of high capital
investment. Over this period, we invested
£91.4m in property, plant and equipment,
of which £67.1m, or 73%, was directed to
growth. With this programme complete, and
over the medium term, the Group expects to
return to levels of capital expenditure more
in line with depreciation.
Return on capital employed
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 2023, the Group’s ROCE increased to
10.3% (2022: 10.1%), mostly reflecting
improved profitability in the year. Excluding
MEL, which is incurring significant
discretionary losses as we invest in a
significant opportunity that could generate
very high future returns, ROCE increased
to 14.2% (2022: 12.0%). Before the increase
in the capital base that resulted from our
investments in the UK, USA and Poland, the
additional operating costs arising from their
operation, and the start of investment in
ReZorce, ROCE was 16.5% (2018). Business
growth, with this increased capacity matched
by improved utilisation and mix enrichment,
is expected to improve ROCE beyond that
previously achieved, excluding the outcome
of the ReZorce project which it is not possible
to quantify at the current stage of its
development.
Dividend
The Directors are proposing a final dividend of
4.90p (2022: 4.62p), which would be payable
on 3 June 2024 to shareholders on the
Company register at the close of business
on 3 May 2024. The ex-dividend date will be
2 May 2024. Taken with the interim dividend of
2.28p (2022: 2.18p), this would bring the total
dividend for the year to 7.18p (2022: 6.80p)
and would represent a dividend cover of
2.6 times (2022: 3.0 times).
43
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
Summary cash flow
2023
2022
Profit before tax
12.8
12.2
Depreciation and amortisation
8.2
8.2
Other
3.1
3.7
Net cash from operations before provisions and
investment in working capital
24.1
24.1
Employee defined benefit contributions
(0.9)
(0.8)
Working capital movement
(11.1)
(0.3)
Receivables
(3.8)
(4.8)
Inventory
(6.3)
0.4
Payables
(1.0)
4.1
Cash generated from operations
12.1
23.0
Interest paid
(2.1)
(1.3)
Taxation paid
(2.2)
(0.7)
Investments in intangible assets
(2.7)
(1.7)
Investments in tangible assets
(5.8)
(5.4)
Dividends
(3.4)
(3.2)
Movement in finance obligations
0.4
(7.8)
Lease payments
(0.8)
(0.4)
Other
0.1
–
Movement in cash and cash equivalents
(4.2)
2.5
The Group also invested £2.7m (2022: £1.7m)
in intangible assets, almost entirely related to
MEL patents and capitalised development
costs for ReZorce. The combined investment
of £8.5m (2022: £7.1m) is in line with the
Group’s combined depreciation and
amortisation charge (2023: £8.2m).
After dividends paid in the year amounting to
£3.4m (2022: £3.2m) and lease payments of
£0.8m (2022: £0.5m), closing net debt rose
13% to £31.6m (2022: £27.8m). At the year
end, the Group remains comfortably within its
bank facility covenants, with a multiple of
EBITDA to net finance charges of 11.2 (2022:
13.7), against a covenant minimum of 4 (2022:
4), and net debt to EBITDA (leverage) multiple
of 1.2 (2022: 1.2), against a covenant of 3.5
(2022: 3.5). See “Debt facility” for a definition
of leverage and information on the Group’s
bank facility arrangements.
Debt facility
The Group’s gross finance facilities with
Handelsbanken and NatWest comprise a
£50.0m multi-currency revolving credit facility
with a £25.0m accordion, a renewal date of
March 2027 and an interest rate ratchet, and
includes a small element related to the
achievement of sustainability targets. The
facility has two covenants: a finance cost
covenant with a multiple of 4.0 and a leverage
covenant with a multiple of 3.5.
At 31 December 2023, 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 £19.4m (2022: £22.9m).
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
(the “DB Scheme”), which 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. 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 p.a. (previously £180,000 p.a.) to
cover death-in-service insurance premiums,
the expenses of administering the DB
Scheme and Pension Protection Fund levies
associated with the Scheme.
In line with the requirement to have a triennial
valuation, a formal actuarial valuation is being
carried out for the Trustees as at 5 April 2023
and, once finalised, the contributions may
change.
The defined benefit obligation is valued by
projecting the best estimate of the future
benefit from the outlay of monies (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 balance sheet date. The
majority of benefits receive increases linked to
inflation (subject to a cap of no more than 5%
p.a.). The valuation method used is known as
the Projected Unit Method. The approximate
overall duration of the Scheme’s defined
benefit obligation as at 31 December 2023
was around 12 years. The net IAS 19 deficit
on the DB Scheme decreased by £0.6m to
£2.7m as at 31 December 2023 (2022: £3.3m)
and represents 2.3% (2022: 3.0%) of
consolidated net assets. The value of the
defined benefit obligation at the year end
increased by £0.4m from £26.1m in 2022 to
£26.5m in 2023 but was more than offset by
the actual investment return achieved on the
assets, which grew £1.0m from £22.8m in
2022 to £23.8m in 2023. Zotefoams does not
consider its pension scheme to be a key risk
to its ability to achieve its strategic objectives,
due to the immaterial share of net assets that
44
Zotefoams plc
Annual Report 2023
Group banking covenants definition
Net debt to EBITDA ratio (Leverage)
£m
2023
2022
£m
2023
2022
Profit after tax
9.2
10.0
Net debt per IFRS
31.6
27.8
Adjusted for:
IFRS 16 leases
(1.3)
(1.0)
Depreciation and amortisation
8.2
8.2
Finance leases pre-1 January 2019
–
–
Finance costs
2.5
1.8
Roundings
(0.1)
–
Finance income
(0.2)
(0.1)
Net debt per bank
30.2
26.8
Share of result from joint venture
–
–
Equity-settled share-based payments
1.3
0.8
Taxation
3.6
2.2
Roundings
0.1
0.1
EBITDA
24.7
23.0
Leverage per bank
1.2
1.2
EBITDA to net finance charges ratio
£m
2023
2022
£m
2023
2022
EBITDA, as above
24.7
23.0
Finance costs
2.5
1.8
Finance income
(0.2)
(0.1)
Share of result from joint venture
–
–
EBITDA to net finance charges
11.2
13.7
Net finance charges
2.3
1.7
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.
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 45 to 58. 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
5 April 2024
Group CFO’s review
Continued
45
Zotefoams plc
Annual Report 2023
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 for managing
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 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
The cost inflation challenges of the two
previous years continued into 2023, with
underlying energy, labour and borrowing
costs driving many input costs up, and
staff costs increasing significantly across all
operating entities. In the Polyolefin Foams
business, these increases were partly
mitigated by raw material costs reverting
to more normal levels and a stabilising,
albeit at a high level, of energy prices. The
business pursued a series of initiatives
to maintain margins achieved towards
the end of 2022, including product-range
management via promoting recycled
foams and challenging our customers to
assess lower-cost, often lower-density,
products, as well as through the continued
pursuit of cost efficiencies in operations.
In the High-Performance Products (HPP)
business, raw material cost increases
were more significant than in previous
years, with a price-setting mechanism
in footwear mitigating this risk, while
the impact of significant increases in
fluoropolymer materials for the aviation and
T-FIT
®
technical insulation businesses will
impact in 2024, once previously purchased
inventories are consumed, and will be
tackled with price increases, although at
some risk of demand reduction.
X
The conflict in Ukraine has had little direct
impact on the Group. In Continental Europe
and the UK, energy prices fell during the
year but remain at higher levels than before,
which has had some impact on customer
demand in these regions.
X
The conflict in Gaza has not had any
immediate impact on the business and the
challenges to shipping that began towards
the end of 2023 are not expected to have
any material impact on Zotefoams beyond
slightly increased shipping times and costs.
X
The Footwear business grew a further
7%, and sales represent 36% (2022: 33%)
of Group sales. The relationship with
Nike 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. In June, the Group announced the
extension of its exclusivity agreement with
Nike to 31 December 2029, demonstrating
the commitment by both parties to further
develop footwear technology and the
partnership’s success.
X
The ReZorce
®
mono-material barrier
packaging initiative, which puts circularity
at the heart of the MEL business unit
development agenda, made significant
technical progress during the year, but
challenges remain and investment in the
opportunity remains high. In July, we
announced a joint development agreement
with a world-leading packer of beverages
and a planned use of the technology in in-
market trials for a major European retailer.
This trial is imminent and is expected to be
the catalyst for the next step of finding a
strategic partner to help us maximise the
value of this technology. The Board’s level
of oversight on this initiative was very high
during the year, with frequent meetings with
and without MEL management.
46
Zotefoams plc
Annual Report 2023
Risk management and principal risks
Continued
X
Board-approved sustainability targets,
which include commitments made as
part of our 2022 refinancing agreement
with Handelsbanken and NatWest, 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 page page 67 in the
ESG report.
X
The Executive team, all of whom are
members of the Internal Controls
Committee, met twice during the year
specifically to review and update the
Group’s principal risks and uncertainties,
which included ensuring that any emerging
risks were being effectively captured in a
timely manner.
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.
X
An outcome from the five-year strategic
review was the recognition of Artificial
Intelligence as both an emerging
opportunity and risk. As a consequence,
a new steering committee was formed
with Terms of Reference related to both
capturing the opportunity as well as
ensuring that the correct controls are in
place to protect the Group from risks such
as the unintended sharing of trade secrets.
Progress on these activities will be reported
directly to the Board.
X
A new Chair, Lynn Drummond, was
appointed in May 2023 following a
competitive process led by a leading, global
recruitment company and the departure
of Steve Good after serving nine years as
a Board Director, in line with the Corporate
Governance Code. L Drummond joined
the Group as a Director in January 2023
and followed a thorough onboarding
programme to ensure a smooth transition.
X
David Stirling, Group CEO, advised
the Board in November 2023 of his
decision to retire in 2024. The search
for his replacement concluded with the
appointment of Ronan Cox as Group
CEO Designate on 2 April 2024. R Cox
will join the Board and take over as Group
CEO from D Stirling at the Annual General
Meeting due to be held on 22 May 2024.
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.
X
The Croydon, UK, and Brzeg, Poland,
manufacturing plants retained accreditation
to the Occupational Health and Safety
Management System ISO 45001 during
the year. 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
Both plants also retained accreditation to
the Environmental Management System
ISO 14001 during the year.
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
and an agreed three-year audit plan that
requires two audit engagements per
year, our Internal Auditor, Grant Thornton
UK LLP, completed a global audit on
GDPR and a UK-focused audit on Human
Resources processes, with outcomes
and improvement plans presented to the
Audit Committee.
X
Recognising the importance of formal and
effective documentation of controls and the
testing thereof, an Internal Control Manager
was recruited at the end of 2022 with a
three-year plan to achieve what, at the
time, was expected to be the UK equivalent
of Sarbanes-Oxley. Despite the recent
decision by the government not to proceed
with this, Zotefoams remains committed to
such a process. During the year, the control
environment at the largest of the Group’s
entities, the UK company Zotefoams plc,
was fully documented and control testing
commenced.
X
Cyber security remains a critical part of our
IT strategy and is embedded in our day-
to-day operations. The Cyber Essentials
Plus certification, an in-depth and thorough
independent assessment of our IT systems,
was re-awarded in 2023. Zotefoams also
continued with its cyber security awareness
testing programme for managers and staff
across the Group, including the Board.
This programme includes monthly phishing
tests emailed to each staff member and
uses the highest difficulty setting. During
the period, the failure rate was consistently
better than industry standards. There was
no instance of a cyber security breach in
2023. Nevertheless, in recognition of the
frequently changing risks related to cyber
security, the IT function, with the support
of the business, spent 2023 preparing
for an accreditation to ISO 27001:2022,
an information security standard which
provides a framework and guidelines for
establishing, implementing and managing
an Information Security Management
System. This accreditation was tested and
awarded in February 2024 in the UK and in
March 2024 in the USA and Poland.
47
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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 (with a sub-committee on Artificial
Intelligence, introduced in 2023)
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
48
Zotefoams plc
Annual Report 2023
Risk management and principal risks
Continued
Deliver an improved mix
of products
Improve our return on capital
(over our investment cycle)
Run at high capacity
utilisation
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 28 to 30.
The details of our principal and emerging risks
and uncertainties and the key mitigating
activities can be found on pages 49 to 58. 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 47. 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 relevant 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
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.
Principal risks and uncertainties
49
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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. Current regional conflicts
have demonstrated their impact on energy
availability and pricing, which would
above all impact our UK and Poland foam
manufacturing facilities. Failure to resolve a
reduction in energy supply in the markets
where we manufacture foam 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.
Another pandemic in the
workplace
We are now running our business in a similar
way to that before the pandemic.
Nevertheless, we now have the experience
required to understand the impacts of a
pandemic and are ready to reintroduce
measures at short notice should
circumstances ever 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
Despite the ongoing conflict in Ukraine,
coordinated global government actions have
reduced dependency on Russia and seen a
stabilising in energy costs. While energy costs
remain at a higher level than before the
conflict, 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 as very
low, with the greatest risk now behind us
following the aforementioned government
actions.
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
that operations maintain the highest level of
fire protection measures.
Maintenance and replacement
strategy
We ensure that our assets are well looked
after through a well-resourced maintenance
team, a globally recognised asset
management system 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. We also have a
well-resourced, highly experienced
engineering team that collaborates closely
with the maintenance team and, together,
plan and implement equipment replacements
and upgrades that target full elimination of
operational disruption. The more experienced
and larger UK-based teams have increased
their collaboration with their US counterparts.
Operational disruption
Risk trend
Strategy
1
2
3
4
50
Zotefoams plc
Annual Report 2023
Risk management and principal risks
Continued
Operations outside the UK
Zotefoams has completed a large investment
programme in manufacturing capability
outside the UK, adding 60% capacity to its
starting point in 2018. The Kentucky, USA,
site commissioned its first full manufacturing
line in April 2018 and a second line became
available in March 2020. This site now
operates all three manufacturing stages,
like in the UK. These lines provide polyolefin
foam capacity, in the first instance, but could
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 third stage of 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 reduce dependency on
the UK facility. We have also been building
our capabilities around maintenance and
engineering in our USA manufacturing facility
and have greatly increased the collaboration
between the more experienced UK functions
and their US counterparts to tackle
inefficiencies and reduce the risk of
operational disruption at this increasingly
important location.
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
strengthened 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 and put through
all recommended fixes without exception.
We have multiple redundancy points limiting
failure of any one piece of 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. During
2023, we also prepared ourselves for
accreditation to the security standard
ISO 27001:2022 and are delighted to have
achieved this accreditation at our UK, USA
and Poland manufacturing sites in Q1 2024.
Steering 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
Operational disruption
continued
51
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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 including
financial penalties, an inability to hire the right
staff, shareholders unwilling to invest, and not
having products customers want to buy, all of
which challenges 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 that 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. Our TCFD
disclosures may be found on our website:
https://zote.info/3mjufjS
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. Our ReZorce
®
mono-material barrier packaging technology,
which represents a potentially revolutionary
solution to packaging and is recyclable and
circular, is a prime and current example.
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 environmental, social and
governance (ESG) performance, see below.
Environmental sustainability-
focused developments
We have established sustainability targets
focused on the reduction of our Scope 1 and
2 carbon emissions and report on them
annually. 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
®
mono-material 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 adding
products to our portfolio which have been
developed to be more sustainable.
We have set long-term and interim targets for
the design and development of products
which are use-phase efficient with further
product development of foams made from
bio- and recycled polymers. For further
information, refer to “Key targets” in the
environmental, social and governance
(ESG) report on pages 64 to 77.
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 2023. Zotefoams also provides
disclosures in line with the recommendations
of the Task Force on Climate-related Financial
Disclosures (TCFD). Our SASB and TCFD
disclosures may be found on our website:
https://zote.info/3mjufjS
. The Group’s bank
facilities also include sustainability targets,
for which details are provided on page 67.
Steering 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
Strategy
1
2
3
4
5
6
Risk trend
52
Zotefoams plc
Annual Report 2023
Risk trend
Strategy
Risk management and principal risks
Continued
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 26 and 27,
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 less influenced
by general macroeconomic drivers and
more aligned with specific, often larger,
opportunities with the end-user, who also
has a more direct involvement in the growth
trajectory. 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. While the improved margins
associated with our high-performance
products mean we will prioritise capacity for
the HPP business, we also plan to continue
our investment in polyolefin foams to
support 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 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 following 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 2023.
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,
and already invested in the infrastructure to
support a second expansion line.
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 around
the execution of future investments. 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.
Pursuing a mix-enrichment
strategy
We generate returns for shareholders
through the most profitable use of our assets.
Following completion of our investment
programme, we have striven to recover and
improve our return on capital employed
through a strategy of filling our assets and mix
enrichment. When enriching our mix, we seek
not only to grow our HPP business at a faster
rate than our Polyolefin Foams business,
but also seek to improve the profitability mix
within the latter. We do this by considering
sales opportunities by profitability per hour of
our most capacity-restraining capital, which
is our high-pressure autoclaves. In doing
so, we are able to manage capacity in the
short to medium term and grow margins,
while providing more time to consider the
effectiveness of capital investment.
Sufficient funding to
support investment
We have sufficient funding to support the
growth ambitions as set out in our five-year
plan. Our current banking facility expires in
March 2027. As we go forward, we will
consider further opportunities as they arise
and consider options such as the £25m
accordion we have within our current banking
facility 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.
Steering 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
1
2
3
4
5
53
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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
®
mono-
material barrier packaging) 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
high 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 36% 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. Companies operating in this market
continuously seek new technologies that
provide a performance or cost advantage.
We monitor the competitive landscape,
maintaining awareness of the other
technologies, work closely with our partner
Nike, and invest in product and process
development to remain competitive in terms
of performance.
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
investing significant resources in developing
ReZorce, a technology that leverages
MuCell technology to enable recyclable,
circular, mono-material barrier packaging,
which is high risk but offers the potential
for very high returns. 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 rapidly growing use of Artificial
Intelligence (AI) could accelerate the speed
with which a potential competitor acquires
the knowledge to develop an alternative
product solution. Also, a Zotefoams
employee might use AI to find a solution
using highly sensitive internal information
which, without the necessary safeguards,
finds its way into the public domain.
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 displacement risk of the core
Zotefoams technology as marginally
increased as potential competitors seek
alternative technologies that drive greater
sustainability.
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, which generate higher returns,
greater publicity and are more likely to be the
focus of a competitor’s attention, 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.
The use of AI and improvements in its
capabilities are growing at an exponential rate.
Zotefoams needs to harness the opportunity it
affords to accelerate development and remain
ahead of the competition while mitigating the
risks that come from unintended sharing of
trade secrets. The Group has formed an AI
steering committee specifically focused on
managing both the opportunities and threats.
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.
Technology displacement
Strategy
1
2
3
4
5
6
Risk trend
54
Zotefoams plc
Annual Report 2023
Risk management and principal risks
Continued
MEL licences typically include a bundle of
patents and know-how and therefore are not
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. ReZorce has a carrying value of
£6.8m as at 31 December 2023 and the MEL
business unit incurred a loss for the year of
£4.4m (2022: £1.9m loss).
Technology displacement
continued
Significant progress with ReZorce has been
made in the year and the realisation of this
opportunity is now close, albeit technical and
financial risks remain. Progress has been
significantly helped by the Group’s acquisition
of extrusion assets in Denmark in 2022 as well
as the results of a joint development
agreement it announced in July 2023 with a
world-leading packer of beverages, which
encompasses the development of the carton
packaging and its planned use in in-market
trials for a major European retailer. Board
oversight has remained very high throughout
the year. Following in-market trials, it is
expected that interest from possible investing
partners will increase, which will allow
Zotefoams to maximise the value of this
opportunity.
Steering Committees
X
Board
X
Executive Committee
X
Product Development Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
55
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Annual Report 2023
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, with
operations and staff in China and India, and
our third foam manufacturing facility is 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.
X
We are hiring people outside the UK at a
faster rate, have less direct contact with
them from the UK base, and have high
expectations of material contributions from
our overseas subsidiaries to the Group’s
growth strategy.
X
We work with more distributors in our more
remote locations.
X
Failure to ensure responsible corporate
behaviour in these newer areas of operation
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, can 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
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
As we move on from the COVID-19
restrictions, 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. In addition, the adoption of
videoconferencing as a standard form of
communication brings people together in a
way not possible prior to the pandemic.
Hiring and developing
overseas leaders
The Group’s USA operations comprise
Zotefoams Inc and its subsidiaries Zotefoams
MidWest and MEL. Zotefoams Inc has been
part of the Group since 2001 and MEL since
2008, with experienced teams,
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.
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.
Zotefoams Denmark, established in 2022, is
part of the MEL business unit, and reports
into the MEL business president.
Running effective global functions
and services
We have invested significantly in human
capability in recent years as we have built
global functions and hired 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 engaging more
frequently face to face to accelerate learning
and solve problems together.
Poland manufacturing site
This site has now been operational since
2021, the local leadership team is well
integrated with key, UK-based Group
functions and leaders, and regular
communication and engagement is the norm.
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 staff on the upgrades that
Microsoft has made to all systems the Group
uses throughout the period. The Group’s
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.
Steering 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
56
Zotefoams plc
Annual Report 2023
Risk management and principal risks
Continued
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 2023
represented 36% of Group sales (2022:
33% of Group sales), and projects in the
HPP portfolio have the potential to be
much larger than those with our typical
AZOTE
®
foam 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 that 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. In June 2023, the Group
announced the extension of its exclusivity
agreement with Nike to 31 December 2029,
demonstrating the commitment by both
parties to further develop footwear technology
and the partnership’s success.
We are excited by the size of the opportunities
offered by our ZOTEK
®
product portfolio and
have the capacity and risk appetite to pursue
them. While the majority of our ZOTEK F sales
have been into Boeing, and we forecast
significant growth going forward, we are
seeing increased interest and opportunity
from Airbus. We are also pursuing alternative
avenues for the attributes of this foam outside
of aviation.
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 Boeing and 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 should 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
macroeconomic challenges.
We will continually review our customer
spread and balance, particularly as the HPP
business segment takes on more importance.
Steering Committees
X
Board
X
Executive Committee
Customer concentration
Risk trend
Strategy
1
2
3
4
57
Zotefoams plc
Annual Report 2023
Strategic Report
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 affecting how we execute our
strategy, impacting costs, creating competitive
disadvantage and negatively impacting our
return on capital employed. They can also
influence the other principal risks and
uncertainties listed in this section.
Material influencing factors
X
COVID-19 has realised the previously
considered low risk 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 impact on profit of
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 conflicts in Ukraine and Gaza have
created volatility around the cost and
availability of products and utilities. Input
costs can rise faster than the Group’s
ability to raise prices, which are typically
increased only after discussions and impact
assessments with our customers, placing
short- to mid-term pressure on margins due
to the timing of inflation recovery.
X
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. The conflict
in Ukraine has generated ripple effects
across the political and macroeconomic
environment, in particular in Europe but
also in some of our other markets, which
has resulted in energy price fluctuations,
accentuated inflation and worsened a
cost-of-living crisis, requiring us to adapt
accordingly. Governments’ responses
to these challenges might also impact
our business. Geopolitical tensions are
increasing, which amplify the risk of
protectionist responses or other forms of
state interventions and security-related
requirements that could affect our
operations, supply chains and conditions
for competition in various ways.
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 2023 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 as 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,
and the past year has seen a reduction
in friction between the two sides and a
resolution to the Northern Ireland protocol,
the risk remains that this might be altered.
This does not affect Zotefoams directly 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 a pandemic. While we
are now back to normal, we are prepared to
reintroduce measures quickly should a similar
situation reappear.
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 quickly 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
and margins
After a cross-the-board inflationary pressure
in 2022, 2023 saw a continuation of cost
pressures in many areas, partly offset by a
relaxing of raw material prices in the Polyolefin
Foams business. 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
margin erosion in 2021, the Group recovered
margin in 2022 through a series of price
increases and maintained these margins in
2023 through effective customer account
management and operational efficiency
initiatives.
External
Strategy
1
2
3
4
5
6
Risk trend
58
Zotefoams plc
Annual Report 2023
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,
the majority of raw materials purchased
for consumption in the Croydon, UK,
manufacturing facility are in euros. With our
European sales invoiced in euros, we have
benefited from a net hedging position on the
euro in recent years. With the US dollar, we
incur US dollar costs associated with the
Group’s operations in Kentucky, USA, and
MEL and our scaling-up of operations in
Kentucky, USA, has reduced currency
exposure to transactional items by increasing
the operating cost base in the USA. Raw
materials are purchased locally and a larger
workforce supports full process production.
Our greatest exposure to currency comes
from the success of our Footwear business,
where all sales are invoiced in US dollars, but
most costs are either in sterling or euro. Our
footwear agreement does, however, include
arrangements to recover movements in
foreign currency that affect the margin
achieved on our sales, 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.
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, which led us to
remain with the same banks following a
strong competitive process and which has
a five-year tenor.
Our debt facilities are based on variable
interest rates, which we could hedge if we
deemed appropriate. We have reviewed this
as base rates have risen but have elected not
to do so.
Based on our most recent five-year strategic
plan and subject to the expected end to the
significant investment we have been making
in our high-risk, high-reward ReZorce
opportunity, 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.
Steering Committees
X
Executive Committee
X
Foreign Exchange Steering Committee
X
Zotefoams Inc Executive Committee
X
MEL Executive Committee
External
continued
Risk management and principal risks
Continued
59
Zotefoams plc
Annual Report 2023
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
Group CFO’s review under “Debt facility”
on page 43, 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 58.
The Board reviews the Group’s internal
controls and risk management policies as well
as its 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 the 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 in 2020 during 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 2028.
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
57 and 58.
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, which
addresses the impact of commodity price
volatility, high inflation, rising interest rates,
high energy prices and high labour costs.
Read more. Principal risk: Operational disruption
pages 49 and 50;
External
pages 57 and 58.
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
pages 53 and 54;
External
pages 57
and 58.
Scenario 4:
Loss of a key customer in HPP. This scenario
reflects losing the footwear business.
Read more. Principal risk: Operational disruption
pages 49 and 50;
Global capacity management
page 52;
Customer concentration
page 56.
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 57
and 58.
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.
