Audit Committee report

Membership and attendance

In line with the UK Corporate Governance Code 2024, the Committee comprises the four independent Non-Executive Directors and excludes the Company Chair. The members of the Audit Committee as at the date of signing this report are J Clarke (Chair), J Carling, M Swift and C Wall. D Robertson was the Chair of the Committee during 2025 until his retirement on 10 December 2025. The biographies of Directors in post as at the date of signing this report can be found in the Board of Directors section.

The Audit Committee has a planned calendar, linked to events in the Group’s financial calendar. The Audit Committee met three times in 2025. Further details may be found in the Corporate Governance section.

Other attendees

The External Auditor, Chair of the Board, other Non-Executive Directors, Group CEO, Group CFO, Group Financial Controller, Internal Control Manager and members of the Group Executive Team (GET) attended meetings by invitation, as appropriate.

During the year, the Audit Committee met the External Auditor without the Executive Directors being present.

The Audit Committee received presentations from the Group CEO, the Group CFO, Group Financial Controller, Internal Control Manager and Company Secretary.

The Company Secretary attended all meetings.

Terms of Reference

The Terms of Reference provide a framework for the Audit Committee’s work to review and oversee the quality, integrity, appropriateness and effectiveness of the activities listed below:

• Financial statements and external financial reporting
• Internal controls
• Significant financial judgements
• The compliance programme
• The efficacy of the internal audit function
• The risk management process and practice
• The relationship with, and performance of, the External Auditor.

Governance

All the Audit Committee members are independent Non-Executive Directors and have financial, risk management or related business experience gained in senior positions at other large, diverse organisations.

D Robertson was Chair of the Audit Committee from his appointment in April 2018 until his retirement in December 2025, and the Board was satisfied that he had recent and relevant financial, risk management and control experience. J Clarke was appointed as the new Chair of the Audit Committee in December 2025 and brings considerable experience from executive CFO roles at Essentra plc and Marshalls plc, along with appropriate Audit Committee experience from chairing the Capita plc Audit Committee.

Other Audit Committee members also have relevant experience. Biographies of the Audit Committee members as at 31 December 2025 can be found in the Board of Directors section. The Board believes that the members of the Audit Committee are competent in the business sector within which Zotefoams operates. The Audit Committee supports the Board and reports to it following each of its meetings. No member of the Audit Committee has a connection with the current External Auditor.

The Audit Committee has independent access to the External Auditors and may obtain outside professional advice if required. The External Auditor has direct access to the Chair of the Audit Committee, and the Chair of the Audit Committee also liaises with the Group CFO, and other senior members of the finance function, as well as the Company Secretary as necessary, to ensure there is robust oversight and challenge in relation to financial control, risk management and compliance.

The Audit Committee agenda covers an annual cycle of items that addresses the requirements of the external audit and any other relevant matters, as detailed in the Audit Committee’s Terms of Reference. The agenda cycle is reviewed annually to ensure that the Audit Committee remains proactive and relevant. Ensuring the integrity of the financial statements and associated announcements is a fundamental responsibility of the Audit Committee.

In recommending to the Board the approval of the 31 December 2024 Annual Report and the 30 June 2025 Half Year Report, the Audit Committee reviewed, examined and challenged the Group CFO and External Auditor on their respective assessments on such items as:

• the estimate and disclosure of acquisition consideration for the business of the Overseas Konstellation Company S.A.
• the adequacy and appropriateness of deferred tax recognition
• the presentation of revenue in the MEL business unit on closure of the business
• the appropriateness of disclosures to ensure the financial statements are fair, balanced and understandable.

The Audit Committee also challenged the External Auditor on the appropriateness of their audit coverage and their measure of materiality. As part of the process for the year ended 31 December 2025, the Audit Committee reported on its assessment of the financial statements so that the Remuneration Committee could consider whether it needed to exercise its discretion when considering the out-turns for 2025.

During the year, the Audit Committee also considered Zotefoams' going concern assumptions and challenged the risk scenarios, the range of sensitivities applied and the potential impacts considered, in line with FRC guidance. The risk scenarios used for the year ended 31 December 2025 reflected the need to deliver complex strategic initiatives and sustainability improvements in the challenging global macroeconomic environment in which the Company operates, alongside areas regularly monitored by the business, such as operational and supply chain disruption, which remained common concerns. Following consideration of these assessments, the Audit Committee confirmed that the application of the going concern basis for the preparation of the financial statements continued to be appropriate.

Application of accounting policies

During the year, the Audit Committee reviewed the application of the Company’s accounting policies, with particular focus on areas requiring significant judgement. The Committee assessed how key policies were applied in practice, including those involving estimation techniques, alternatives permitted under IFRS, and areas subject to management judgement, consistent with expectations under the Audit Committee Minimum Standard.

Specific attention was given to policies where choices existed, such as IAS12 "Income Taxes" and IFRS 3 "Business Combinations", to ensure the rationale for selected treatments remained appropriate to the Company’s operations and circumstances.

