Zotefoams plc
Annual Report 2021
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Optimal material solutions
for the benefit of society
Zotefoams plc
Annual Report 2021
Fritz Pfleumer
holding a section
of expanded rubber
material used for
tyre filling in 1910
Zotefoams plc is recognised as the world leader in
advanced technical foams. The Company is the direct
descendant of Onazote Limited, the company that
was founded in 1921 and commercialised the world’s
first hard and soft expanded rubber.
Inspired by the work of Hans, Fritz and Herman
Pfleumer – Austrian brothers who had experimented
with expanded rubber as an alternative to pneumatic
tyres – Charles Marshall patented a process to
manufacture expanded rubber.
In 1921, Charles
Marshall established
Onazote Limited in
north London
1920s
Marshall registers the trademark
Onazote in Great Britain and the USA;
the name derives from the words
ebonite – hardened rubber – and
azote, the French word for nitrogen.
1925 The company name changes
to The Expanded Rubber Company
Limited.
1927 The company moves to a new
home at the 50,000 sq.ft Palace of
Arts at Wembley, constructed for the
1924–25 British Empire Exhibition.
1925 –
T Wall and Sons
adopts Onazote as
an insulation material
in its new ice cream
business
Charles Marshall
Zotefoams
materials were
first used in
running shoes in
the 1970s
A century
of innovation...
Success beckons
A world of
applications
New ownership
and a farewell to
expanded rubber
1970s
The success and of Plastazote and
Evazote leads to rubber materials
being phased out and the sale of
the expanded polystyrene business.
By the end of the decade, four-
shift working is in place to meet
demand for these materials
across a multitude of markets. The
company is acquired by BP (British
Petroleum) and remained part of the
Chemicals business until 1993.
1950s
Demand for Onazote and Rubazote
continues unabated and new
equipment, a laboratory and the
appointment of agents globally
supports rapid growth of the
business.
The decade is characterised by
innovation, with products such as
Zote and Rubacurl introduced for
new areas of application.
Introducing
Plastazote® and
Evazote®
1960s
In 1962, Plastazote® polyethylene
foam – the foundation of the modern-
day AZOTE® portfolio – is launched,
meeting with immediate success
in a huge range of applications
and industries.
Early 1950s –
the Expanded
Rubber Company is
the world’s largest
company solely
manufacturing
expanded
materials
1968 saw the introduction
of Evazote® EVA copolymer
foam, a further world-class
product, boasting additional
toughness and resilience.
1970 –
Jensen specifies
Plastazote for its
impact/energy
absorption
Innovation and
expansion in
support of
the nation
1940s
New factories help meet demand
for marine buoyancy and aviation
applications.
Aerozote, for self-sealing aircraft fuel
tanks, is introduced and the company
develops new materials – Formvar,
an expanded vinyl with great impact
strength and FUF, expanded urea-
formaldehyde resin – to counteract the
shortage of natural rubber.
BX Plastics Limited acquires the
company in 1943 and transfers
ownership in 1948 to its parent The
British Xylonite Company Limited.
1930s
In 1935, the company moves
to a former cable works in
Mitcham Road, Croydon, where
Zotefoams’ headquarters and main
manufacturing site are still located.
Ownership passes to The
St Helens Cable and Rubber
Company in 1938. New Managing
Director, Henry Shelmerdine,
reorganises and oversees investment
in new equipment.
Within a year, production is running
at half an imperial ton per week
of Onazote and Rubazote – hard
and soft expanded rubber.
1945 –
Sir Stafford Cripps,
President of the
Board of Trade,
tours the Dundee
factory
Onazote
lifejacket approved
by the Ministry of
Transport
In 2017, an
exclusive
partnership with
Nike – based on
our groundbreaking
ZOTEK® PEBA – is
announced
Royal recognition
and global
growth
1980s
In 1981, Plastazote achieves
royal recognition, winning
the Prince Philip Award for
polymers in the service of
mankind. The Award is presented
by its namesake, a champion of
British technology and industry.
The decade sees continuing growth
and success on the global stage,
firmly establishing Plastazote
and Evazote as the world’s
leading technical foam brands.
New ownership
and a farewell to
expanded rubber
1970s
The success and of Plastazote and
Evazote leads to rubber materials
being phased out and the sale of
the expanded polystyrene business.
By the end of the decade, four-
shift working is in place to meet
demand for these materials
across a multitude of markets. The
company is acquired by BP (British
Petroleum) and remained part of the
Chemicals business until 1993.
A new era
and the birth of
Zotefoams plc
1990s
Following a management
buyout in 1992, a flotation on
the London Stock Exchange
in 1995 gives birth to
Zotefoams plc.
International growth continues with
the establishment of Zotefoams Inc
in the USA, to meet rapidly growing
demand with local service and, a
few years later, manufacturing.
Zotefoams
continues to
provide insulation
to manufacturers
of global food
brands
A world leader in
optimal material
solutions
2010–today
This is a decade of accelerating
change and growth for Zotefoams.
ZOTEK® F is recognised as a
gamechanger for air- and spacecraft
interiors and PEBA joins the HPP line-
up in 2012: this material famously
becomes the basis of Zotefoams’
exclusive partnership with Nike.
We increase our global presence,
with new facilities in China, the
USA, India and Poland.
A programme of foam manufacturing
capacity investments in the UK, the
USA and Poland concludes with the
opening of our new Polish plant in
February 2021: this increases block
foam capacity by 60% compared to
the end of 2017.
2021 –
production
commences at our
Polish facility, serving
customers in
mainland Europe
The
High-Performance
decade
2000s
As the new millennium dawns,
opportunities and optimism abound –
but on the night of 22 October 2000,
a fire at Mitcham Road destroys a
third of the factory.
In the aftermath, the management
team reassesses prospects and
decides to leverage the three
stage process for new, advanced
materials. The resulting ZOTEK®
High-Performance Products portfolio
meets demanding regulatory and
application requirements, opening up
new markets.
In 2001, Zotefoams Inc moves into a
purpose-built facility in Kentucky. Also in
the USA and in 2008, Zotefoams takes
a stake in MuCell Extrusion LLC (MEL),
acquiring 100% ownership four years
later. The company’s technology is the
genesis of the ReZorce mono-material
barrier packaging range.
2021 –
Zotefoams breaks
production records
as it supplies over
750,000 sheets of
AZOTE® for use in
face visors
1
In 2021, Zotefoams achieved
a significant milestone by
delivering £100m of sales
in the centenary year of the
invention of the nitrogen gas
process that we use today
Financial KPIs
Group revenue
Gross margin
Operating profit
Profit before tax
£100.8m
26.4%
£8.1m
Change +22%
2020 £82.7m
Change -720 basis points
Change -11%
2020 33.6%
2020 £9.1m
£7.0m
Change -16%
2020 £8.3m
Total dividend
for the year
6.50p
Change +3%
2020 6.30p
Return on capital
employed
6.1%
Change -290 basis points
2020 9.0%
Basic earnings
per share
9.01p
Change -39%
2020 14.87p
Contents
Strategic Report
Group at a glance
A unique manufacturing process
Our business model
Our external context
Our strategic objectives
Our brands in action
An introduction from our Chair
Group CEO’s review
Group CFO’s review
Risk management and principal risks
Viability statement
Environmental, social and
governance (ESG) report
Our people
s172(1) statement
12
14
16
20
22
26
30
32
38
45
55
56
70
74
Governance
Board of Directors
Corporate governance
The Board and its Committees
Audit Committee report
Nomination Committee report
Directors’ Remuneration report
Directors’ report
Statement of Directors’ responsibilities
Consolidated statement of cash flows
113
Company statement of cash flows
114
Consolidated statement of changes in equity 115
Company statement of changes in equity
116
Notes
117
Five-year trading summary
155
Notice of the 2022 Annual General Meeting 156
Company information
160
Financial calendar
160
78
80
81
84
87
88
100
103
Financial Statements
Independent auditor’s report
Consolidated income statement
Consolidated statement of
comprehensive income
Consolidated statement of financial position 111
Company statement of financial position
112
104
109
110
Learn more
zotefoams.com
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements
22
Optimal material
solutions for the
benefit of society
- past, present
and future
Throughout its history, Zotefoams has been at the
forefront of developments in 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 particular durability
of our materials – such that the resources used in the
manufacture of our products deliver payback over an
extended period.
As Zotefoams marks 100 years of its three stage process,
it is well-placed to serve the needs of a world where the
conservation of resources is a priority and the reduction
of carbon emissions an imperative.
Working with
our customers
to develop the
products they need
for a low-carbon
future
Zotefoams already offers the lightest closed cell
crosslinked foam in the world and our materials frequently
offer a considerably better performance to weight
ratio than those of our competitors. To deliver optimal
materials for specific applications we continue to push
the boundaries of our technology and evaluate new
raw materials. Be it engineering even lighter foams or
replacing traditional material choices with lightweight
alternatives, our development programme is informed by
a deep knowledge of the markets we serve, continuing to
anticipate and respond to the sustainability ambitions of
our customers.
Zotefoams plc Annual Report 2021 33
Supporting
industries of
the future
Emerging technology and clean energy industries
are typically founded on sustainability principles,
making Zotefoams’ advanced materials an attractive
proposition. Electric vehicles, wind turbines, data centres,
satellite communications… these are just some of the
new industries with which we are engaged.
Reducing our own
environmental
impact
As we embed sustainability into our business model,
we are undertaking a wide range of initiatives to reduce
our own impact on the environment, setting targets for
greater material efficiency, lower consumption of water
and energy and reduced carbon emissions. We are
examining the sustainability potential and performance
of alternative raw materials. Read more about the
delivery of our sustainability strategy in our ESG
report on pages 56 to 69.
Playing our part
in the circular
economy
The ongoing development of ReZorce® mono-material
barrier packaging is a world-first, offering the potential
for a truly circular model in the 300 billion unit per annum
global beverage carton market. Offering an alternative
to the current multi-material solution, ReZorce is easy
to recycle back into the same type of packaging, rather
than being downcycled.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 4
Closer to
our customers
2021 saw the culmination of a multi-year investment programme to increase
global foam manufacturing capacity, with the opening in February of our
new plant in Brzeg, Poland.
Capacity investments in the UK and the USA, alongside the construction
of the Polish plant, mean that global foam production capacity is now 60%
higher than the position at the end of 2017.
With three plants strategically located close to manufacturing hubs in
the UK, USA and central Europe, Zotefoams is well-placed to respond
to our customers’ needs. Significant ongoing disruption to global
supply chains, combined with sustainability considerations fuelling
trends towards near-shoring, makes the availability of Zotefoams
materials from multiple locations a particularly attractive proposition
for existing and potential customers.
Zotefoams Inc
Walton, KY
USA
Zotefoams established a presence in the
USA over 25 years ago, setting up a North
American sales subsidiary, Zotefoams Inc,
to meet rapidly growing demand with
local service.
In 2001, Zotefoams Inc moved into a
purpose-built manufacturing facility in
Kentucky, strategically located for ease
of access to major manufacturing hubs
in the USA.
The first cycle of investment centred
on the expansion of nitrogen-saturated
slabs produced in Croydon, allowing us
to bring production onstream quickly.
In recent years, we have invested
in infrastructure, extrusion capabilities and
two high-pressure autoclaves, the second of
which was commissioned in 2020. Zotefoams
Inc is now positioned to supply many key
AZOTE® polyolefin foam grades to the
North American market.
Zotefoams plc Annual Report 2021 5
Poland
Our £23 million manufacturing plant in Brzeg,
Poland commenced production in February
2021. The project very much follows the
blueprint for the establishment of our plant in
Kentucky, USA, where expansion of extruded,
nitrogen-saturated slabs was the first process
to be introduced. This allows us to bring
operations onstream at the earliest
opportunity, using a large high-temperature,
low-pressure autoclave to expand slabs
manufactured in the UK or USA and serve
customers in continental Europe.
Close to major manufacturing centres and
trans-European road and rail networks,
this 13,000 m² state-of-the-art site is now
supplying many customers in Europe with
market-leading grades from our AZOTE
polyolefin foams range.
The capability to store materials for rapid
delivery is almost as important as the ability
to produce them in the first place. We have
the capacity to store up to 7,600 pallets of
foam at the Polish plant, including inside
storage for 1,600 pallets, ensuring the
best possible service for our customers.
UK
Zotefoams’ headquarters and main
manufacturing site since 1935, the Croydon
facility has evolved constantly to develop and
subsequently manufacture new materials and
reflect growing demand for our materials.
The site has the largest range of production
equipment, some adapted to produce
specialist grades, and is also home to
extensive R&D facilities and state-of-the-art
testing laboratories.
In 2018, following the announcement of our
exclusive partnership with Nike, construction
began on a new factory to house two
high-temperature, low-pressure autoclaves,
which was officially opened in May 2019.
Zotefoams plc
Croydon, UK
Zotefoams Poland
Brzeg, Poland
Take a video tour of
Zotefoams’ Poland plant:
zote.info/3uA6aLC
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 6
Standing together,
delivering in
partnership
Our exclusive partnership with Nike, through which we supply lightweight
ZOTEK® high-performance foams for use in the company’s top flight
running shoes, marked its fifth year in 2021.
2021 was coloured by the continuing impact of the pandemic, which
created complex supply chain issues. These challenges served to underline
the strength of our partnership, with the Nike and Zotefoams teams working
closely to monitor the situation and ensure the availability and delivery of
materials in a rapidly evolving environment.
Elsewhere, the partners focused on innovation, exploring the properties and
potential of ZOTEK, with Nike signalling its intent to introduce the material
into more of its highest-performing running shoe ranges as the popularity
of running and the reputation of its footwear continue to grow.
Sustainability, too, was a priority, with both parties looking to optimise
material usage, actively working to reduce waste generated by the
manufacturing process and to recycle or reuse residual material
wherever possible.