Reporting requirement
Relevant Group policies
https://zote.info/3x0de78
Due diligence processes
Information relating
to policies and due
diligence processes
Environmental matters
Environmental Policy
Environmental Policy
Governance by the Environmental
Steering Committee and Group
Sustainability Steering Committee
SASB disclosures
Sustainability targets
TCFD disclosures in accordance
with the Financial Conduct
Authority (FCA) listing rule LR 9.8.6
R(8)
See our Risk management section
on page 45 and our Environment
section on pages 67 to 69, and
our Sustainability page on our
website
https://zote.info/3mjufjS
Employees
Group-wide policies on equality,
diversity and inclusion, ethics and
whistleblowing
Group health and safety policies
Social initiatives and policies
Health and Safety Steering
Committee
Joint Consultative Committee
Comprehensive Group-wide
health and safety and compliance
training programme]
Board Diversity Policy
See our Social section on
pages 70 to 77 and our website
https://zote.info/3x0de78
Social matters
Group-wide policies on ethics and
whistleblowing
S172 disclosures relating to
stakeholders, including suppliers
Environmental Policy and
Sustainability Statement
Community engagement
See our S172(1) statement
on pages 61 to 63 and our
Sustainability page on our website
https://zote.info/3mjufjS
Anti-bribery and
corruption
Group-wide policies on
anti-bribery and corruption, fraud
and whistleblowing
Training and compliance with
anti-bribery and corruption, fraud
and whistleblowing modules
Supplier onboarding and review
programme incorporating
adherence to Zotefoams’ ethics,
modern slavery, anti-fraud and
anti-bribery and corruption
requirements
Audit Committee and Internal
Controls Committee reports
See our Social section on
pages 70 to 77 and our S172(1)
statement on pages 61 to 63
Human rights
Group-wide policies on ethics and
dignity at work
Compliance with section 54(1) of
the Modern Slavery Act 2015
Modern slavery disclosures on our
website
https://zote.info/3x0de78
60
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Annual Report 2023
Non-financial information statement
Zotefoams has reported extensively on its non-financial impacts within its Annual Report for
a number of years and welcomes continued increasing focus from regulators, shareholders
and other stakeholders. This table outlines how Zotefoams meets the non-financial reporting
requirements contained within Sections 414CA and 414CB of the Companies Act 2006.
The Companies (Miscellaneous Reporting)
Regulations 2018 (2018 MRR) require
Directors to explain how they considered the
interests of key stakeholders and the broader
matters set out in Section 172(1) (a) to (f) of
the Companies Act 2006 (S172) when
performing their duty to promote the success
of the Company under S172.
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.
The Board has regard to the following
matters in its decision-making:
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.
Decision
Investment in a second Walton (USA) low-pressure (LP) autoclave and related
infrastructure
Context
The USA market offers excellent potential to increase sales, requiring additional capacity to meet demand.
A decision to invest in a second LP autoclave has been made to meet this need as well as reduce reliance on the
current vessel, which was installed in 2000. Warehousing space is also being extended to cater for anticipated higher
activity levels.
Stakeholder
considerations
Customers
Customers will benefit from the greater capacity on offer, supporting their growth.
Shareholders
The increased capacity will provide an opportunity for sales growth. The risk of operational disruption is
reduced by having multiple autoclaves.
Environment
A more energy-efficient autoclave, benefitting from the latest-generation technology, will improve sustainability,
lower downtime and offer better production yields.
Strategic actions
supported by the Board
Approval of £10m capital expenditure to support AZOTE
®
foam growth in the USA and provide optionality for
HPP sales in the future.
Impact of these actions
on the long-term
success of the Company
Increased capacity and efficiency savings will reinforce Zotefoams’ competitive advantage in the USA.
S172(1) statement
Our shareholders and stakeholders
Decision
Supply agreement extension at Nike to 2029
Context
Zotefoams entered into a strategic partnership with Nike in 2018. Since then, our foams have been added to a
number of running programmes, including the Vaporfly, Alphafly and Invincible ranges. The collaboration
continued in 2023 with the launch of the Ultrafly, Nike’s pinnacle trail racing shoe, and for the first time, inclusion
of our foam in a basketball shoe, the G.T. Cut 3. Zotefoams operates under an exclusive supply agreement with
Nike for footwear products.
Stakeholder
considerations
Environment
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 2023 to reduce waste generated
by manufacturing processes.
Shareholders
Extending, for a further six years, an agreement structure which has successfully aligned Zotefoams with a
world-leading footwear brand.
Customers
Continuing to meet Nike’s needs for high-performance foams used in a range of significant projects is key. Our
partnership with Nike remains deeply rooted in our shared vision to help all athletes break barriers no matter their
game or pace and by pushing the boundaries of ZoomX foam to offer ever higher levels of energy return and
cushioning.
Strategic actions
supported by the Board
Approval of supply agreement extension.
Impact of these actions
on the long-term
success of the Company
The Footwear business division is anticipated to continue to be a significant revenue contributor in future years
and accounted for 36% of Group sales in 2023.
61
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Annual Report 2023
Strategic Report
Governance
Financial Statements
Decision
Continued investment in ReZorce
®
mono-material barrier packaging technology
Context
As the pace of regulatory developments impacting food packaging increases, industries need a solution with
clear recyclability credentials. Using significant recycled plastic content and being readily recyclable, ReZorce
offers a viable alternative to traditional laminated material. Development of the technology continued in 2023,
with the focus moving beyond technical success to commercial viability.
Stakeholder
considerations
Shareholders
Given the size of the market, ReZorce offers high potential returns with a commensurate level of risk.
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.
Strategic actions
supported by
the Board
Entering into a strategic cooperation agreement with a world-leading packager of beverages.
Approving the investment required to deliver market trials.
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
revenue in excess of $40bn p.a. Zotefoams is well placed to develop a unique proposition that could capture
some of this demand.
Decision
New CEO appointment
Context
Following David Stirling’s announcement of his intention to retire in 2024, a formal succession process was
initiated in November 2023 supported by global organisational consulting firm Korn Ferry.
A successor, Ronan Cox, was identified in March 2024 and will be appointed at the 2024 AGM.
Stakeholder
considerations
Employees
A change of leadership requires careful management to minimise organisational disruption. Effective
communications will be key, alongside an effective onboarding programme to allow R Cox to familiarise himself
with the business quickly, which will include early visits to all parts of the organisation. Customised messaging
will also help keep staff abreast of developments.
Customers
A plan is in place to introduce the new CEO to key customers.
Shareholders
R Cox will engage with shareholders in line with an onboarding plan. The Chair of the Remuneration Committee
has engaged with key shareholders on remuneration matters.
Strategic actions
supported by
the Board
A thorough search process was carried out to identify the candidate with the most suitable attributes to lead
Zotefoams. Further details are provided in our Nomination Committee report on pages 87 to 89.
Impact of these actions
on the long-term
success of the Company
A new CEO will bring a fresh perspective to the business and continue to set the direction of the business in line
with the strategy.
62
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Annual Report 2023
S172(1) statement
continued
Decision
Artificial Intelligence (AI): assessment of opportunities and risks
Context
AI developments generate significant operational and commercial opportunities. They also expose the business
to new and complex risks which require a multi-disciplinary approach to effective mitigation. As a consequence,
a new steering committee was formed with Terms of Reference related to both capturing the opportunity and
ensuring that the correct controls are in place to protect the Group from AI-related risks.
Stakeholder
considerations
Employees
Unlike previous technological changes, AI will impact both routine and non-routine tasks and expand change to
a broader spectrum of employees. AI can also lead to job creation by increasing demand for some STEM skills
and some soft skills, such as high emotional intelligence.
Shareholders
The potential for increased productivity can lead to an increase in profitability and lower costs. AI can also
support organic and non-organic growth by driving strategic transformation across many industries, for example
through vertical data integration resulting in bringing products to market faster or the overhaul of customer
support activities. It can also increase the risk of IP and trade secret losses if not controlled effectively.
Customers
AI can support the analysis of volume patterns and order trends to allow us to predict future demand and better
meet customers’ needs.
Strategic actions
supported by
the Board
The Board reviewed strategic opportunities and risks at its 2023 annual strategy day and approved a
governance framework. An AI Steering Committee has been set up, tasked with providing oversight to protect
Zotefoams from the risks associated with AI and manage related AI opportunities. Guidance on appropriate AI
use has been issued to all staff, and training has been organised on a functional basis.
Impact of these actions
on the long-term
success of the Company
A framework for exploiting the great opportunities afforded by AI will be in place by the end of 2024. The risks
are now managed as part of the risk management framework.
Decision
Focus on suppliers’ ethical matters
Context
Our suppliers are key stakeholders in our business and we focus on building and maintaining long-term healthy
relationships with them, which includes ensuring that we pay them on time and that they are aligned with
Zotefoams’ ethical standards.
Stakeholder
considerations
Customers
With an increasing importance placed on transparency, our customers expect us to provide evidence of
adequate ethical standards in force in our supply chain. Our checks and balances are intended to meet
customers’ expectations in these matters.
Communities
Zotefoams considers that a healthy business environment supports the many communities in which we operate
and forms the basis of our social licence.
Strategic actions
supported by
the Board
Monitors are in place to ensure that 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 that Zotefoams is
taking to identify and address modern slavery risks in its operations. In 2023, our modern slavery process
was extended to our global supply chain capturing suppliers’ operations in India, China, Poland and the USA.
Our current Modern Slavery Statement may be viewed on our website
https://zote.info/3x0de78
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 27 days in 2023;
visit
https://zote.info/3Tp8xxh
Impact of these actions
on the long-term
success of the Company
Well-managed ethical risks related to suppliers contribute to long-term supply chain robustness and ensure that
the many stakeholders positively impacted by our products can continue to benefit from them.
63
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Annual Report 2023
Strategic Report
Governance
Financial Statements
64
Zotefoams plc
Annual Report 2023
Environmental, social and governance
(ESG) report
Introduction from our Chair
Our purpose is to provide optimal material
solutions for the benefit of society. We believe
that, used appropriately, plastics are
frequently the best solution offering the lowest
environmental impact for the long-term
applications typically delivered by our
customers.
As a new Chair, it is important for me to see
that we can drive growth which is both
sustainable and inclusive. Significant progress
has been achieved in ESG matters in the past
three years and we continue to work with all
our stakeholders to enhance our corporate
disclosures. Our efforts have been rewarded
with external recognition. Zotefoams holds
an MSCI AAA rating reflecting very good
standards of governance and well-established
social practices. And as 85% of our revenues
arise from green activities, the London Stock
How we manage ESG objectives,
opportunities and risks
We have embedded ESG considerations
within our risk and opportunity management
process, described on page 45, through
alignment with the Sustainability Accounting
Standards Board (SASB) requirements and
the Financial Conduct Authority (FCA) listing
rule LR 9.8.6 R(8), which implements the
TCFD recommendations. 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. Corporate ESG
objectives, which flow down to all areas of our
operations and incorporate long-term aims,
have been set and are frequently reviewed.
Group Sustainability Steering
Committee’s responsibilities
A Group Sustainability Steering Committee
was formed in 2021 with Executive
representation from all business units and
locations. Its purpose is to ensure that the
Group’s activities align with the expectation
of stakeholders. Its responsibilities include:
X
providing governance and setting the
direction for environmental sustainability
matters for the Group
X
establishing environmental sustainability
objectives and ensuring their continued
suitability, adequacy and alignment with
the direction of the Group
X
monitoring that the risks relating to
environmental sustainability are identified
and appropriately mitigated by the relevant
steering committees and reporting any
exception to the Group Internal Controls
Committee.
Our HR and Training Steering Committee
manages social matters. Governance issues
are managed by the Board.
Zotefoams’ Board considers that managing ESG contributes to long-term value
creation, supports resilience, enhances the Group’s reputation and helps
safeguard the business’s future. Sustainability is embedded through our
strategic planning and decision-making. Below, we set out our ESG priorities,
how we are progressing against them and our plan going forward.
L Drummond
Chair
Exchange has awarded Zotefoams the
Green Economy Mark. Our ReZorce
®
mono-
material barrier packaging product was
named Best Recycled Plastic Product of the
Year at the 2023 Plastics Industry Awards.
We began reporting voluntarily against the
recommendations of the Task Force on
Climate-related Financial Disclosures (TCFD)
in 2021, ahead of statutory requirements.
The recommendations of the Taskforce on
Nature-related Financial Disclosures (TNFD)
were also considered during 2023. Following
a preliminary gap analysis, the Board has
concluded that the support of a specialist
consultant is required to map nature-
related dependencies, impacts, risks and
opportunities against our internal controls
framework. This work is planned for 2024.
We recognise that ESG is a journey and, as
we continue to improve our sustainability
performance, we will look to set increasingly
ambitious targets in order to remain leaders in
sustainability.
Product
Green revenue definition
Sector
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, railway and road
vehicles to replace heavier materials,
enabling benefits in fuel economy
X
products providing durable protection
designed for multiple reuse.
67.6
49.6
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.
58.1
57.4
MuCell Extrusion
LLC (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%.
1.3
1.3
Total revenues
127.0
108.3
Percentage green revenues
85%
65
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Strategic Report
Governance
Financial Statements
Zotefoams Green Revenue Index
The Group takes the reporting of all
environmental incidents very seriously and
requires employees to report all incidents,
including any near misses. All environmental
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
2023, there were no prosecutions, fines or
enforcement actions taken as a result of
non-compliance with environmental legislation
(2022: none).
Our approach to environmental
sustainability
The environmental 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 aimed at reducing our carbon
footprint; and ii) preferentially operating in
markets where Zotefoams’ products offer
Environmental governance
The Board has ultimate responsibility for
environmental governance and performance
and oversees a system of policies, practices
and procedures that are implemented
Group-wide to support Zotefoams’
environmental objectives. The Group CEO
is directly responsible to the Board for
environmental performance. All environmental
matters are overseen by steering committees,
which are chaired by the Group CEO in the
UK (or the appropriate responsible person
in subsidiary companies). The steering
committees meet quarterly and consider
environmental risks and opportunities, overall
performance, and the impact of current and
impending legislation. Under the internal
controls framework outlined on page 47, the
Audit Committee monitors the Group’s risk
management framework, including the review
of risk matrices identifying key environmental
risks and opportunities faced by the Group.
unique sustainability advantages which
benefit society through their use-phase
resource efficiency. This is a concept defined
by 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.
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 67 to 69. In order to align our
commercial approach with customers’
use-phase efficiency, we have created a Life
Cycle Assessment (LCA) template which can
be used to assess typical products and
applications. Our Scope 1 and 2 emissions
data, along with these example LCAs, are
made available to customers to enable them
to make informed 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
preferentially select polymers with a lower
carbon footprint.
We are committed to using renewable
electricity where feasible and 100% of the
electricity used in our UK, USA (Walton) and
Poland sites comes from renewable sources.
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 primarily for other performance
attributes such as purity.
66
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Annual Report 2023
Environmental, social and governance (ESG) report
Continued
Environmental performance
Accreditations
ISO certification is focused on the three main sites (Croydon, UK, Brzeg, Poland, and Walton, USA) unless
required locally for operational or financial reasons. For smaller sites, the costs arising from some ISO
certifications outweigh the operational benefits and are therefore not sought. Structures sufficient to manage
processes to a good standard are replicated from the larger sites.
Certification
In place
Planned for 2024
ISO 14001:2015
Environmental Management
Systems
Croydon, UK
Brzeg, Poland
ISO 45001:2018
Occupational Health and Safety
Management Systems
Croydon, UK
Brzeg, Poland
Walton, USA
Kunshan, China
ISO 9001:2015
Quality Management Systems
Croydon, UK
Brzeg, Poland
Walton, USA
Kunshan, China
ISO 27001:2022
Information Security Management
Systems
Croydon, UK
Walton, Tulsa and Woburn, USA
Brzeg, Poland
1
ISO 50001:2018
Energy Management Systems
Croydon, UK
We follow the guidance provided by ISO 14021:2016 when making environmental claims. Where appropriate,
we have products certified by independent organisations when making environmental claims, such as for
recycled content.
A Renewable Energy Guarantee 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.
Policies
Environmental Policy
Governance
Environmental Steering Committee
Health and Safety Steering Committee
SASB requirements integrated in internal controls framework
TCFD compliance
Targets
Waste reduction
Sustainable product development
Energy consumption reduction
1
The Information Security Management Sytems ISO 27001:2022 accreditation was successfully obtained for all stated locations in Q1 2024.
67
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Annual Report 2023
Strategic Report
Governance
Financial Statements
Key metrics
2023
2022
2021
Internally recorded environmental incidents
Level 1
0
0
0
Level 2
0
1
0
Company metrics (UK only)
Energy usage (MWh)
45,169*
46,483*
50,078*
*Specific Energy Consumption (kWh/kg)
7.73**
8.58**
9.22**
Group metrics (All sites)
Energy usage (MWh)
68,559*
69,017*
72,007*
Energy usage (GJ)
246,812*
248,463*
Proportion of energy from grid electricity (%)
44
45
Proportion of energy from renewable sources (%)
UK site
46
USA sites
40
Poland site
46
China site
28
Group
44
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. 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.
**
Calculation shown as mix-neutral assessment of energy usage per kg of polymer processed.
Key targets
Our sustainability targets, set in 2022, focus on the reduction of Scope 1, 2 and use-phase carbon emissions.
Objective
Key performance indicator (KPI)
Target
Achievement
Score
1
Achieve a 10% reduction in the energy
used to manufacture our products by
2026
From a baseline of 0.74 kWh/£ in
December 2021, reduce the energy
used per unit revenue generated
(kWh/£)
2022
0.73 kWh/£
0.66 kWh/£
2023
0.72 kWh/£
0.56 kWh/£
2024
0.70 kWh/£
2025
0.68 kWh/£
2026
0.66 kWh/£
2
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
introduced from 2021 which are
designed for use-phase efficiency
(% of revenue)
2022
0.5%
1.20%
2023
2%
1.12%
2024
3%
2025
4%
2026
5%
3
Halve the polymer purchased that is
not in the end-product (internal waste
and oversized materials) by the end of
2026
1
Reduction in the mass of excess
polymer purchased to that sold
(% reduction) from a baseline at the
end of 2021
2022
2.5%
4.70%
2023
7.5%
10.80%
2024
15%
2025
30%
2026
40%
1
The objective to halve the polymer purchased that is not used in the end-product is calculated on a running rate at the end of 2026, whereas the KPI provides intermediate targets for the full year.
Environment
A decrease in Group energy usage of 458 MWh in 2023 mainly
arose through better energy management across all sites.
The year saw a continuation of our 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 (2022: none). Previous
years have been analysed against an internal
categorisation introduced in 2018, guided by the
environmental reporting guidelines.
Environmental incidents are categorised as
follows:
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. 13 internally reported
Level 3 incidents (2022: 15) relating to minor
machine oil spills and plastic granule spills were
recorded during the year, all of which were
contained. The incidents are captured by daily
inspections and actioned as required. The
continued yearly decrease is attributed to high
levels of safety observations, employee
education and ongoing implementation of the
5S method to reduce waste and increase
productivity.
Achieved in full or predominantly achieved
Partially achieved
Not achieved
Scan the QR code to
see the environmental
reporting guidelines
zote.info/36LLN69
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Environmental, social and governance (ESG) report
Continued
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 (CO
2
) 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 2023, our
adjusted energy efficiency measure, Specific
Energy Consumption (SEC), decreased 10% to
7.73 kWh/kg (2022: 8.58 kWh/kg), continuing a
downward trend initiated in 2015. In 2023, the
Company completed its third assessment under
the Energy Saving Opportunity Scheme (ESOS)
and remains compliant.
The SEC value has been reported in the Annual
Report as a mix-adjusted value since 2018. This
allows a product-mix-neutral assessment of
energy efficiency improvements made.
Global carbon emissions
2023
2022
2021
2020
2019
Group: carbon emissions (CO
2
tonnes)
Scope 1 emissions (direct emissions from our operations
which includes fuel)
1
7,021
6,932
7,418
7,078
5,626
Scope 2 emissions (indirect emissions, primarily electricity)
6,314
6,029
6,792
7,464
6,787
Total
13,335
12,961
14,210
14,542
12,413
Carbon emissions (kg) per material gassed (kg)
1.4
1.4
1.5
1.6
1.6
1
We do not generate our own energy.
Global pollutant emissions
2023
2022
NO
X
(excluding N
2
O)
2.5
2.5
SO
X
0.0
0.0
VOCs
1.0
0.3
HAPs
0.1
0.0
NO
X
and SO
X
calculated from Scope 1 emissions.
Volatile Organic Compounds (VOCs) and Hazardous Air Pollutants (HAPs) measured on a number of typical production days at factory emission points and scaled for total annual production
volumes.
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
to create these foams allow us to use less raw
material and produce lighter foams than rival
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.
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.
Waste, water and sustainability
targets
Our website provides further metrics on
waste, water and carbon emissions.
https://zote.info/3mjufjS
Task Force on Climate-related
Financial Disclosures (TCFD)
response
Our climate-related financial disclosures
for the financial year ended 31 December
2023, in accordance with the FCA listing rule
LR 9.8.6 R(8), are provided on our website
https://zote.info/3mjufjS
. 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 in respect
of the 11 TCFD recommendations.
69
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
Sustainability Accounting Standards Board (SASB) disclosures
SASB standards identify the subset of ESG issues that are 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.
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 68. 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 table
on page 68 and targets section on
page 67
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
on page 68
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 key metrics on page 67
We do not generate our own energy
Water management
(1) Total water withdrawn
(2) Total water consumed
(3) 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 on our website
https://zote.info/3mjufjS
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 and TCFD
disclosures on our website
https://zote.info/3mjufjS
Hazardous waste
management
Amount of hazardous waste generated
and percentage recycled
Quantitative
Metric tonnes (t)
Percentage (%)
RT-CH-150a.1
See waste data table on our website
https://zote.info/3mjufjS
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 on page 67
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 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
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 75 to 77
Production by
reportable segment
n/a
Quantitative
Cubic meters (m³) or
metric tonnes (t)
RT-CH-000.A
7,488 tonnes of AZOTE
®
Polyolefin
Foam and 2,074 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.
70
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Annual Report 2023
Environmental, social and governance (ESG) report
Continued
Social
The financial results achieved in 2023 were delivered with the continued
dedication, talent and versatility of the Zotefoams workforce. While navigating
the prevailing macroeconomic situation and balancing the needs of
stakeholders, we granted pay rises commensurate with the exceptional inflation
experienced in the period. We also reviewed our reward strategy in the UK,
which we expect to generate Group-wide improvements during 2024.
Our people strategy
Our ambition is to be the world leader in
cellular materials technology in our chosen
markets. Our people strategy is approved by
the Board annually.
Key 2023 strategic challenges
X
Recruiting and retaining a sufficient number
of competent staff: Our workforce strategy
relies on identifying and filling existing
and future gaps in our workforce through
promotion and recruitment while retaining
key contributors. In 2023, we carried
out a reward strategy review in the UK,
which confirmed that our remuneration
framework was broadly aligned with the
UK manufacturing industry and staff
expectations. The review recommendations
will be implemented in the UK in 2024
and provide a basis for reviews of the
benefits programme in other locations.
We continued to develop our succession
planning through individual employee
Learning & Development (L&D) plans and
an expansion of the scope of our graduate
management scheme.
X
Fostering a culture of wellbeing to support
effectiveness and staff retention: Feedback
from employee focus groups was used to
develop an employee engagement strategy
encompassing female empowerment,
the embedding of cultural values into the
business and being safety leaders. The
Board supported and attended a series of
events held during International Women’s
Day in the UK and China.
80%
Group employee
retention rate
63%
Participation rate in
Group employee survey
45
Nationalities
represented in
Group workforce
45
Employee Net
Promoter Score
12.8%
Gender pay gap
X
Ensuring that record management meets
our needs: In 2023, our Human Resources
(HR) team focused on mapping transactional
HR processes to ensure that all system
updates were correctly implemented.
Efficiency improvements were identified, and
manual processes were automated where
feasible. Work is ongoing to implement
payroll process maps with sign-off levels for
all locations by the end of December 2024.
Data integrity was considered in two internal
audits, one of which specifically focused on
HR processes and records. The findings are
reported in our Audit Committee report on
pages 83 to 86.
Our people strategy is delivered by our
managers with the support of HR. The HR
function operates via a Group team located in
the UK and local leads in the USA, China and
Poland. An online portal is in place to enable
staff to easily manage certain HR tasks in our
manufacturing sites, allowing the HR function
to fully focus on supporting line managers and
improve the employee experience.
Effective and flexible policies
Zotefoams’ Group-wide people policies
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 bereavement and dependants’
sickness, are in place in all locations. Flexible
working arrangements are offered to staff
through a blended working policy in the UK
and a compressed week in the USA. Adjusted
working arrangements aligned with local legal
requirements apply in our Poland, China and
India operations.
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
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Annual Report 2023
Strategic Report
Governance
Financial Statements
Culture, diversity
and inclusion
Embedding culture in an
increasingly virtual world
Zotefoams is a global manufacturing business
with a diverse workforce operating
cross-functionally in different locations. Having
recognised that the Group’s culture and
inclusivity could be negatively impacted by the
lack of personal interaction between staff
working in different modes and at different
locations, we continue to focus on embedding
our culture in an increasingly virtual world with
different challenges to effective collaboration.
With the 2022 staff survey identifying that their
freedom to make decisions appropriate to
their role was a strength of the Zotefoams
culture, management focused on the
continued development of a supportive
environment in that important area. Events
focused on gender inclusivity and employees’
health were also successfully run throughout
the year. Recognising the important role that
remuneration plays in employee satisfaction, a
UK benefit review provided useful insights into
staff’s perception of the value of salaries,
benefits and incentive schemes that the
business has in place. Further details are
provided below. All staff receive training on
our culture pillars and brand values on joining
the business and every two years thereafter.
In order to ensure that policies, practices and
behaviour throughout the business are
aligned with the Company’s purpose, values
and strategy, the Board monitors culture in a
variety of ways, including through the Joint
Consultative Committee, Board lunches with
senior employees, plant visits and Executive
presentations throughout the year.
The Board Diversity Policy adopted in 2021
demonstrates our commitment to fostering an
inclusive culture. It was updated in 2023 to
include age, gender reassignment, and
educational, professional and social economic
backgrounds as diversity indicators. We also
replaced our Equal Opportunities Policy with
a Group-wide Equality, Diversity and Inclusion
Policy, which reaffirms our opposition to all
forms of discrimination and captures our
commitment to creating opportunities for all
staff to access the training and resources they
need to develop their full potential. The new
policy was approved by the trade unions in
the UK.
Group policies and internal controls are in
place, and are monitored by the Board, on
health and safety, modern slavery, ethics,
anti-bribery and corruption, anti-fraud,
whistleblowing and dignity at work; visit
https://zote.info/3x0de78
for further
information. The Group has in place a contact
mechanism for stakeholders to reach out to
the business on issues of concern. Biennial
compliance training programmes, in local
languages if needed, are delivered globally to
relevant staff on modern slavery, anti-bribery
and corruption, anti-fraud, anti-money
laundering, insider trading and data
protection. In 2023, we delivered compliance
and health and safety training to 452
employees.
Zotefoams became a signatory to the
Employer Pays Principle during the year,
formalising our long-standing Group-wide
commitment to recruitment costs being borne
by the employer, not the employee.