Internal audit

The three-year internal audit plan was reviewed and updated by the Committee during the year to reflect business priorities. The Internal Auditor carried out a review of Zotefoams Poland in H1 2025, including the design and operational effectiveness of key business controls. The review concluded that the control environment was effective, reflecting the local finance team’s strong commitment and diligence in strengthening internal controls. Appropriate management actions have been implemented during the year to mitigate the issues identified, none of which were material. These results demonstrate Zotefoams continued commitment to robust controls and process improvements.

A comprehensive review of inventory controls was conducted by the Internal Auditor in H2 2025, assessing both the design and operating effectiveness of controls. The review confirmed that the controls were effective and highlighted that the operational team demonstrated strong process knowledge and performed detailed and diligent daily inventory counts. A robust standard inventory costing and provisioning process was in place, and management is implementing scanners to reduce manual handling, with deployment planned for early 2026.

Internal controls

A global programme of internal controls documentation and testing, led by the Internal Controls Manager, continued throughout the year. Building on significant progress achieved in previous years, the programme was further extended across the Group. Documentation of the control environment was completed for Zotefoams North America, Zotefoams Poland and  the Group Functions. Control testing was carried out for the Group’s largest entity, Zotefoams plc, supported by the robust process and control reviews completed by the internal audit for Zotefoams Poland. As a result of controls testing, processes continue to be enhanced to strengthen controls and improve operational efficiency, while maintaining an effective internal control system.

Provision 29 of the UK Corporate Governance Code 2024

In response to the publication of the UK Corporate Governance Code 2024, the Company has made substantial progress in preparing for compliance with the requirements of Provision 29 for the financial year ending 31 December 2026.

The Audit Committee oversees the Group’s risk management and internal control framework and reviews the principal risks and uncertainties disclosed in the Annual Report, which are aligned to the Group’s strategic objectives. These risks reflect management’s ongoing identification and assessment of emerging risks across the Group, together with the mechanisms established to manage or mitigate them. Management provides regular updates to the Audit Committee on the effectiveness of the Group’s risk management and internal control framework. This established governance structure, together with a top‑down, risk-based approach, supports the identification of material controls and the effective management of key risks across the Group.

For the purposes of Provision 29, Zotefoams defines material controls as those controls that are critical to managing principal risks and which have a significant impact on the reliability of financial information or on the Group’s ability to achieve its strategic objectives, considering the Group’s risk appetite. Material controls have been identified, documented and categorised into operational, financial, reporting and compliance controls. They comprise a combination of entity-level controls, including Board and Committee oversight, delegated authority, and key policies and procedures, together with relevant transactional-level controls. The population of material controls is dynamic and is reviewed on a regular basis to reflect changes in principal and emerging risks, risk appetite, business activities and the regulatory environment.

During 2026, the Board, supported by the Audit Committee, will agree the nature and extent of testing and assurance required to support its assessment of the effectiveness of the Group’s material controls. In forming this assessment, the Board will consider the assurance obtained from internal audit, the internal controls function and management self-assessment. This approach ensures that the Board’s conclusion on the effectiveness of material controls is based on a robust combination of independent review, functional oversight and management evaluation.

Other significant matters

The Audit Committee also considered the following significant matters during the year:

• reviewed the progress of the HR internal audit recommendations carried out in 2024 and ensured outstanding items were addressed
• ensured that sales and business development staff were reminded of the requirements of declaring gifts in line with the anti-bribery and corruption policy
• reviewed and agreed the scope of the audit work to be undertaken by the External Auditor
• agreed the fees to be paid to the External Auditor for its audit and work on the Annual Report and Interim Report
• undertook an evaluation of the independence, objectivity and effectiveness of the External Auditor, including ensuring auditor independence and objectivity are safeguarded by the External Auditor in the provision of Interim review services, requiring pre-approval by the Committee
• reviewed a report relating to the potential misappropriation of goods in China; the case was dismissed due to other evidence
• reviewed company progress with regards to Provision 29, noting the strong progress made in reviewing the effectiveness of material control across all aspects of the control framework
• received updates from executive management on the separation of the UK operating company from the holding company, reviewing key highlights and decisions
• discussed with executive management the evaluation of their engagement with the External Auditor on the FY 2024 audit
• considered the views of both the External and Internal Auditor on the effectiveness of the Group’s internal financial controls
• reviewed a fraud of low value within the business, relating to promotional items given by suppliers; the individual involved was dismissed from the business and reported to police
• considered the provisions of the 2018 UK Corporate Governance Code and the FRC Guidance on Audit Committees with respect to the 2025 Annual Report
• ensured that the 2025 Annual Report included disclosures in line with the FCA listing rule LR 6.6 which implements the recommendations of the TCFD
• 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 here
• reviewed a paper on the accounting treatment of key accounting issues anticipated in the 2025 Annual Report, including the hive-down of the UK operating business and impairment of intangible/right of use assets, and concluded that the accounting treatments proposed are appropriate
• approved a new delegation of authority policy, simplifying the previous policy by assigning limits to Group Executive Team members and giving them authority to delegate limits where appropriate
• received an update on cyber security, agreeing that the sustained threat environment justified ongoing investment in defensive technologies and user capability to protect the Company’s data.