Zotefoams plc Annual Report 2021 7
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 8
Breaking
down barriers
to the circular
economy
ReZorce® Circular Packaging
The food and beverage sector is highly competitive, with
product innovation essential to maintaining a competitive
edge. This has produced an explosion of choice in the juice
and alternative dairy sectors in recent years, with products
typically delivered in shelf-friendly cartons produced from
liquid packaging board (LPB).
We commissioned a Life Cycle Assessment that
demonstrated ReZorce is a more sustainable solution
than LPB in terms of energy and water usage and reduced
global warming potential. Partnerships were formed with
the University of Manchester and Queen’s University Belfast
to further our understanding of the potential and capabilities
of ReZorce.
Some 300 billion of these cartons are produced each year
and demand shows no sign of slowing – but there is a
significant drawback: although produced predominantly
from wood fibre, the mixed material nature of LPB makes it
difficult or impossible and often economically unattractive
to recycle, such that anywhere between 50% and 75%
of cartons are sent to landfill or incinerated.
Research conducted in late 2020 identified the beverage
carton market as one where ReZorce mono-material barrier
packaging can help manufacturers comply with impending
legislation on recycling and recyclability, moving towards
a circular economy where LPB cannot.
Development to date has been conducted in partnership
with Plastilene SA, a licensee of MEL since 2015 and
a well-respected and innovative packaging provider
based in Colombia. This partnership has been critical
in the development of ReZorce and Plastilene are the
exclusive licensee of MEL in much of South America
for commercialisation of this technology.
In 2021, we accelerated investment in pilot facilities
and people dedicated to the development of ReZorce
to meet this demand. Our commercial activity is currently
focused on the Western European market, where a large
number of global brands have their headquarters.
Investment in our Massachusetts, USA, Development
Center bore fruit, with internal trials commencing in Q1 2022
and we confirmed dates for factory scale-up trials at several
customer sites from Q2 2022. These include a pouch format
for a division of one of the world’s largest food producers.
We established a partnership with leading UK waste
management company Biffa to demonstrate the potential
for circularity with ReZorce and engaged with the
leading players in LPB, exploring routes to accelerate
commercialisation.
In tandem, we mounted a communications campaign to
address negative perceptions of plastic and promote the
benefits of ReZorce as an easily recyclable mono-material
solution in the beverage carton market. Gaining positive
media coverage throughout Europe, the campaign was
entirely in tune with Zotefoams’ “optimal material solutions
for the benefit of society” purpose statement and resulted
in numerous accolades for ReZorce, including winning
the British Plastics Federation and Horners Bottlemaker’s
Award, Best New Concept at the UK Packaging Awards
and a Green Apple Environmental Award, as well as
being shortlisted for several innovation, recycling and
environmental awards.
Zotefoams plc Annual Report 2021 6
Easy recycling
for the consumer
5
Off-the-shelf
purchase by
consumer
4
HDPE mono-material
cartons are delivered
to wholesaler or retailer
7
Household
recycling collection
8
Cartons are separated
and processed at local
recycling facilities
less energy
less water
lower Global
Warming Potential
9
9
Recycled pellets
delivered to film
extruder
1
Plastic HDPE pellets,
including a high
proportion of recycled
material, are fed into
the extruder
3
...where the ReZorce
cartons are made
and filled...
2
...and made into rolls
of material for the
packaging company...
Watch our
ReZorce video:
https://zote.
info/3wPyoEK
Award winning innovation
“The Judges felt ReZorce®
Circular Packaging to be
a shining example of how
technical developments
in plastics can help us
all move towards the
circular economy.”
Horners Awards
Committee
“ReZorce® is a future for
liquid board that tackles
the big player alternatives
and makes it easy for the
consumer to dispose of
and use recycled content.”
UK Packaging Awards
Judging Committee
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 10
Investing to
accelerate
growth
T-FIT® foam insulation harnesses the special properties of
ZOTEK® high-performance materials to satisfy demanding
applications in key economic sectors including healthcare
and biotech, food and beverage and semiconductor
manufacturing.
With sustainability now at the top of most customers’
agendas, insulation has an important role to play in energy-
intensive industries. T-FIT offers an unparalleled proposition
in this regard, offering equivalent or better performance than
traditional alternatives using less material and a far longer
lifespan, which reduces the amount of waste going to landfill.
T-FIT is unusual in the Zotefoams portfolio in that it is
supplied as a finished product – a modular range designed
to fit the dimensions of standard industrial pipework, ducting
and equipment. These parts are produced at our factory
in China, with a second production unit at our new foam
manufacturing plant in Poland coming soon to enable
rapid service.
Building on the success already seen in China, we
renegotiated our agreement with UFP technologies, formerly
our exclusive fabricator and distributor in the USA. The
new arrangement sees the partnership continue, but with
commercial responsibilities now residing with Zotefoams,
while UFP focuses on fabrication.
T-FIT creates the opportunity to grow our business quickly:
as a finished product it commands a high margin thanks
to its unique qualities and superior performance.
A new commercial team dedicated to growing the attractive
USA market is now in place, increasing the opportunity
for T-FIT insulation to be specified in global accounts.
In 2021, we implemented a plan to accelerate the growth
of the T-FIT business, investing in commercial resources
and marketing activities to raise awareness, creating a
global brand and generating leads.
Digital marketing activities have also been key to this ramp-
up, with a new, dedicated marketing manager overseeing
the consolidation of the T-FIT proposition, subsequently
expressed in a new website and a range of targeted activities
that have built a solid pipeline of potential business.
We have seen this strategy begin to bear fruit despite
challenging business conditions through 2021 and, as we
move into 2022, we are confident that we have a blueprint
for the high growth and global success that T-FIT merits.
Visit the T-FIT website:
zote.info/2HZbiEZ
Zotefoams plc Annual Report 2021 11
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 12
Group at a glance
Four strong, distinctive brands
Zotefoams produces a wide range of innovative
products that are critical components in a world
of everyday applications
North
America
20%
(2020: 21%)
United
Kingdom
11%
(2020: 23%)
Continental
Europe
28%
(2020: 22%)
Rest of
the world
41%
(2020: 34%)
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,
since February 2021,
initially servicing the
Polyolefin Foams
business. Sufficient
land has been
purchased to
allow larger-scale
operations in
the future.
Rest of the
world
T-FIT® technical
insulation
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.
North America
Local manufacturing
presence in Kentucky
for the Polyolefin
Foams business,
cutting operation in
Oklahoma to service
the construction
market, and
headquarters
of MuCell Extrusion
LLC (MEL), based
in Massachusetts,
licensing technology
globally and behind
the development of
ReZorce®. Local
representation for our
High-Performance
Products (HPP)
business.
Revenue by industry
%
Revenue by business unit
£m
AUTOCLAVE TECHNOLOGY
AZOTE®
POLYOLEFIN
FOAMS
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
Fire
safety
Energy
saving
Durability
Reduced
toxicity
40
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Read more page 26
Polyolefin Foams
HPP
MEL
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Zotefoams plc Annual Report 2021
13
AUTOCLAVE TECHNOLOGY
EXTRUSION TECHNOLOGY
ZOTEK®
HPP
T-FIT®
HPP
MuCell®
MEL
Lightweight technical foams
Foams which offer superior
technical properties such as energy
management, durability, 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
Technical insulation for industry
A range of insulation products
manufactured from Zotefoams’
own ZOTEK block foam materials.
T-FIT® insulation products are
purpose-designed to perform
in demanding environments.
Key markets served
Food and personal care manufacturing
High-temperature processing environments
Pharmaceutical, biotech and
semiconductor cleanrooms
Innovative and accessible
technology for greener,
lower-cost plastic products
This pioneering technology
injects gas into plastics during the
manufacturing process to create
micro-bubbles and is licensed to
customers manufacturing plastic
parts. The end-product uses
15–20% less material. Recently
developed ReZorce recyclable
mono-material barrier solutions
use this technology.
Key markets served
Automotive
Consumer packaging
Key market drivers
Key market drivers
Key market drivers
Light
weighting
High-
technology
insulation
Fire
safety
Personal
safety
Durability
Sports
and leisure
Ageing
population
Reduced
toxicity
Demographic
changes
Environmental
benefit
Lower cost
Energy
saving
Read more page 26
Read more page 28
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 14
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.
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.
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 2
Nitrogen
saturation
Zotefoams plc Annual Report 2021 15
Operating at temperatures up to 250ºC,
this nitrogen-based process (see page 18) 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.
Scan the QR
code to see
our process
in action
https://zote.
info/3NAZPrP
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.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 16
Our business model
Leveraging unique technology with an
innovation-led portfolio of advanced 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 – extrusion,
nitrogen saturation and expansion.
Zotefoams’ differential advantage is the use
of autoclaves, developed from a century of
experience, using a nitrogen-based process.
All of our assets are flexible – we can use
each of them to make many product grades.
The high levels of know-how and capital
required to use autoclaves is a difficult barrier
for new entrants to overcome. Patents on
our basic process expired some years ago,
although we are able to obtain patents for
products manufactured by that process, in
particular in our High-Performance Products
(HPP) business. This, and the fact that our
process allows us to produce materials
that cannot be made by any other method,
delivers a meaningful and sustainable
competitive advantage.
Foam has high distribution costs relative
to price, particularly for our polyolefin foam
product range. It is more economic and
sustainable to expand the foam closer to
customers and we have recently invested
in regional manufacturing capacity in Poland
to be closer to certain markets.
For more information on our
process, see pages 14 and 15
We partner with a network of customers
around the globe that fabricates our polyolefin
foams and promotes 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 competitive solutions. They
are lighter, made with less raw material and
their durability means they need replacing less
often. This makes them a product of choice
in thermal insulation, 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.
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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: polyolefin
foams and high-performance products.
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. High-performance products
(typically branded as ZOTEK®), meanwhile,
are made of more costly and specialised
polymers that very few competitors can foam,
are currently produced in relatively lower
volumes and are sold at a higher price to
a smaller number of customers. These
customers then use this technologically
advanced foam for highly specific
applications.
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 and reflects 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
most of our capacity.
Zotefoams plc Annual Report 2021
17
In a ‘steady state’, our business is strongly
cash generative, but we have significant
opportunity to grow and have therefore
chosen to re-invest 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.
A significant portion of technical, sales and
marketing expenditure is allocated for the
development of our HPP portfolio, sold under
the ZOTEK and T-FIT® brand names. Close
and direct collaboration with customers, and
a focus on the ultimate end-users, is crucial
to the success of this business unit. We have
a long history of investing in R&D, which
enables us to innovate and meet the needs
of customers with technically demanding
requirements seeking solutions that consume
fewer resources, operating in sectors such
as footwear and aviation. These businesses
are more global in nature and we have
strong management alignment to the
product range and certain key markets.
Developing products to demanding technical
specifications, and promoting these globally,
can mean that a new HPP product makes
losses at first. However, once a product’s
specifications have been finalised and
orders are secured, the opportunities are
longer term and cash generation potential
is high. Our HPP business unit margins
reflect a portfolio of products and applications
at different stages of the lifecycle and we
see considerable opportunity to grow and to
enrich our product mix over the medium term.
Our HPP portfolio comprises innovative
and versatile raw materials which, like
our polyolefin foams, lend themselves
to being fabricated into complex parts by
our customers. The unique and advanced
properties of these foams often allow
designers and industry both to meet stringent
regulations, for example around safety or
environment, and to offer better products,
often by substituting non-foam products or
replacing multiple products. For example, our
foam is now used by the aviation industry for
ducting, where it acts as both the structure
and the insulation, visual window surrounds,
where it also acts as the seal, as well as
‘soft touch’ materials within the cabin.
This area of the business is more
readily defensible because of the unique
performance advantages inherent in our
advanced technology, the patents we hold
and the highly specified markets we serve.
These factors also enable us to sell at a
higher price with a better margin. Ultimately,
expanding our HPP portfolio is critical to
our past, present and future growth.
In some cases, however, we are able to move
even further up the value chain and ultimately
provide finished parts directly to customers.
The best example of this is our T-FIT technical
insulation business. We take a ‘direct to
market’ approach to sell this clean insulation.
While this is a departure from our typical
model of contributing to, rather than
producing, the finished product, we are able
and ready to make similar moves in response
to unmet demand when it complements our
global network of fabrication partners.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 18
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 56 to 69.
1. Our nitrogen-based process
Our core high-pressure autoclave foaming process
uses nitrogen as the foaming agent, borrowed from the
atmosphere during the production process, so there is
limited further environmental impact beyond the use of
energy and raw plastic. At the same time, this process
is becoming more efficient as we invest in newer, more
efficient autoclaves.
2. Efficient use of raw material
We are proud that our unique technology delivers foam
products with better performance per unit of weight, which
allows us to offer high-quality solutions made with less
material. Furthermore, not only do we use less material
to produce our foams, but the integrity and durability of
our products also mean they need replacing less often.
3. Our products’ role
in avoiding emissions
Our products are typically used in a way which, in
the round, reduces emissions and conserves scarce
resources. For example, our foams are used for thermal
insulation, they protect products in transit that have a high
carbon footprint and they often replace heavier and more
wasteful alternative materials.
4. New product development
As the demand grows for products that actively
help us move to a less wasteful, lower-carbon future,
we are already responding, with more to come. For
example, ReZorce® is a 100% recyclable mono-barrier
packaging solution which has been designed to replace
difficult-to-recycle tubes, laminated paper, pouches
and cartons.
Our sustainable
competitive advantages
As described on page 16 in ‘Our
business model’, our sustainable
competitive advantages include:
High-value,
unique assets
Established
market
position
Technical
know-how
Valued
brands
Three further competitive
advantages are also important
contributors to our success
1.