Zotefoams aspires to net recruitment
(joiners less leavers) reaching 50% female by
31 December 2024 and a number of specific
initiatives aimed at supporting this objective
were launched in 2023, resulting in a figure
of 32% net female joiners Group-wide as at
31 December 2023. Following a series of
It was interesting
to understand
why language
matters and how to
challenge negative
messages.
webinars and events attended by our female
Board members and our Chair on
International Women’s Day, we launched a
Women’s Forum in the UK to enhance the
female voice within Zotefoams, having
particular regard to women working in
Operations. Its mission is to identify and
promote concrete initiatives to tackle gender
inequality. Our female senior managers were
invited to attend a Women Advancing in
Leadership seminar giving them the
opportunity to examine their leadership style
and consider how to overcome barriers to
advancement. Following a presentation to the
Board on diversity, our recruitment processes
were modified to widen accessibility and
support a greater diversity of applicants.
Senior managers play a critical role in
developing talent, promoting connectivity
across teams and linking strategy to culture.
We are encouraged to see that the diversity
data collected over the past two years in the
UK indicates that this cohort has benefitted
from inter-generational social mobility, which
positively impacts Zotefoams’ innovative and
progress-driven culture.
Scan the QR code to see
the Board Diversity Policy
zote.info/3UE6Deb
72
Zotefoams plc
Annual Report 2023
Environmental, social and governance (ESG) report
Continued
Ethnicity distribution of Group workforce
Director
UK
US
China
Poland
India
Group-
wide
Arab
0
2
0
0
0
0
2
Asian
0
60
0
37
0
7
104
Black, African or Caribbean
0
60
7
0
0
0
67
Hispanic or Latino
0
0
25
0
0
0
25
Mixed
0
10
0
0
0
0
10
White
7
199
82
0
46
0
334
Other
0
3
0
0
0
0
3
Unknown
0
4
0
0
0
0
4
Total
7
338
114
37
46
7
549
Non-white ethnicity
1
0%
40%
28%
100%
0%
100%
38%
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.
Role by gender
1
2023
2022
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
10
26
29
74
0
0
15
28
38
72
0
0
Other staff
130
26
367
74
0
0
120
26
348
74
0
0
Total
143
26
406
74
0
0
138
26
396
74
0
0
Number of senior
positions (CEO, CFO,
SID or Chair)
1
–
3
–
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.
Around 26% of the total workforce is female (2022: 26%). Recognising the benefits of a
gender-diverse workforce, we have put in place a number of measures to attract more
women into the business but recognise that, in production environments, the shift patterns
and physical nature of the work present a challenge which is only likely to be addressed
in 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 12.8% in April 2023
(11.0% in April 2022), below a UK average of 14.3%.
Age diversity
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
(2022: 43). 29% of our workforce is aged
51 or over (2022: 30%).
We expect our workforce to reflect the
local communities in which we operate
and recognising this forms part of our
people strategy. Our principal site, with
62% of Group employees (2022: 63%),
is located in South London, and 40%
of the workforce is from a non-white
ethnic group (2022: 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.
As at 31 December 2023, the Group
employed 549 staff (2022: 534).
Scan the QR code to see
the Gender Pay Gap Report
zote.info/3iRXA5y
73
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
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. 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.
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. In 2023,
a finance intern position was created in the
USA.
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 2023,
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 by
our new Chair to the Poland and USA sites,
which 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.
The 2023 staff engagement survey was
focused on job satisfaction and perceived
development potential. An excellent response
rate of 63% was noted, with a Net Promoter
Score of 45.
Community engagement
Our HR and Health and Safety Steering
Committees consider the risks and
opportunities associated with community
interests. As a responsible employer and
neighbour, we aim to have a beneficial impact
on 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.
In the UK, our employee-led JCC opted to
support local charities in 2023 focused on
young people by equipping them with the
skills for every stage of their lives and
providing support with mental health
challenges. Staff participated in a Christmas
gift donation arranged through KidsOut, a
registered charity, for disadvantaged children
in the UK. A litter-picking exercise also took
place. Our plant in Walton, USA, organised
charity walks supporting the Alzheimer’s
Association and the American Cancer
Society.
Our Graduates’ outreach programme
continues to support university graduates with
their first job search. In 2023, we broadened
our engagement to include coaching of
university students in CV drafting, mock
interviews and attending career days.
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
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 OHSE table
page 77
Sustainability Accounting Standards Board (SASB) disclosures
L Drummond, Company Chair,
visiting our Poland plant
Do you feel you are
recognised for the
work you do?
Do you feel your
work is meaningful
and aligned with the
Company’s goals?
Do you have
opportunities for
growth and
development in
your role?
Would you
recommend
Zotefoams as
a great place
to work?
?
Employee engagement
survey questions
1
2
3
4
74
Zotefoams plc
Annual Report 2023
Environmental, social and governance (ESG) report
Continued
1
Office for National Statistics, employee workplace pensions in the UK bulletin, April 2022
Remuneration and benefits
The Group’s remuneration strategy aims to
align financial incentives with Zotefoams’
purpose and values for optimising
performance. The Company compensates its
staff in line with market rates and takes into
account regulatory guidance, which includes
paying employees at or above the rates
published by the Living Wage Foundation in
the UK and liveable wages in the USA. In
Poland, India and China, the rate of pay for
Zotefoams employees is above the minimum
wage applicable locally. Bonus arrangements
vary from location to location.
Recognising the impact of the energy crisis
and broader inflationary pressures, UK staff
received a salary increase totalling 7% in
2023, part of which was implemented early, in
October 2022, to staff earning below £50,000
p.a. This cohort constituted 77% of the UK
workforce. Similar measures were
implemented in the USA and Poland to ensure
that salaries remained aligned with the
market. Trade unions are consulted in all
employee remuneration matters and were
supportive of the measures taken.
For the UK workforce, the following increases
have been agreed, effective 1 April 2024:
X
a pay rise of 5%
X
an increased employer pension contribution
on the two direct contribution pension
schemes currently run by the Company
by 1%, for those meeting the maximum
employee contribution.
The webinar has certainly
contributed to refreshing
my awareness and I
consequently took the
decision to increase my
pension contribution.
I definitely found the
webinars useful and quite
timely. After watching
them, I started to look at
the pension fund options
and their potential returns
quite differently.
A wide range of benefits is available to staff
generally, including bonus schemes, life
assurance, flu vaccination, employee
assistance programmes and free car parking.
An employee reward scheme and a share
incentive plan are also offered to UK staff.
Benefits are provided to staff in other locations
in line with local norms. Our UK Share
Incentive Plan, in place since 2016, has seen
an uptake in participation of 10% during the
year.
As part of a 2023 UK benefits review, JCC
members were consulted on reward priorities.
The majority of UK staff felt that helping
employees through the cost-of-living crisis
was key, with the expectation that pay would
be benchmarked externally. Benefits were a
priority for c.40% of staff. Following the review,
the Board approved a number of
improvements to be implemented from 2024
onward, including wellbeing initiatives and a
recognition scheme. The 2023 review will
form the basis for Group-wide improvements
in 2024.
90% of Zotefoams’ staff are enrolled in a
pension scheme in the UK, an encouraging
figure which compares favourably to a UK
average of 79%.
1
In other locations, all staff
are enrolled in a government-backed pension
scheme in line with local legislation. In 2023,
the Board approved a switch in its main
pension contribution scheme to a pension
product offering a wider range of benefits to
the majority of our UK workforce. This was
combined with a series of webinars by Legal
& General aimed at providing guidance on
retirement options, leading to a 7% increase in
membership during the year. During the year,
the Company set up a Defined Contribution
Pension Scheme Governance Committee,
chaired by the Group CEO, to ensure, on
behalf of the Board, that the plan remains
suitable overall for the Zotefoams member
base and that it is properly run.
A Care Concierge service that helps staff
understand and find later-life care for their
relatives has also been made available.
Organisation development
This year, we ran a leadership academy
programme aimed at equipping team leaders
and early entry talent with cross-functional
skills and providing training on developing,
managing and leading individuals and teams
to achieve Zotefoams’ objectives. Managing
change and enhancing stakeholder
relationships are key elements.
We actively manage a pipeline of future talent
supported by the codification of knowledge
and processes to support effective
succession planning. As a knowledge-based
business, we attract professionals at the
beginning of their career and recognise that
processes and practices which support
knowledge transfer and cross-skilling are key
to organisational development.
The UK Operations leadership team structure
was updated during the year to augment skills
specialisation in production management. In
the USA, a flatter management structure has
been adopted at operational level to foster
greater engagement with management and
support the strong safety culture in place.
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 with the fulfilment
of the Group’s objectives, and we maintained
this approach in 2023.
75
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
where they can make a significant contribution
to our future success, and we are proud of
our programme’s track record of nurturing
versatile talent for Zotefoams’ future.
All participants undertake a programme
tailored to their individual backgrounds and
career aspirations. This comprises several
development roles and involves a blend of
structured learning alongside hands-on
exposure to all major business functions,
providing a broad business perspective whilst
developing the skills required to succeed on
their chosen career path. Our Executive and
senior management teams from across the
business are engaged in supporting the
Scheme and supporting existing graduates
in mentoring newly recruited graduates.
This has ensured the seamless integration
of all 2023 participants into key business
functions including Supply Chain and
Technical Support.
In 2023, we also set out to enhance the public
profile of our programme to ensure that we
are well placed to attract the highest calibre of
graduates each year, despite the challenges
associated with attracting talent to a plastics
industry tarnished by certain misconceptions
and products used for the wrong purpose.
By engaging with current participants and
former programme alumni to identify
opportunities to enhance our approach
to student engagement, we rolled out an
expanded programme of initiatives, such
as participation in career days, providing
coaching to students and supporting the
development of stronger interview skills.
Beyond our UK Graduate Scheme, and as
part of our ongoing efforts to diversify learning
opportunities, we also provide work
experience and internship opportunities at
two of our world-class manufacturing facilities
located in the UK and USA.
Health and Safety
Board-level accountability
Fostering a safety culture has a positive
impact on risk and performance. Our
approach prioritises health and safety, is
supported by strong leadership and aims to
train employees to develop the tools to
continually improve safety in the working
environment. The Company is certified to
accredited standard ISO 45001:2018 for
Health and Safety and is subject to a
recertification regime requiring two
surveillance audits per annum.
The Board, which has ultimate responsibility
for health and safety policy and performance,
has set a low risk appetite for health and
safety matters, and reviews quarterly reports
on Group health and safety issues. 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, both in the UK and in our
overseas locations. Additionally, the Board
has a detailed review of performance, targets,
metrics and approach in health, safety and
environmental matters through monthly
updates.
The Group CEO is directly responsible to the
Board for health and safety performance. All
health and safety matters are overseen by
steering committees, chaired by the Group
CEO (or appropriate senior person in
subsidiary companies). The steering
committees meet quarterly and consider
overall performance and the impact of current
and impending legislation.
I was always interested in planning and industrial processes and in
2018 graduated as an engineer in logistics. Through a variety of
roles, I developed an interest in health and safety. Zotefoams was
the first company to offer me a comprehensive training programme
when I joined the business in 2020. Although the pandemic had
started and the health and safety function was under a lot of
pressure, this was a great environment for learning. The Health and
Safety Manager encouraged me to begin a programme of training
with the Institute of Safety and Health, which I followed through to
a NEBOSH qualification in Health and Safety, Fire Safety and
Construction. I am passionate about protecting people in the
workplace as I believe that people who feel safe are more
productive and happier. My learning journey continues and in
2024 I plan to study for a NEBOSH Certificate in Process Safety
Management with the support of Zotefoams.
Patrycja Zerafa
OHSE Coordinator
Performance management
Our performance management process
aims to encourage a high level of employee
engagement in the development of their
performance. In the UK, staff competency is
assessed against the competency framework
launched in 2022. The framework was further
developed in 2023 through a roll-out to our
production employees in the UK as well as to
all staff in China and Poland to help identify
training and development opportunities.
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.
UK Graduate Scheme
Our dynamic two-year UK Graduate Scheme
continues to play a pivotal role in enhancing
the capacity of our team for the long term by
generating a pipeline of emerging talent who
have a comprehensive understanding of our
business. These strong foundations enable
participants to rapidly accelerate to a position
76
Zotefoams plc
Annual Report 2023
Environmental, social and governance (ESG) report
Continued
Safety leading indicators
evolve across the group
Zotefoams has a mature safety culture.
Having reached a high level of staff
engagement by 2020, the Group began to
focus on leading indicators, a
forward-looking metric designed to foster
continuous improvement to help identify
new potential risks and allow for timely
intervention. Since then, a significant
increase in safety engagement has been
noted in all our locations, with a more
focused and proactive approach to safety
performance. The consistent improvement
in our DART (Days Away Restricted or
Transferred) and DAFW (Days Away From
Work) metrics reflects this work.
9,202 Group-wide safety engagements
were completed in 2023 (2022: 5,000).
Focus on health
Employee health and safety issues are
embedded widely in Group activities.
Further details are available on page 77.
Two interactive safety days held in the UK
in 2023, with support from key suppliers in
the fields of hazard identification, wellbeing,
fire safety and protecting the environment,
were attended by over 100 staff members,
and positive feedback was received. Safety
events were also held in Poland and are
planned in the USA in 2024.
Occupational health monitoring in relevant
functions is in place in all manufacturing
facilities.
An employee assistance programme is in
place in our two largest sites 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 is available to offer
initial support to employees and to direct
them towards appropriate internal and
external resources.
Also in the UK and USA, webinars and
discussions focused on female and male
health were held throughout the year. A flu
vaccine programme was also continued in
2023.
Training and performance
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. Role-appropriate health and
safety training is provided to each employee
on joining the business and at regular
intervals. Employees are required to report
any unsafe, or potentially unsafe, acts or
conditions and any incident (including near
misses), as well as damage to plant or
equipment which has not resulted in personal
injury. All 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 2023, there were no
prosecutions, fines or enforcement actions
taken as a result of non-compliance with
health and safety legislation (2022: none).
Controlled substances and
high-pressure gas
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; therefore 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.
Safety day 2023, Croydon, UK
77
Zotefoams plc
Annual Report 2023
Strategic Report
Governance
Financial Statements
2023
2022
2021
Industry (latest
published
figures)
RIDDOR
1
2
0
n/a
DAFW
0.7
0.5
1.2
1.2
DART
0.9
0.5
1.7
2.3
2023
2022
Total Recordable Incident Rate (TRIR)
Direct Employees
1.0
3.1
Contract Employees
0
0
Process Safety Incidents Count
1
2
4
Process Safety Incident Rate
1
0.3
0.7
Process Safety Incident Severity Rate
1
1.0
1.5
Number of transport incidents
1
0
0
Fatality rate
Direct Employees
0
0
Contract Employees
0.0
0.0
1
Tier 1 level incidents.
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Workforce
health and
safety
(1) Total recordable incident
rate (TRIR)
(2) Fatality rate for:
(a) direct employees and
(b) contract employees
Quantitative
Rate
RT-CH-320a.1
See Health and safety
performance table on
page 77
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
We assess all hazards
within all roles and have
a health surveillance
programme based on
higher risk hazards. We
continuously work to
eliminate or mitigate all
risks that could lead to
long-term health risk
Operational
safety,
emergency
preparedness
and 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 Health and safety
performance table on
page 77
Number of transport incidents
Quantitative
Number
RT-CH-540a.2
Zotefoams had no
reportable transport
incidents
Sustainability Accounting Standards Board (SASB) disclosures
Health and safety
performance
The primary metric used to monitor the
number of reportable injuries for the Group is
RIDDOR. The Group also uses metrics
devised by the United States Department of
Labor to measure staff absence 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 2023, a good
performance continued on DAFW and DART
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.
In 2023, one RIDDOR incident occurred
across the Group (2022: two).
David Stirling
Group CEO
Appointed
September 1997 (Finance Director)
and May 2000 (Group CEO).
As recently announced, David will
retire at the 2024 AGM.
Skills
Global leadership, strategy and
commercial experience, with
a specific skillset in intellectual
property, business development,
finance and manufacturing. He
has over 20 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 for BICC plc. David is
a graduate of Glasgow University
and has an MBA from Warwick
University and an MSc in Finance
from the London Business School.
David is a Fellow of the Institute of
Materials, Minerals and Mining.
External appointments
None
Board of Directors
Chair of Committee
A
Member of the
Audit Committee
R
Member of the
Remuneration
Committee
N
Member of the
Nomination
Committee
Douglas Robertson
Senior Independent Director
A
N R
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.
Diverse
skills
to build
strength
Lynn Drummond
Non-Executive Chair
N
R
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 in 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. Non-
Executive Director of Stevenage
Bioscience Catalyst. Board mentor
for Criticaleye.
78
Zotefoams plc
Annual Report 2023
Gary McGrath
Group CFO
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
Jonathan Carling
Non-Executive Director
A N R
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
Catherine Wall
Non-Executive Director
A N R
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
Trustee of City of Birmingham
Symphony Orchestra.
Malcolm Swift
Non-Executive Director
A N
R
Appointed
September 2023
Skills
Experienced Non-Executive
Director with significant expertise in
global consumer and B2B markets
and international joint venture
boards.
Experience
Malcolm brings a global business
perspective acquired over a 30-
year career. He was an Executive
Committee member of McCormick
& Co Inc, where his executive
positions included President,
Global Flavour Solutions, and Chief
Administration Officer. From 2017
to 2023, he was a Non-Executive
Director and, from 2019, Chair of
the Remuneration Committee of
Devro plc, and prior to this a Non-
Executive Director of Stolt Sea
Farm Holdings plc.
External appointments
Non-Executive Director of
NovaTaste Group, Board
adviser to Nactarome S.p.A.,
President of the European
Brands Association, Chair of
Governors at Caldicott School,
Buckinghamshire.
Strategic Report
Governance
Financial Statements
79
Zotefoams plc
Annual Report 2023
80
Zotefoams plc
Annual Report 2023
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.
Throughout the year, the Board has remained
committed 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 ensuring that operational and financial
performance, risk, governance, strategy, culture
and stakeholder matters are discussed
frequently and supporting 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.
Strategy 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 covered by the Board in 2023
included:
X
overseeing Board changes (Chair,
Remuneration Committee Chair and a CEO
search process)
X
approval of capital expenditure for a new
low-pressure vessel to increase expansion
capacity in Walton, USA
X
approval of a supply agreement extension with
Nike to 2029 in continuance of a partnership
started in 2018 on footwear products
X
continued tracking of progress with ReZorce
®
mono-material barrier packaging and the
appetite to invest behind it
X
embarking on a process to identify
opportunities and risks arising from Artificial
Intelligence (AI).
Further details may be found in our S172(1)
statement on
pages 61 to 63
and in our Strategic
Report on
pages 1 to 77.
I am pleased to present the report on corporate
governance on behalf of the Board.
Key performance indicators
Governance
The business is managed in line with our risk
management framework on page 47. The
Company complies with the requirements of the
UK Corporate Governance Code and has due
regard to best practice in governance matters.
Accreditations
The Company is certified to ISO 14001:2015
(Environmental Management), ISO 45001:2018
(Occupational Health and Safety), ISO 9001:2015
(Quality Management), and from 2024 ISO
27001:2022 (Information Security Management).
We follow ISO 14021:2016 when making
environmental claims and have taken steps
to gain independent accreditation for these.
Further details are provided in our Environment
section on pages 67 to 69. The Cyber Essentials
Plus certification, an in-depth and thorough
independent assessment of our IT systems,
was re-awarded in 2023.
Policies
The Company has in place a wide range of
ethical and control policies. Further details are
provided in our Social section on pages 70 to 77
and our Environment section on pages 67 to 69.
Statement of compliance with the 2018
UK Corporate Governance Code
Throughout the financial year ended
31 December 2023, 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.
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 106.
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 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 for the
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://zote.info/3ESyJZy
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 L Drummond has
sufficient time to devote to her role as Chair
of the Company. L Drummond is currently
Chair and Pro-Chancellor of the University of
Hertfordshire and a Non-Executive Director
of Stevenage Bioscience Catalyst.
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 and its committees acknowledge the
benefits of diversity, including that of gender and
ethnicity, and are committed to setting an
appropriate ‘tone from the top’ in such matters.
The Board’s Diversity Policy reflects its aspiration
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.
It is acknowledged that, in periods of Board
change, there may be times when these
thresholds are not maintained.
Corporate governance
Committed to the highest standards
of corporate governance
Strategic Report
Governance
Financial Statements
81
Zotefoams plc
Annual Report 2023
The Board’s female membership was increased
to 43% in May 2023 following the appointment of
L Drummond as Chair, which also allowed us to
make progress toward the additional target of
having at least one senior Board position held by
a woman. It returned to the previous level of 29%
following the resignation of A Fielding in
September 2023.
The Board Diversity Policy informed the process
followed by the Nomination Committee in relation
to Board changes in 2023. 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. More details can be found in our Social
section on pages 70 to 77, and in our Nomination
Committee report on pages 87 to 89.
The Board members have gained their business
experience across a broad range of industries,
covering industrial, engineering, energy,
education, medical, food, 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.
As at 31 December 2023, the Board comprised
two Executive Directors, four independent
Non-Executive Directors and the independent
Non-Executive Chair. L Drummond was
appointed to the Board on 17 January 2023 as
Non-Executive Director and Chair Designate and
became Chair on 24 May 2023. D Robertson
was appointed Senior Independent Director at
the AGM held on 16 May 2018. The Board
considers D Robertson to be independent.
L Drummond 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.
The Directors’ tenures are as follows:
Tenure and attendance
Director
Tenure at 31 December 2023
J Carling
6 years and 0 months
L Drummond
1 year and 0 months
G McGrath
8 years and 1 month
D Robertson
6 years and 4 months
D Stirling
26 years and 4 months
M Swift
5
0 years and 3 months
C Wall
3 years and 7 months
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 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
1
13
12
4
4
3
3
4
4
L Drummond
2
13
13
1
1
3
3
4
4
A Fielding
3
9
9
2
2
2
2
3
2
S Good
4
5
5
–
–
2
2
1
1
G McGrath
13
13
–
–
–
–
–
–
D Robertson
13
13
4
4
3
3
4
4
D Stirling
13
13
–
–
–
–
–
–
M Swift
5
4
4
2
2
1
1
1
1
C Wall
13
13
4
4
3
3
4
4
1
J Carling’s absence from a Board meeting was due to attending a funeral.
2
L Drummond was appointed Non-Executive Director and Chair Designate on 17 January 2023 and Chair on 24 May 2023. From the date of her appointment as Chair, she ceased to be a member
of the Audit Committee and thus was no longer eligible to attend its meetings.
3
A Fielding, who joined the Board in May 2020, resigned as Non-Executive Director on 29 September 2023. Her absence from a Nomination Committee meeting was due to sickness.
4
S Good, who joined the Board in October 2014, resigned as Chair on 24 May 2023.
5
M Swift was appointed Non-Executive Director on 29 September 2023.
Having considered the merits of retaining the
services of an external facilitator, the Board
concluded that, given the Group’s size, the
Board’s needs and the recent appointment of a
new Chair, more benefit would be derived from
carrying out a fully facilitated Board evaluation in
2024.
Further details of the 2023 Board evaluation may
be found in our Nomination Committee report on
pages 87 to 89.
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 contributed effectively and provided
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.
82
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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 2023, these
meetings continued to be held, with a mix of
in-person 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. Our new Chair, L Drummond, was
introduced to key institutional shareholders and
took part in an online presentation held after the
2023 Annual General Meeting. The Chair and the
Group CEO also made themselves available to
shareholders on 7 November 2023 following the
announcement of a Group CEO succession
process being initiated. During the year, the
Company increased the number of Regulatory
News Services announcements to keep
shareholders abreast of developments within
the business, including the extension of an
exclusivity agreement with Nike to December
2029, a new joint development agreement and
a Best Recycled Plastic Product of the Year
award in relation to ReZorce
®
mono-material
barrier packaging. In Q1 2024, our MSCI ESG
rating assessment improved from AA to AAA.
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 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
that the proposals were fully aligned with
shareholders’ expectations. Further details are
provided in the 2022 Directors’ Remuneration
report on pages 88 to 109. The new Directors’
Remuneration Policy was approved by 95.27%
of votes cast.
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 UK Corporate Governance
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 45 to 47 of the Risk management and
principal risks 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 47.
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 2023 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 foam
manufacturing facility. Attendees will have the
opportunity to meet the Board informally and
ask questions. Further information is provided
in our Notice of the 2024 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.
L Drummond
Chair
5 April 2024
Corporate governance
Continued
Strategic Report
Governance
Financial Statements
83
Zotefoams plc
Annual Report 2023
Dear Shareholder
The Audit Committee has reviewed the contents
of the 2023 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.
Financial performance
During 2023, the Committee was focused on
matters relating to maintaining the Group’s
strong financial performance in a robust control
environment.
Profitability in the foams business, which
comprises our Polyolefin Foams and
High-Performance Products (HPP) business
units, increased by 22% to £17.2m (2022:
£14.1m) as a result of customer pricing
management in the Polyolefin Foams business,
continued faster growth in HPP and operational
efficiency improvements. This was partly offset
by increased losses in the MuCell Extrusion LLC
(MEL) business of £4.4m (2022: £1.9m), and
further capitalisation of development costs and
some equipment, amounting to £2.5m (2022:
£1.4m) as focus continued on the development
of ReZorce
®
mono-material barrier packaging,
resulting in a net increase in Group profit before
tax of 5% to £12.8m (2022: £12.2m) on similar
revenues. Future capacity requirements were
also considered and, in response to increasing
opportunities in the USA, the Board approved a
significant capital investment of approximately
£10m to fund further development of its foam
manufacturing site in Kentucky, USA, with
investment in a second low-pressure autoclave
and increased warehouse space.
MuCell Extrusion LLC (MEL) carrying value
MEL’s carrying value remained an important area
of judgement in 2023. Having engaged regularly
during the year on progress of the ReZorce
®
mono-material barrier packaging opportunity
via the Board, the Committee challenged
management to confirm that its annual
assessment of the impairment value of intangible
assets was fair and reasonable. The Committee
noted the favourable opinion from the External
Auditor, who had gained comfort on the
recoverable value of the assets by reviewing and
testing the inputs and assumptions used in
management’s value-in-use model, together with
assessing the progress achieved during the year,
including the securing of a joint development
agreement and ongoing effective collaboration
with a globally recognised beverage packager,
the technological advancements achieved, the
anticipated timeline to in-market trials with a
reputable supermarket chain in northern Europe,
the estimated market size, the ability to secure
interest from future potential customers and the
plans for commercialisation of the proposition.
Taking the External Auditor assessment, and
drawing on its own investigations and analysis,
the Committee also concluded that there was no
impairment as at 31 December 2023.
Furthermore, the Committee noted that the
challenges inherent in running a start-up
proposition such as ReZorce alongside an
established business such as the Zotefoams
autoclave technology business created a specific
set of risks that were being well managed. It also
noted how the recruitment of a C-Suite level
finance resource towards the end of 2023 had
augmented managerial capability within MEL.
Internal controls
Based on its continued assessment of the
risks facing the business, the Audit Committee
maintained its focus on internal controls in 2023.
As part of a planned three-year project led by
a fully dedicated and newly recruited internal
controls manager, internal financial controls on
the key transactional processes in the UK were
fully documented, and testing commenced.