External Auditor

During the year the Audit Committee:

• performed a debrief on the 2024 external audit process with the External Auditor, PKF
• agreed the terms of engagement and fees to be paid to the External Auditor
• reviewed and agreed the scope of the audit work to be undertaken, with changes to sites in scope reflecting the change in the shape of the Company
• reviewed the qualifications, resources and independence of the External Auditor and assessed its performance with regard to the overall quality of the external audit
• reviewed the level of non-audit work carried out by the External Auditor which, during 2025, was limited to an interim review of the half year financial statements.

Assessment of the External Auditor

The Audit Committee is dedicated to ensuring that the Company receives a high‑quality and effective external audit. Throughout the year, the Audit Committee is provided with reports, reviews, information and advice, as set out in the terms of the External Auditor’s engagement, and performance is formally assessed by the Audit Committee. The Audit Committee assesses the External Auditor’s independence annually and remains satisfied that the External Auditor is effective and provided appropriate independent challenge.

External audit tender

The External Auditor was originally engaged by the Company in 2020 following a competitive tendering process. The External Auditor is engaged to express an audit opinion on the truth and fairness of the financial statements. The external audit includes the review of the system of internal financial controls and the data contained in the financial statements to the extent necessary. In order to protect independence and objectivity and provide fresh challenge to the business, the External Auditor periodically changes the audit partners at a Group, regional and country level, in accordance with professional and regulatory standards. Hannes Verwey was welcomed as the new Group audit partner during 2025. Such changes are carefully planned to ensure that the Group benefits from staff continuity without incurring undue risk of inefficiency.

The Company has discussed the rotation of the External Auditor and continues to consider, on a regular basis, any potential benefits from tendering the audit process, having regard, in particular, to the importance of audit quality or the continued independence of the External Auditor. There are no contractual obligations in place that restrict the Company’s choice of statutory auditor.

The Company is satisfied with the performance of PKF but will continue to monitor their performance and is aware of the requirement for FTSE 350 companies to tender their audit once every ten years. The Company will provide an update if its strategy changes. The Company has complied throughout the year with the Statutory Order 2014 issued by the Competition and Markets Authority.

Significant accounting judgements

The Audit Committee challenged management and the External Auditor on their judgement and the application of relevant financial reporting standards for certain significant accounting matters. These included:

Purchase Accounting for Overseas Konstellation Company S.A. ("OKC")

In November 2025, Zotefoams plc acquired OKC for up to €36.0m in cash, with an upfront payment of €27.6m and a deferred element of up to €8.4m.

The goodwill/intangible assets on acquisition have been calculated based on purchase price accounting in accordance with IFRS 3 as the difference between the total consideration and the calculated net assets at the time of purchase, please refer to note 4.

Deferred tax

In Poland the operating subsidiary has a tax exemption as it has complied with the requirements of the Special Economic Zone (“SEZ”) in Poland. The business has made small profits in the past and these profits are expected to be significant in the future.

The Committee has closely monitored the deferred tax position in Poland, and it was agreed in 2024 in discussions with our External Auditor that no recognition was necessary, given the historic profit level and the outlook for the future. The position has improved in 2025, with another year of proven profit and a strong economic outlook for the future.

The Committee agrees with executive management and the External Auditor that an asset should be recognised in 2025 of £3.6m, reflecting both the improved economic outlook for the subsidiary and that it is probable that taxable profit will be available so that the unused tax credit will be fully utilised over time.

MEL

The Audit Committee have discussed MEL and agreed that a provision of £0.9m should be reflected in the accounts, relating to patent costs not foreseen at the time of the previous annual report.

Vietnam joint venture

The Group continues to progress the establishment of its strategic partnership in Vietnam with Seoheung, as previously announced on 5 August 2025. At year end, the legal entity remained in formation pending completion of local administrative steps and the receipt of required Vietnamese approvals. Discussions with the partner on finalising the strategic partnership were ongoing at the balance sheet date. The structure will be controlled by Zotefoams and therefore consolidated in the Group’s financial statements.

FRC review

The Zotefoams plc 2024 Annual Report was included in the FRC's thematic review of reporting by UK smaller listed companies. The review resulted in two minor observations on the cashflow disclosures, both of which have been addressed.

Pension assumptions

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, with the historical deficit being eliminated as part of 2025 reporting.

Hive-down of UK operating business

The Audit Committee reviewed and received presentations from management on the hive‑down of the UK operating business from Zotefoams plc and reviewed the accounting and finance impact of the project, including banking arrangements and key risks. The project was successfully completed in January 2026.