Growing global
reach
Beginning from a single site in the UK, we
now have major manufacturing sites operating
in the USA and Poland, serving regional and
international customers. Proximity to major
manufacturing centres is a significant
advantage in our markets. Having three sites
provides the flexibility to serve regional markets,
while retaining high capacity utilisation across
the Group, and serve markets that are growing
at different rates with different products.
Our manufacturing base also includes a
well-located T-FIT subsidiary in China, a
T-FIT sales subsidiary in India and a facility
in Oklahoma, USA, cutting AZOTE® parts
for a valued customer.
Zotefoams plc Annual Report 2021 19
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 Stable business environment
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.
2.
Diversity of
products and
customers
3.
Stable finances
enabling organic
growth
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.
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.
Our MuCell Extrusion business
MuCell Extrusion LLC (MEL) licenses a
patented process that creates micro-bubbles
in the core of plastic parts or products by
injecting gas into them as they are
manufactured. This produces a foamed
core, bound by a solid skin into one integral
material, that seems indistinguishable from
a solid product. Products using MuCell®
technology can be designed to perform like
solid plastic, but will typically use 15–20%
less material, realising both cost and
environmental benefits by using inert carbon
dioxide or nitrogen gas and reducing the
plastic content at source.
Most customers are in the fast-moving
consumer goods (FMCG) or food packaging
industries, where value is created from
making a small saving in plastic content,
which is multiplied across many millions
of parts annually, and where the current
environment is increasingly driving them
towards more sustainable solutions.
MEL shares in the customers’ benefits
by receiving a licence fee for IP and/or
royalty on parts made.
Recently, a variation of this technology has
been used to create ReZorce, a recyclable,
mono-material barrier packaging solution
and an industry-first. In 2021, we identified
the milestones necessary to commercialise
ReZorce and invested in the expertise, assets
and partnerships necessary to achieve
this on a phased basis. The potential
of ReZorce has been recognised with
multiple industry awards.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 20
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.
As the world around us changes, we regularly
re-test our strategy. We believe our existing
strategy continues to serve us well and
continues to enable us to grow strongly.
Sometimes, as has happened during
the pandemic, short-term factors distort
longer-term trends. With clarity of purpose
and an understanding of the fundamental
drivers of our business environment, we
will make adjustments to our short-term
approach, such as limiting expenses and
capital expenditure, while ensuring that
our longer-term goals remain achievable.
Environment
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, toothpaste, 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.
Zotefoams versus other materials: typical
like-for-like performance using less polymer
Polymer content
Zotefoams
Crosslinked
Non-crosslinked
+10–15%
>15%
ReZorce® is a better solution with lower
environmental impact
less energy
less water
lower Global
Warming Potential
Based on an independently conducted Life Cycle Assessment, comparing the
environmental impact of ReZorce with a widely used multi-material alternative,
liquid packaging board
Zotefoams plc Annual Report 2021 21
Regulation
Regulatory pressures, primarily to safeguard
consumers, are driving up standards
worldwide. These standards in turn create
demand for both safer products and
protective equipment.
Regulatory requirements mainly cover the
performance of end-use products, although
there are specific tests for fire performance
and toxicity limits in foams for certain
industries and jurisdictions. Zotefoams
provides specifically tested materials for
semiconductor, pharmaceutical and biotech
manufacture and automotive, aircraft and rail
insulation and provides validated materials
for medical transportation and devices, and
military storage and personnel protection.
Our technical team is closely involved in
developing new materials to meet and
anticipate standards and we are currently
working on projects for automotive batteries,
high-tech composites, foams from recycled
materials and foams which can be more
easily recycled. We sell AZOTE grades
for automotive, medical and packaging
designed to minimise emissions and/or
meet specific purity requirements. Around
49% of Zotefoams’ revenue from foams
in 2021 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.
Life expectancy, 2019
Demographics
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 53% 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 4%
of sales.
Life expectancy, 1770 to 2019
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements17702019180018501900195030 years40 years50 years60 years70 yearsOceaniaEuropeAmericasAsiaWorldAfricaSource: Riley (2005), Clio Infra (2015), and UN Population Division (2019)Note: Shown is period life expectancy at birth, the average number of years a newborn would live if the pattern of mortality in the given yearwere to stay the same throughout its life.OurWorldInData.org/life-expectancy • CC BYNo data54 years58 years62 years66 years70 years74 years78 years82 years86 years90 yearsNo data54 years58 years62 years66 years70 years74 years78 years82 years86 years90 years 22
Our strategic objectives
We measure progress against six strategic objectives:
We have made two changes this year on how we report our strategic objectives.
We have separated HPP from MEL to create two separate growth objectives,
given how distinct the respective opportunities are. We are also including
environmental, social and governance objectives to support our short,
medium and long-term development. Responsible sustainability has always
been important to the Group, but we are now embedding it formally into
our strategy for the benefit of our employees and stakeholders.
1
Develop an HPP
portfolio to deliver
enhanced margins
Why?
HPP offers higher growth rates and the potential for higher
margins than AZOTE® foams. High-performance products use
the same asset base as the Polyolefin Foams business and
leverage our uniqueness by providing customers with solutions
based on foams that can only be manufactured using our
technology. They offer larger-scale opportunities than our
polyolefin foams and higher drop-through operating margins.
2
Grow sales in our
AZOTE Polyolefin Foams
business in excess of
twice the rate of GDP
global growth
Zotefoams is a capital-intensive business with high operational
gearing. The Polyolefin Foams business is the largest user
of capacity and its volumes are particularly important for the
absorption of fixed costs. AZOTE foams provide unique solutions
to a broad spread of customers across many industries, serving
as a valuable mitigant against industry and customer risk.
Demand for improved resource efficiency, regulation and
global demographics underpins our growth potential in
this business unit.
3
Increase our
operating margins
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 High-Performance
Products 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 margin), to maximise future growth. Higher
operating margins generate higher returns to shareholders.
Zotefoams plc Annual Report 2021 23
This year
Next year, and beyond
In 2021, sales in the HPP segment increased by 41% and
accounted for 42% (2020: 36%) of Group revenue, with the
growth in Footwear resulting in it, alone, accounting for 34%
(2020: 26%) of Group revenue. ZOTEK® F fluoropolymer foams,
primarily for aviation applications, declined for a second
consecutive year, and are now around 60% lower than peak
sales, primarily due to the impact of the pandemic. T-FIT®
insulation products grew by 11% (2020: 4%), again with
performance negatively impacted by the pandemic. The profit
margin of the HPP business unit was 21% (2020: 26%), with
the margin decline mainly due to adverse dollar exchange rates.
We expect to return to, and surpass, previous margins in HPP, with
the rate of margin enhancement dependent on both the capacity
utilisation of the Group and the relative level of investment in
early-stage and high-growth opportunities within our HPP portfolios,
as well as the speed of recovery from the pandemic in markets
such as aviation and our T-FIT business.
In 2021, sales of AZOTE polyolefin foams recovered strongly
from the pandemic, growing 10% in the year or, excluding the
unique PPE sales of 2020, growing 36%. Against 2019, sales
were up 10%. Inventory returned to normalised levels in most
industrial sectors. The Group’s Poland manufacturing plant
was commissioned in February 2021, completing the Group’s
recent capacity expansion programme. The Polyolefin Foams
business unit margin declined to 1% (2020: 10%), mainly due
to increased input costs and the lag on price increases to pass
these costs through to customers.
We are confident that growing AZOTE sales at twice the rate of GDP
growth is achievable and are very satisfied with the recovery across
AZOTE markets during the year. The key drivers of this business
– use of materials, light weight, 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 providing materials which optimise our customers’
sustainability position (Scope 3 emissions). All these developments
are set to broaden further Zotefoams’ product range and offer good
opportunities to grow market share by aligning closely with market
trends and customer needs.
In 2021, in aggregate, segment margins (before foreign exchange
gains and losses and central costs) decreased to 8.7% from 13.7%.
This decline in margin, despite strong growth in Group revenue,
results from the rapid, large and unpredictable increase in input costs
suffered by many businesses during the year, including Zotefoams,
which we were unable to offset by the price increases implemented
during the year, as well as the commissioning of the Poland
manufacturing facility, which will require time before it becomes profit
accretive. After central costs, which include corporate, finance and IT,
mainly relating to the corporate governance of an increasingly
complex organisation, as well as net foreign exchange movements,
Group operating margin declined to 8.1% (2020: 11.0%).
Zotefoams believes that the 2021 pricing for low-density
polyethylene is unsustainably high by historic standards and that
this should begin to adjust downwards during 2022, subject to the
rapidly changing situation caused by events in Eastern Europe and
the continuing impact of COVID-19 on supply chains, but that other
costs, such as labour and other raw materials, have either ratcheted
upwards and will not significantly decline or, in the case of freight,
energy and nitrogen, will remain high for the majority of 2022. Pricing
actions implemented during 2022 will allow gross margins in the
medium term to recover and the drop-through effect on underlying
profit to increase materially. We also expect the product mix to
improve as ZOTEK F sales recover, plant efficiency at the newer
USA and Poland facilities to improve with experience and increased
utilisation, and higher margin T-FIT technical insulation sales to grow.
The opportunity from ReZorce® remains significant but uncertain
during this development phase, but will become clearer as we
progress through 2022.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 24
Our strategic objectives
Continued
4
Improve our return
on capital (over our
investment cycle)
5
Clarify and improve
the Group approach
to sustainability and
climate change
6
Develop and invest
in MuCell technology
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. In order for return on capital
to provide a meaningful measurement, major capacity and
infrastructure investments, which are expected to require
considerable capital over a number of years before being
commissioned as production assets, are excluded from
the calculation until the point of commissioning.
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.
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.
Zotefoams plc Annual Report 2021 25
This year
Next year, and beyond
In 2021, the return on capital declined to 6.1% (2020: 9.0%).
Operating profit declined, while the capital base rose to include
the Poland manufacturing site’s assets from February 2021.
The Group has committed to a large capacity expansion
programme over recent years, which ended in February 2021
with the commissioning of the Poland manufacturing site. The
balance sheet, which includes new capacity as well as supporting
infrastructure which will not directly generate returns, has increased
significantly. We approved these projects, acknowledging and
accepting the dilution of return in capital over the shorter term but
recognising the importance of adequately investing in the capacity
needed for anticipated future growth and the corresponding
improvement in return on capital that should accompany it.
In 2021, we strengthened the ESG framework with a formal
Group Sustainability Steering Committee, introducing challenging
sustainability targets arising from our SASB assessment, providing
fuller disclosures compliant with the Task Force on Climate-related
Financial Disclosures guidance (TCFD), running customer focus
groups on sustainability and using the data to guide strategy. In line
with our commitment to using electricity from renewable sources
wherever feasible, we switched to a fully sustainable energy source
in the UK in 2021. A renewable energy contract has also been
agreed for our Poland site from 2022 and efforts continue to identify
renewable energy opportunities in other locations in which we
operate. In March 2022, we incorporated clearly defined ESG
targets within our bank refinancing arrangements.
We are calculating the carbon cost of our foams and ReZorce
technology. We will be utilising this information internally and
working with selected customers to assess how this can be
used constructively to make objective decisions to steer our
own business and guide our customers in choosing the optimal
material solutions for their applications. We will also report back
against the sustainability targets set in 2021, see page 61.
The focus and resource allocation at MEL is currently directed
to the development of the ReZorce opportunity, with growth in
the underlying business being restricted to existing customers.
Nevertheless, sales increased by 32% in the year to £2.3m. Of
greater strategic relevance to the Group was the progress made
on ReZorce, where the creation of a skilled and experienced team
was completed, the trial equipment successfully commissioned
and partners engaged for trials that are expected to take place in
H1 2022. The reduced customer acquisition activity coupled with
capitalisation of certain development costs under accounting
standards resulted in a reduction in the segment loss at MEL
by 52% to £0.7m (2020: £1.4m).
The licensing business of MEL, which is aimed at reducing
customers’ consumption of plastic volumes, will continue to
support existing licensees and current projects. We intend to
invest within the Group’s risk appetite to develop and commercialise
the MuCell technology, which at this time is focused on ReZorce
mono-material barrier packaging. This approach recognises
that there is a high “option value” for success and at this time
our business model remains flexible to deliver this value in the best
way for our stakeholders. Having invested £2.4m until the end of
2021, we are increasing our investment in the ReZorce opportunity
in 2022 as we engage with strategic partners to validate the
technology and determine the business model that will capture
the most value for the Group and its shareholders.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 26
Zotefoams plc
Annual Report 2021
Our brands in action
Celebrating our customers
Marking 100 years since the
commercialisation of the unique three
stage foam manufacturing process,
the Zotefoams Centenary Awards
were instigated to recognise the
excellence, creativity and innovation
of the companies that turn Zotefoams
materials into products that save
weight, save energy, or deliver a creative
solution for a challenging application.
There was also an award to honour the
ingenuity and dedication of an individual
or individuals who have applied their
expertise to establish Zotefoams
materials as an optimal solution to a
real-world challenge.
Most innovative
application
Winner
TECHNIFAB INC
AVON, OH, USA
Flexible Environmental
Control System (ECS) Duct
Leveraging the properties of ZOTEK®
F high-performance foam, this unique
and innovative Flexible Environmental
Control System (ECS) Duct is used
in commercial aircraft and space
applications.
Technifab saw the potential of ZOTEK
F to replace heavier, less flexible and
less reliable silicone material, creating
a comprehensive test and validation
plan which saw rigorous aerospace
approvals for flight awarded in 2012.
The design incorporates self-aligning
“clamp-less” cuffs for easy installation
and the duct is highly flexible,
accommodating tight bend radii
and expanding and compressing for
ultimate adaptability. It is incredibly
lightweight, saving fuel and improving
ergonomics during installation.