Testing will become continuous, in addition to an
extension of the documentation and testing of
the internal controls to other Group legal entities.
Policies and financial authorities lists were also
reviewed, tested and updated where required.
The internal controls manager presented his plan
and progress at two Audit Committee meetings
during the year.
The Committee noted that an effective and
well-embedded risk management process
remained in place. Zotefoams employees derive
great benefit from the process, which provides
a mechanism for identifying and managing risks
that allows everyone to understand their place
in supporting the Group to achieve its strategic
and operational objectives. The Committee
challenged management to find ways to improve
the effectiveness of this process further. This
was followed in Zotefoams Inc, resulting in a
significant improvement in the risk and control
identification and risk mitigation activities in the
USA and subsequently an increased
engagement by functional managers.
As introduced the previous year, the Committee
received a report from the Group Financial
Controller on the accounting matters that
arose for the year ended 31 December 2023
on financial processes controls and received
confirmation that, in their opinion, there were
no accounting issues of a material nature within
the Group’s consolidated financial statements,
and that they reflect a true and fair view of the
Group’s financial performance for the year and
position for the year ended 31 December 2023.
It also received a report from the Group Financial
Controller detailing the main features of the
Group’s internal control and risk management
systems in relation to the process of preparing
consolidated accounts, and received and
accepted their conclusion that the systems are
appropriate for an organisation of the size and
resources of Zotefoams.
During the year, the Committee monitored
the consultation by the UK’s Department for
Business, Energy and Industrial Strategy on
reforms to audit and corporate governance and
satisfied itself that adequate measures are in
place to ensure that the Group will be prepared
for the implementation of any enhanced
requirement imposed by regulation from 2025.
Internal audit
The enhanced internal audit plan approved in
2022 was reviewed and updated by the
Committee during the year to reflect the
increased operational importance of
subsidiaries. The following internal audits were
carried out in 2023:
X
data privacy controls: the review assessed
data protection controls for operations in
the UK, Poland and USA. It established that
Zotefoams has embedded the key elements
supporting data protection compliance and
developed processes and controls to manage
risks around data protection, achieving broad
compliance with data privacy legislation.
Minor documentation upgrades identified by
the Internal Auditor to align with best practice
and further mitigate risk have been completed
during the year. Zotefoams’ personal data
processing is primarily centred around HR
records
X
HR processes for onboarding new staff and
dealing with job changes and departures in
the UK: the audit identified that the HR team is
focused on supporting management in people
activities, with a need to evolve toward more
strategic support of the business by utilising
technology enhancements and increasing the
use of process automation. Work is under way
to assess how best to progress the actions.
The majority of findings were ranked medium
or low, with appropriate management actions
planned or implemented during the year to
mitigate the issues identified, none of which
were material.
Audit Committee report
Focus on internal controls
84
Zotefoams plc
Annual Report 2023
As mentioned in the 2022 Annual Report, 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 and the Committee
reviewed the findings in Q1 2023. Progress on
actions that mostly focused on formalising policy
and processes through effective documentation,
as well as ensuring that best practice and
processes in the UK were replicated in the USA,
was monitored by the Committee during the
year. The Committee will continue to keep under
review and assess the continued independence
and effectiveness of the internal audit function
in 2024.
Payment practices reporting
Zotefoams plc’s payment performance
continues to be better than the UK’s standard of
37 days (per the Small Business Commissioner,
an independent public body set up by the
Government under the Enterprise Act 2016 to
tackle late payment and unfavourable payment
practices in the private sector). Invoices are now
paid on average within 27 days of issue. Given
the importance of maintaining good relationships
with suppliers, the Committee extended this
review in 2023 to cover payment practices in
Poland and China and requested that statistics
for these subsidiaries continue to be monitored
to ensure that they align with local standards.
The Committee noted draft regulations aimed at
extending and strengthening the Reporting on
Payment Practices and Performance
Regulations 2017, including the introduction of
value metrics and comparable sector data, and
remains confident that the Company will
continue to perform well against these criteria.
Non-audit services
The Committee carried out its required triennial
review of the Non-Audit Services Policy first
adopted in 2020. The policy prohibits the
provision of non-audit services by the External
Auditor without the prior approval of the
Committee, which will only be granted in
compliance with the latest Financial Reporting
Council (FRC) Revised Ethical Standard.
Annually, the Group CFO provides an
assessment of compliance with this Policy that
summarises for the Committee all audit firms
used during the year, in order to be aware of
potential tender restrictions and ensure that the
Group maintains sufficient options to permit
a competitive tender should one become
necessary. Any engagement of financial
advisers, who otherwise provide external audit
services, must be approved by the Group CFO.
This includes appointments by the Board and
its committees. After due consideration, the
Committee re-approved the Policy for the next
three years.
The Committee’s responsibilities
In the discharge of its duties, the Committee
has given due consideration to all relevant laws
and regulations including the provisions of the
UK Corporate Governance Code (the “Code”),
the FRC Guidance to Audit Committees, the
requirements of the UK Listing Authority’s Listing
Rules and the Prospectus and Disclosure and
Transparency Rules (DTRs).
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
5 April 2024
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,
contractors and external parties 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
Audit Committee report
Continued
Strategic Report
Governance
Financial Statements
85
Zotefoams plc
Annual Report 2023
X
to assess annually the qualification, skills
and resources, effectiveness, objectivity and
independence of the External Auditor
X
to ensure that the annual report includes
disclosures in line with the Financial Conduct
Authority (FCA) listing rule LR 9.8.6 R(8), which
implements the recommendations of the Task
Force on Climate-related Financial Disclosures
(TCFD)
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; this policy serves two
purposes: 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; and to ensure that the Group
maintains sufficient options to permit a
competitive tender should one become
necessary
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 2023.
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 on
31 December 2023 were D Robertson (Chair),
J Carling, M Swift (appointed in September
2023) and C Wall.
Their biographies can be found on
pages
78 and 79.
A Fielding, who was a Director and
member of the Committee during the year,
resigned on 29 September 2023.
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 four times in 2023.
Further details may be found on page 81.
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 2023, the Audit
Committee has:
X
reviewed the financial statements in the 2022
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 2022 Annual
Report
X
satisfied itself that the European Single
Electronic Format (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 2023 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
2023 and received the report from the
External Auditor on its review of the Interim
Report
X
reviewed and approved an updated three-year
rolling internal audit programme, agreed a
programme of work for 2023 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
in respect of the various pension schemes
offered to UK staff, noted the switch to a
pension product offering staff better value
overall and the set-up of a new internal
Defined Contribution Pension Scheme
Governance Committee, led by the CEO,
to provide assurance to the Board that the
scheme is well governed
X
sought management assurances that
appropriate staff media training had been
provided to support the Group’s public
response in the event of a disaster recovery
situation
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
X
received reports from the Internal Auditor,
noted findings identified and oversaw the
fulfilment of appropriate management actions
to address the same
X
reviewed the Group’s policies on ethics,
anti-bribery, corruption and fraud, and
the arrangements in place for employees
to receive appropriate training and for
employees, contractors and other interested
parties to raise concerns, in confidence, about
possible wrongdoing in financial reporting or
other matters
X
approved publication of the Whistleblowing
Policy on Zotefoams’ website
X
noted the constitution of an Artificial
Intelligence (AI) Steering Committee with the
objective of identifying and mitigating risks
arising from AI and also noted the circulation
of guidance to staff on appropriate AI use
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
UK suppliers’ payment terms in 2023 and
considered payment practices in subsidiary
operations in China and Poland
86
Zotefoams plc
Annual Report 2023
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
X
considered the provisions of the 2018 UK
Corporate Governance Code and the FRC
Guidance on Audit Committees
X
ensured that the 2022 Annual Report
included disclosures in line with the FCA
listing rule LR 9.8.6 R(8) which implements
the recommendations of the TCFD
X
satisfied itself that the Sustainability
Accounting Standards Board (SASB)
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 64 to 66.
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. Details of
significant accounting policies may be found in
the notes to the financial statements on page
121. The Committee considered 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 2023.
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 regular reviews of the
ReZorce opportunity held during 2023, the
Audit Committee is satisfied that the treatment
is appropriate.
X
Pension assumptions. As the Company’s
closed Defined Benefit Pension Scheme
represented one of the largest individual
liabilities on the consolidated statement of
financial position at £2.7m as at 31 December
2023, 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 2023
Audit was PKF’s fourth annual audit for the
Group and was led by J Archer as Audit Partner.
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.
Audit Committee report
Continued
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 again used in 2023 and continued to
evidence that there was open 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 August 2023, the Committee reviewed and
re-approved the policy related to the provision of
non-audit services by the External Auditor. The
policy mandates that no non-audit services may
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 2023.
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 2024 AGM to
re-appoint PKF Littlejohn LLP as the External
Auditor.
Strategic Report
Governance
Financial Statements
87
Zotefoams plc
Annual Report 2023
Dear Shareholder
I am pleased to present my first report on the
activities of the Nomination Committee in 2023.
This year has seen significant Board changes.
Following the retirement of S Good at our AGM
after 9 years’ service, I was appointed Chair of
the Company. A new Remuneration Committee
Chair, M Swift, also joined us in September. Our
Group CEO, D Stirling, who has served on the
Board for over 26 years, announced his intention
to retire during 2024.
Effective succession planning is essential to the
delivery of our strategy and has been considered
from both a short- and long-term perspective by
the Committee over the past two years. To
ensure that its implementation successfully links
talent development to business needs, the
Committee has reviewed the balance of skills,
knowledge, experience and diversity to maintain
robust and effective challenge and stewardship
of the Group’s purpose and strategy. Further
details of our searches in 2023 are provided
below.
Recognising that a stable and engaged team is
key in supporting the Group CEO and meeting
the challenges of a global business aiming to
deliver long-term sustainable growth, 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 Social section on pages 70 to 77.
The principle of diversity is strongly supported by
the Board. Having updated the Board Diversity
Policy in 2022 to reflect its voluntary adoption of
Listing Rules LR 9.8.6R(9) and LR 14.3.33R(1)
from 1 January 2022, the Board has considered
further steps to enhance its diversity and in late
2023 approved a Board Apprentice programme
designed to offer Board experience to a talented
senior executive from a minority-ethnic
background. The recruitment for this role is
anticipated to be completed in 2024 and further
details will be made available in the 2024 Annual
Report.
An annual performance evaluation exercise 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 Board concluded that it had
operated effectively in 2023 against a backdrop
of market, operational and inflationary
challenges.
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 and talent development
over the long term in 2024.
L Drummond
Chair of the Nomination Committee
5 April 2024
Board appointments
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.
A number of Board changes took place in 2023.
A new Company Chair, L Drummond, was
appointed on 24 May 2023 following the
resignation of S Good after nine years’ service.
Details of the search process undertaken for the
Company Chair role are provided on page 86 of
the 2022 Annual Report. M Swift was appointed
as Non-Executive Director and Remuneration
Committee Chair on 29 September 2023
following the resignation of A Fielding. After
23 years in post as Group CEO and 26 years’
service as a Director, D Stirling indicated his
intention to retire in 2024. In order to support
an effective transition in the leadership of the
Group, the Board commenced a formal
succession process in 2023.
Following a competitive tender exercise,
Korn Ferry, an independent executive search
consultancy with no connections to the
Company or any of its individual Directors, was
engaged to support the selection process for
both the Remuneration Committee Chair and
Group CEO roles. Korn Ferry is compliant with
the Enhanced Code of Conduct for Executive
Search Firms. Diversity matters were given due
consideration during the searches and are
reported on below.
Following a compilation of the roles’
specification, a timetable was drawn up setting
out key milestones in the process, including the
drawing up of long and shortlists of candidates
and the commencement of a staged interview
process.
The search process for the Remuneration
Committee Chair involved the setting up of a
subcommittee to oversee the search process
until the shortlist stage had been reached. All
Board members met with and approved the
appointment of M Swift.
The search for a new Group CEO was led by
the Nomination Committee Chair. Following
an extensive interview and assessment process
involving all Directors, the Committee
recommended Ronan Cox to the Board as its
preferred candidate. The Board considered and
accepted the recommendation and R Cox was
appointed as Group CEO Designate with effect
from 2 April 2024, with the intention that he will
join the Board and be appointed as Group CEO
when the current incumbent, D Stirling, steps
down from the Board at the 2024 AGM.
Nomination Committee report
Leveraging new strengths
Scan the QR code to see
the Board Diversity Policy
zote.info/3UE6Deb
88
Zotefoams plc
Annual Report 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:
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 2023. At the end of
2023, 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 search processes undertaken in 2023
considered the following.
Remuneration Committee Chair
23 candidates, 57% of whom were females
and 9% of whom were from a minority-ethnic
background. The final shortlist comprised two
males and one female from white ethnicity
backgrounds. A male from a white ethnicity
background, M Swift, was selected.
Group CEO
52 candidates, 25% of whom were females
and 12% of whom were from a minority-ethnic
background. The final shortlist comprised two
males from white ethnicity backgrounds. A male
from a white ethnicity background, R Cox, was
selected.
Both appointments were 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 the candidates could bring to
the overall Board composition. The search
processes undertaken were fair and took into
consideration the aspirational targets set by
the Hampton-Alexander review and the
Parker review.
In line with the Board Diversity Policy and the
new Equality Diversity and Inclusion Policy
(introduced in 2023), the Company will continue
to strive to improve its ethnic diversity. Given the
tenure profile of the Board, there are no
immediate vacancies that would allow for the
consideration of candidates from minority-ethnic
backgrounds. To address this, the Nomination
Committee has recommended a Board
Apprentice programme under which a
minority-ethnic senior executive candidate
would be appointed to offer the Company
a different perspective on a range of issues.
The Board approved the recommendation and
a recruitment process was initiated in early 2024.
The Board is also considering initiatives which
may improve the internal pipeline of ethnically
diverse talent and will report further on progress
in the 2024 Annual Report. Further details about
the Group’s approach to diversity and our
aspiration to achieve 50% net annual female
joiners by 31 December 2024 are provided in
our Social section on pages 70 to 77.
Board induction
The new Company Chair and the new
Remuneration Committee Chair both followed a
comprehensive induction programme designed
to provide a thorough introduction to the
business.
Induction programme
X
Meetings with the Company Chair and Non-
Executive Directors
X
Meetings with the Group CEO, Group CFO
and Executive team members
X
Risk management briefing
X
Directors’ duties and governance training from
the Group Company Secretary
X
Compliance training, including data protection,
anti-bribery and corruption, modern slavery
and insider trading
X
Briefing on the stance of key shareholders
X
Meeting with auditors, brokers, PR advisers
and solicitors
In addition, the Chair visited Zotefoams’
premises in Poland and the USA.
Board evaluation
The 2023 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 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
the balance of our focus between
immediate and long-term success is
good. Good progress has been made
on the environmental sustainability
agenda. Further details are provided in our
Environment section on pages 67 and 69
X
in response to the 2022 Board evaluation
results, more informal discussions have
been held by the Board outside of Board
meetings and Board members have increased
engagement with Executive team members.
Employee engagement has also improved
through attendance at Board lunches
X
given that the purpose of an evaluation
is to enable a continual process of self-
improvement and that the Board membership
has fluctuated in the past two years, the
Board will consider retaining a facilitator
to support the 2024 Board effectiveness
review process.
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
the appropriate level of commitment to their role.
The Board considers that it is functioning well, is
aligned with the Company’s values 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 sufficient 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.
Key areas of focus
The Nomination Committee comprises the
Chair (appointed in May 2023) and the four
independent Non-Executive Directors as at
31 December 2023. The members of the
Nomination Committee on 31 December 2023
were L Drummond (Chair), J Carling, D
Robertson, M Swift (appointed in September
2023) and C Wall.
Their biographies can be found on pages 78 and
79. A Fielding, who was a Director and member
of the Committee during the year, resigned on 29
September 2023. S Good chaired the
Committee until his resignation as Director and
Chair of the Company on 24 May 2023.
The Non-Executive Directors’ independence is
reassessed annually through the review of a
personal declaration.
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 four times in 2023 as
detailed on page 81. In addition, the Chair and
Committee members held informal discussions
and a number of meetings with Korn Ferry in
relation to the search for a new Remuneration
Committee Chair and Group CEO. The
Committee is supported by the Company
Secretary in planning its activities, monitoring
best practice and meeting its Terms of
Reference.
Nomination Committee report
Continued
Strategic Report
Governance
Financial Statements
89
Zotefoams plc
Annual Report 2023
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 2023, the Committee:
X
reviewed its Terms of Reference in line with
current best practice
X
managed the recruitment process for a new
Remuneration Committee Chair who took
office on 29 September 2023, and initiated a
recruitment process for a new Group CEO
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
agreed the recruitment process for a Board
Apprentice role
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
2023 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.
90
Zotefoams plc
Annual Report 2023
Directors’ Remuneration report
Our Executive team led the delivery of record profit before
tax in 2023 and continued to progress our strategic objectives.
Our Remuneration Policy, approved by shareholders at the
2023 AGM, has been successful in attracting a new Group
CEO, who is scheduled to join the Board at the conclusion
of the Annual General Meeting on 22 May 2024.
Dear Shareholder
I am pleased to present the Remuneration report
for the year ended 31 December 2023.
Introduction
This is my first report as Chair of the
Remuneration Committee, after taking over on
29 September 2023. I would like to take this
opportunity to thank my predecessor, A Fielding,
for her chairing of the Committee.
2023 is the first year of our refreshed
Remuneration Policy, approved at the 2023
AGM with over 95% of the votes cast in favour.
We were pleased that our 2022 Directors’
Remuneration report was approved by over 97%
of the votes cast.
Our Remuneration Policy is designed to reflect
the Group’s strategic priorities, while balancing
the need to attract, retain and motivate the
Executive team, to ensure progress against our
strategic goals, with the interests of all
stakeholders, including our shareholders and
employees.
X
The Board is pleased to report that Zotefoams
maintained its improving performance in 2023,
achieving Group revenue of £127.0m (2022:
£127.4m) and increasing gross profit by 6% to
£41.1m (2022: £38.7m).
X
The Group’s balance sheet at 31 December
2023 remains strong, with the leverage
multiple unchanged at 1.2 (31 December
2022: 1.2) and financial headroom of £19.4m
(31 December 2022: £22.9m).
X
The Executive Directors led the Group
effectively throughout the year and continued
to deliver on the Group’s long-term strategic
objectives, having made significant progress
on two priority initiatives: 1) the development
of ReZorce
®
mono-material barrier packaging
having reached market trial stage in early
2024, following implementation of a joint
development agreement with a world-leading
packer of beverages; and 2) the extension of
an exclusivity agreement with Nike to 2029.
The Committee also considered executive
remuneration in the light of outcomes for the
wider workforce, our shareholders’ experience
and other stakeholders, taking a fair and
balanced approach to remuneration.
2023 incentive outcomes
Annual bonus
Considering the excellent performance delivered
in 2023, the Committee determined that 95.0%
and 93.0% of the maximum bonus should be
paid to the Group CEO and Group CFO
respectively, reflecting the Group’s financial
performance and strategic progress made in the
year. In considering the outcomes of the annual
bonus, the Committee carefully considered the
cash flow targets and actions taken by
management during the year that were aligned
with the Group’s longer-term strategy. During the
year, the Group’s cash flow was significantly
impacted by a number of one-off factors
including the exceptional unbudgeted increases
in fluoropolymer resin prices and management’s
decision to proactively invest in inventory during
2023 to meet the previously unforecast increase
in demand in 2024. Reflecting on these factors,
the Committee determined that the formulaic
out-turn of the cash flow metric did not reflect
the intended stretch of the targets set at the start
of the year or disciplined cash performance
delivered during the year and responsible
decisions taken by management in 2023. The
Committee exercised its discretion to adjust the
cash targets set at the start of the year for these
exceptional factors, to maintain the level of
intended performance. A detailed description
of performance against the targets is set out on
pages 95 and 96.
Long-Term Incentive Plan (LTIP): 2021 Plan
outcome
Regarding longer-term performance, the Group
achieved earnings per share before exceptional
items, of which there were none, of 19.0p in
2023 versus 14.9p in 2020, 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 10.3% versus a threshold
target of 10.0%. The Committee therefore
determined that 70.0% of the 2021 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).
Strategic Report
Governance
Financial Statements
91
Zotefoams plc
Annual Report 2023
Given that significant progress has therefore
been made to set Zotefoams up to deliver
long-term success, other than the above
adjustment to the annual bonus cash flow
targets, the Committee felt that the formulaic
outcome was an appropriate reflection of
performance delivered. It has, therefore, not
exercised any further discretion in relation to
incentive outcomes during the year.
Implementation of Remuneration Policy
in 2024
D Stirling will retire from the Board at the
forthcoming 2024 AGM scheduled for 22 May
2024, after 24 years in post as Group CEO. He
will be replaced by R Cox, who will join the Board
on the same date. Given the long tenure of the
existing Group CEO, the Committee has
considered leadership continuity arrangements
and the value of incentivising the retention of G
McGrath, who has continued to perform well in
2023.
Base salary
The Group CEO’s base salary will increase in line
with the base salary increases for the wider
workforce of 5%. This will apply to D Stirling until
his planned retirement as Group CEO at the
2024 AGM and to R Cox from the date of his
appointment as Group CEO Designate on
2 April 2024.
Reflecting his significant contribution to the
Group, his strong performance and the
increasing scope of his role in light of the key role
he will play in the onboarding of R Cox and
supporting the Executive function, G McGrath’s
salary will increase by an additional c.2.5%
above the increase for the wider workforce.
All salary increases are effective from 1 April
2024.
Pension
All Executive Directors receive an employer
pension contribution of 6%, aligned with the
wider workforce. This will be increased by 1%
from 1 April 2024.
Incentive awards
The Remuneration Policy adopted at the
2023 AGM provides for an overall incentive
opportunity headroom of 250% of salary, with
a limitation that no more than 125% of salary
can be earned under the annual bonus. Given
our focus on driving long-term sustainable value
creation for our shareholders and long-term
retention of the Executive Directors, the
maximum annual bonus will remain at 100%
of salary and the LTIP award will increase from
125% of salary to 150% of salary for 2024.
Details of the metrics for the 2024 annual bonus
are set out on page 92, with 65% of the bonus
based on financial metrics, 15% based on
performance against ESG-related metrics and
20% based on other strategic metrics. The
metrics and targets for the 2024 LTIP award are
set out on page 97. For the 2024 LTIP award,
awards will be based 45% on adjusted EPS
growth (as defined on page 97), 15% on average
ROCE (as defined on page 97), 5% on
sustainable product development (as defined on
page 97), and 35% on relative TSR against the
FTSE Small Cap Index excluding investment
trusts. The increase in weighting on TSR reflects
the importance of driving long-term shareholder
value through the renewed focus on ReZorce.
Performance targets for incentive plans have
been set to reflect the business plan for the
Group over the relevant performance period and
external expectations of performance.
As part of his recruitment, R Cox will not receive
any additional buy-out awards but will receive
relocation benefits in line with our Remuneration
Policy. Full details of the new CEO’s package will
be set out in the 2024 Directors’ Remuneration
Report.
Looking forward
We will continue to monitor the operation of the
Remuneration Policy to ensure that targets
remain relevant and stretching and that it
provides an appropriate level of reward to attract
and retain high-calibre individuals in a
competitive market. We will continue to consider
the experiences of the wider workforce, our
shareholders and other stakeholders and to
remunerate Executive Directors fairly and
responsibly.
In line with the three-year cycle, the Committee
will undertake a thorough review of the
Remuneration Policy during 2025, both from a
structural and opportunity perspective, to ensure
that it is reflective of the Group’s strategic
priorities and the calibre of executives in role.
The Committee and I would like to thank you for
your continued engagement over the last year
and look forward to receiving your support in
respect of the Directors’ Remuneration report at
the AGM.
In the meantime, I will be available to answer any
questions you may have.
M S Swift
Chair of the Remuneration Committee
5 April 2024
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Annual Report 2023
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 and Implementation in 2024
The Directors’ Remuneration Policy (the “Remuneration Policy”) was approved with a vote of 95.27% for at the 2023 AGM held on 24 May 2023 and is
intended to remain in place until the AGM in 2026. A summary of the Remuneration Policy and how it will be implemented in 2024 has been set out below.
The full version may be found on pages 91 to 99 of the 2022 Annual Report. A copy of the 2022 Annual Report may be found by following this link:
https://zote.info/3Lj0oYj
, and operated as intended during the year in terms of Company performance and quantum.
Element and purpose/
link to strategy
Implementation for 2024
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 2024 as follows.
The Group CEO’s base salary will be increased in line with the base salary increases for the wider workforce
of 5%. This will apply to D Stirling until his planned retirement as Group CEO at the 2024 AGM.
Reflecting his significant contribution to the Group, his strong performance and the increasing scope of his
role in light of the key role he will play in the successful induction of R Cox and supporting the Executive
function, G McGrath’s salary will increase by an additional c.2.5% above the increase for the wider workforce.
The Group CEO Designate, R Cox, who will take over from D Stirling as Group CEO on 22 May 2024 at the
conclusion of the AGM, will receive a salary equivalent to that of D Stirling, as 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.
All Executive Directors receive an employer pension contribution of 6%, aligned with the wider workforce. This will
be increased for all UK employees (including the Executive Directors) on the two direct contribution pension
schemes currently run by the Company by 1%, for those meeting the maximum employee contribution, with
effect from 1 April 2024.
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
(DBSP).
For 2024, the bonus will be assessed against the following measures for all Executive Directors:
Measure
Weighting – Group CEO %
Weighting – Group CFO %
Profit before tax
50
50
Free cash flow delivery
15
15
Individual Objectives (including MEL/ReZorce
®
mono-material barrier packaging opportunity)
20
20
Environmental, social and governance (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 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 – 150% 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% p.a.
compound growth
15% p.a.
compound growth
Average ROCE
15%
11%
16%
Relative TSR
3
35%
Median
Upper quartile
Sustainable product development
5%
5% of revenue
6% of revenue
1
Straight-line vesting occurs between threshold and maximum.
2
In line with the approach for the previous LTIP awards, the EPS targets have been set based on a constant tax rate. The Committee retains the
discretion to override this where it considers it appropriate.
3
Relative to the FTSE Small Cap Index excluding investment trusts. The increase in weighting on TSR (from 30% to 35%) reflects the Executives,
focus on driving long-term shareholder value through the renewed focus on ReZorce.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
93
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Annual Report 2023
Element and purpose/
link to strategy
Implementation for 2024
Non-Executive Director fees
The Non-Executive Directors and the Company Chair will receive a fee increase of 7% effective 1 April 2024,
in line with the general salary increase that was given to the Company’s staff in the UK in 2023.
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.
Provision 40 of the UK Corporate Governance Code
The Committee has 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, purpose and values.
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 values 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.
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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 2023 and 2022 financial years.