Watch the interview with
Bruce Whitman
https://zote.info/31bkf76
Most unique
application
Winner
FOAM ENGINEERS,
HIGH WYCOMBE, UK
Foam motorbike
Watch the interview with
Steve Macwhirter &
Matt Wright
A life-size replica of a Suzuki Bandit
motorbike using a variety of grades
from Zotefoams’ AZOTE® polyolefin
foams family was described by the
judges as “a wonderful example of
high-end foam fabrication that also
benefits society.”
The stunning foam motorbike
provides the vehicle ‘targets’ used
in collision-testing of car onboard
computer systems and automatic
braking. The motorbike is part of
a ‘foam village’ of targets that, as
well as the official EuroNCP Vehicle
Target, includes anything commonly
involved in collisions with cars.
A foam motorbike allows continuous
crash-testing without having to
replace either the car or the bike.
zotefoams100.com
https://zote.info/3DhaAu8
Longest running
application
Winner
KEWELL CONVERTERS,
TONBRIDGE, UK
Swimming floats for
disabled children (1993)
27
Evazote® VA35 and Plastazote
LD45 from the AZOTE polyolefin
foams range offer the perfect
combination of buoyancy,
comfort and ease of cleaning in
this application. Hydrotherapy
and swimming give a wonderful
sense of freedom to anyone
who is otherwise confined to a
wheelchair or has limited mobility.
Part of a range of swimming
collars, head and neck supports
and other flotation devices for
children and adults, the float
is adjustable and comes in a
range of sizes. The purity of the
materials means that they are safe
for extended contact with skin
without the risk of irritation.
Watch the interview with
Marcos Kewell
Best energy
saving
application
Winner
FLEXTECH (RAINBOW
ENVIRONMENT
PT HK), HONG KONG
Insulation for
electric buses
Watch the interview with
Eddie Peng
Chengdu FlexTech Environment
Protection Technology Co Ltd
specialises in fitting out and
converting buses to clean energy.
The electrification of bus fleets is
an important part of China’s carbon
reduction strategy, set out in the
2019 Blue Sky initiative.
Tasked by Sichuan Bus Group
with converting its fleet, FlexTech
opted to reduce vehicle weight by
replacing the traditional glass-fibre
boards with a lightweight foam.
FlexTech specified Zotefoams’
Plastazote® LD24FR flame-retardant
low-density polyethylene foam for
both the bus bodywork and the
EV battery insulation. LD24FR is
significantly lighter than glass-fibre
board, which weighs anything
between three and 25 times
more per cubic metre.
https://zote.info/3EAGimb
https://zote.info/3EZbUCc
Foam Innovator
of the Year
Technical
Winner
BRUCE WHITMAN
Technical Fellow,
Technifab Inc., USA
Watch the interview with
Bruce Whitman
Bruce Whitman has over 20 years’
experience in specialist fabrication,
particularly for the aviation market.
Bruce was the creative leader
responsible for the Boeing 787
Window Seal, a highly engineered
housing for an electronically
dimmable window pane. Boeing
first introduced foam Window Seals
on its 737 aircraft, using ZOTEK F
high-performance PVDF foam to
reduce weight by 50% compared
with traditional silicone materials.
The 787 Window Seal fulfils
demanding aesthetic as well
as technical requirements: by
incorporating ZOTEK F30 Grey
into the outer part of the seal, Bruce
and his team were able to prevent
any light from entering the cabin
around closed blinds.
Foam Innovator
of the Year
Business
Winner
TIMOTHY MULQUEEN
Sales Director,
Ramfoam, UK
A stalwart of the technical foam
sector, Tim was recognised
for his work in supporting the
UK’s NHS during the COVID-19
pandemic with the design of
a unique, two-piece reusable
visor that leveraged the unique
properties of Zotefoams’
Plastazote polyethylene foam.
The visor was developed in a
matter of weeks and, in May
2020, Ramfoam was awarded a
government contract to supply
three million visors per week.
At the height of the pandemic,
the company was the leading
supplier of face visors to the
NHS, working closely with
Zotefoams and other UK foam
converters to meet the demand.
Watch the interview with
Timothy Mulqueen
https://zote.info/3ERRACN
https://zote.info/3ERRACN
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 28
Our brands in action
Continued
T-FIT®
The T-FIT insulation story
began with end-users looking
for a solution to insulate pipes
in pharmaceutical and
biotechnology cleanrooms.
T-FIT® Clean was developed
as a unique thermal insulation
system designed for these
demanding, highly controlled
production environments.
Based on the unique technology owned by
Zotefoams and following the success of T-FIT
Clean insulation, Zotefoams is expanding the
T-FIT range to address the requirements of
the food, dairy, personal care and general
process industries. These are products that
are inherently pure and free of chemical
residues and meet leading fire certification
standards. Demonstrably resistant to growth
of mould and bacteria, the full range of T-FIT
insulation products manufactured by
Zotefoams is durable, moisture-resistant
and easy to install and clean.
Case study
T-FIT® Hygiene is designed for large-scale,
aseptic, food processing. Production areas
are built to exacting standards, where the
specification is for a pure, pollutant- and
fibre-free thermal insulation with the
capability to withstand the steam purging
process typical in this sector. T-FIT Hygiene
can ensure air conditioning, air filtration
and other process equipment continues to
operate at optimum levels of performance.
Unique in both its material (nylon PA6) and
its foam insulation class, T-FIT® Process is
the high temperature addition to the T-FIT
range and operates at temperatures up to
160°C with spikes, for cleaning in place, up
to 205°C. Aimed at the utility and general
processing industries around the world,
T-FIT Process will assist project and
process engineers in their quest for
ever more durable and heat-resistant
insulation solutions.
T-FIT foam insulation
features in China’s COVID-19
vaccine effort
Context
In September 2020, Chinese health
officials set the country’s healthcare
sector a challenging target of producing
one billion doses of COVID-19 vaccine
over the following twelve months.
Speed was of the essence in bringing
large-scale manufacturing facilities online:
most projects required a 40- to 60-day
construction window – an exceptionally
demanding schedule considering sites
typically cover around 30,000 square
metres and produce 400,000 vaccines
each day.
Rapid facility construction needed to be
matched by an equally rapid equipment
phase, with suppliers quoting long lead
times not being considered.
What we did
The T-FIT team supplied no less than
nine of these projects with T-FIT Clean
and T-FIT Hygiene insulation. Processed
at Zotefoams’ facility in Kunshan, materials
are typically available in China on a
one-week lead time.
One of the manufacturing facilities is
biological products developer and
manufacturer Shenzhen Kangtai Biological
Products Co Ltd, which expanded and
upgraded its cleanroom facilities using
T-FIT Clean. The company’s requirements
included an operating temperature range
of 0°C–150°C, low VOC (volatile organic
compound) emissions, exceptional
corrosion resistance, and a smooth
closed cell surface for easy cleaning.
The particulate-free nature of T-FIT
insulation meant that installation could take
place during production without the need
for PPE or special containment measures.
Downtime was therefore minimised, with
installation taking less than one month
and production continuing uninterrupted
for 80% of that time.
Results
Shenzhen Kangtai and the other
manufacturers who selected T-FIT for
cleanroom and aseptic pipework insulation
were able to bypass the lead time issues
often associated with traditional insulation
materials, while also benefitting from the
superior performance of T-FIT insulation.
The huge national effort produced
astounding results, with more than
2.2 billion doses of Chinese-manufactured
vaccines being administered worldwide
by the end of 2021.
Zotefoams plc Annual Report 2021 29
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 30
An introduction from our Chair
Steve Good
Chair
In the second year of
the pandemic, a strong
market recovery has
been accompanied
by inflationary challenges
as we continue to deliver
strategic progress
Performance
In 2021, revenue growth was strong as
polyolefin foams demand rebounded from the
impacts of COVID-19 in the previous year and
our Footwear business grew significantly as
expected. Significant and unpredictable input
cost inflation throughout the year suppressed
margins, alongside unfavourable currency
movements, as higher selling prices to recover
these higher costs were retrospectively
implemented and were therefore not sufficient
to recover the full impact of continuing cost
increases. Group revenue was 22% up on
the previous year at £100.8m (2020: £82.7m).
Operating profit was 11% below the previous
year at £8.1m (2020: £9.1m). Basic earnings
per share was down 39% at 9.01p (2020:
14.87p). Excluding a £1.0m deferred tax
charge resulting from the UK government’s
announced change in UK Corporation Tax
rate from 19% to 25% in 2023, basic earnings
per share was down 25% at 11.1p. At the end
of the year, the balance sheet remained
strong, with leverage at 2.1x (2020: 2.1x) and
well within covenants, and liquidity headroom
of £13.4m (2020: £19.2m) after £6.5m of
capital repayments.
Strategic progress
Our strategy is built around a focus on
sustainable organic growth. Zotefoams has
a portfolio of differentiated products based
on unique and environmentally friendly
technology and intellectual property. We work
with our partners to optimise our materials
for their needs and have developed a portfolio
of high-performance products that further
enrich our product mix, adding more value
for customers and to our business. Alongside
this, we have established a diversified
international manufacturing footprint to ensure
there is sufficient capacity to meet growing
demand across a range of attractive end
markets. In another challenging year, we have
made good further progress with this strategy.
Our largest market segment, Polyolefin
Foams, recovered in 2021 with volumes
growing 39% after excluding the one-off PPE
sales of 2020. We continue to see structural
growth prospects in this important business
unit, underpinned by the megatrends of
environment, regulation and demographics
and facilitated by our new global capacity.
In this regard, we commissioned our Poland
manufacturing facility in February 2021,
marking the final phase of a multi-year
capacity improvement commitment adding
60% capacity to pre-2018 levels. In our
High-Performance Products (HPP) business,
we delivered another excellent year of growth
Zotefoams plc Annual Report 2021 31
hard-working employees and their supportive
families who have helped the Group continue
to make good strategic progress during these
very challenging times.
Governance and the Board
There were no changes to the experienced
and engaged Board during the year.
Sustainability
The Board is focused on the importance of
sustainability and the evolving debate around
the use of plastics by society. It considers
both in relation to the future desired outcomes
for all stakeholders. Accordingly, our strategy
incorporates the consideration of climate
change in terms of financial and operational
impacts. Zotefoams’ products are used
almost exclusively for permanent solutions
and often form a positive element of our
customers’ own sustainability agenda. They
are seldom deployed for single-use purposes
which, understandably in certain applications,
have caused most public concern. The
premise of our MuCell® technology is the
reduction of plastic in society and our exciting
ReZorce mono-material barrier packaging
solution, using this technology, is a fully
circular solution to very challenging targets set
by governments and brands in reducing their
carbon footprint and increasing the use of
recycled materials. We believe that plastics,
used appropriately, remain the optimal
solution both functionally and environmentally
for our customers’ needs and for society. We
also recognise the importance of continuous
improvement around product development
and operating efficiency to reduce the Group’s
environmental impact. Sustainability and
climate change are recognised as a principal
risk at Zotefoams, see page 49, and both
the strategic and operational impacts of
sustainability are being embedded within
decision-making processes throughout the
Group. This year, we made good progress
refining our sustainability strategy, based on
our purpose of providing “optimal material
solutions for the benefit of society”, see
Environment, social and governance (ESG)
report on pages 56 to 69 for further details.
Following our adoption of the SASB
framework in 2020, the business has set clear
targets aimed at optimising the use of raw
materials, minimising waste and improving
recyclability and we have delivered our first
response to the Task Force on Climate-related
Financial Disclosures (TCFD), see page 62 for
further details. More details are also included
under the ‘Strategy update’ in the Group
CEO’s review on page 32 and in the ESG
report on page 56.
The Board leads an ongoing programme to
ensure the highest standards of corporate
governance and integrity across the Group
and has remained abreast of developing
governance standards. The Board’s
interactions and communications with
executive management continue to be
excellent and, as a result, the Board is
well-placed to challenge, guide and support
executive management in the delivery of
the growth strategy. During the year, we
continued to pay particular attention to the
provision of a safe working environment
for our staff across all global locations
and maintained the improved visibility and
quality of safety performance data across
the business, see the Safety, Health and
Environment section on pages 63 to 65, and
I thank all employees at Zotefoams for their
efforts in achieving an improved performance
this year. We continue to support and
empower our employees and are meeting
our commitment to enhancing the employee
voice in the boardroom through the position
of Jonathan Carling, Independent NED,
as Board representative for workforce
engagement. The Board also acknowledges
the benefits of diversity, including that of
gender and ethnicity, and is committed to
setting an appropriate tone from the top
in all diversity and inclusion matters.
The Board considers that it has fully applied
all the principles and provisions of the UK
Corporate Governance Code during 2021.
More information is provided in the Corporate
Governance report on page 80.
Looking to the future
Zotefoams is well positioned with well
invested, differentiated assets and a clear
strategy for organic growth. We have
committed, capable and passionate people
and a strong pipeline of new opportunities,
including ReZorce, and while we remain
mindful of the uncertain external environment,
made further unpredictable with current
events in Eastern Europe and the ongoing
challenges that COVID-19 and its variants
bring, we are confident about our future
prospects for growth and margin
improvement.
S P Good
Chair
6 April 2022
in Footwear and worked closely with our
partner to develop further long-term
opportunities. Also in HPP, structural
high-growth opportunities in T-FIT® insulation
products and ZOTEK® technical foams for
aviation both remained severely impacted by
COVID-19 restrictions, growing by a modest
11% and declining 10% respectively. The
long-term growth outlook for these markets
remains compelling and we expect to see
recovery in the short to medium term. We also
made significant progress at MuCell Extrusion
LLC, continuing the development of the
ReZorce® mono-material barrier packaging
solution which offers society a truly circular
option using existing recycling infrastructure.
We built an experienced team and installed
and commissioned both our pilot line in the
USA and a sterile carton packaging machine
to test the sheet’s capability to be formed into
a carton and sealed to the required industry
standards. We have secured support to trial
the technology with leading, recognised
industry players, and progressed the
route to market options. We expect to
update stakeholders on the progress of this
high-reward, high-risk opportunity during 2022.
Dividend
The Board is proposing a final dividend of
4.40p (2020: 4.27p) which, if approved by
shareholders, would make a total dividend
for the year of 6.50p (2020: 6.30p), an
increase of 3.0%. This reflects the Board’s
continued confidence in the Group’s future
and is line with its progressive dividend
policy, recognising the importance to our
shareholders of the dividend as part of their
overall return. If approved, the final dividend
will be paid on 1 June 2022 to shareholders
on the register on 6 May 2022.
Our people
We know that our people are key to our
success and 2021 has once again
showcased their importance. They have faced
a continuation of the pandemic, Brexit and
severe supply chain challenges combined
with high levels of business activity and a
need to respond quickly. Their resilience and
commitment have been outstanding and have
ensured that the needs of customers were
met in the most difficult of circumstances.
Having the right people at Zotefoams, who
understand and promote our culture, act at all
times with integrity, safety-consciousness and
dedication and possess the right knowledge
and skills, continues to be critical to our future
success. I would like to welcome the new
employees who have joined us around the
world during the past twelve months and give
a special mention to our colleagues who have
started up our newest manufacturing facility
in Poland. I would also like to thank those who
have helped all our new colleagues integrate
successfully and thank, once again, all our
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 32
Group CEO’s review
In 2021, Zotefoams achieved a significant
milestone by delivering £100m of sales in the
centenary year of the invention of the nitrogen
gas process that we use today. This milestone
was achieved in turbulent times with
pandemic restrictions, large swings in
product mix and a very difficult supply
chain environment.
In addition to this strong sales performance,
we have made good progress on two notable
initiatives, with the commissioning of our
£23m capacity expansion in Poland to
budget and at the expected time as well
as the commissioning of our ReZorce®
mono-material barrier packaging
development centre in Massachusetts,
USA. Also noteworthy, and based on our
demonstrable focus on safety across the
Zotefoams Group, was the fact that we had
no major reportable accidents for the first
time in many years.
We now see Zotefoams as an established,
well-invested foam technology business
with a good portfolio of continuing growth
opportunities alongside ReZorce, which is
a promising and disruptive new platform
offering significant potential.
The economic environment has been very
challenging, with significant and often
unexpected cost increases from suppliers
together with headwinds from unfavourable
currency movements. In particular, prices
for our main raw material, low-density
polyethylene (LDPE), which is a commodity
polymer, increased very sharply in the second
quarter of the year shortly after we had
implemented price increases to our
customers. This, along with the additional
overhead needed to manage our business,
including costs related to our new facility in
Poland, has reduced margins in the short
term. As further inflationary pressures have
emerged, we have implemented a series of
price increases across our business, although
these pressures often result in a temporary
margin squeeze as, in most cases, inflationary
shocks from our supply chain, such as in
freight, are not forewarned and are therefore
impossible to predict or pass on immediately.
Over the course of the business cycle,
we intend to recover in full these higher
input costs.
Zotefoams’ contribution to a low carbon
future, and sustainability more generally, is a
key consideration in how we plan and operate
our business. We utilise unique technology to
make what we consider to be “best in class”
foams for a variety of uses aligned to global
environmental, regulatory and demographic
trends. We firmly believe that plastic, our main
raw material, is the optimal material for the
applications for which our products are used.
These are predominantly not single-use and
often function for many years as industrial and
David Stirling
Group CEO
Record sales exceeding
£100m but profitability
dampened by a lag in
recovering unpredictable
cost inflation
2021
Change %
United
Kingdom
Continental
Europe
North
America
Rest of
the world
(44%)
58%
13%
49%
Total
22%
Group revenue (£000’s)
10,768
28,200
19,959
41,823
100,750
% of Group revenue
11%
28%
20%
41%
100%
2020
Group revenue (£000’s)
% of Group revenue
19,106
23%
17,856
17,629
28,061
82,652
22%
21%
34%
100%
* Rest of the World comprises China: £28.4m (2020: £13.9m) and other countries: £13.4m (2020: £14.2m)
Zotefoams plc Annual Report 2021 33
consumer durables in applications as varied
as medical devices, footwear, cleanroom
insulation, cars, aircraft and marine buoyancy.
Zotefoams’ stated business purpose is
“optimal material solutions for the benefit of
society” and, when considering our product
range, markets, operations and investments,
this is the guiding principle when choosing
between various courses of action.
The principal drivers of short-term profitability
for our business are the ability to manage
prices in line with our cost base, operating
efficiency, high asset utilisation and an
improved product mix. We anticipate a higher
proportion of sales from our more technical
ZOTEK® HPP foams and T-FIT® insulation
products to be the key drivers of returns in
the medium term.
Group revenue increased by 22% to £100.8m
(2020: £82.7m), with operating profit of £8.1m
(2020: £9.1m), 11% below last year mainly due
to inflationary cost pressures not being fully
recovered in the period. A stronger pound,
relative to the US dollar in particular, also
negatively impacted sales and profitability by
an estimated £4.1m and £0.5m respectively.
In 2020, revenue included a “one time” PPE
contract in the UK worth £9.6m for Polyolefin
Foams. Excluding this contract, Group
revenue increased by £27.7m, or 36%, of
which £14.9m was an increase in Polyolefin
Foams with strong market recovery and
£12.2m was Footwear. Other movements
were relatively minor, with T-FIT insulation
products and MuCell Extrusion LLC (MEL)
revenues both growing by over 10% from
small bases and sales of ZOTEK F foams
declining due to weak aerospace market
conditions and associated customer
destocking.
Strategy update
Zotefoams’ strategy remains unchanged: to
invest in flexible assets and technology with
the capability to support the organic growth
opportunities afforded by our diverse, and
often unique, products. The results of this
investment, in development and/or capacity,
typically take time to be realised fully and
this can create a short-term headwind for
margins. However, we are confident that
our investment decisions are aligned to
longer-term growth trends and that our
differentiated and diverse products generate
good levels of demand with pricing power
over the economic cycle.
Over the past couple of years, we have
curtailed investment in some areas to
manage our costs and cash at a time of
extreme uncertainty, but have continued
to invest in Footwear products, T-FIT
insulation and ReZorce mono-material barrier
technology. In 2021, we saw the benefits of
this in Footwear sales and delivered good
progress against technical milestones in
ReZorce. The ability to develop our T-FIT
business unfortunately continued to be heavily
impacted by pandemic restrictions and the
sales growth here was not as substantial as
expected, although we do not believe this
diminishes its longer-term prospects.
Sustainability is a key consideration in
developing and implementing our strategy.
Our core materials offer improved product
performance in durable solutions while
using less material than competitors do.
Recyclability of waste material into foams has
been proven but is not yet common in the
markets in which we currently operate. MEL
licenses technology specifically to reduce
polymer content and ReZorce offers a fully
recyclable, circular, barrier packaging solution.
The strongly negative public perception of
plastic is becoming more nuanced beyond
the environmental impact of ill-considered,
single-use plastic used predominantly in
consumer packaging. Zotefoams’ current
markets are not immediately impacted by this,
as products using our foams are primarily
integrated components in larger systems
or products (such as cars, planes, footwear
and medical parts) or used in the long-term
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 common with
other businesses, we seek to minimise the
use of natural resources through measures
such as reducing energy and polymer usage,
which benefits the environment and reduces
our costs. We believe Zotefoams has
demonstrable credibility in reducing the
carbon footprint of our customers, but the
world is changing rapidly with different
competitive solutions and a redefinition of
requirements driven by preferences and
regulation. We therefore continue to develop
both our product range and technology
to anticipate and react to these changes.
We recognise the risk of not meeting our
stakeholder expectations on sustainability
and have reflected this in our key risks and
uncertainties as a consequence, see page 49.
Capacity and investment
Zotefoams is well invested in capacity to
manufacture foams and our facilities in the
USA and Poland have been developed with
a base infrastructure to allow future capacity
increases at lower incremental costs. In
making these investments, we took account
of the potential growth rates of various
products across different geographies.
Simplistically, our polyolefin foams markets
are substantially regional, benefitting from a
local manufacturing presence which allows
swift and efficient distribution to our
customers, while our HPP products are
technically more complex and expensive
and customers are more able to plan further
ahead, with transport being a significantly
lower proportion of the cost to the customer.
Our UK facility, which has the highest
capacity, therefore supplies all HPP products
along with AZOTE® polyolefin foam products,
some of which ship to Asia and the Middle
East, while our facilities in the USA and Poland
are today only supplying their local markets
with polyolefin foams.
Our capacity management decision-making
requires us to consider the three major
manufacturing processes to make a foam:
extrusion, high-pressure gassing and
low-pressure foam expansion. Extrusion
is the lowest cost per unit of capacity and
high-pressure gassing is the highest cost and
most complex process, incorporating much of
our proprietary technology. We can separate
these three processes, for example in Poland,
where its low-pressure foaming capacity
receives intermediate “pre-gassed” sheets
from the UK or the USA to expand into foams
and thereby reduce the transport carbon
consumption and cost. Additionally, our
extruders tend to be set up for specific
polymer types, while high- and low-pressure
autoclaves can be used for all polymer types,
with our newer vessels offering complete
flexibility to manufacture all products. We
consider capacity on a global basis with many
factors influencing the decision around which
products to manufacture in which locations,
including customer service, sustainability and
profit optimisation. Future investment at our
three main foam production sites is planned
to remove production bottlenecks, improve
operating and carbon efficiency and upgrade
infrastructure to improve our risk profile.
Outside of our autoclave technology, other
planned investments relate to T-FIT, which
requires a relatively low capital cost to convert
sheets of foam into insulation products, and
the ReZorce opportunity, which is addressed
separately below.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 34
Group CEO’s review
Continued
POLYOLEFIN
FOAMS
AZOTE®
Segment revenue
£56.2m
Change +10%
2020 £50.9m
Segment profit margin
1.2%
2020 9.5%
Segment profit
£0.7m
Change (86)%
2020 £4.8m
catch-up from the relative lows of polymer
pricing in the previous period. At that time
in the second quarter of 2021, ethylene, the
main feedstock for LDPE which normally
accounts for 70–80% of the LDPE price,
was priced around its long-run average
and LDPE premium pricing was driven by
a capacity shortage of polymer processing
in Europe. Since then, demand for polymer
has remained high and ethylene prices have
risen considerably, leading to unprecedented
levels of LDPE pricing. Input costs for other
materials and services also increased
markedly, particularly later in the year with
respect to energy and products which are
energy-intensive. As a result, input costs
during 2021 were only partially recovered
through pricing adjustments, impacting our
margins in Polyolefin Foams significantly.
In the final quarter of 2021, we implemented
further pricing increases effective early
January 2022 in most markets and in
January notified some customers of a further
price increase from April. In setting prices
historically, we have typically tried to absorb
the short-term variability in polymer and
freight prices and act on inflation which is
more “permanent” such as employment
costs or, as in the past, commodity costs
which have undergone a structural change
in pricing. Cost increases in polymer,
freight, energy and other raw materials were
substantially more impactful than expected
and our 2022 price increases have reflected
this. Whether these materials and services
have undergone a structural change in
pricing remains too early to call at this time.
Segment profit declined to £0.7m (2020:
£4.8m), representing a margin of 1% (2020:
10%), with the variance being accounted
for almost entirely by the timing and level
of pricing not recovering increases in raw
material and other input costs in the period.
Segment margin benefited from an increase
in volumes offset by manufacturing yield
inefficiencies, predominantly in the USA,
where on-site support would normally have
come from UK technical staff, and adverse
foreign exchange rates of around £0.6m
(partially offset by hedges recorded centrally).
In 2021, sales in the Polyolefin Foams
business unit grew by 10% to a record
£56.2m (2020: £50.9m) and account for 56%
of Group revenue (2020: 62%). In constant
currency, sales increased by 15%. As
expected, there was no repeat of the 2020
sales of £9.6m for personal protective
equipment (PPE) for the UK National Health
Service. Overall, sales volume grew by 6%,
price increases delivered 4% sales growth in
the period and sales mix improved by 5%,
offset by adverse currency movements of 5%.
Volumes improved by 39%, when excluding
PPE from the 2020 comparative and after very
sharp falls across most industrial sectors in
2020, and were 13% ahead of 2019. Overall,
we experienced a broad-based recovery
in most markets by geography and by
application segment, with the notable
exceptions of aviation and automotive,
which remained well below previous levels
of activity. Geographically, those areas which
experienced the sharpest falls in demand
in 2020 typically grew fastest in 2021. We
increased prices late in the second quarter,
with the consequence that these price rises
only contributed partially to full year revenues.
Input costs for polyolefin foams are primarily
raw materials and, to a lesser extent, energy
and operational costs such as labour. Freight
costs, whether paid by Zotefoams or by
customers, can also be a significant factor.
Prices for the main raw material, low-density
polyethylene (LDPE), increased rapidly and
significantly from the relative lows experienced
in the second and third quarters of 2020. The
average price paid during 2021 was around
80% higher than the previous year and 50%
higher than the long-run, pre-pandemic
average. When we were implementing price
increases during 2021, we initially predicted
that this peak would correct towards the
long-run average relatively quickly and that
relatively modest increases in pricing would
recover general inflationary pressures plus the
Zotefoams plc Annual Report 2021 35
cabin and which support the drive to make
aviation lighter and thus less fuel consuming.