Executive Directors
Salary
(£)
Benefits
(£)
Matching
Shares
(£)
Bonus
(£)
LTIP
(£)
Pension
(£)
Total
fixed pay
(£)
Total
variable
pay
(£)
Total
(£)
D Stirling
2023
393,580
27,969
406
1
389,500
253,997
1
23,615
445,570
643,497
1,089,067
2022
341,007
26,065
3
442
2
236,546
102,640
4
51,151
418,665
3
339,186
757,851
3
G McGrath
2023
252,298
24,558
406
1
241,800
169,070
1
29,543
306,805
410,870
717,675
2022
226,986
23,300
3
439
2
162,696
67,919
4
26,091
276,816
3
230,615
507,431
3
1
The Matching Shares’ and LTIP’s value for 2023 has been calculated on the basis of the average share price over the three months to 31 December 2023 of £3.15. There is no share price appreciation
attributable to the LTIP value as the share price at grant was greater than £3.15.
2
The Matching Shares’ value for 2022 has been calculated on the basis of the average share price over the three months to 31 December 2022 of £3.03.
3
The benefits, total fixed pay and total pay figures for 2022 have been restated to include a car allowance.
4
The LTIP value has been restated to reflect the actual share price on the date of vesting, 21 September 2023, of £3.37. There is no share price appreciation attributable to the LTIP value as the share
price at grant was greater than £3.37.
Under the rules of the LTIP, participants may also receive an award of shares in lieu of the value of dividends paid over the vesting period on vested shares (paid at the end of the holding period). For the
2021 LTIP this was 4,790 shares for D Stirling and 3,187 shares for G McGrath with a valuation of £15,089 and £10,039 respectively, calculated on the basis of the average share price over the three
months to 31 December 2023 of £3.15.
Non-Executive Directors
1,2,3
Fees paid in respect of 2023 (£)
Fees paid in respect of 2022 (£)
J Carling
43,449
38,560
L Drummond
4
99,667
Nil
A Fielding
5
37,245
43,712
S Good
5
51,620
115,204
D Robertson
50,370
43,712
M Swift
4
13,326
Nil
C Wall
43,449
38,560
1
Non-Executive Directors who also chair a Board Committee receive an additional fee.
2
The Non-Executive Directors (excluding the Company Chair) received a fee increase to £45,000 p.a. effective 1 April 2023. Chairs of the Audit and Remuneration Committee received a fee increase
of £7,500 p.a. in addition to their Non-Executive Director fee. S Good, the former Company Chair, received an increase of 7%.
3
The Non-Executive Directors and the Company Chair will receive a fee increase of 7% effective 1 April 2024.
4
L Drummond joined the Board on 17 January 2023 and M Swift joined the Board on 29 September 2023.
5
S Good stepped down from the Board on 24 May 2023 and A Fielding stepped down from the Board on 29 September 2023.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
95
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Annual Report 2023
Notes to the table (audited)
Base salary
As at 31 December 2023, the base salary for D Stirling was £410,000 p.a. (£344,318 p.a. as at 31 December 2022).
As at 31 December 2023, the base salary (before salary sacrifice) for G McGrath was £260,000 p.a. (£229,190 p.a. as at 31 December 2022).
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.
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.
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 the pension element of total remuneration include the amounts of salary that were sacrificed.
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 2023
The targets for the annual bonus for 2023 for D Stirling and G McGrath are as set out in the below table:
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
50%
50%
£13.0m
£15.9m
£17.2m
50%
50%
Meet Group operating cash flow
budget
2
15%
15%
£9.4m
£11.5m
£12.0m
15%
15%
MEL/ReZorce
®
opportunity
10%
10%
See below
See below
See below
5%
5%
Strategic financial – Nike
agreement renewal
5%
0%
See below
See below
See below
5%
n/a
Strategic financial – T-FIT
®
5%
0%
See below
See below
See below
5%
n/a
Strategic financial – R&D tax credit
0%
5%
See below
See below
See below
n/a
3%
Strategic financial – Internal
controls compliance
0%
5%
See below
See below
See below
n/a
5%
Sustainability – Emissions
reduction
5%
5%
See below
See below
See below
5%
5%
Sustainability – Waste
5%
5%
See below
See below
See below
5%
5%
Sustainability – Safety
5%
5%
See below
See below
See below
5%
5%
Total
100%
100%
n/a
n/a
n/a
95%
93%
1
This metric excludes MEL.
2
During the year, the Group’s cash flow was significantly impacted by a number of one-off factors including the exceptional unbudgeted increases in fluoropolymer resin prices and management’s
decision to proactively invest in inventory during 2023 to meet the forecasted higher than expected demand in 2024. Reflecting on these factors, the Committee determined that the formulaic out-
turn of the cash flow metric did not reflect the intended stretch of the targets set at the start of the year or disciplined cash performance delivered during the year and responsible decisions taken by
management in 2023. The Committee exercised its discretion to use the adjusted cash flow outcome, as set out in this table.
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The table below sets out the targets and performance for the Executive Directors.
Strategic financial metrics – D Stirling & G McGrath
Measure
Weighting (% max)
Objective
Performance
Scoring
D Stirling
G McGrath
D Stirling
G McGrath
MEL/ReZorce
®
opportunity
10%
10%
Subjectively assessed against the four key criteria taken as a
whole (i.e., success or failure on these individual criteria may
not result in a portion of bonus being paid or not being paid,
depending on the overall outcome):
X
securing an investing strategic partner
X
agreement with a world-leading beverage packager
as keystone commercial partner
X
successful trial
i. carton scale-up on external filling machine
ii. flexibles (as requested by potential strategic partners)
X
financial outcomes in line with ‘agreed spend’.
5% Partially
achieved,
recognising
significant
project progress
and a key
development
partnership
agreed in June.
Strategic financial
– Nike agreement
5%
n/a
Agreement renewed for a minimum of three years on
acceptable terms.
Achieved
n/a
Strategic financial
– T-FIT
®
5%
n/a
Deliver the capability to execute for the customer in four
key regions China, India, Europe, North America through:
a) approved installer programme; and b) local manufacturing
of tube and compression-moulded product (ex-India).
Achieved
n/a
Strategic financial
– R&D tax credit
n/a
5%
Complete R&D tax credit and action plan.
3% – Partly
achieved,
recognising
good progress
has been made
in improving our
R&D tax credit
position, which
will deliver cash
benefits in future
years.
n/a
Strategic financial
– Internal controls
compliance
n/a
5%
As the first step in a global roll-out, document and test key
controls at the Company that would meet future UK
SOX-style reporting requirements
Achieved
n/a
Sustainability
– Emissions
reduction
5%
5%
Deliver 2023 objective in relation to sustainability target 1
detailed on page 67. Achieve a 10% reduction in the energy
used to manufacture our products by 2026.
Achieved
Sustainability
– Waste
5%
5%
Deliver 2023 objective in relation to sustainability target 3
detailed on page 67. By the end of 2026, halve the polymer
purchased that is not in the end-product.
Achieved
Sustainability
– Safety
5%
5%
Meet commitments of the Executive team engagement
initiative, with an underpin based on RIDDOR/DART
performance. Further details are provided on page 77.
Achieved
The annual bonus was based on base salary before salary sacrifice. The maximum opportunity for the bonus was 100% of salary. 33% 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.
2023
Cash bonus (£)
Deferred bonus (£)
Total bonus (£)
D Stirling
259,667
129,833
389,500
G McGrath
161,200
80,600
241,800
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 sustainable success and,
with the exception of the above adjustment to the annual bonus cash flow targets, the Committee felt that the formulaic outcome was an appropriate
reflection of performance delivered. It has, therefore, not exercised any further discretion in relation to incentive outcomes during the year.
Directors’ Remuneration report
Continued
Achieved in full or predominantly achieved
Partially achieved
Not achieved
Strategic Report
Governance
Financial Statements
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Zotefoams plc
Annual Report 2023
LTIP
The 2021 LTIP award was subject to three performance conditions measured over the three financial years ended 31 December 2023: 30% of the award
was subject to relative TSR against the FTSE SmallCap Index (excluding investment trusts), 50% of the award was subject to an EPS growth target and
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 2021 award, which is due to vest on 26 April 2024.
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
Above 15% p.a.
1
50%
ROCE
8%
4
10%
20
10.34%
20%
1
Based on adjusting for a constant tax rate of 19%.
Based on the above level of performance, the 2021 LTIP will vest at 70%. The Committee considered the formulaic out-turns under the LTIP relative to
Group and individual performance and determined that no discretion should be exercised.
Scheme interests granted during 2023 (audited)
The table below sets out details of scheme interests granted to the Executive Directors during 2023:
Type
of award
Date
of grant
Number of
shares
granted
Face value¹
(£)
D Stirling
Deferred
bonus
2
(Unconditional
shares)
18.04.2023
15,009
59,135
G McGrath
10,323
40,673
Type
of award
Date
of grant
Number of
shares
granted
Face value
1
(£)
Face value
(% of salary)
Trigger point
for vesting
(% of face value)
Performance
condition
End of
performance
period
D Stirling
LTIP
3
(Conditional
shares)
18.04.2023
130,076
512,499
125
20% of maximum
(further details set out
below)
30% based on relative
TSR growth.
4
45% on
adjusted EPS
compound growth,
5
15% on average ROCE
6
and 10% on sustainable
product development.
7
31.12.2025
G McGrath
82,487
324,999
125
1
Face value calculated using the average share price for the period 11 April 2023 to 17 April 2023 (£3.94). The share price was £3.94 on 18 April 2023.
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 2025. The threshold point is 5% p.a. compound growth, where 5% of the award will vest, to the maximum 15% p.a. compound
growth, where 45% of the award will vest. In line with the approach for previous LTIP awards, the EPS targets have been set based on a constant tax rate reflecting the significant deviation of the
reported tax rate. The Committee retains the discretion to override this where it considers it appropriate.
6
Return on capital employed (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 11%, where 3% of the award will vest. Maximum
vesting occurs for average ROCE of 15%, where 15% of the award will vest.
7
Sustainable product development is defined as the development of products valued by Zotefoams’ customers for their use-phase resource efficiency (defined by the Sustainability Accounting
Standards Board) 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. The threshold point is 4% of revenue, where 2% of the award will vest, to the maximum 5% of revenue, where 10% of the award will vest.
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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 2023
(£ p.a.)
Gross increase
in pension
(£)
Increase in accrued
pension net of
CPI inflation
(£)
Change in value
over the year
(£)
D Stirling
25,447
2,234
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 2023; 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 (RPI) if lower.
(d) From 1 January 2006, active employee members were able to pay contributions to the DC 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.
Payments made to past Directors (audited)
No payments were made during 2023.
Payments for loss of office (audited)
No payments were made during 2023.
Statement of Directors’ shareholding and share interests (audited)
Current 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). 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. 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.
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.
Throughout 2023, D Stirling complied with the Policy, holding 428% of base salary at 31 December 2023. G McGrath is making progress towards meeting
the requirement and holds 186% of base salary at 31 December 2023.
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
2023 of £3.15.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
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The tables below set out the Directors’ interests (including those of their connected persons) in Zotefoams shares as at 31 December 2023. 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
493,766
119,356
289,187
G McGrath
101,405
89,890
188,397
1
Includes Partnership Shares, Dividend Shares and vested Matching Shares under the SIP.
2
Comprises: vested Company Share Option Plan awards, DBSP shares, unvested Matching Shares under the SIP, the unvested portion of the 2021 LTIP awards due to vest on 26 April 2024 and the
unvested portion of the 2020 LTIP awards.
3
Comprises: unvested LTIP shares.
Non-Executive Directors
Shares owned outright
J Carling
3,323
L Drummond
1
6,639
D Robertson
7,302
M Swift
1
0
C Wall
7,936
A Fielding
2
9,121
S Good
2
30,047
1
L Drummond and M Swift joined the Board on 17 January 2023 and 29 September 2023 respectively.
2
S Good and A Fielding stepped down from the Board on 24 May 2023 and 29 September 2023 respectively and the shareholding is shown as at the date of stepping down from the Board.
100
Zotefoams plc
Annual Report 2023
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
2022
Date of
exercise or
release
Granted
during
the year
Exercised
or released
Lapsed or
cancelled
As at
31 Dec
2023
Market
price on
exercise
date
Exercise
price
Date from
which
exercisable
Expiry
date
D Stirling
LTIP (2018)
5,238
06.06.2023
–
(5,238)
–
–
£3.45
24.05.2021
n/a
LTIP (2020)
1
87,674
–
–
–
(57,217)
30,457
–
–
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
LTIP (2023)
–
–
130,076
–
–
130,076
–
18.04.2026
n/a
DBSP (2019)
2
11,835
20.04.2023
to
25.04.2023
–
(11,835)
–
–
£3.72 to
£3.82
–
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
DBSP (2022)
–
–
15,009
–
–
15,009
–
–
18.04.2026
n/a
SIP
3
860
–
129
–
–
989
–
–
–
n/a
G McGrath
CSOP
10,344
–
–
–
–
10,344
–
£2.90
05.04.2019
05.04.2026
LTIP (2018)
3,530
06.06.2023
–
(3,530)
–
–
£3.45
–
24.05.2021
n/a
LTIP (2020)
58,015
–
–
–
(37,861)
20,154
–
–
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
LTIP (2023)
–
–
82,487
–
–
82,487
–
–
18.04.2026
n/a
DBSP (2019)
2
7,444
20.04.2023
to
25.04.2023
–
(7,444)
–
–
£3.72 to
£3.82
–
20.04.2023
n/a
DBSP (2020)
3,303
–
–
–
–
3,303
–
–
08.04.2024
n/a
DBSP (2021)
2,036
–
–
–
–
2,036
–
–
29.04.2025
n/a
DBSP (2021)
–
–
10,323
–
–
10,323
–
–
18.04.2026
n/a
SIP
3
812
–
129
–
–
941
–
–
–
n/a
1
30% based on relative TSR. 50% based on annualised EPS growth. 20% based on ROCE. As set out in the 2022 Annual Report and Accounts, this award vested at 34.74% of maximum based on
performance in the period ending 31 December 2022.
2
Shares were exercised over a period of six days from 20 April 2023 to 25 April 2023 at a range of market prices from £3.72 to £3.82.
3
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”.
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 2023. Copies of the Directors’
service contracts and appointment letters are available for inspection at the Company’s registered office.
Director
Date of current service contract
or appointment letter
Unexpired terms at
31 December 2023
J Carling
1
1 April 2023
2 years and 5 months
L Drummond
17 January 2023
2 years and 5 months
G McGrath
15 April 2019
–
D Robertson
1
1 April 2023
2 years and 5 months
D Stirling
13 May 2019
–
M Swift
29 September 2023
2 years and 5 months
C Wall
2
1 April 2023
2 years and 5 months
1
Both J Carling and D Robertson were appointed by the Board for a third term in April 2023 with effect from 24 May 2023 to expire at the 2026 AGM and were re-elected by shareholders at the
2023 AGM.
2
C Wall was appointed by the Board for a second term in April 2023 with effect from 24 May 2023 to expire at the 2026 AGM and was re-elected by shareholders at the 2023 AGM.
S Good’s service contract was terminated upon stepping down from the Board effective 24 May 2023. A Fielding’s service contract was terminated upon
stepping down from the Board effective 29 September 2023.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
101
Zotefoams plc
Annual Report 2023
External appointments
During 2023, 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 subset 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
(2023 to
2022)
1
% change in
taxable
benefit
(2023 to
2022)
1
% change in
annual
bonus UK
employees
only
(2023 to
2022)
1
% change
in base
salary
(2022 to
2021)
1
% change in
taxable
benefit
(2022 to
2021)
1
% change in
annual
bonus UK
employees
only
(2022 to
2021)
1
% change in
base salary
(2021 to
2020)
1
% change in
taxable
benefit
(2021 to
2020)
1
% change in
annual
bonus UK
employees
only
(2021 to
2020)
1
D Stirling
15.4
7.3
6.4
5.1
2.2
10.4
7.0
-3.5
-14.1
G McGrath
11.1
5.4
6.6
5.4
1.8
10.1
7.4
-1.9
-53.7
J Carling
12.7
n/a
n/a
2.5
n/a
n/a
2.5
n/a
n/a
S Good
2
-44.8
n/a
n/a
35.0
n/a
n/a
1.7
n/a
n/a
D Robertson
15.2
n/a
n/a
2.5
n/a
n/a
1.7
n/a
n/a
A Fielding
2
-14.8
n/a
n/a
2.5
n/a
n/a
61.6
4
n/a
n/a
C Wall
12.7
n/a
n/a
2.5
n/a
n/a
61.6
4
n/a
n/a
Average employee
8.75
8.36
21.75
3
4.66
0
512.1
2.5
0
4.7
1
L Drummond was appointed to the Board in January 2023. M Swift was appointed to the Board in September 2023. Both have been excluded from this table as there are no prior year comparatives.
2
S Good retired from the Board on 24 May 2023. A Fielding retired from the Board on 29 September 2023.
3
The mean staff bonus in the UK was 6.35% of base salary in relation to 2023 (2022: 7.24% of base salary).
4
A Fielding and C Wall were appointed to the Board on May 2020. Their 2021 increases reflect that they were only paid their respective fees for part of the year.
The UK employees’ salary review is negotiated with the unions and a 7.0% increase was agreed in relation to 2023. For 2024, a salary increase of 5.0%
has been agreed for UK employees.
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 2023. The Group CEO’s total remuneration has been taken from the single total figure of remuneration for 2023,
as disclosed on page 94.
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 since 2021 is due to no LTIP vesting, low annual bonus pay-out in 2021 and higher
LTIP and annual bonus outcomes in both 2022 and 2023.
Year
Method
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
2023 – Base salary
Option A
12:1
10:1
8:1
2023 – Total pay
30:1
25:1
19:1
2022 – Total pay
1
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
393,580
1,089,067
UK employees 25th percentile
32,684
36,130
UK employees 50th percentile
38,770
42,913
UK employees 75th percentile
52,000
26,580
1
The 2022 total pay figure has been restated to reflect a restated single total figure of remuneration for 2022.
102
Zotefoams plc
Annual Report 2023
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 23
Dec 22
Dec 21
Dec 20
Dec 19
Dec 18
Dec 17
Dec 16
Dec 15
Dec 14
Dec 13
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 total
figure of
remuneration (£)
Annual
bonus pay-out
(% of maximum)
LTIP vesting
(% of maximum)
EPS (p)
Average share
price for the final
quarter (p)
2023
1,089,067
95.0
70.0
19.0
315.0
2022
757,851
2
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
1
While basic EPS 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.
2
The Group CEO’s single total figure of remuneration for 2022 has been restated.
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 2023 and 2022.
% change
2022/2023
2023
£’000
2022
£’000
Total remuneration¹
13%
28,460
25,227
Executive Directors’ remuneration
45%
1,807
1,265
3
Profit after tax
-8%
9,242
10,006
Shareholder distributions
2
5%
3,350
3,188
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.
3
The Executive Directors’ remuneration for 2022 has been restated to reflect the restated single total figure of remuneration for 2022.
Directors’ Remuneration report
Continued
Strategic Report
Governance
Financial Statements
103
Zotefoams plc
Annual Report 2023
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. J Carling, L Drummond, D Robertson, M Swift and C Wall were members of the Committee as at 31 December 2023 and to the date of this report.
S Good, who resigned as Chair and Non-Executive Director with effect from 24 May 2023, ceased to be a member of the Committee from that date.
A Fielding, who resigned as Chair of the Remuneration Committee and Non-Executive Director with effect from 29 September 2023, ceased to chair the
Committee from that date. All the members are independent Non-Executive Directors, with the exception of L Drummond, who was independent on
appointment as Chair of the Company. The Committee was chaired by A Fielding until 29 September 2023 and by M Swift for the remainder of the year.
The Committee’s Terms of Reference were last updated in August 2023 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 94 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 three times in 2023, with full attendance at each meeting. The Company Secretary acts as secretary to the
Committee.
In 2023, 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 concluded a consultation initiated
in 2022 with the Group’s largest shareholders in relation to the proposed Remuneration Policy put forward for approval at the 2023 AGM
X
approved the 2022 Directors’ Remuneration report
X
considered and approved the annual bonus for the Executive team
X
considered and approved the grant of awards under the LTIP and the DBSP in 2023 and the vesting of awards made in 2020 under the LTIP
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 2023 Executive Directors’ bonus and LTIP 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 in 2022, they continued to work with the Committee through 2023 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 during 2023.
Total fees for advice provided to the Committee amounted to the following:
2023
(£)
2022
(£)
Deloitte LLP
25,000
64,450
Total
25,000
64,450
Shareholder voting (unaudited)
The table below sets out the results of the votes received on the 2022 Directors’ Remuneration report at the 2023 AGM as well as the Directors’
Remuneration Policy approved at the 2023 AGM:
Directors’ Remuneration
Policy
%
Report on
remuneration
%
Votes in favour
30,822,412
95.22
31,439,387
97.13
Votes against
1,530,762
4.73
913,788
2.82
Discretion
15,969
0.05
15,969
0.05
Total votes
32,369,143
100.00
32,369,144
100.00
Votes withheld
1,101
–
1,100
–
104
Zotefoams plc
Annual Report 2023
Directors’ report
The Directors present their Annual Report and
audited consolidated financial statements for
the year ended 31 December 2023
Results and dividends
Profit attributable to shareholders for the year
amounted to £9.2m (2022: £10.0m). An interim
dividend of 2.28p (2022: 2.18p) per share was
paid on 6 October 2023. The Directors
recommend that a final dividend of 4.90p (2022:
4.62p) per share be paid on 3 June 2024 to
shareholders who are on the Company’s register
at the close of business on 3 May 2024, resulting
in a total dividend of 7.18p per share for the year
(2022: 6.80p). 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:
L Drummond
(appointed Non-Executive Director and
Chair Designate 17 January 2023 and
Company Chair on 24 May 2023)
S Good (Company Chair) (resigned 24 May 2023)
J Carling
A Fielding (resigned 29 September 2023)
G McGrath
D Robertson
D Stirling
M Swift (appointed 29 September 2023)
C Wall
All Directors other than S Good and A Fielding
were in office up to the date of signing of the
financial statements. The biographical details
of Board Directors in post as at 5 April 2024 are
set out on pages 78 and 79. The Group CEO
announced his intention to retire from the
business on 7 November 2023. A search for
a new Group CEO concluded in March 2023 and
further details are provided in our Nomination
Committee report on pages 87 to 89.
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 new
Directors to retire and submit themselves for
election at the first AGM following their
appointment and for existing Directors to retire
and, if they so wish, submit themselves for
re-election at every AGM thereafter.
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
2023. The Company has issued Deeds of
Indemnity in favour of all Directors. These Deeds
were in force throughout the year ended 31
December 2023 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 2023 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 safeguard 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 equality, diversity and
inclusion 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 and support 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 or group of
departments. 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. Further details of the JCC
activities in 2023 may be found on page 73.
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.
Further details of our certifications are provided
in our ESG report on
page 66.
Relationships with others
In its decision-making, the Board considers how
the Group fosters its business relationships with
suppliers, customers and others in order to
achieve good-quality outcomes.
Further information on this topic can be found
on
pages 61 to 63
of the Strategic Report (the
S172(1) statement), which is incorporated into
this Directors’ report by cross-reference.
Strategic Report
Governance
Financial Statements
105
Zotefoams plc
Annual Report 2023
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 that 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
X
complying with the Employer Pays Principle
and
X
respecting the rights of privacy of our
employees and protecting access to and use
of their personal information.
The Company operates an Equality, Diversity
and Inclusion 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 and confirm that no
political donations or contributions to political
parties have been made during the year
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. We also became
a signatory to the Employer Pays Principle
during the year, formalising our long-standing
Group-wide commitment to recruitment costs
being borne by the employer, not the employee.
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 with
all new suppliers. In 2023, we extended our
modern slavery enquiries to suppliers in our
subsidiary entities in Poland, the USA, China
and India.
Scan the QR code to see
our Modern Slavery
statement
zote.info/3OGGN5N
Suppliers’ ethical disclosures will remain under
review.
Substantial shareholdings
In accordance with the Disclosure and
Transparency Rules DTR 5, the Company,
as at 4 April 2024, 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
Schroder Investment
Mgt
8,571,051
17.55
Raymond James
Investment Services
4,534,273
9.28
BGF Investments
3,231,270
6.62
Premier Miton
Investors
2,635,554
5.40
Mr Marc & Mrs Claire
Downes
2,162,417
4.43
Mr Nicholas
Beaumont-Dark
2,124,347
4.35
Canaccord Genuity
Wealth Mgt
1,625,644
3.33
Interactive Investor
1,561,460
3.20
Directors’ shareholdings are shown in the
Directors’ Remuneration report on
pages 98
and 99.
Research and development (R&D)
The amount spent by the Group on R&D
in the year was £3.0m (2022: £2.0m). In the
opinion of the Directors, £2.2m (2022: £1.2m)
of this expenditure met the requirements for
capitalisation under IAS 38, while £0.8m (2022:
£0.8m) 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 2023, the Zotefoams
Employees’ Benefit Trust (EBT) held 244,286
shares (approximately 0.5% of issued share
capital) (2022: 107,130 shares) to satisfy share
plans as described in the Directors’
Remuneration report. During the year, the EBT
released 87,844 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 24 May 2023, 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 22 May 2024. The
Directors seek new authorities for a further year,
in line with market practice.
The Company was given authority at the 2023
AGM to purchase up to 4,862,123 of its ordinary
shares. This authority will also expire on 22 May
2024 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.
106
Zotefoams plc
Annual Report 2023
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 Chair’s Statement
and the Group CEO’s review on pages 31 to 37.
Greenhouse gas emissions
Information on the Group’s greenhouse gas
emissions may be found in the ESG report on
page 68.
Pension schemes
Refer to the post-employment benefits section
of the Group CFO’s review on pages 43 and 44
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
No finance costs were capitalised in the year
(2022: none).
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
5 April 2024
Strategic Report
Governance
Financial Statements
107
Zotefoams plc
Annual Report 2023
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 in post as at 5 April 2024,
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
faced by the Group and the Company is
provided on pages 48 to 58.
Opinion
We have audited the financial statements of Zotefoams Plc (the “parent company”) and its subsidiaries (the ‘group’) for the year ended 31 December 2023
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 statements of cash flows, the Consolidated and Parent Company statements
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 2023 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 and
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
obtaining and documenting an 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 2025 and considering the existence of any
significant events or conditions during and beyond this period; the group undertakes a comprehensive five-year plan, and upon reviewing this plan,
no concerns arise within the ensuing twelve month period from the date of signing the financial statements
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 going concern assessment, including forecast liquidity, for mathematical accuracy
X
agreeing the underlying cash flow projections to management-approved forecasts and 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 inputs and 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 major operational disruption, loss of key customer in HPP, increase in cost due to inflation and foreign exchange risk and
X
considering the appropriateness of management’s downside scenario, to understand how severe conditions would have to be, to result in a breach
of 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
108
Zotefoams plc
Annual Report 2023
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
£962,000 (2022: £900,000)
£817,000 (2022: £810,000)
Performance materiality
£674,000 (2022: £630,000)
£571,900 (2022: £567,500)
Basis of materiality
7.5% (2022: 7.5%) of profit before tax (PBT)
7.5% (2022: 7.5%) of PBT
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.