Furthermore, our technical and business
development focus over the past few years
has extended beyond aviation, with an
emphasis on other areas of opportunity
such as battery insulation for electric vehicles
and other technical insulation applications,
where feedback from customer trials in these
markets is encouraging. These initiatives, and
the fact that our products remain specified on
existing aviation manufacturing applications,
give us good grounds for optimism later in
2022 and beyond. T-FIT insulation products
grew by 11% in the year, which was a second
year significantly below our expectations
mainly due, again, to COVID-19 impacts
particularly in India, where sales grew
modestly, and Europe, where sales declined
for the second consecutive year. In China,
where we manufacture most of our T-FIT
products, sales grew strongly towards the
end of the year and the country now accounts
for 52% of T-FIT sales. We remain optimistic
about T-FIT insulation but need to recognise
that our ability to create demand for this
technical product range at this stage of
development relies on sales teams meeting
customers. Over time we will further develop
our T-FIT branding and leverage customers
who clearly have a positive experience of
our products, thereby transitioning from
the current high-contact sales model to
an increasingly experienced team focused
on specific development opportunities.
Segment profit increased by 10% to
£8.7m (2020: £7.9m) and by 25% to £9.9m
in constant currency. The main difference
between sales growth of 41% and the lower
percentage increase in segment profit, in
addition to adverse currency movements
which are hedged centrally, was the cost of
servicing customers, particularly in respect of
higher freight costs late in the year, investment
in T-FIT selling costs relative to the growth in
sales and a higher allocation of depreciation
to this segment. Segment margin declined
to 21% (2020: 26%).
HPP
T-FIT®
ZOTEK®
Segment revenue
£42.3m
Change +41%
2020 £30.0m
Segment profit margin
20.6%
2020 26.3%
Segment profit
£8.7m
Change +10%
2020 £7.9m
HPP comprises ZOTEK® technical foams,
which include foams for footwear where we
have an exclusive relationship with Nike, and
T-FIT® insulation products. These products
are typically unique or highly differentiated
and designed to deliver specific performance
attributes, such as energy management,
excellent fire resistance or high-temperature
performance to meet the exacting needs of
industries such as sports equipment, aviation,
automotive, biotech and pharmaceutical.
The HPP business unit sales increased
by 41% to £42.3m (2020: £30.0m) and
accounted for 42% of Group sales in 2021
(2020: 36%). In constant currency, sales
increased by 47%. Within this business
unit there are currently three main end-use
applications: footwear, aviation and technical
insulation. Footwear grew strongly as
expected, following on from the strong
second half in 2020 and, with sales of
£33.9m, now accounts for 34% (2020: 26%)
of Group revenue. This strong performance
came despite well-publicised shutdowns of
Nike partner factories in Vietnam in the
second half of the year due to COVID-19
restrictions, which negatively impacted the
manufacturing of some shoe models.
We have an exclusive and close relationship
with Nike which aligns our activities to
their business priorities on performance,
sustainability and value in premium running
shoes. This also gives good visibility around
Nike’s intentions for the future, with demand
planning being a critical part of our
cooperation. Sales of ZOTEK F fluoropolymer
foams, primarily for aviation applications,
reduced again in 2021, by 10%, following a
large decline in 2020. Sales of £4.2m (2020:
£4.6m) are now 58% below their peak of
2019, due to the impact of continued supply
chain contraction primarily linked to Boeing’s
ongoing reduction in manufacturing of certain
aircraft models. Demand for aircraft interior
products, mainly linked to airlines, saw some
modest growth from a low base in the
previous year. As demand for air travel returns,
we are focusing on the development of
applications that use our materials within the
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 36
Group CEO’s review
Continued
MEL
MuCell®
ReZorce®
Segment revenue
£2.3m
Change +32%
2020 £1.7m
Segment loss before
amortisation
£0.5m
Change +58%
2020 £1.2m
Segment loss after
amortisation
£0.7m
Change +52%
2020 £1.4m
The MuCell Extrusion LLC (MEL) business
model is to develop and license or sell
intellectual property (IP) and related
machinery. The focus of MEL’s business
has evolved to create unique properties in
plastic rather than merely reduce the plastic
content of an article. Specifically, we have
been working to develop and commercialise
mono-material barrier technology, branded
ReZorce®, for packaging of food and drink
in a container which is recyclable and uses
recycled content in its manufacture – a
true circular economy product.
The core MuCell® technology can reduce
polymer content, and cost, in existing
packaging by around 15% by injecting inert
gas to displace plastic with microcellular
bubbles. This requires the packaging
manufacturer and brand to align both
technically and commercially on the
improved solution, which has proved
difficult as packaging producers are often
remunerated on a “cost plus” basis. The
ReZorce technology is a completely new
solution, offering brands the ability to
significantly reduce their carbon footprint
and also help meet their pledges on both
recycling and use of recycled content in their
packaging, putting sustainability at the heart
of our MEL development agenda. There are
considerable challenges to developing the
complete “end-to-end” solution, but we have
made good progress in creating a sheet
material which meets the required oxygen
and moisture barrier properties and has a
range of stiffnesses to allow it to be used in
both carton and pouches, two of the most
common barrier packaging formats for food
and drink. We believe there is a significant
market pull for this technology, as current
barrier packaging is typically made from
combinations of materials and is therefore
difficult to recycle and often uses low or
no recycled content.
Given the market opportunity and multiple
challenges to commercialise, we are investing
in a phased manner, with future investment
and the preferred business model to be
determined following the outcomes of the
current phase of technical development
and market assessment. At this time, we
are focusing on the beverage carton market,
which we estimate to be in excess of £7.5bn
revenues from the sale of packaging materials
which ReZorce could replace, although work
is also progressing on pouches and other
opportunities in the background. Internally,
we have established a pilot line to develop
and manufacture ReZorce sheet and
commissioned a sterile carton packaging
machine to test the sheet’s capability to
be formed into a carton and sealed to the
required industry standards. This has
proved successful on a limited basis,
looking at one carton format and, relative to
the most modern machinery, running very
slow processing speeds. As we move to
commercial trials, planned for the second
quarter this year, the technology will be
exposed to much more demanding conditions
including high-speed processing. If these
trials are successful, we will have passed a
significant milestone in creating value from
ReZorce cartons and will consider a number
of business models which can deliver value
to our stakeholders.
Revenue from the MEL business unit
increased by 32% to £2.3m (2020: £1.7m),
although both periods were heavily impacted
by the inability of our staff to travel and
develop business. Sales in constant currency
increased by 37%. Segment loss for the year
was £0.7m (2020: loss of £1.4m), representing
a negative margin of 30% (2020: negative
margin 83%), which reflects the switch in
business focus to developing the ReZorce
material and the capitalisation of certain staff
and other costs in accordance with IAS 38.
Overall ReZorce capital expenditure was
£1.9m, of which £0.8m was the capitalisation
of intangible assets, mainly related to people
and IP development costs.
Zotefoams plc Annual Report 2021 37
Measuring strategic progress
The markets in which we operate are driven
by global trends – environment, regulation
and demographics – which we believe offer
the potential for high rates of market growth
as well as opportunity for our disruptive
technology solutions. Having previously
measured strategic progress on four metrics,
we have this year decided to separate MEL
from HPP and have added sustainability
as a separate strategic objective:
1. We intend our HPP business unit to offer
higher growth rates and better margins
than Polyolefin Foams. Sales in our HPP
business unit, which offers unique
disruptive products and solutions, now
account for 42% (2020: 36%) of Group
revenues with growth of 41% (47% in
constant currency). The unique benefits
offered by these products, combined with
market recovery in aviation, offer good
growth prospects. Margins in the period
were 21% (2020: 26%), while margins in
our Polyolefin Foams business unit were
1% (2020: 10%).
2. Sales of our highly differentiated AZOTE
polyolefin foam products increased by 10%
(15% in constant currency), against our
target rate of twice global GDP growth. The
market disruption and UK government PPE
contract in the second half of 2020 distorts
the underlying growth of this business unit
and, against 2019, which is a better
comparative, sales grew by 9% (14% in
constant currency).
3. Group operating margin was 8.1% (2020:
11.0%). Increased input costs, not fully
recovered in the period, were the primary
reason for the reduced operating margin,
which was also impacted by unfavourable
foreign exchange rates, manufacturing yield
inefficiencies and the additional costs of
servicing customers particularly late in the
year. We anticipate margin recovery as the
prices we charge our customers increase
more quickly than input costs in 2022 and
as we experience growth in higher margin
areas such as aviation and T-FIT products.
4. Group return on capital declined to 6.1%
(2020: 9.0%), largely as a result of the
lower profitability of the Polyolefin Foams
business unit and an increased capital
base which includes the commissioning
of the Poland manufacturing facility. The
Group has invested in a large capacity
enhancement programme over recent
years, including significant expenditure in
the supporting infrastructure that will be
sufficient to support further capacity, if
needed, at much lower incremental cost.
There is currently no further commitment
to large-scale increases in capacity and
the Group is well invested to support future
growth. Capital spending is planned to
return to more normal, lower levels, broadly
in line with depreciation. The net assets of
the business have increased significantly
and profit and margin recovery and higher
asset utilisation from increased sales will be
an important factor in delivering material
improvements in the return on capital over
the coming years.
5. In 2021, we introduced material
sustainability targets arising from our
SASB assessment, provided fuller
disclosures compliant with the Task Force
on Climate-related Financial Disclosures
guidance (TCFD) and ran customer focus
groups on sustainability to generate data to
guide strategy. In line with our commitment
to using electricity from renewable sources
wherever feasible, we switched to a fully
sustainable energy source in the UK in
2021. In March 2022, we incorporated
clearly defined ESG targets in our bank
refinancing arrangements.
6. MEL has potentially disruptive technology
to improve sustainability, primarily in
consumer packaging. We intend to invest
within the Group’s risk appetite to develop
and commercialise this technology, which
at this time is focused on ReZorce
mono-material barrier packaging. This
approach recognises that there is a high
“option value” for success and at this time
our business model remains flexible to
deliver this value in the best way for
our stakeholders.
People
The top priority for Zotefoams is ensuring
the health and safety of employees and site
visitors. The Board tolerance for risk is set
accordingly, with Health and Safety an
agenda item at every Board and Executive
Committee meeting. The behaviour of all
employees is now the major factor driving our
improved performance and lower risk profile
and, in 2021, there were no major reportable
injuries in the Group (2020: 1).
For the past two years, managing the
business during COVID-19 has required us to
adapt to different ways of working, including
staff working from home and the adoption of
new safety protocols across all Group sites.
During this period, our employees have
demonstrated flexibility and resilience and
embraced the challenges of rapidly changing
business priorities caused by the external
environment. This has not been easy,
particularly for newer employees unfamiliar
with the Company or their colleagues and
also for people working on new initiatives.
Clear communication of our strategy,
objectives, progress and approach to different
challenges, as well as a common culture, are
particularly important to ensure cohesion in
these difficult times.
I would like to extend my thanks to my
colleagues and to their families for their
support given.
Forward-looking statements
Forward-looking statements have been
made by the Directors in good faith using
information available up until the date
they approved this Annual Report. These
forward-looking statements should
be considered in light of the continuing
uncertainty surrounding the impacts of
the COVID-19 virus and the geopolitical
environment, currently most impacted by
the events in Eastern Europe, on economic
trends and business.
Current trading and outlook
Geopolitical risks are currently much higher
than normal. While these have limited direct
impact on our operations currently, we are
mindful of the risk that they may lead to
more significant indirect impacts, especially
in supply chain, inflation and demand,
rendering forward looking statements
particularly uncertain.
Currently, we are experiencing good demand
across our business consistent with our
expectations. Prices for polyolefin foams
were increased in January and, in some
products and geographies, we have additional
increases notified to take effect in the second
quarter. The inflationary environment for our
input costs remains highly unsettled, with
pricing of raw materials, freight and energy
in particular expected to be volatile for the
remainder of the year, at least, and
accentuated by current events in Eastern
Europe. Our sales prices and margins are
therefore being closely managed. Our
operational performance also continues to
be challenged by an unpredictable supply
chain and the ongoing challenges presented
by COVID-19 and its variants. We continue
to work hard to manage the impacts of
these as effectively as possible, however
inefficiencies are to be expected.
We expect modest volume growth in our
Polyolefin Foams business during the year,
with a similar product mix to 2021 and a
strong benefit from price increases improving
margins, subject to managing cost inflation
appropriately. In our HPP business unit, both
T-FIT insulation and ZOTEK foams for aviation
are expected to grow strongly as market
conditions improve, particularly in the second
half of the year, while demand for footwear
products is expected to remain at similar
levels to 2021.
ReZorce barrier packaging represents a
potentially very significant opportunity for
Zotefoams but depends on achieving a
number of developmental milestones, the
outcome and timing of which are difficult to
predict. We are therefore conducting frequent
reviews of progress but currently expect that,
working with partners, we will be able to
successfully develop and commercialise the
technology. We will update stakeholders when
appropriate.
Overall, the Board remains confident about
the future prospects for our business.
David Stirling
Group CEO
6 April 2022
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 38
Group CFO’s review
Gary McGrath
Group CFO
2021 was a mixed year
for Zotefoams, with
significant revenue growth
generated from footwear
and polyolefin foams
markets accompanied by
significant cost escalation
across production input
costs, freight and certain
critical overheads
Group revenue
£100.8m
Change +22%
2020 £82.7m
Net debt
£34.3m
Change +4%
2020 £35.6m
Profit before tax
£7.0m
Change -16%
2020 £8.1m
Leverage
2.1x
Change nil
2020 2.1x
Overview
Group revenue for the year increased by 22%
to £100.8m (2020: £82.7m), with another
strong year in Footwear leading to growth
of 41% in High-Performance Products (HPP)
and Polyolefin Foams growing 10%, or 36%
excluding the one-off PPE sales in 2020, as
many end markets recovered and supply
chains refilled. MuCell Extrusion LLC (MEL)
sales grew 32%, albeit from a smaller base.
In constant currency, Group revenue
increased by 27% to £104.9m, an
adverse currency impact of £4.1m.
Operating profit declined 11% to £8.1m
(2020: £9.1m). Input costs rose rapidly and
unpredictably and were not fully offset by
price increases in the year. Average raw
material costs for our key raw material
low-density polyethylene (LDPE) more than
doubled, along with significant increases in
freight, energy and operating costs from our
newly commissioned Poland facility. This led
to a gross margin decline of £1.2m to £26.6m
(2020: £27.8m), and a gross margin
percentage of 26.4% (2020: 33.6%). Net
finance costs were £1.1m (2020: £0.9m),
resulting in profit before tax of £7.0m (2020:
£8.1m). The taxation charge was £2.6m
(2020: £1.1m) and includes a £1.0m deferred
tax accrual related to the UK government’s
announced increase in the Corporation
Tax rate from 19% to 25%, a further £1.0m
deferred tax charge related to a prior year
tax credit and current year overseas losses
prudently not recognised as an asset. Basic
earnings per share was 9.01p (2020: 14.87p),
down 39%. In constant currency, profit before
tax was £7.5m, an adverse impact of £0.5m.
At 31 December 2021, net debt was £34.3m
(2020: £35.6m) and leverage (net debt to
EBITDA, using definitions under the bank
facility agreement, see section ‘Debt facility’)
was 2.1x (2020: 2.1x). Net debt declined by
£1.3m after net cash flows generated from
operating activities of £10.9m (2020: £11.4m)
were consumed mostly by capital expenditure
of £7.0m (2020: £13.3m) and dividends of
£3.1m (2020: £1.0m).
Zotefoams plc Annual Report 2021 39
Distribution and administrative costs
The Group has a clear expansion strategy,
founded on proprietary cellular materials
technology linked to longer-term demand
growth in our chosen markets. Organic
growth with a portfolio of unique and highly
differentiated products requires that we invest
actively in, and reprioritise where needed,
technical, sales-focused and administrative
resources to create, execute and manage this
growth. After a large part of 2020 was spent
managing the uncertainties of COVID-19, with
operating cost investment into these growth
drivers postponed and discretionary spend
tightly controlled, a return to investment in this
area commenced in the latter part of 2020 and
continued in 2021. During the year, the average
number of Group employee roles not directly
related to production amounted to 191, an
increase of seven over the previous year.
Included within distribution costs in the
consolidated income statement are sales,
marketing and warehousing expenses. These
costs increased by £0.5m, or 8%, to £7.3m
(2020: £6.8m) during the year, mostly reflecting
a recovery of some of the expenditure held
back during 2020 and increased sales activity.
Included within administrative expenses are
technical development, finance, information
systems and administration costs as well
as the impact of foreign exchange hedges
maturing in the period and non-cash foreign
exchange translation expenses. These costs
reduced in 2021 by £0.8m, or 6%, to £11.1m
(2020: £11.9m). However, after removing
foreign exchange movements, these
administrative costs increased by £0.7m,
mostly representing increased support costs
in Asia, Poland and at MEL, together with
higher recruitment costs after a quiet 2020.
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 2021, central plc
costs were £1.8m (2020: £1.9m).
Revenue performance
Polyolefin Foams business unit sales grew
10% to £56.2m (2020: £50.9m). In constant
currency, sales grew 15% to £58.3m.
Excluding £9.6m of PPE-related sales in H2
2020, which were a unique contract secured
by the Group’s largest UK customer with the
UK government during the depths of the
pandemic, annual sales of polyolefin foams
increased 36%. This reflected the strong and
rapid recovery in global demand following the
sharp decline in activity from Q2 2020,
coupled with restocking which, in most cases,
was complete by the end of the year. All
regions experienced very strong sales growth:
the UK (ex PPE) increased 13%, Europe
increased 58%, the USA increased 13% and
the Rest of the world increased 49%, while
most industrial markets recovered except
aviation and automotive.
HPP sales increased 41% to £42.3m (2020:
£30.0m). In constant currency, sales grew
47% to £44.1m. Footwear is the largest
application currently within HPP and revenue
in this market grew 56% versus 2020, after
growing 68% in 2020, maintaining the run
rate achieved in H2 2020. Sales were boosted
by the delayed 2020 Olympic Games but
hindered later in the year by an eight-week
shut down of operations at one of the Group’s
key customers in Vietnam. ZOTEK® F
fluoropolymer foam sales ended the year
10% down versus 2020, impacted by the
continuing depression of the airline industry,
although we began to see some signs of
recovery in Q4 2021. T-FIT® advanced
insulation sales continued to face challenges
from COVID-19, particularly in Europe and
India, which limited growth to 11% (2020: 4%),
with a strong performance in China offset by
a decline in Europe.
MEL sales growth was affected by the current
strategy to focus on existing customers and
redirect resources to the ReZorce®
mono-material barrier packaging initiative.
Despite this, sales grew by 32% to £2.3m
(2020: £1.7m), with negligible impact in
absolute terms from currency.
Revenue by market
(%)
Sports and leisure
Product protection
Building and construction
Transportation
Industrial
Medical
Other
2021
2020
37
26
11
10
7
5
4
29
21
12
12
7
16*
3
* 11.6% of this 16% was a result of the PPE sales.
Within the transportation segment,
aviation represented 4.5% (2020: 6.5%)
and automotive 5.8% (2020: 5.5%) of Group
revenue. These two markets remain well
below their pre-pandemic levels and in
2019 were 15.0% and 7.0% respectively.
Gross profit
Gross margin decreased to 26.4% (2020:
33.6%), representing a reduction of £1.2m
in absolute terms from £27.8m to £26.6m.
While sales price increases were implemented
in the Polyolefin Foams business in Q2 2021,
costs for related raw materials continued to
escalate and more than doubled through H1
2021, remaining close to their peak for the
rest of the year. Zotefoams’ approach has
previously been to adjust prices only when
longer-term structural changes in input
pricing are evident, absorbing the advantages
and disadvantages of short-term price
movements while longer-term shifts are
passed on through pricing to customers.
The unpredictable and significant increase
in LDPE prices throughout 2021 meant that
costs were not fully recovered during the
period. Pricing actions implemented during
2022 are planned to allow gross margins
in the medium term to recover and the
drop-through effect on underlying profit to
increase materially. In addition to these raw
material price increases, freight availability
pushed logistics charges up, most notably
in H2 2021, and utilities increased significantly
in Q4 despite some protection during this
period from energy hedges. In February
2021, the Group commissioned its third
major foam manufacturing site in Poland,
which increased overhead costs, including
depreciation of £0.7m and an equivalent
level of other fixed overhead as expected,
and delivers additional, global, operating
capability that is not yet fully utilised. The
increased strength of sterling against the
US dollar, in particular, also impacted gross
margin by £2.0m, with the offsetting impacts
of the Group’s hedging strategy appearing
under distribution and administrative costs
below, in line with accounting standards.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 40
Group CFO’s review
Continued
Operating profit
Operating profit was £8.1m, 11% below
2020 (£9.1m).
Finance costs
The total interest charge for the year increased
to £1.1m (2020: £0.9m) and includes £0.1m
(2020: £0.2m) of interest on the Defined
Benefit Scheme pension obligation. The
Group capitalised £nil (2020: £0.6m) of
interest in relation to the financing of its
capacity enhancement projects still under
construction, a reduction following the
commissioning of the Poland plant at the
beginning of February 2021, at which point
interest capitalisation in the Group ceased.
Profit before tax
Profit before tax decreased by 16% to £7.0m
(2020: £8.3m).
Currency review
Exchange rates
Zotefoams transacts significantly in US dollars
and euros. The exchange rates used to
translate the key flows and balances were:
GBP to USD – average
GBP to USD
– year-end spot
GBP to euro – average
GBP to euro
– year-end spot
2021
2020
1.376
1.351
1.284
1.366
1.163
1.192
1.125
1.111
Movements in foreign exchange rates can
have a significant impact on results. During
the year, the sterling average exchange rate
year-on-year against the US dollar
strengthened by 7% and the sterling average
exchange rate against the euro strengthened
by 3%. The sterling spot rate against the
US dollar from 31 December 2020 to 31
December 2021 weakened marginally by 1%,
rising steadily by 4% to the mid-year before
steadily falling back, while the sterling spot
rate against the euro from 31 December 2020
to 31 December 2021 strengthened by 7%,
with most of the gain being achieved by
mid-year.
Zotefoams is a predominantly UK-based
exporter which invoices mostly in local
currency. In 2021, approximately 90% of sales
(2020: approximately 79%) were denominated
in currencies other than sterling, mostly US
dollars or euros. Most operating costs are
incurred in sterling, other than the main raw
materials for polyolefin foams used for
production in the UK, which are
euro-denominated, US subsidiary production
and operating costs, most other subsidiaries’
staff and operating costs and some HPP raw
materials, which are US dollar-denominated.
Poland operating costs are incurred in Zloty.
The Group therefore uses forward exchange
contracts to hedge its foreign currency
transaction risk to US dollar and the euro.
The Group generated a net gain on forward
exchange contracts of £1.3m (2020 loss:
£0.1m).
Zotefoams also faces translation risk.
Zotefoams plc, the parent company, holds
the Group’s multi-currency borrowings facility
and has provided intercompany loans and
intercompany trading facilities to the USA
and Poland to support the Group’s capacity
expansion projects. It also has a growing
Footwear business, which is invoiced from
the UK in US dollars, adding to its exposure
to foreign currency denominated net assets.
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. This treatment
also applies to the non-sterling accounts
receivable balances held on the Company’s
balance sheet, the impact of which should
reverse through forward currency contracts but
is subject to the timing difference between the
recording of accounts receivable and cash
received. In the year, the Group recorded a
translation loss in the income statement of
£0.1m (2020 loss: £0.2m).
Currency movements during the year
negatively impacted Group revenue by £4.1m
(2020: £0.1m negative impact). They positively
impacted operating costs by £2.4m (2020:
£0.1m negative impact), resulting in a net
negative impact of £1.7m (2020: negative
impact £0.2m) before hedging. After
deducting the hedging gain of £1.2m
(2020: charge of £0.3m), the net currency
negative impact for the year was £0.5m
(2020: negative impact £0.6m).
We expect growth to come mainly from
outside the UK and recognise that one of
our principal risks is our exposure to foreign
currency fluctuations, particularly the US
dollar, which we will manage through hedging
strategies. Based on 2021, it is estimated that,
with respect to transaction risk and for every
one percentage point movement in the US
dollar/sterling rate, profit moves by £0.24m
unhedged and £0.08m hedged. In the year,
it is assumed that the transaction risk from
euro/sterling movements continues to be
substantially naturally hedged, with sales
revenues offset by 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.
Tax and earnings per share
The effective tax rate for the year is 37.6%
(2020: 13.7%), which is significantly above
the Group’s weighted average corporate tax
rate for the year of 19.0% (2020: 19.7%). This
resulted in a tax charge of £2.6m in the year
(2020: £1.1m). The higher effective tax rate for
the year arises primarily from an increase in
the deferred tax charge of £1.0m that results
from the expected future change in UK
Corporation Tax rates to 25% from the current
19% and which was substantively enacted
on 14 May 2021, a prudent approach to
recognising overseas tax losses as a deferred
income tax asset, amounting to £0.4m
Currency impact on business segments in 2021
Currency had a £4.1m negative impact on the Group’s sales performance
Segment revenue £m
Polyolefin Foams
HPP
MEL
Group
2021
Reported
2021
Adjusted*
2020
Reported
Net change %
Reported Adjusted
56.2
42.3
2.3
58.4
44.1
2.4
100.8
104.9
50.9
30.0
1.8
82.7
10
41
32
22
15
47
37
27
* Constant currency, adjusting 2021 values to 2020 rates. See exchange rates table above.
Zotefoams plc Annual Report 2021 (2020: a credit of £0.1m), no adjustments
in the current year to the prior year UK
Corporation Tax charge (2020: a credit of
£0.4m) and a lower profit before tax of £7.0m
(2020: £8.3m). Net income tax paid during
the year was £1.1m (2020: £1.1m).
Basic earnings per share was 9.01p
(2020: 14.87p), a reduction of 39%. Without
the deferred tax charge as a result of the
expected future change in UK Corporation
Tax rates, earnings per share was 11.1p,
a reduction of 25%.
ReZorce
ReZorce® technology, being developed
by MEL, offers brand owners the ability to
significantly reduce their carbon footprint
and also help meet their pledges on both
recycling and use of recycled content in their
packaging, putting sustainability at the heart
of our MEL development agenda. During the
year, Zotefoams significantly increased its
investment in this opportunity. Labour
amounting to £0.4m was redirected from MEL
to ReZorce and capitalised. One half of this,
as well as expenditure of £0.6m representing
additional, directly attributable costs, was
capitalised in line with IAS 38 “Capitalisation of
Development Costs”. The Group also invested
£0.9m of capital and used the other £0.2m
of MEL labour resource to complete the
commissioning of its pilot line and implement
sterile carton packaging, the combined sum
of which has been recorded as tangible
assets. In total, investment in ReZorce
amounted to £1.9m during 2021 and £2.4m
cumulatively, which will be amortised in
line with Group policies, if successful,
or be fully impaired, if not, in line with
accounting standards.
41
Investments
Given the capital intensive nature of the
Zotefoams business, long lead times for
key equipment and the importance of
operational gearing, investment decisions
require significant planning and are made
with a clear assessment of strategic fit,
risk, risk appetite 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.
Zotefoams targets improvements in
the Group’s return on capital over the
investment cycle, while recognising the
short-term impact on this return during
construction and operating initially at lower
utilisation 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 or the most recent
investment in foam manufacturing at the
Poland site, we take into account the
importance of scale and dilution of heavy
infrastructure cost over a (future) second or
third line. As such, the first step is invariably
more dilutive to capital return than any
subsequent investments.
Zotefoams defines the return on capital
employed (ROCE) 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 2021, the Group’s return on capital
employed decreased to 6.1% (2020: 9.0%).