Based on our assessment indicating minimal
risk in the control environment, we have
chosen to set performance materiality at the
lower end of the medium-risk range, which we
deem most appropriate.
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.
Based on our assessment indicating minimal
risk in the control environment, we have chosen
to set performance materiality at the lower end
of the medium-risk range, which we deem most
appropriate.
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 £263,000 and £525,000 (2022: between £251,000 and £429,000). 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 £48,000 (2022: £45,000) for the
consolidated financial statements and £40,800 (2022: £40,500) for the parent company financial statements 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, valuation of the defined benefit pension scheme, including the assumptions used in those calculations, and
valuation of deferred tax and share-based payments. We also addressed the risk of management override of controls, including among other matters, the
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 a joint venture) in 2023 within the consolidated financial statements. There are two trading companies
based in the UK, one based in Europe, four in Asia and three in the USA. We identified four significant components. These included 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 and local auditors
to assist with inventory count procedures, as we were not able to visit some of the overseas components.
In addition, we identified components which were neither material nor significant to the group and we performed an audit of specific account balances,
classes of transactions or disclosures to ensure that those balances which were material to the group were subject to audit procedures, including:
X
revenue, cost of sales, operating expenses, wages, property, plant and equipment, trade receivables and cash and cash equivalent in Zotefoams
Midwest LLC
X
inventories, revenue, cost of sales, operating expenses, cash and cash equivalent and receivables in Zotefoams T-FIT Material Technology (Kunshan)
Limited
X
inventories, revenue, cost of sales, trade receivables and cash and cash equivalent in T-FIT Insulation Solutions India Private Limited and
X
cash and cash equivalent in Zotefoams Operations Limited.
The components identified as not significant and not material were subject to review procedures undertaken by the same audit team.
Strategic Report
Governance
Financial Statements
109
Zotefoams plc
Annual Report 2023
Key audit matters
Key audit matters are those matters that, in our professional judgment, 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) that 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 group’s consolidated statement of financial position as at
31 December 2023 includes intangible assets with a carrying
value of £8,863k (2022: £7,774k). The group’s intangible assets
in respect of the cash generating unit (CGU) MuCell comprise
goodwill that arose on the acquisition of MuCell in a previous
accounting period, and other intangible assets principally
relating to the development of ReZorce technology. MuCell has
historically been loss making and has continued to incur losses
in 2023.
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, together with intangible assets not yet ready
for use. The losses being incurred in MuCell are an example of
a potential impairment indicator.
During the year, as part of the group’s strategic plans, the
group entered into a joint development agreement (JDA)
with a world-leading packer of beverages. This agreement
includes a large-scale trial plan to achieve commercial viability.
Based on this plan, management has assessed impairment of
intangible assets supported by a value-in-use (VIU) model. The
VIU model involves estimation about the future performance
of the ReZorce technology when fully operational and upon
achieving commercial success. The determination of the
ReZorce forecasts are sensitive to projected sales levels,
contribution margin, the timeliness of successful trials and
commercialisation, and discount rate.
We have assessed this to be a key audit matter due to the
level of judgement and estimation required in determining the
recoverable amount of the intangible assets.
For more details refer to notes 12 and 26.
Our work in this area included:
X
obtaining and reviewing the impairment assessment supported by the VIU model
prepared by management
X
testing the VIU model for mathematical accuracy
X
reviewing and challenging the key inputs and assumptions used in the VIU model for
reasonableness and obtaining supporting evidence, including internally approved
budgets and external data where available, such as economic and industry forecasts
for the relevant markets, and assessing these key inputs and assumptions for
consistency with evidence obtained from other areas of the audit
X
assessing independently the sensitivity of the VIU to reasonable variations in significant
assumptions and the impact it will have on the headroom
X
gaining an understanding of the potential market size for the ReZorce product and
management’s strategy to break into the market and potential customer appetite for
ReZorce and
X
challenging management on the development of ReZorce and obtaining an in-depth
understanding on the status of ongoing trials with key customers and their current
status, as well as the achievements of the milestones planned per the JDA.
Key observations
We agree with management’s conclusion that no impairment charge is required to be
recognised in the year in respect of the carrying value of intangible assets of MuCell
Extrusion LLC.
Valuation of defined benefit obligation
The liabilities relating to the group’s closed defined benefit
pension obligation totalled £2,656k at 31 December
2023 (2022: £3,290k), representing 4% (2022: 5%) of total
liabilities on the consolidated statement of financial position.
The valuation of the pension scheme’s liabilities requires
management to use their judgment 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 judgements and
estimates involved within the calculation, the valuation of
defined benefit obligation has been assessed as a key audit
matter.
For more details refer to note 23
Our work in this area included:
X
assessing the competence, capabilities and objectivity of management’s actuary used
to calculate the defined benefit obligation
X
involving our internal, actuarial team to assess the reasonableness of assumptions
used in the valuation of the defined pension obligation
X
comparing key assumptions used in the actuarial report to industry benchmarks with
the assistance of our internal 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 for completeness and accuracy of employee data used in the actuarial
valuation
X
tracing contributions and payments/claims paid to the pension fund to bank
statements and
X
assessing 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 key 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
110
Zotefoams plc
Annual Report 2023
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 and
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 the appropriateness of adopting the going concern basis of accounting and any material uncertainties identified set
out on page 44 of the 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 59 of the 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
pages 44 and 59 of the 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 107 of the annual report
X
board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on pages 45 to 58 of the annual report
X
the section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 82 of the
annual report and
X
the section describing the work of the audit committee set out on pages 83 to 86 of the annual report.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, 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.
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.
Strategic Report
Governance
Financial Statements
111
Zotefoams plc
Annual Report 2023
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, industry research, application of cumulative audit knowledge and experience of the sector. We corroborated our enquiries through our
review of board minutes, papers provided to the Audit Committee, correspondence received from regulatory bodies, attendance at all meetings of the
Audit Committee, as well as consideration of the results and knowledge gained from 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 regards to be those arising from the Listing Rules,
the Companies Act 2006, the Disclosure and Transparency Rules, the UK Corporate Governance Code, the Chemicals (Hazard Information and
Packaging for Supply) (Amendment) Regulations 2008, the Institution of Chemical Engineers (Charter Amendment) Order 2004, the Offshore Chemicals
Regulations 2002, the Export and Import of Dangerous Chemicals Regulations 2005, the Industry and Exports (Financial Support) Act 2009, the Export
Control Act 2002, the Import and Export Control Act 1990, the Consumer Protection Act 1987, anti-money laundering regulations, EU Registration,
Evaluation, Authorisation and Restriction of Chemicals regulations, the Pressure Systems Safety Regulations 2000, the UK Chemical Industries
Association regulations and GDPR.
X
We designed our audit procedures 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. These procedures included, but where not limited to, enquiry of the directors and other management and inspection of
regulatory and legal correspondence.
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. We identified that, in addition to the non-rebuttable presumption of a risk of fraud arising from management override
of controls, there was potential for management bias in determining the key estimates and judgements used in the value-in-use model of Mucell
operations. Refer to the Key Audit Matter section for procedures performed as our response to the assessed 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 key 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.
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.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: www.frc.org.
uk/auditorsresponsibilities. This description forms part of our auditor’s report.
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 four years, covering the periods ending 31 December 2020 to
31 December 2023.
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
5 April 2024
Independent auditor’s report to the members of Zotefoams plc
Continued
112
Zotefoams plc
Annual Report 2023
Consolidated income statement
For the year ended 31 December 2023
Note
2023
£’000
2022
£’000
Revenue
3
Cost of sales
(85,920 )
(88,639 )
Gross profit
Distribution costs
(7,927 )
(8,037 )
Administrative expenses
(17,993 )
(16,762 )
Operating profit
Finance costs
6
(2,540 )
(1,814 )
Finance income
6
Share of profit from joint venture
9
Profit before income tax
Income tax expense
7
(3,598 )
(2,217 )
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 121 to 159 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
113
Zotefoams plc
Annual Report 2023
Consolidated statement
of comprehensive income
For the year ended 31 December 2023
Note
2023
£’000
2022
£’000
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial (losses)/gains on defined benefit pension scheme
23
(88 )
Tax relating to items that will not be reclassified
(146 )
Total items that will not be reclassified to profit or loss
(66 )
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation (losses)/gains on investment in foreign subsidiaries
(1,885 )
Change in fair value of hedging instruments
(3,025 )
Hedging (losses)/gains reclassified to profit or loss
(192 )
Tax relating to items that may be reclassified
(575 )
Total items that may be reclassified subsequently to profit or loss
(940 )
Other comprehensive income for the year, net of tax
(1,006 )
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 121 to 159 form an integral part of these financial statements.
114
Zotefoams plc
Annual Report 2023
Consolidated statement
of financial position
As at 31 December 2023
Note
2023
£’000
2022
£’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
(12,953 )
(13,500 )
Derivative financial instruments
21
(28 )
(1,550 )
Current tax liability
(1,078 )
(226 )
Lease liabilities
11
(507 )
(509 )
Interest-bearing loans and borrowings
18
(36,527 )
(37,446 )
Total current liabilities
(51,093 )
(53,231 )
Non-current liabilities
Lease liabilities
11
(827 )
(454 )
Deferred tax liabilities
19
(5,270 )
(3,846 )
Post-employment benefits
23
(2,656 )
(3,290 )
Total non-current liabilities
(8,753 )
(7,590 )
Total liabilities
(59,846 )
(60,821 )
Total net assets
Equity
Issued share capital
20
Share premium
20
Own shares held
(12 )
(5 )
Capital redemption reserve
Translation reserve
Hedging reserve
(285 )
Retained earnings
Total equity
The notes on pages 121 to 159 form an integral part of these financial statements.
G C McGrath
Company number: 2714645
Strategic Report
Governance
Financial Statements
115
Zotefoams plc
Annual Report 2023
Company statement
of financial position
As at 31 December 2023
Note
2023
£’000
2022
£’000
Non-current assets
Property, plant and equipment
10
42,027
40,838
Right-of-use assets
11
143
347
Intangible assets
12
504
641
Investment in subsidiaries
13
30,822
30,822
Trade and other receivables
15
70
122
Total non-current assets
73,566
72,770
Current assets
Inventories
14
22,616
18,732
Trade and other receivables
15
61,052
57,526
Derivative financial instruments
21
1,264
486
Cash and cash equivalents
16
2,875
7,288
Total current assets
87,807
84,032
Total assets
161,373
156,802
Current liabilities
Trade and other payables
17
(8,999)
(10,039)
Derivative financial instruments
21
(28)
(1,550)
Current tax liability
(767)
(75)
Lease liabilities
11
(101)
(245)
Interest-bearing loans and borrowings
18
(36,527)
(37,446)
Total current liabilities
(46,422)
(49,355)
Non-current liabilities
Lease liabilities
11
(46)
(101)
Deferred tax liabilities
19
(5,270)
(3,846)
Post-employment benefits
23
(2,656)
(3,290)
Total non-current liabilities
(7,972)
(7,237)
Total liabilities
(54,394)
(56,592)
Total net assets
106,979
100,210
Equity
Issued share capital
20
2,442
2,431
Share premium
20
44,178
44,178
Capital redemption reserve
15
15
Hedging reserve
660
(285)
Retained earnings
59,684
53,871
Total equity
106,979
100,210
The notes on pages 121 to 159 form an integral part of these financial statements.
The financial statements on pages 113 to 160 were authorised for issue by the Board of Directors on 5 April 2024 and were signed on its behalf by:
G C McGrath
Group CFO
Company number: 2714645
116
Zotefoams plc
Annual Report 2023
Consolidated statement
of cash flows
For the year ended 31 December 2023
Note
2023
£’000
2022
£’000
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
10,11,12
Loss on disposal of assets
4
Finance costs
6
Share of profit from joint venture
9
(54 )
(50 )
Net exchange differences
(641 )
Equity-settled share-based payments
24
Taxation
7
Operating profit before changes in working capital and provisions
Increase in trade and other receivables
(3,774 )
(4,818 )
(Increase)/decrease in inventories
(6,279 )
(Decrease)/increase in trade and other payables
(1,027 )
Employee defined benefit contributions
23
(859 )
(859 )
Cash generated from operations
Interest paid
(2,082 )
(1,255 )
Income taxes paid, net of refunds
(2,248 )
(659 )
Net cash flows generated from operating activities
Cash flows from investing activities
Interest received
6
Purchases of intangibles
12
(2,739 )
(1,724 )
Purchases of property, plant and equipment
(5,744 )
(5,368 )
Net cash used in investing activities
(8,292 )
(7,036 )
Cash flows from financing activities
Repayment of borrowings
(1,231 )
(50,883 )
Proceeds from borrowings
Payment of principal portion of lease liabilities
11
(753 )
(499 )
Dividends paid to equity holders of the Company
8
(3,350 )
(3,188 )
Net cash generated from financing activities
(3,725 )
(11,526 )
Net (decrease)/increase in cash and cash equivalents
(4,236 )
Cash and cash equivalents at 1 January
Exchange (losses)/gains on cash and cash equivalents
(64 )
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.
The net exchange differences of £641 k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts in
the income statement (2022: £871 k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 121 to 159 form an integral part of these financial statements.
Strategic Report
Governance
Financial Statements
117
Zotefoams plc
Annual Report 2023
Company statement
of cash flows
For the year ended 31 December 2023
Note
2023
£’000
2022
£’000
Cash flows from operating activities
Profit for the year
7,890
7,010
Adjustments for:
Depreciation and amortisation
10,11,12
3,792
4,166
Loss on disposal of assets
4
212
Finance costs
1,103
1,119
Net exchange differences
(2,274)
3,880
Equity-settled share-based payments
24
1,335
809
Taxation
3,003
1,942
Operating profit before changes in working capital and provisions
14,853
19,138
Increase in trade and other receivables
(4,621)
(4,258)
Increase in inventories
(3,884)
(37)
(Decrease)/increase in trade and other payables
(1,716)
3,505
Employee defined benefit contributions
23
(859)
(859)
Cash generated from operations
3,773
17,489
Interest paid
(2,077)
(1,251)
Income taxes paid, net of refunds
(1,800)
(534)
Net cash flows generated from operating activities
(104)
15,704
Cash flows from investing activities
Interest received
62
–
Loans repaid by subsidiaries, net of prepayments
2,771
1,174
Purchase of intangibles
12
(174)
(149)
Purchase of property, plant and equipment
(3,713)
(3,183)
Net cash used in investing activities
(1,054)
(2,158)
Cash flows from financing activities
Repayment of borrowings
(1,231)
(50,883)
Proceeds from borrowings
1,609
43,044
Principal elements of lease payments
(283)
(265)
Dividends paid to equity holders of the Company
8
(3,350)
(3,188)
Net cash generated from financing activities
(3,255)
(11,292)
Net (decrease)/increase in cash and cash equivalents
(4,413)
2,254
Cash and cash equivalents at 1 January
7,288
5,034
Cash and cash equivalents at 31 December
16
2,875
7,288
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.
The net exchange differences of £2,274k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts in
the income statement (2022: £3,880k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 121 to 159 form an integral part of these financial statements.
118
Zotefoams plc
Annual Report 2023
Consolidated statement
of changes in equity
For the year ended 31 December 2023
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 2022
(10 )
(310 )
Profit for the year
Other comprehensive income for the year
Foreign exchange translation gains 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 )
Balance as at 1 January 2023
(5 )
(285 )
Profit for the year
Other comprehensive income for the year
Foreign exchange translation losses on investment in
subsidiaries
(1,885 )
(1,885 )
Change in fair value of hedging instruments recognised
in other comprehensive income
Reclassification to income statement – administrative
expenses
(192 )
(192 )
Tax relating to effective portion of changes in fair value
of cash flow hedges, net of recycling
(575 )
(575 )
Actuarial loss on defined benefit pension scheme
23
(88 )
(88 )
Tax relating to actuarial loss on defined benefit pension
scheme
Total comprehensive income for the year
(1,885 )
Transactions with owners of the parent:
Options exercised
(4 )
Proceeds of shares issued, net of expenses
(11 )
Equity-settled share-based payments net of tax
Dividends paid
8
(3,350 )
(3,350 )
Total transactions with owners of the parent
(7 )
(2,015 )
(2,011 )
Balance as at 31 December 2023
(12 )
The aggregate current and deferred tax relating to items that are debited to equity is £591 k (2022: credited 31 k).
The notes on pages 121 to 159 form an integral part of these financial statements.
Strategic Report
Governance
Financial Statements
119
Zotefoams plc
Annual Report 2023
Company statement
of changes in equity
For the year ended 31 December 2023
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 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:
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
Balance as at 1 January 2023
2,431
44,178
15
(285)
53,871
100,210
Profit for the year
–
–
–
–
7,890
7,890
Other comprehensive income for the year
Change in fair value of hedging instruments recognised in other
comprehensive income
–
–
–
1,712
–
1,712
Reclassification to income statement – administrative expenses
–
–
–
(192)
–
(192)
Tax relating to effective portion of changes in fair value of cash flow hedges,
net of recycling
–
–
–
(575)
–
(575)
Actuarial loss on defined benefit pension scheme
23
–
–
–
–
(88)
(88)
Tax relating to actuarial loss on defined benefit pension scheme
–
–
–
–
22
22
Total comprehensive income for the year
–
–
–
945
7,824
8,769
Transactions with owners:
Proceeds of shares issued, net of expenses
11
–
–
–
–
11
Equity-settled share-based payments net of tax
–
–
–
–
1,339
1,339
Dividends paid
8
–
–
–
–
(3,350)
(3,350)
Total transactions with owners
11
–
–
–
(2,011)
(2,000)
Balance as at 31 December 2023
2,442
44,178
15
660
59,684
106,979
The aggregate current and deferred tax relating to items that are debited to equity is £591k (2022: credited 31k).
The notes on pages 121 to 159 form an integral part of these financial statements.
120
Zotefoams plc
Annual Report 2023
Zotefoams plc
121
Strategic Report
Governance
Financial Statements
Annual Report 2023
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 20 to 27 and the section entitled “Risk management
and principal risks” on pages 45 to 58. 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 2023 , the Group’s gross finance facilities were £50.0m
(2022: £50.0m), consisting entirely of a multi-currency term loan.
In March 2023, 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 2023.
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 at
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.
122
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Annual Report 2023
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 (OCI) are recognised in 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 OCI. 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).
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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 to the
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, and
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 in a subsequent
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.
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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 subsequent
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.
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
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 solely represent 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:
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 statement of financial position at fair value with gains or
losses recognised in the income statement. Derivatives, other than those
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.
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.
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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 cash generating
unit (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 packaging solution 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.
Impairment exists when the carrying value of an asset or CGU exceeds
its recoverable amount, which is the higher of its fair value less costs of
disposal and its value in use. The value in use calculation is based on a
discounted cash flow (DCF) model. The cash flows are based on a value
in use calculation using cash flow projections from forecasts approved by
management. The recoverable amount is sensitive to the discount rate
used for the DCF model as well as the sales volume and cost of sales.
The key assumptions used to determine the recoverable amount for the
CGU, including a sensitivity analysis, are disclosed and further explained
in note 12.
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
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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 other
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 interest
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 intercompany revenues and value added taxes and is
stated net of discounts and returns.
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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 is recognised
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 on
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.
(treasury shares), the consideration paid, including any directly attributable
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 the related income tax effects, is included in equity attributable to the
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
128
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Annual Report 2023
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.
New standards and amendments – applicable 1 January 2023
The Group applied for the first time certain standards and amendments,
which are effective for annual periods beginning on or after 1 January
2023 (unless otherwise stated). The Group has not early adopted any other
standard, interpretation or amendment that has been issued but is not yet
effective:
FRS 17 Insurance Contracts
The new standard had no impact on the Group’s consolidated financial
statements.
Definition of Accounting Estimates – Amendments to IAS 8
The amendments to IAS 8 clarify the distinction between changes in
accounting estimates, changes in accounting policies and the correction
of errors. They also clarify how entities use measurement techniques and
inputs to develop accounting estimates. The amendments had no impact
on the Group’s consolidated financial statements.
Disclosure of Accounting Policies – Amendments to IAS 1 and IFRS
Practice Statement 2
The amendments to IAS 1 and IFRS Practice Statement 2 Making
Materiality Judgements provide guidance and examples to help entities
apply materiality judgements to accounting policy disclosures. The
amendments aim to help entities provide accounting policy disclosures
that are more useful by replacing the requirement for entities to disclose
their “significant” accounting policies with a requirement to disclose their
“material” accounting policies and adding guidance on how entities apply
the concept of materiality in making decisions about accounting policy
disclosures.
The amendments have had an impact on the Group’s disclosures
of accounting policies, but not on the measurement, recognition or
presentation of any items in the Group’s financial statements.
Deferred Tax related to Assets and Liabilities arising from a Single
Transaction – Amendments to IAS 12
The amendments to IAS 12 Income Tax narrow the scope of the initial
recognition exception, so that it no longer applies to transactions that give
rise to equal taxable and deductible temporary differences such as leases
and decommissioning liabilities.
The amendments had no significant impact on the Group’s consolidated
financial statements.
International Tax Reform—Pillar Two Model Rules – Amendments to
IAS 12
The amendments to IAS 12 have been introduced in response to the
OECD’s BEPS Pillar Two rules and include:
X
a mandatory temporary exception to the recognition and disclosure of
deferred taxes arising from the jurisdictional implementation of the Pillar
Two model rules and
X
disclosure requirements for affected entities to help users of the financial
statements better understand an entity’s exposure to Pillar Two income
taxes arising from that legislation, particularly before its effective date.
The mandatory temporary exception – the use of which is required to be
disclosed – applies immediately. The remaining disclosure requirements
apply for annual reporting periods beginning on or after 1 January 2023,
but not for any interim periods ending on or before 31 December 2023.
The amendments had no impact on the Group’s consolidated financial
statements as the Group is not in scope of the Pillar Two model rules as
its revenue is less that EUR750m/year.
Forthcoming requirements
As at 31 December 2023, the following standards and interpretations had been issued but were not mandatory for annual reporting periods ending on
31 December 2023.
Effective for accounting | ||
periods beginning on | Expected | |
or after | Impact | |
Amendments to IFRS 16: Lease Liability in a Sale and Leaseback | 1 January 2024 | None |
Amendments to IAS 1: Classification of Liabilities as Current or Non-current | 1 January 2024 | See below |
Supplier Finance Arrangements – Amendments to IAS 7 and IFRS 7 | 1 January 2024 | None |
Amendments to IAS 1: Classification of Liabilities as Current or Non-current
Zotefoams plc
129
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Financial Statements
Annual Report 2023
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): This business 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 | |||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Group revenue | 67,596 | 70,123 | 58,132 | 54,439 | 1,247 | 2,807 | 126,975 | 127,369 |
Segment profit/(loss) pre-amortisation of acquired intangibles | 7,455 | 4,883 | 15,418 | 15,321 | (4,098) | (1,634) | 18,775 | 18,570 |
Amortisation of acquired intangible assets | – | – | – | – | (257) | (258) | (257) | (258) |
Segment profit/(loss) | 7,455 | 4,883 | 15,418 | 15,321 | (4,355) | (1,892) | 18,518 | 18,312 |
Foreign exchange losses | – | – | – | – | – | – | (296) | (1,844) |
Unallocated central costs | – | – | – | – | – | – | (3,087) | (2,537) |
Operating profit | 15,135 | 13,931 | ||||||
Financing costs | – | – | – | – | – | – | (2,540) | (1,814) |
Financing income | – | – | – | – | – | – | 191 | 56 |
Share of profit from joint venture | 54 | 50 | – | – | – | – | 54 | 50 |
Taxation | – | – | – | – | – | – | (3,598) | (2,217) |
Profit for the year | 9,242 | 10,006 | ||||||
Segment assets | 110,374 | 116,426 | 50,456 | 40,358 | 14,344 | 13,165 | 175,174 | 169,949 |
Unallocated assets | – | – | – | – | – | – | 435 | 410 |
Total assets | 175,609 | 170,359 | ||||||
Segment liabilities | (37,631) | (39,814) | (14,363) | (15,508) | (1,504) | (1,427) | (53,498) | (56,749) |
Unallocated liabilities | – | – | – | – | – | – | (6,348) | (4,072) |
Total liabilities | (59,846) | (60,821) | ||||||
Depreciation of property, plant and equipment (PPE) | 5,189 | 5,422 | 1,122 | 1,079 | 532 | 369 | 6,843 | 6,870 |
Depreciation of right-of-use assets | 422 | 306 | 92 | 70 | 204 | 156 | 718 | 532 |
Amortisation | 223 | 386 | 101 | 144 | 332 | 312 | 656 | 842 |
Capital expenditure: | ||||||||
Property, plant and equipment | 4,619 | 3,584 | 1,421 | 888 | 343 | 785 | 6,383 | 5,257 |
Intangible assets | 118 | 112 | 56 | 43 | 2,565 | 1,569 | 2,739 | 1,724 |
Unallocated assets made up of deferred tax assets are £435k for the year (2022: £410k). Unallocated liabilities are made up of corporation tax £1,078k
(2022: £226k) and deferred tax liabilities £5,270k (2022: £3,846k).
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.
130
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Annual Report 2023
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 | Continental | North | Rest of | ||
Kingdom | Europe | America | the world | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | |
For the year ended 31 December 2023 | |||||
Group revenue from external customers | 11,879 | 32,514 | 27,195 | 55,387 | 126,975 |
Non-current assets | 42,745 | 19,815 | 39,697 | 246 | 102,503 |
Capital expenditure – PPE | 4,393 | 524 | 1,464 | 2 | 6,383 |
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 |
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 £45,294k to the Group’s revenue (2022: one customer located in ‘Rest of the world’
contributed £42,176k to the Group’s revenue).
Breakdown of revenues by products and services for the Group:
2023 | 2022 | |
£’000 | £’000 | |
Sale of foam | 125,729 | 124,562 |
Licence and royalty income | 893 | 1,528 |
Sale of equipment | 353 | 1,279 |
Group revenue | 126,975 | 127,369 |
Notes
Continued
3. Segment reporting (continued)
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2023 | 2022 | |
£’000 | £’000 | |
Included in profit for the year are: | ||
Changes in inventories of finished goods and work in progress | 4,713 | 1,926 |
Changes in raw materials and consumables used | 1,053 | (1,742) |
Inventory write-down | 215 | 489 |
Employee benefits expenses | 33,204 | 29,264 |
Operating lease charges (note 11) | 386 | 185 |
Amortisation (note 12) | 656 | 842 |
Depreciation of PPE and right-of-use assets (note 10 and note 11) | 7,561 | 7,402 |
Disposal of assets | 4 | 283 |
Tax relief qualifying research and development costs expensed | 821 | 787 |
Development costs capitalised (note 12) | (2,244) | (1,192) |
Net exchange losses | 296 | 1,844 |
External Auditor’s remuneration: | ||
Group – Fees payable to the Group’s External Auditor for the audit of the Company and consolidated financial statements: | ||
PKF Littlejohn LLP | 235 | 224 |
Fees payable to the External Auditor in respect of other services: | ||
Audit-related assurance services | 22 | 18 |
Total cost of sales, distribution costs and administrative expenses | 111,840 | 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 | |||
2023 | 2022 | 2023 | 2022 | |
Production | 285 | 280 | 167 | 169 |
Maintenance | 40 | 38 | 25 | 25 |
Distribution and marketing | 77 | 83 | 41 | 44 |
Administration and technical | 134 | 117 | 89 | 83 |
536 | 518 | 322 | 321 | |
The aggregate payroll costs of these persons were as follows:
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Wages and salaries* | 26,882 | 23,852 | 17,139 | 16,048 |
Social security costs* | 3,409 | 3,228 | 1,716 | 1,691 |
Share options granted to directors and employees (note 23) | 1,335 | 809 | 1,335 | 809 |
Pension costs, including past service costs | 1,578 | 1,375 | 1,025 | 958 |
33,204 | 29,264 | 21,215 | 19,506 | |
* Net of directly attributable costs capitalised | 911 | 884 | 291 | 337 |
132
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Annual Report 2023
Details of aggregate Directors’ emoluments are provided below:
2023 | 2022 | |
£’000 | £’000 | |
Aggregate emoluments | 1,333 | 994 |
Aggregate gains made on the exercise of share options | 73 | 83 |
Aggregate amounts receivable under long-term incentive schemes | 423 | 153 |
Company contribution to money purchase pension scheme | 53 | 77 |
1,882 | 1,307 |
Further details of Directors’ emoluments, including details of the highest-paid Director, are included in the Directors’ Remuneration report on pages 90
2023 | 2022 | |
£’000 | £’000 | |
Interest income | 191 | 56 |
Finance costs
2023 | 2022 | |
£’000 | £’000 | |
Interest on borrowings | 2,328 | 1,714 |
Interest on lease liabilities | 75 | 24 |
Finance costs expensed | 2,403 | 1,738 |
Interest on defined benefit pension obligation (note 24) | 137 | 76 |
2,540 | 1,814 |
2023 | 2022 | |
£’000 | £’000 | |
UK corporation tax | 2,051 | 1,137 |
Overseas tax | 632 | 232 |
Adjustment for tax for prior years | 81 | 44 |
Total current tax | 2,764 | 1,413 |
Deferred tax | 834 | 804 |
Income tax expense | 3,598 | 2,217 |
Zotefoams plc
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Factors affecting the tax charge
The weighted average applicable tax rate for the Group is 24.8% (2022: 19.5%). The main elements of the income tax expense are as follows:
2023 | 2022 | |
£’000 | £’000 | |
Tax reconciliation | ||
Profit before tax | 12,839 | 12,223 |
Tax at the UK tax rate of 23.5% (2022: 19.0%) | 3,019 | 2,335 |
Effects of: | ||
Expenses not deductible for tax purposes | 271 | 223 |
Research and development and other tax credits | – | (115) |
(Utilisation of) tax losses for which no deferred income tax asset recognised | 518 | (68) |
Effect of different overseas tax rates | 72 | 60 |
Changes in tax rates | 7 | 206 |
Capital allowance super-deductions | (13) | (146) |
Special Economic Zone Relief | (375) | (373) |
Other differences | 18 | 29 |
Adjustments to prior year UK corporation tax charge | 81 | 66 |
3,598 | 2,217 |
The main rate of UK corporation tax substantively enacted at the start of the period was 19.0%. An increase in the UK corporate tax rate from 19% to 25%
was effective from 1 April 2023.
The Group has not identified any uncertain tax positions as at 31 December 2023 (2022: none).
On 20 June 2023, Finance (No.2) Act 2023 was substantively enacted in the UK, introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for accounting periods starting on or after 31 December 2023. However,
this legislation does not apply to the Group in the financial year beginning 1 January 2024 as its consolidated revenue does not meet the legislation
2023 | 2022 | |
£’000 | £’000 | |
Prior year final dividend of 4.62p (2022: 4.40p) per 5.0p ordinary share | 2,243 | 2,131 |
Interim dividend of 2.28p (2022: 2.18p) per 5.0p ordinary share | 1,107 | 1,057 |
Dividends paid during the year | 3,350 | 3,188 |
The proposed final dividend for the year ended 31 December 2023 of 4.90p per share (2022: 4.62p) is subject to approval by shareholders at the AGM
and has not been recognised as a liability in these financial statements. The proposed dividend, which would be payable on 3 June 2024 to shareholders
on the Company register at the close of business on 3 May 2024, would amount to £2,382k if paid to shareholders who are on the Company register as at
Earnings per ordinary share is calculated by dividing consolidated profit after tax attributable to equity holders of the Company of £9,242k (2022: £10,006k) 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 2023 was 244,286 (2022: 107,130). 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”.
2023 | 2022 | |
Weighted average number of ordinary shares in issue | 48,643,755 | 48,551,379 |
Adjustments for share options | 1,161,180 | 987,750 |
Diluted number of ordinary shares issued | 49,804,935 | 49,539,129 |
134
Zotefoams plc
Annual Report 2023
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.
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 | ||
2023 | 2022 | |
£’000 | £’000 | |
Cash and cash equivalents | 721 | 664 |
Other assets (excluding cash) | 770 | 1,190 |
Disposal of Inoac Zotefoams Korea Ltd | – | (120) |
Total assets | 1,491 | 1,734 |
Financial liabilities (excluding trade payables) | (62) | (173) |
Other current liabilities (including trade payables) | (1,016) | (1,256) |
Total liabilities | (1,078) | (1,429) |
Net assets | 413 | 305 |
Summarised statement of comprehensive income:
As at 31 December | ||
2023 | 2022 | |
£’000 | £’000 | |
Revenue | 3,533 | 4,382 |
Finance costs | 5 | – |
Profit before tax | 108 | 100 |
Income tax expense | – | – |
Profit before tax | 108 | 100 |
Other comprehensive income | – | – |
Total comprehensive income | 108 | 100 |
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:
2023 | 2022 | |
£’000 | £’000 | |
Opening net assets | 305 | 325 |
Profit for the year | 108 | 100 |
Disposal of Inoac Zotefoams Korea Ltd | – | (120) |
Closing net assets | 413 | 305 |
Interest in joint venture @ 50% | 207 | 153 |
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2023 | 2022 | |
£’000 | £’000 | |
Information of the joint venture | ||
Carrying value at 1 January | 153 | 163 |
Share of profit for the year | 54 | 50 |
Disposal of Inoac Zotefoams Korea Ltd | – | (60) |
Carrying value at 31 December | 207 | 153 |
Land and | Plant and | Fixtures and | Under | ||
buildings | equipment | fittings | construction | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | |
Cost | |||||
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 |
At 31 December 2022 | 47,398 | 118,591 | 3,562 | 3,048 | 172,599 |
At 1 January 2023 | 47,398 | 118,591 | 3,562 | 3,048 | 172,599 |
Additions | 8 | 77 | 93 | 6,205 | 6,383 |
Disposals | – | (941) | (194) | (44) | (1,179) |
Effect of movement in foreign exchange | (793) | (2,451) | (73) | (91) | (3,408) |
At 31 December 2023 | 46,613 | 115,276 | 3,388 | 9,118 | 174,395 |
Accumulated depreciation | |||||
Balance at 1 January 2022 | 14,160 | 56,361 | 2,982 | – | 73,503 |
Depreciation charge | 1,374 | 5,176 | 320 | – | 6,870 |
Disposals | (521) | (3,139) | (680) | – | (4,340) |
Effect of movement in foreign exchange | 640 | 1,521 | 110 | – | 2,271 |
At 31 December 2022 | 15,653 | 59,919 | 2,732 | – | 78,304 |
At 1 January 2023 | 15,653 | 59,919 | 2,732 | – | 78,304 |
Depreciation charge | 1,737 | 4,862 | 244 | – | 6,843 |
Disposals | – | (984) | (191) | – | (1,175) |
Effect of movement in foreign exchange | (331) | (925) | (64) | – | (1,320) |
At 31 December 2023 | 17,059 | 62,872 | 2,721 | – | 82,652 |
Net book value | |||||
At 1 January 2022 | 31,616 | 54,430 | 889 | 4,466 | 91,401 |
At 31 December 2022 and 1 January 2023 | 31,745 | 58,672 | 830 | 3,048 | 94,295 |
At 31 December 2023 | 29,554 | 52,404 | 667 | 9,118 | 91,743 |
Bank borrowings are secured on property, plant and equipment. Refer to note 18 for details.
136
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Land and | Plant and | Fixtures and | Under | ||
buildings | equipment | fittings | construction | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | |
Cost | |||||
Balance at 1 January 2022 | 24,072 | 67,154 | 2,634 | 2,773 | 96,633 |
Additions | 13 | 21 | 20 | 3,003 | 3,057 |
Disposals | (535) | (3,337) | (679) | – | (4,551) |
Transfers | 785 | 3,393 | 156 | (4,334) | – |
At 31 December 2022 | 24,335 | 67,231 | 2,131 | 1,442 | 95,139 |
At 1 January 2023 | 24,335 | 67,231 | 2,131 | 1,442 | 95,139 |
Additions | – | 13 | 3 | 4,376 | 4,392 |
Disposals | – | (988) | (191) | – | (1,179) |
Transfers | 983 | 802 | 176 | (1,961) | – |
At 31 December 2023 | 25,318 | 67,058 | 2,119 | 3,857 | 98,352 |
Accumulated depreciation | |||||
Balance at 1 January 2022 | 8,865 | 44,275 | 2,092 | – | 55,232 |
Depreciation charge | 847 | 2,361 | 200 | – | 3,408 |
Disposals | (521) | (3,139) | (679) | – | (4,339) |
Transfers | – | – | – | – | – |
At 31 December 2022 | 9,191 | 43,497 | 1,613 | – | 54,301 |
At 1 January 2023 | 9,191 | 43,497 | 1,613 | – | 54,301 |
Depreciation charge | 1,160 | 1,905 | 134 | – | 3,199 |
Disposals | – | (984) | (191) | – | (1,175) |
At 31 December 2023 | 10,351 | 44,418 | 1,556 | – | 56,325 |
Net book value | |||||
At 1 January 2022 | 15,207 | 22,879 | 542 | 2,773 | 41,401 |
At 31 December 2022 and 1 January 2023 | 15,144 | 23,734 | 518 | 1,442 | 40,838 |
At 31 December 2023 | 14,967 | 22,640 | 563 | 3,857 | 42,027 |
Depreciation is included in cost of sales in the income statement.
Notes
Continued
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(i) Amounts recognised in the statement of financial position relating to leases:
Right-of-use assets
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Property | 940 | 574 | – | – |
Equipment | 332 | 365 | 143 | 347 |
1,272 | 939 | 143 | 347 | |
Lease liabilities
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Lease liability falls due within 1 year | 507 | 509 | 101 | 245 |
Lease liability falls due within 1–3 years | 797 | 454 | 39 | 101 |
Lease liability falls due in more than 3 years | 30 | – | 7 | – |
1,334 | 963 | 147 | 346 | |
Additions to the right-of-use assets during the financial year were £1,098k (2022: £309k) for Group and £77k (2022: £78k) for Company.
(ii) Amounts recognised in the income statement relating to leases:
Amortisation charge of right-of-use assets
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Property | 361 | 224 | – | – |
Equipment | 357 | 308 | 282 | 250 |
718 | 532 | 282 | 250 | |
Interest expenses (included in finance costs) | 76 | 24 | 7 | 11 |
Expense relating to short-term leases (included in cost of sales and | ||||
administrative expenses) | 386 | 185 | 295 | 91 |
Expense relating to leases of low-value assets that are not shown above | ||||
as short-term leases (included in administrative expenses) | 27 | 21 | 27 | 21 |
The total cash outflow for leases | 753 | 499 | 283 | 265 |
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Marketing | Customer | Technology | Software | Capitalised | |||
related | related | related | related | Goodwill | development | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Cost | |||||||
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 |
Balance at 1 January 2023 | 264 | 414 | 6,412 | 3,934 | 2,529 | 2,685 | 16,238 |
Additions | – | – | 321 | 174 | – | 2,244 | 2,739 |
Transfer | – | – | – | 14 | – | (14) | – |
Effect of movement in foreign exchange | (14) | (16) | (329) | (2) | (130) | (160) | (651) |
Balance at 31 December 2023 | 250 | 398 | 6,404 | 4,120 | 2,399 | 4,755 | 18,326 |
Accumulated amortisation | |||||||
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 |
Balance at 1 January 2023 | 264 | 414 | 3,846 | 3,633 | – | 307 | 8,464 |
Charge for the year | – | – | 323 | 154 | – | 179 | 656 |
Transfer | – | – | – | 14 | – | (14) | – |
Effect of movement in foreign exchange | (14) | (16) | (182) | – | – | – | (212) |
Balance at 31 December 2023 | 250 | 398 | 3,987 | 3,801 | – | 472 | 8,908 |
Net book value | |||||||
At 1 January 2022 | – | – | 2,223 | 655 | 2,254 | 1,092 | 6,224 |
At 31 December 2022 and 1 January 2023 | – | – | 2,566 | 301 | 2,529 | 2,378 | 7,774 |
At 31 December 2023 | – | – | 2,417 | 319 | 2,399 | 4,283 | 9,418 |
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 CEO’s
review on pages 33 to 37 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
X
an assessment of the recoverable amount.
The Group performs its annual impairment test for goodwill at 31 December and for intangible assets when there is an indicator of impairment of an asset.
The losses being incurred by the MEL CGU are an indication of a potential impairment of goodwill and intangible assets.
The carrying value of MEL intangibles amount to £8,863k as at 31 December 2023. For impairment testing purposes, the carrying amounts of the
Group’s intangible assets were compared with their recoverable amount. This has been determined based on a value-in-use calculation using cash flow
projections from forecasts approved by management. Revenue growth is based on management plans to access this market, potential customer appetite
and the potential market size. Polymer price assumptions were made using available market data and management forecasts. The discount rate used
is based on a pre-tax weighted average cost of capital (WACC) of 12%. A forecast period of greater than five years has been used, as this aligns with
management’s plan to achieve the technology’s potential in the market.
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The estimated value in use of MEL’s intangible assets and goodwill exceeded their carrying value and no impairments were recognised during the year
to 31 December 2023.
Key assumptions used in value-in-use calculation and sensitivity to changes in assumptions
The calculation of value-in-use is most sensitive to the assumptions used in determining the future volumes of carton sales from ReZorce technology,
raw material polymer prices and discount rate. The sensitivities in the table below represent the amount by which the key assumptions must change,
in isolation, in order for the recoverable amount to be equal to its carrying amount.
Assumption | Sensitivity applied |
Discount rate | Increase of 8% |
Volume of carton sales | Decrease of 25% |
Raw material prices | Increase of 15% |
Customer | Software | Capitalised | ||
related | related | development | Total | |
£’000 | £’000 | £’000 | £’000 | |
Cost | ||||
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 |
Balance at 1 January 2023 | 121 | 3,816 | 732 | 4,669 |
Additions | – | 174 | – | 174 |
Disposals | – | – | – | – |
Transfers | – | 14 | (14) | – |
Balance at 31 December 2023 | 121 | 4,004 | 718 | 4,843 |
Accumulated amortisation | ||||
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 |
Balance at 1 January 2023 | 121 | 3,600 | 307 | 4,028 |
Charge for the year | – | 132 | 179 | 311 |
Disposals | – | – | – | – |
Transfers | – | 14 | (14) | – |
Balance at 31 December 2023 | 121 | 3,746 | 472 | 4,339 |
Net book value | ||||
At 1 January 2022 | – | 557 | 453 | 1,010 |
At 31 December 2022 and 1 January 2023 | – | 216 | 425 | 641 |
At 31 December 2023 | – | 258 | 246 | 504 |
Company
2023 | 2022 | |
£’000 | £’000 | |
Shares in Group undertakings – at cost | 30,822 | 30,822 |
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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, | 100% | USA |
New Castle, Delaware | |||
Zotefoams Midwest LLC (indirectly owned) | Corporation Trust Center, 1209 Orange Street, Wilmington, | 100% | USA |
New Castle, Delaware | |||
MuCell Extrusion LLC (indirectly owned) | Corporation Trust Center, 1209 Orange Street, Wilmington, | 100% | USA |
New Castle, Delaware | |||
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 | 181 Huanlou Road, Kunshan, Jiangsu | 100% | China |
(indirectly owned) | |||
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 | 335 Udyog Vihar Phase IV Gurgaon, Gurgaon, | 100% | India |
(indirectly owned) | Haryana 122015 | ||
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 2023. 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 is a wholly owned subsidiary of Zotefoams International and engaged in
no trading activities during 2023. 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 2023 of these companies
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Raw materials and consumables | 13,948 | 12,895 | 10,342 | 9,803 |
Work in progress | 10,632 | 7,645 | 8,558 | 6,573 |
Finished goods | 7,324 | 5,599 | 3,716 | 2,356 |
31,904 | 26,139 | 22,616 | 18,732 | |
Inventories are shown net of: | ||||
Provision for impairment losses | (2,476) | (2,261) | (788) | (1,042) |
In 2023, the value of inventory recognised by the Group as an expense in cost of goods sold was £52,282k (2022: £57,336k).
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Movements in the inventory provision during the financial year are set out below:
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Provision for impairment losses as at 1 January | 2,261 | 1,772 | 1,042 | 1,051 |
Inventories written off against provision | (440) | (173) | (357) | (144) |
Additional provisions recognised | 655 | 662 | 103 | 135 |
Provision for impairment losses as at 31 December | 2,476 | 2,261 | 788 | 1,042 |
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Amounts falling due over one year: | ||||
Prepayments and accrued income | 70 | 122 | 70 | 122 |
Amounts falling due within one year: | ||||
Trade receivables | 28,850 | 25,803 | 19,421 | 16,040 |
Amounts owed by Group undertakings | – | – | 39,190 | 39,787 |
Other receivables | 2,515 | 1,867 | 1,958 | 1,294 |
Prepayments and accrued income | 1,637 | 1,777 | 483 | 405 |
33,072 | 29,569 | 61,122 | 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 £23,371k (2022: £24,840k) attract an interest charge of 6.64% for loans linked to US dollar, 5.2% for euro, 7.16% for sterling and
6.75% for Danish krone (2022: 6.10% for loans linked to US dollar, 4.00% for euro and 4.45% for sterling). Bank borrowings are secured on the trade
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Cash at bank and in hand | 6,294 | 10,594 | 2,875 | 7,288 |
Cash at bank earns interest at floating rates based on daily bank deposit rates.
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Trade payables | 5,246 | 5,706 | 4,337 | 4,672 |
Amounts owed to Group undertakings | – | – | 30 | 30 |
Other taxation and social security | 619 | 560 | 515 | 454 |
Other payables | 3,515 | 3,276 | 2,291 | 2,119 |
Accruals and deferred income | 3,573 | 3,958 | 1,826 | 2,764 |
12,953 | 13,500 | 8,999 | 10,039 | |
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Group | Company | ||||
2023 | 2022 | 2023 | 2022 | ||
Note | £’000 | £’000 | £’000 | £’000 | |
Current bank borrowings | 21 | 36,527 | 37,446 | 36,527 | 37,446 |
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 £36.5m (31 December 2022: £37.4m) of its multi-currency revolving credit facility of £50m. The total
amount of £36.5m, repayable on the last day of each loan interest period, which is of either a three- or six-month duration, is net of £0.4m origination fees
paid up front and being amortised over four years. The Group has headroom of £19.4m, being £6.3m cash and cash equivalents, as per note 16, and the
undrawn facility of £13.1m, being the facility of £50m less the drawn-down balance of £36.5m, less the £0.4m origination fees.
The interest rates on the debt facility ranged between 3.70% and 6.60% in 2023 (2022: between 1.60% and 6.00%).
The Group and the Company have the following undrawn borrowing facilities as per the bank at the end of the financial year:
2023 | 2022 | |
£’000 | £’000 | |
Floating rate: | ||
Expiring beyond one year | 13,074 | 12,295 |
Total | 13,074 | 12,295 |
Reconciliation of liabilities arising from financing activities:
| Non-cash changes | |||||||
Recognition | Foreign | ||||||
Net cash | Loan | Loan | of lease | exchange | |||
2022 | inflows | origination fee | restructure | liabilities | movement | 2023 | |
Group | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Long-term borrowings | – | – | – | – | – | – | – |
Short-term borrowings | 37,446 | 378 | 180 | – | – | (1,477) | 36,527 |
Total liabilities | 37,446 | 378 | 180 | – | – | (1,477) | 36,527 |
| Non-cash changes | |||||||
Net cash | Recognition | Foreign | |||||
(outflows)/ | Loan | Loan | of lease | exchange | |||
2021 | inflows | origination fee | restructure | liabilities | movement | 2022 | |
Group | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’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 |
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| Non-cash changes | |||||||
Recognition | Foreign | ||||||
Net cash | Loan | Loan | of lease | exchange | |||
2022 | inflows | origination fee | restructure | liabilities | movement | 2023 | |
Company | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Long-term borrowings | – | – | – | – | – | – | – |
Short-term borrowings | 37,446 | 378 | 180 | – | – | (1,477) | 36,527 |
Total liabilities | 37,446 | 378 | 180 | – | – | (1,477) | 36,527 |
| Non-cash changes | |||||||
Net cash | Recognition | Foreign | |||||
(outflows)/ | Loan | Loan | of lease | exchange | |||
2021 | inflows | origination fee | restructure | liabilities | movement | 2022 | |
Company | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’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 |
Recognised deferred tax assets and liabilities – Group
Deferred tax assets and liabilities are attributable to the following:
Assets | Liabilities | Net | ||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Property, plant and equipment | – | – | 5,384 | 4,450 | 5,384 | 4,450 |
Rolled-over gain | – | – | 806 | 806 | 806 | 806 |
Inventories | (296) | (255) | – | – | (296) | (255) |
Derivatives financial instruments | – | (266) | 309 | – | 309 | (266) |
Defined benefit pension scheme | (664) | (822) | – | – | (664) | (822) |
Share option charges | (565) | (322) | – | – | (565) | (322) |
Tax value of recognised losses carried forward | (139) | (155) | – | – | (139) | (155) |
(1,664) | (1,820) | 6,499 | 5,256 | 4,835 | 3,436 | |
Set off | 1,229 | 1,410 | (1,229) | (1,410) | – | – |
Deferred tax (assets)/liabilities | (435) | (410) | 5,270 | 3,846 | 4,835 | 3,436 |
Unrecognised deferred tax assets
The Group has tax losses carried forward in the USA of $1,100k (2022: $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 $29,000k (2022: $27,256k), which are carried forward indefinitely. At year-end exchange
rates, these tax losses translate to £22,814k (2022: £25,043k). Applying the enacted US corporation tax rate of 21% (2022: 21%), the Group has taken a
prudent approach and recognised a deferred tax asset of £138k (2022: £138k) on such tax losses expected to be utilised in future periods.
The Group can potentially recover £296k (2022: £521k) 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 £309k (2022: 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.
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Movement in deferred tax
Defined | Tax value of | |||||||
Property, | Derivative | benefit | Share | recognised | ||||
plant and | Rolled-over | financial | pension | option | losses carried | |||
equipment | gain | Inventories | instruments | scheme | charges | forward | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
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 |
Balance at 1 January 2023 | 4,450 | 806 | (255) | (266) | (822) | (322) | (155) | 3,436 |
Charged/(credited) to the income | ||||||||
statement | 934 | – | (41) | – | 137 | (238) | 16 | 808 |
Recognised in other | ||||||||
comprehensive income and | ||||||||
equity | – | – | – | 575 | 21 | (5) | – | 591 |
Balance at 31 December 2023 | 5,384 | 806 | (296) | 309 | (664) | (565) | (139) | 4,835 |
Deferred tax assets and liabilities – Company
Deferred tax assets and liabilities are attributable to the following:
Assets | Liabilities | Net | ||||
2023 | 2022 | 2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Property, plant and equipment | – | – | 5,384 | 4,450 | 5,384 | 4,450 |
Rolled-over gain | – | – | 806 | 806 | 806 | 806 |
Derivative financial instruments | – | (266) | 309 | – | 309 | (266) |
Defined benefit pension scheme | (664) | (822) | – | – | (664) | (822) |
Share option charges | (565) | (322) | – | – | (565) | (322) |
(1,229) | (1,410) | 6,499 | 5,256 | 5,270 | 3,846 | |
Set off | 1,229 | 1,410 | (1,229) | (1,410) | – | – |
Deferred tax (assets)/liabilities | – | – | 5,270 | 3,846 | 5,270 | 3,846 |
Movement in deferred tax
Defined | ||||||
Property, | Derivative | benefit | Share | |||
plant and | Rolled-over | financial | pension | option | ||
equipment | gain | instruments | scheme | charges | Total | |
£’000 | £’000 | £’000 | £’000 | £’000 | £’000 | |
Balance at 1 January 2022 | 3,810 | 806 | (81) | (1,164) | (216) | 3,155 |
Charged/(credited) 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) | 3,846 |
Balance at 1 January 2023 | 4,450 | 806 | (266) | (822) | (322) | 3,846 |
Charged to the income statement | 934 | – | – | 137 | (238) | 833 |
Recognised in other comprehensive income and equity | – | – | 575 | 21 | (5) | 591 |
Balance at 31 December 2023 | 5,384 | 806 | 309 | (664) | (565) | 5,270 |
Notes
Continued
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Issued, allotted and fully paid ordinary shares of 5p each:
Share | ||||
Number of | Par value | premium | Total | |
shares | £’000 | £’000 | £’000 | |
At 1 January 2022 and 31 December 2022 | 48,621,234 | 2,431 | 44,178 | 46,609 |
Share issue to Employee Benefit Trust | 225,000 | 11 | – | 11 |
At 31 December 2023 | 48,846,234 | 2,442 | 44,178 | 46,620 |
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 and
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
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Credit quality of financial assets
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
Counterparties without external credit rating: | £’000 | £’000 | £’000 | £’000 |
Existing customers with no defaults in the past | 28,545 | 25,198 | 19,374 | 15,715 |
Existing customers with some defaults in the past, net of impairment allowance | 305 | 605 | 47 | 325 |
28,850 | 25,803 | 19,421 | 16,040 | |
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
Cash at bank | £’000 | £’000 | £’000 | £’000 |
Moody’s P-1 | 5,928 | 10,195 | 2,875 | 7,288 |
Moody’s P-3 | 366 | 399 | – | – |
6,294 | 10,594 | 2,875 | 7,288 | |
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
Derivative financial assets | £’000 | £’000 | £’000 | £’000 |
Moody’s P-1 | 691 | 486 | 691 | 486 |
Moody’s P-2 | 573 | – | 573 | – |
1,264 | 486 | 1,264 | 486 | |
While cash and cash equivalents are subject to impairment review under IFRS 9 “Financial Instruments”, the identified impairment loss was immaterial
(2022: immaterial).
Trade receivables are analysed as follows:
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Gross carrying amount | 29,097 | 26,017 | 19,432 | 16,051 |
– due for less than 60 days | 27,539 | 25,296 | 18,155 | 16,051 |
– due for more than 60 days | 1,558 | 721 | 1,277 | – |
Expected loss rate | ||||
– due for less than 60 days | 0.04% | 0.36% | 0.06% | 0.00% |
– due for more than 60 days | 15.12% | 23.22% | 0.00% | 0.00% |
Loss allowance | 247 | 214 | 11 | 11 |
Trade receivables net of allowances | 28,850 | 25,803 | 19,421 | 16,040 |
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Group | Company | |
£’000 | £’000 | |
At 1 January 2022 | 95 | 11 |
Increase in loss allowance recognised in profit or loss during the year | 144 | 11 |
Reversal of loss allowance on collection of dues | (25) | (11) |
At 31 December 2022 | 214 | 11 |
At 1 January 2023 | 214 | 11 |
Increase in loss allowance recognised in profit or loss during the year | 128 | 11 |
Reversal of loss allowance on collection of dues | (95) | (11) |
At 31 December 2023 | 247 | 11 |
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 2023
and 2022, the Group and Company insured a material portion of its trade receivable balances to mitigate credit risk. The uninsured exposure as at
31 December 2023 for the Group was £23,259k (2022: £17,572k) and for the Company was £13,829k (2022: £9,104k). 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:
| 2023 | 2022 | |||||
Effective | Fixed | Variable | Effective | Fixed | Variable | |
interest rate | rates | rates | interest rate | rates | rates | |
Group | % | £’000 | £’000 | % | £’000 | £’000 |
Dollar short-term borrowings | 5.04% | – | 21,241 | 3.73% | – | 21,603 |
Sterling short-term borrowings | – | – | – | – | – | – |
Euro short-term borrowings | 4.63% | – | 15,652 | 2.21% | – | 16,391 |
Dollar long-term borrowings | – | – | – | – | – | – |
Total* | – | 36,893 | – | 37,994 | ||
| 2023 | 2022 | |||||
Effective | Fixed | Variable | Effective | Fixed | Variable | |
interest rate | rates | rates | interest rate | rates | rates | |
Company | % | £’000 | £’000 | % | £’000 | £’000 |
Dollar short-term borrowings | 5.04% | – | 21,241 | 3.73% | – | 21,603 |
Sterling short-term borrowings | – | – | – | – | – | – |
Euro short-term borrowings | 4.63% | – | 15,652 | 2.21% | – | 16,391 |
Dollar long-term borrowings | – | – | – | – | – | – |
Total* | – | 36,893 | – | 37,994 | ||
*
The total amount of £36,893k is gross of an outstanding amount of £366k of loan origination fees paid upfront and being amortised over the period of the loan (2022: £37,994k is gross of £548k of
loan origination fees).
The impact on post-tax profit of a 1% shift in the variable rate borrowings would be £299k (2022: £308k).
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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:
| 2023 | 2022 | |||||||||
More | More | |||||||||
Carrying | Contractual | 1 year | 1 to 2 | than | Carrying | Contractual | 1 year | 1 to 2 | than | |
amount | cash flows | or less | years | 2 years | amount | cash flows | or less | years | 2 years | |
Group | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Non-derivative | ||||||||||
financial liabilities | ||||||||||
Interest-bearing loans | ||||||||||
and borrowings | (36,527) | (36,893) | (36,893) | – | – | (37,446) | (37,994) | (37,994) | – | – |
Trade and other payables | (8,761) | (8,761) | (8,761) | – | – | (8,982) | (8,982) | (8,982) | – | – |
Lease liabilities | (1,334) | (1,832) | (770) | (1,032) | (30) | (963) | (983) | (513) | (470) | – |
Total non-derivative | ||||||||||
financial liabilities | (46,622) | (47,486) | (46,424) | (1,032) | (30) | (47,391) | (47,959) | (47,489) | (470) | – |
Derivative financial liabilities | (28) | (28) | (28) | – | – | (1,550) | (1,550) | (1,550) | – | – |
| 2023 | 2022 | |||||||||
More | More | |||||||||
Carrying | Contractual | 1 year | 1 to 2 | than | Carrying | Contractual | 1 year | 1 to 2 | than | |
amount | cash flows | or less | years | 2 years | amount | cash flows | or less | years | 2 years | |
Company | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Non-derivative | ||||||||||
financial liabilities | ||||||||||
Interest-bearing loans | ||||||||||
and borrowings | (36,527) | (36,893) | (36,893) | – | – | (37,446) | (37,994) | (37,994) | – | – |
Trade and other payables | (6,658) | (6,658) | (6,658) | – | – | (6,821) | (6,821) | (6,821) | – | – |
Lease liabilities | (146) | (528) | (263) | (235) | (30) | (346) | (299) | (228) | (71) | – |
Total non-derivative | ||||||||||
financial liabilities | (43,331) | (44,079) | (43,814) | (235) | (30) | (44,613) | (45,114) | (45,043) | (71) | – |
Derivative financial liabilities | (28) | (28) | (28) | – | – | (1,550) | (1,550) | (1,550) | – | – |
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.
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The euro and US dollar rates used in preparing the financial statements are as follows:
2023 | 2022 | |||
Average | Closing | Average | Closing | |
Euro/sterling | 1.150 | 1.150 | 1.173 | 1.129 |
US dollar/sterling | 1.243 | 1.271 | 1.238 | 1.204 |
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:
Euro | US dollar | Other | Total | |
Group – 2023 | £’000 | £’000 | £’000 | £’000 |
Cash and cash equivalents | 1,551 | 1,999 | 926 | 4,476 |
Trade receivables | 4,875 | 18,213 | 2,843 | 25,931 |
Trade payables | (2,271) | (1,294) | (314) | (3,879) |
Euro | US dollar | Other | Total | |
Group – 2022 | £’000 | £’000 | £’000 | £’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) |
Euro | US dollar | Other | Total | |
Company – 2023 | £’000 | £’000 | £’000 | £’000 |
Cash and cash equivalents | 432 | 761 | 45 | 1,238 |
Trade receivables | 2,974 | 12,541 | 987 | 16,502 |
Trade payables | (2,224) | (808) | – | (3,032) |
Euro | US dollar | Other | Total | |
Company – 2022 | £’000 | £’000 | £’000 | £’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) |
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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:
Level 1 | Level 2 | Level 3 | Total | |
31 December 2023 | £’000 | £’000 | £’000 | £’000 |
Assets | ||||
Forward exchange contracts | – | 1,264 | – | 1,264 |
Total assets | – | 1,264 | – | 1,264 |
Liabilities | ||||
Forward exchange contracts | – | (28) | – | (28) |
Total liabilities | – | (28) | – | (28) |
Level 1 | Level 2 | Level 3 | Total | |
31 December 2022 | £’000 | £’000 | £’000 | £’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) |
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 2023 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 2023 or 2022 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 (2022: 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:
| 2023 | 2022 | |||||||
Foreign | Contract | Transaction | Contract | Foreign | Contract | Transaction | Contract | |
currency | value | fair value | fair value | currency | value | fair value | fair value | |
Group and Company: | $’000 | £’000 | £’000 | £’000 | $’000 | £’000 | £’000 | £’000 |
Sell USD | $67,700 | 54,366 | 53,129 | 1,236 | $47,900 | 38,563 | 39,628 | (1,065) |
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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 2023, 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 £613k (2022: £418k) before forward exchange contracts and £151k (2022:
Financial instruments by category
| 2023 | 2022 | |||||
Financial | Financial | Financial | Financial | |||
assets at | Derivatives | liabilities at | assets at | Derivatives | liabilities at | |
amortised | used for | amortised | amortised | used for | amortised | |
cost | hedging | cost | cost | hedging | cost | |
Group | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Trade and other receivables | 31,365 | – | – | 27,670 | – | – |
Cash and cash equivalents | 6,294 | – | – | 10,594 | – | – |
Derivative financial instruments – assets | – | 1,264 | – | – | 486 | – |
| – liabilities | – | (28) | – | – | (1,550) | – |
Interest-bearing loans and borrowings | – | – | (36,527) | – | – | (37,446) |
Trade and other payables | – | – | (8,761) | – | – | (8,982) |
Lease liability | – | – | (1,334) | – | – | (963) |
| 2023 | 2022 | |||||
Financial | Financial | Financial | Financial | |||
assets at | Derivatives | liabilities at | assets at | Derivatives | liabilities at | |
amortised | used for | amortised | amortised | used for | amortised | |
cost | hedging | cost | cost | hedging | cost | |
Company | £’000 | £’000 | £’000 | £’000 | £’000 | £’000 |
Trade and other receivables | 60,569 | – | – | 57,121 | – | – |
Cash and cash equivalents | 2,875 | – | – | 7,288 | – | – |
Derivative financial instruments – assets | – | 1,264 | – | – | 486 | – |
| – liabilities | – | (28) | – | – | (1,550) | – |
Interest-bearing loans and borrowings | – | – | (36,527) | – | – | (37,446) |
Trade and other payables | – | – | (6,658) | – | – | (6,821) |
Lease liability | – | – | (147) | – | – | (346) |
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 £36,527k (2022: £37,446k), as per note 18, and cash and
cash equivalents of £6,294k (2022: £10,594k) as per note 16.
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As at | As at | |
31 December | 31 December | |
2023 | 2022 | |
£’000 | £’000 | |
Net borrowings | 30,233 | 26,852 |
EBITDA | 24,687 | 22,985 |
Net borrowings/EBITDA | 1.22 | 1.17 |
Net finance charges | 2,212 | 1,682 |
EBITDA/Net finance charges | 11.16 | 13.67 |
EBITDA comprises:
2023 | 2022 | ||
Note | £’000 | £’000 | |
Profit for the year | 9,242 | 10,006 | |
Depreciation and amortisation | 10,11,12 | 8,217 | 8,245 |
Finance costs | 6 | 2,349 | 1,758 |
Share of profit from joint venture | 9 | (54) | (50) |
Equity-settled share-based payments | 24 | 1,335 | 809 |
Taxation | 7 | 3,598 | 2,217 |
24,687 | 22,985 |
Net finance charges comprise interest income of £191k and finance costs expensed of £2,403k 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 1.22 to 1.28.
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
Group | Company | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Capital expenditure contracted for at the end of the reporting period but not yet incurred | ||||
is as follows: | ||||
Property, plant and equipment | 2,309 | 1,470 | 938 | 1,214 |
Notes
Continued
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Financial Statements
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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% p.a.). The valuation
method is known as the Projected Unit Method. The approximate overall duration of the DB Scheme’s defined benefit obligation as at 31 December 2023
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 2024.
In line with the requirement to have a triennial valuation, a formal actuarial valuation is being carried out for the Trustees as at 5 April 2023 and, once
finalised, the contributions may change.
Method and assumptions
The initial results of the valuation as at 5 April 2020 have been updated to 31 December 2023 by a qualified independent actuary.
The assumptions used were as follows:
As at | As at | |
31 December 2023 | 31 December 2022 | |
Discount rate | 4.60% | 4.80% |
RPI inflation | 3.00% | 3.10% |
CPI inflation | 2.70% | 2.70% |
Salary increases | 2.70% | 2.70% |
Pension increases | ||
– Post 88 guaranteed minimum pension | 2.30% | 2.30% |
– Non guaranteed minimum pension | 3.00% | 3.10% |
Revaluation of deferred pensions in excess of guaranteed minimum pension | 2.70% | 2.70% |
100% S3PMA_M/ | 100% S3PMA_M/ | |
100% S3PFA_M | 100% S3PFA_M | |
CMI_2022_M/F | CMI_2021_M/F | |
Mortality (pre- and post-retirement) | 1.25% (yob) | 1.25% (yob) |
Life expectancies (in years):
Year ended 31 December 2023 | Year ended 31 December 2022 | |||
Males | Females | Males | Females | |
For an individual aged 65 in 2023 | 20.8 | 23.3 | 21.3 | 23.8 |
At age 65 for an individual aged 45 in 2023 | 22.1 | 24.8 | 22.7 | 25.2 |
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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.
A High Court legal ruling in June 2023 (Virgin Media Limited v NTL Pension Trustees II Limited) decided that certain rule amendments were invalid if they
were not accompanied by the correct actuarial confirmation. While the ruling only applied to the specific pension scheme in question, as for guaranteed
minimum pension equalisation, if the ruling stands it will form part of case law and can therefore be expected to apply across other pension schemes.
However, the ruling is subject to appeal in June, although it may take longer for the outcome of the appeal to be known and therefore any implications,
as relevant, will be assessed in future.
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 defined | ||
Change in assumption | 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:
Year ended 31 December 2023 | Year ended 31 December 2022 | |||
Market | % of total | Market | % of total | |
value | Scheme | value | Scheme | |
Asset class | £’000 | assets | £’000 | assets |
Equities and other growth assets | 6,812 | 29% | 7,985 | 35% |
Diversified Credit Funds | 9,352 | 39% | 5,745 | 25% |
Liability Driven Investments | 6,798 | 28% | 8,156 | 36% |
Cash | 185 | 1% | 226 | 1% |
Other | 661 | 3% | 660 | 3% |
Total | 23,808 | 100% | 22,772 | 100% |
Actual return on assets over the year | 1,516 | (10,910) | ||
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:
2023 | 2022 | |
£’000 | £’000 | |
Market value of plan assets | 23,808 | 22,772 |
Present value of defined benefit pension scheme obligation | (26,464) | (26,062) |
Deficit – recognised as a liability in the statement of financial position | (2,656) | (3,290) |
Zotefoams plc
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Financial Statements
Annual Report 2023
The movement in the defined benefit obligation over the year is as follows:
2023 | 2022 | |
£’000 | £’000 | |
Value of defined benefit obligation at the start of the year | 26,062 | 38,814 |
Interest cost | 1,219 | 687 |
Benefits paid | (1,339) | (1,334) |
Actuarial losses: experience differing from that assumed | 596 | 1,360 |
Actuarial gains: changes in demographic assumptions | (491) | (25) |
Actuarial losses/(gains): changes in financial assumptions | 417 | (13,440) |
Value of defined benefit obligation at the end of the year | 26,464 | 26,062 |
The movement in the value of the plan assets over the year is as follows:
2023 | 2022 | |
£’000 | £’000 | |
Market value of plan assets at the start of the year | 22,772 | 34,157 |
Interest income | 1,082 | 611 |
Actual return on plan assets | 434 | (11,521) |
Employer contributions | 859 | 859 |
Benefits paid | (1,339) | (1,334) |
Market value of assets at the end of the year | 23,808 | 22,772 |
The table below outlines where the Company’s post-employment amounts and activity are included in the financial statements.
2023 | 2022 | |
£’000 | £’000 | |
Statement of financial position for: | ||
– Defined benefit pension scheme obligations | (2,656) | (3,290) |
Income statement charge for: | ||
– Defined benefit pension interest cost | (137) | (76) |
Actuarial (losses)/gains recognised in other comprehensive income for: | ||
– Defined benefit pension scheme | (88) | 584 |
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 2023 were
£1,025k (2022: £954k).
For certain non-UK based employees of the Company, the Company makes contributions into individual schemes. The contributions paid by the
Company in 2023 were £5k (2022: £5k).
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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 a Long-Term Incentive Plan (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 90 to 103.
Movements in share options during the year are as follows:
The options outstanding at 31 December 2023 have an exercise price between 245.7p and 432.5p and a weighted contractual life of six years (2022:
seven years).
There were no cancellations or modifications to the awards in 2023 or 2022.
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.
2023 | 2022 | |||
Weighted | Weighted | |||
Number | average | Number | average | |
of share | exercise | of share | exercise | |
options | price (p) | options | price (p) | |
Outstanding at beginning of the year | 119,294 | 342 | 101,926 | 364 |
Exercised during the year | – | – | – | – |
Granted during the year | 8,121 | 394 | 31,489 | 325 |
Forfeited during the year | – | – | (14,121) | 464 |
Outstanding at the end of the year | 127,415 | 345 | 119,294 | 342 |
Exercisable at the end of the year | 54,546 | 293 | 54,546 | 293 |
Movements in LTIP awards during the year are as follows:
2023 | 2022 | |||
Weighted | Weighted | |||
Number | average | Number | average | |
of share | exercise | of share | exercise | |
options | price (p) | options | price (p) | |
Outstanding at beginning of the year | 1,007,958 | – | 653,656 | – |
Exercised during the year | (45,438) | – | (38,819) | – |
Granted during the year | 382,464 | – | 484,520 | – |
Forfeited during the year | (163,972) | – | (91,399) | – |
Outstanding at the end of the year | 1,181,012 | – | 1,007,958 | – |
Exercisable at the end of the year | – | – | – | – |
Zotefoams plc
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Annual Report 2023
Movement in Deferred Bonus Share Plan awards during the year are as follows:
2023 | 2022 | |||
Weighted | Weighted | |||
Number | average | Number | average | |
of share | exercise | of share | exercise | |
options | price (p) | options | price (p) | |
Outstanding at beginning of the year | 63,702 | – | 91,079 | – |
Exercised during the year | (38,639) | – | (39,570) | – |
Granted during the year | 52,447 | – | 12,193 | – |
Forfeited during the year | – | – | – | – |
Outstanding at the end of the year | 77,510 | – | 63,702 | – |
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.
08-Apr-21 | 19-Apr-22 | 18-Apr-23 | |
Share price (p) | 415.0 | 325.0 | 394.0 |
Exercise price (p) | 433.0 | 325.0 | 394.0 |
Expected volatility | 40% | 48% | 39% |
Option life | Three years | Three years | Three years |
Expected dividends (p) (assumed to be increasing at 2.5% p.a.) | 6.3 | 6.5 | 7.1 |
Risk-free interest rate (based on national government bonds) | 2.00% | 2.00% | 3.75% |
Fair value at grant date (p) | 99.0 | 98.0 | 106.0 |
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:
2023 | 2022 | |
£’000 | £’000 | |
Within administrative expenses – share-based payment charge | 1,335 | 809 |
– related National Insurance | 161 | 140 |
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Annual Report 2023
Directors
the Company. Details of Directors’ pay and remuneration are given in the Directors’ Remuneration report on pages 90 to 103. Executive Directors are
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:
2023 | 2022 | |
£’000 | £’000 | |
Sale of goods: subsidiaries of the Company | 4,434 | 3,875 |
Sale of services: subsidiaries of the Company | 2,598 | 2,537 |
Loans given (net of repayments): subsidiaries of the Company | (708) | (2,419) |
Interest income: subsidiaries of the Company | 1,302 | 657 |
Sale of goods: joint venture of the Company | 2,944 | 3,444 |
Sale of service: joint venture of the Company | 368 | 232 |
Total | 10,938 | 8,326 |
Balances between the Company and its active subsidiaries and joint venture are as follows:
Receivable from/(payable to) | Investment in | |||
2023 | 2022 | 2023 | 2022 | |
£’000 | £’000 | £’000 | £’000 | |
Zotefoams Inc | 12,669 | 13,163 | – | – |
Azote Asia Limited | 1,000 | 1,304 | – | – |
MuCell Extrusion LLC | 7,904 | 6,511 | – | – |
Zotefoams International Limited | 15,487 | 16,370 | 30,822 | 30,822 |
Zotefoams T-Fit Material Technology (Kunshan) Limited | 2,014 | 3,438 | – | – |
Zotefoams Poland Sp. z o.o. | 1,190 | 291 | – | – |
Zotefoams France SAS | (73) | (59) | – | – |
T-Fit Insulation solutions India Private Limited | – | 75 | – | – |
Notes
Continued
Zotefoams plc
159
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Financial Statements
Annual Report 2023
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
®
mono-material barrier packaging. 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 model to
estimate the fair value of instruments. The Black-Scholes 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 £24,095k 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 two
Five-year trading summary
2023
£m
2022
£m
2021
£m
2020
£m
2019
£m
Group revenue
127.0
127.4
100.8
82.7
80.9
Operating profit (excluding exceptional item)
15.1
13.9
8.1
9.1
9.1
Profit before tax (excluding exceptional item)
12.8
12.2
7.0
8.3
8.8
Profit before tax
12.8
12.2
7.0
8.3
9.8
Profit after tax
9.2
10.0
4.4
7.2
8.2
Capital expenditure (including intangibles)
8.5
7.0
7.0
12.7
24.4
Cash generated from operations
12.1
23.0
12.2
13.0
11.8
Basic earnings per share excluding exceptional item (p)
19.00
20.61
9.01
14.87
14.91
Basic earnings per share (p)
19.00
20.61
9.01
14.87
17.10
Dividends per ordinary share (p)
7.18
6.80
6.50
6.30
2.03
160
Zotefoams plc
Annual Report 2023
Notice of the 2024
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 announcements and updates.
A presentation open to all existing and potential shareholders will be
given after the AGM on 22 May 2024 at 11.30am on the Investor Meet
Company platform: www.investormeetcompany.com/register-investor.
Investors who already follow Zotefoams plc on the Investor Meet
Company platform will be invited automatically.
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 22 May 2024
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 2023.
2.
To approve the Annual Statement by the Chair of the Remuneration
Committee and the Annual Report on Remuneration for the year ended
31 December 2023 set out on pages 90 to 103 of the Annual Report.
3.
To declare a final dividend for the year ended 31 December 2023 of 4.90
pence per ordinary share, such dividend to be payable on 3 June 2024 to
shareholders on the register of members of the Company at the close of
business on 3 May 2024.
4.
To re-elect L Drummond as a Director.
5.
To elect R M Cox as a Director.
6.
To re-elect G C McGrath as a Director.
7.
To re-elect J D Carling as a Director.
8.
To re-elect D G Robertson as a Director.
9.
To elect M S Swift as a Director.
10. To re-elect C A Wall as a Director.
11.
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.
12. 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 13 will be proposed as an ordinary resolution and resolutions 14,
15, 16 and 17 will be proposed as special resolutions.
13. 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 £814,103 (such amount to be reduced by the nominal
amount of any allotments or grants made under paragraph (b)
below in excess of £814,103); and further
(b)
to allot equity securities (as defined in Section 560 of the Act) up to
an aggregate nominal amount of £1,628,207 (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 2025 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.
14. That, if resolution 13 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 £122,115;
such authority to expire at the conclusion of the next AGM of the
Company (or, if earlier, on 30 June 2025) 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
Governance
Financial Statements
161
Zotefoams plc
Annual Report 2023
15. That, if resolution 13 is passed, the Directors be authorised in addition
to any authority granted under resolution 14 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 £122,115; 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 2025) 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.
16. 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 4,884,623, representing approximately 10% of the
issued ordinary share capital as at 4 April 2024;
(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 2025 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.
17.
That a general meeting other than an Annual General Meeting may be
called on not less than 14 clear days’ notice.
Dated: 5 April 2024
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 20 May 2024 (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 20 May 2024.
(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 or her
CREST sponsor or voting service provider(s) take) such action as shall
be necessary to ensure that a message is transmitted by means of
Notice of the 2024 Annual General Meeting
Continued
162
Zotefoams plc
Annual Report 2023
the 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 4 April 2024 (being the latest practicable
date before publication of this notice), the Company’s issued share
capital comprised 48,846,234 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 4 April 2024 is 48,846,234.
(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 2023, as required by law.
Resolution 2 – Directors’ Remuneration report
Resolution 2 seeks shareholder approval of the Directors’ Remuneration
report for the year ended 31 December 2023 which can be found on
pages 90 to 103 of the Annual Report. The Company’s External Auditor,
PKF Littlejohn LLP, has audited those parts of the Directors’ Remuneration
report that are required to be audited and its report may be found on
pages 108 to 112 of the Annual Report.
The shareholders approved the current Directors’ Remuneration Policy at
the AGM held on 24 May 2023 and it became effective immediately. As
there have been no changes to the Directors’ Remuneration Policy, there
is no need to seek further approval of it at this year’s AGM. The current
intention is to submit the Directors’ Remuneration Policy for shareholder
approval at the AGM scheduled for 2026, unless, in the interim, there
are specific changes that require shareholder approval. The Directors’
Remuneration Policy may be found in the 2022 Annual Report on pages
91 to 99.
Resolution 3 – Declaration of dividend
This resolution concerns the Company’s final dividend payment. The
Directors are recommending a final dividend of 4.90 pence per ordinary
share in respect of the year ended 31 December 2023 which, if approved,
will be payable on 3 June 2024 to the shareholders on the register of
members on 3 May 2024.
Resolutions 4 to 10 – Re-election of Director
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 2023. 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 elected or re-elected.
Resolutions 11 and 12 – Re-appointment of Auditor and its remuneration
Resolution 11 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 12 authorises the
Audit Committee to determine the Auditor’s remuneration.
Strategic Report
Governance
Financial Statements
163
Zotefoams plc
Annual Report 2023
Special business
Resolution 13 – 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 £814,103, representing approximately one-third of the nominal
value of the issued ordinary share capital of the Company as at 4 April
2024, 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 13 grants the Directors
authority to allot further equity securities up to an aggregate nominal value
of £1,628,207 representing approximately two-thirds of the nominal value of
the issued ordinary share capital of the Company as at 4 April 2024, 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 13 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 2025, whichever
is the earlier.
Resolutions 14 and 15 – 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
14 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 £122,115, representing approximately 5%
of the nominal value of the issued ordinary share capital of the Company
as at 4 April 2024, being the latest practicable date before publication of
this notice. Resolution 15 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 2025, 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 16 – Authority to purchase shares (market purchases)
This resolution authorises the Board to make market purchases of up
to 4,884,623 ordinary shares (representing approximately 10% of the
Company’s issued ordinary shares as at 4 April 2024, 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 2025, 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 4 April 2024, 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
1,232,974 ordinary shares in the capital of the Company representing 2.5%
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 2.8% of the Company’s issued ordinary share capital.
Resolution 17 – 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
17 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 2024 Annual General Meeting
Continued
164
Zotefoams plc
Annual Report 2023
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
22 May 2024
Payment of final dividend
3 June 2024 to shareholders
on the register at the close of
business on 3 May 2024
Payment of interim dividend
October 2024
Announcement of 2024 results
March 2025
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
®
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
165
Zotefoams plc
Annual Report 2023
Notes
166
Zotefoams plc
Annual Report 2023
Print:
Impress Print Services Ltd
www.impressprint.co.uk
Zotefoams plc
675 Mitcham Road
Croydon
CR9 3AL
United Kingdom
T +44 (0)20 8664 1600
F +44 (0)20 8664 1616
investorinfo@zotefoams.com
www.zotefoams.com