The main cause of this movement in the
year is the commissioning of the Poland
manufacturing site at the beginning of
February 2021, which was previously
adjusted for as a consequence of it being
a significant capacity investment under
construction in line with the Group’s
definition of ROCE, and reduced operating
profit. The main cause of a reduction in
ROCE since 2018 is the increase in the
capital base following the completion of
our investments in the UK, USA and Poland
and the additional operating costs arising
from their operation, which is expected
during this stage of the investment cycle.
However, business growth as a result of this
increased capacity and improved utilisation
is expected to improve ROCE beyond that
previously achieved.
The Group’s recent committed capacity
expansion programme is now complete.
Investing in growth (£m)
Growth capital
Capitalised interest
Maintenance capital
Total investment in
property, plant and
equipment
2015
2016
2017
2018
2019
2020
2021
Total
6.9
–
6.1
–
2.6
7.8
12.8
19.8
10.3
–
–
5.2
3.6
3.0
0.9
3.7
0.6
2.1
3.4
0.0
2.6
67.1
1.5
22.8
8.7
12.1
11.4
15.8
24.4
13.0
6.0
91.4
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 42
Group CFO’s review
Continued
Dividend
The Board has a progressive dividend
policy, recognising the importance to our
shareholders of the dividend as part of their
overall return. The Directors are proposing
a final dividend of 4.40p (2020: 4.27p),
which would be payable on 1 June 2022 to
shareholders on the Company register at the
close of business on 6 May 2022. Taken with
the interim dividend of 2.10p (2020: 2.03p),
this would bring the total dividend for the year
to 6.50p (2020: 6.30p) and would represent a
dividend cover of 1.4 times (2020: 2.4 times).
This multiple is lower than that of 2020 as a
result of the short-term inflationary impact on
margins as well as the higher tax charge for
the year, in part driven by the non-recurring
deferred tax charge arising from the UK
Corporation Tax increase to 25% in 2023.
Cash flow
The Group continues to be highly cash
generative with net cash from operations
before investment in working capital and
provisions of £16.5m, up 3% on the previous
year (2020: £16.1m). Of this, £3.0m (2020:
£2.4m) was re-invested in working capital.
Trade and other receivables increased by
£1.6m (2020: reduced £1.2m), reflecting
greatly increased sales. Overdue balances
remained on average below 0.5%. Inventories
increased by £2.8m (2020: increased £4.5m),
with the movement being driven by an
increase in footwear raw material reflecting
the Vietnam shutdown close to the year end
and a build-up of finished goods inventory in
Poland now that it is operational. The change
in mix also impacts the value of inventory, with
HPP raw materials being significantly more
expensive than their polyolefin counterparts
and their uniqueness requiring higher
inventory levels to mitigate supply chain risks.
Trade and other payables increased £1.5m
(2020: increased £1.0m), supporting higher
business activity. 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 in line with the previous year at £12.8m
(2020: £13.0m).
During the year, the Group paid interest of
£0.8m, none of which was capitalised (2020:
paid interest of £1.1m, of which it capitalised
£0.6m on qualifying assets under IAS 23
“Capitalisation of Borrowing Costs”). The
interest paid has been split between operating
activities of £0.8m (2020: £0.5m) and investing
activities of £nil (2020: £0.6m) to reflect the
Group’s utilisation of the interest paid.
Taxation paid during the year amounted
to £1.1m (2020: £1.1m).
Zotefoams’ property, plant and equipment
capital expenditure reduced in 2021, as
expected, following several years of capacity
expansion, with total expenditure including
capitalised interest of £6.0m (2020: £13.0m).
The primary focus on this year’s expenditure
was investments in the Poland plant to allow
for its commissioning in February 2021,
assembling a pilot line and trial system for the
MEL ReZorce opportunity, and improvements
to the Croydon plant. A small amount of
capital investment is outstanding in Poland,
delayed from 2021, and the level of
expenditure on ReZorce during 2022 will be
dependent on key milestones during the year.
Other than this, we expect capital expenditure
to be at levels more in line with the Group’s
depreciation charge. The Group also invested
£1.1m (2020: £0.3m) in intangible assets,
almost entirely related to MEL patents and
capitalised development costs for the
ReZorce opportunity at MEL.
After dividends paid in the year amounting to
£3.1m (2020: £1.0m) and lease payments of
£0.5m (2020: £0.4m), closing net debt was
£34.3m (2020: £35.6m). At the year end, the
Group remains comfortably within its bank
facility covenants, with a ratio of EBITDA to
net finance charges of 16 (2020: 24), against
a covenant minimum of 4, and net debt to
EBITDA (leverage) of 2.1x (2020: 2.1x), against
a covenant of 3.0x. See ‘Debt facility’ for
a definition of leverage and information on
the Group’s renewal of its refinancing
arrangements in March 2022. We expect to
remain within covenant levels going forward.
Debt facility
At 31 December 2021, the Group’s gross
finance facilities were £47.3m (2020: £53.8m),
comprising a multi-currency term loan of
£20.0m (2020: £25.0m), a multi-currency
revolving credit facility of £25.0m (2020:
£25.0m) and a remaining balance of £2.3m
(2020: £3.8m) of a further £7.5m sterling
annually renewable term loan, repayable
in equal quarterly instalments. The bank
facility in place at 31 December 2021 is for
a five-year period and expires in May 2023.
At the date of the statement of financial
position, 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 £13.4m (2020: £19.2m). The facility is
subject to two covenants which are tested
semi-annually: net debt to EBITDA (leverage)
and EBITDA to net finance charges.
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.
With the Group’s debt facility arrangement
expiring 13 months from the date of signing
of the financial statements, the Group has
undergone a renewal tender process and
selected Handelsbanken and NatWest, the
incumbents, to continue as its lenders. Under
the terms of the new facility, completed in
March 2022, the Group’s gross finance facility
comprises a £50m multi-currency revolving
credit facility with a £25m accordion, on a 4+1
tenor, and with an interest rate ratchet on
slightly improved terms to the previous facility
and including a small element related to the
achievement of sustainability targets. The
finance cost and leverage covenants remain
in place, with the former remaining at 4:1
and the latter increasing to 3.5:1 from 3.0:1.
Unamortised costs of £0.3m relating to the
previous facility will be charged to income
in the first half of 2022.
Zotefoams plc Annual Report 2021 43
2021
2020
34.3
35.6
(1.1)
0.0
0.0
(1.4)
0.1
(0.1)
33.2
34.2
2021
2020
£m
4.4
7.2
Net debt per IFRS
IFRS 16 leases
7.6
1.1
0.0
0.0
0.4
2.6
0.0
6.7
Finance leases pre 1 January 2019
0.8 Roundings
Net debt per bank
0.0
0.0
0.3
1.1
0.1
16.1
16.2
Leverage per bank
2.1x
2.1x
Group banking covenants definition
Net debt to EBITDA ratio (Leverage)
£m
Profit after tax
Adjusted for:
Depreciation and amortisation
Finance costs
Finance income
Share of result from joint venture
Equity-settled share-based payments
Taxation
Roundings
EBITDA
EBITDA to net finance charges ratio
£m
EBITDA, as above
2021
2020
£m
16.1
16.2
Finance costs
EBITDA to net finance charges
16.1x 23.7x
Net finance charges
Finance income
Share of result from joint venture
2021
2020
1.1
0.0
0.0
1.1
0.8
0.0
0.0
0.8
pension scheme to be a key risk to its ability
to achieve its strategic objectives. Mitigation
of further risk is expected to come from our
growth expectations and the refocus by the
Trustees on a lower-risk strategy to meet the
DB Scheme’s deficit shortfall.
Going concern
The Group’s business activities, together
with the factors likely to affect its future
development, performance and position,
are set out in the Strategic Report on pages
1 to 77 and the section entitled ‘Risk
management and principal risks’ on pages
45 to 54. 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.
Post-employment benefits
The last full actuarial valuation of the Defined
Benefit Scheme (‘DB Scheme’) took place
as at 5 April 2020, in line with the requirement
to have a triennial valuation. On a Statutory
Funding Objective basis, a deficit was
calculated for the DB Scheme of £7.7m
(previous triennial valuation: £4.2m). As a
result, the Company agreed with the Trustees
to make contributions to the DB Scheme of
£643,200 per annum, beginning 1 July 2021,
to meet the shortfall by 31 October 2026
(previously 31 October 2026), up from
£492,000 per annum previously. In addition,
the Company pays the ongoing DB Scheme
expenses of £216,000 per annum (previously
£180,000 per annum) to cover
death-in-service insurance premiums, the
expenses of administering the DB Scheme
and Pension Protection Fund levies.
The net IAS 19 deficit on the DB Scheme
decreased by £4.2m to £4.7m as at 31
December 2021 (2020: £8.9m). The main
factors leading to the improvement were the
strong investment performance over the year
and changes in assumptions, in particular
the use of a higher discount rate following an
increase in corporate bond yields over the
year, which has placed a lower value on the
defined benefit obligation. The deficit is the
net total of £34.1m (2020: £31.9m) of assets
and £38.8m (2020: £40.8m) of liabilities and
represents 4.8% (2020: 9.4%) of consolidated
net assets. Zotefoams does not consider its
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 44
Group CFO’s review
Continued
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 renewal
and terms of the new debt facility, 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 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
6 April 2022
Zotefoams plc Annual Report 2021 45
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. 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 framework
Board
Ensures that risk is managed
across the business
Defines the Group’s appetite for risk
Assesses the Group’s principal risks
and opportunities
Executive Committee
Audit Committee
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 arising
Leads operational management’s approach to risk
Inputs its assessment of risk and opportunities into
the Internal Controls Committee
Monitors and reviews the effectiveness of the Group’s
risk management framework
Internal Controls Committee
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
Functional Steering Committees
Chaired by, and including, Executive Committee members
Provide a regular forum for active monitoring of key 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 successful 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:
With plc responsibility*
Health and Safety (with a
sub-committee on Fire Protection)
Environment
Sustainability
IT
Quality
Product Development
Marketing Communications
Planning and Capacity
Capital Planning
Foreign Exchange
HR and Training
Key Supplier Review
Contract Control
Credit
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 highlighted
under local responsibility
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
Active in the day-to-day understanding and
management of risk
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements X Renewed accreditation to the new
Occupational Health and Safety
Management System ISO 45001:2018
was obtained during the year, which the
Company successfully transitioned to in
May 2020, led by significant focus and
effort from a dedicated Health and Safety
team on our UK site, supported by the
Executive team and impacting all UK-
based employees. As with previous years,
accreditation and systems audits were
conducted during 2021 and the Company
received no significant non-conformities
X The Group continues to use an external
adviser to perform its financial internal
audit services. During the year, based on
the Group’s internal risk assessments,
our Internal Auditor Grant Thornton LLP
completed a payroll audit across all
Zotefoams subsidiaries, with outcomes
and improvement plans presented to
the Audit Committee. At the request of
the Audit Committee and in recognition
of the increased size and complexity
of the organisation, a three-year rolling
audit plan, with two internal audits per
year, was presented and approved
for implementation from 2022.
46
Risk management and principal risks
Continued
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 COVID-19 and governments’ responses
to the pandemic remained foremost in
our thinking during 2021, although we
managed this primarily with an evolution
of previously embedded measures. Board
activity returned to more normal levels
after significantly greater activity in 2020.
Zotefoams maintained its high prioritisation
of the health and safety of our workforce
and the immediate needs of our customers
and continued to run comprehensive site
pandemic response measures across
all locations, keeping them fluid to reflect
changing developments and ensuring they
followed or exceeded local government
policies at all times. These measures,
together with maintaining a strong
technology offering to allow staff to work
effectively from home, have helped ensure
operations continued safely during this
second year of the pandemic
X The Group’s Poland manufacturing facility
was commissioned in February 2021,
providing an alternative supply channel
into the Group’s European customer base
and concluding the multi-year capacity
expansion commitment
X The ReZorce® mono-material barrier
packaging initiative, which puts
sustainability at the heart of the MEL
development agenda, progressed well,
although significant challenges remain.
We established a pilot line to develop
and manufacture ReZorce sheet and
commissioned a sterile carton packaging
machine to test the sheet’s ability to form
into a carton and seal to the required
industry standards. Commercial trials
are planned for the second quarter this
year which, if successful, will lead to an
assessment of the right business model
to deliver value to stakeholders
X Risk discussions remained highly prominent
at Board meetings and regular updates
were held during the year as the Board
discussed, considered and assessed
its ongoing responses to COVID-19, the
challenging supply chain environment and
the broad-based inflationary pressures, as
well as the development and execution of
objectives and activities
X The Executive team, who are also members
of the functional steering committees, met
twice during the year specifically to review
and update the Group’s principal risks and
uncertainties
X Zotefoams prepares an annual strategic
plan over a five-year period. The Board
and Executive team risk-assessed this
plan during the two-day annual strategic
review in October
X The Group reviewed its key policies,
including anti-bribery and corruption,
competition, ethics, whistleblowing and
share dealing, to make sure they remain
relevant and are operating effectively
X Zotefoams implemented a cyber security
awareness testing programme across
all staff in the UK, starting in July and
followed by monthly testing, with training
programmes for those employees failing
the test. During the period, the failure rate
fell from 16% to 3% while testing difficulty
increased
X Zotefoams successfully regained the Cyber
Essentials Plus certification, an in-depth
and thorough independent assessment
of our IT systems, which it first achieved
in 2018 and has maintained each year
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 businesses
and organisations to implement digital
protection against common cyber-attacks,
while allowing them to demonstrate an
increased awareness of cyber security
Zotefoams plc Annual Report 2021 47
Principal risks and uncertainties
The details of our principal risks and
uncertainties and the key mitigating activities
can be found on pages 48 to 54. We are
disclosing those risks and uncertainties
that we believe have the greatest impact
in achieving 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 45. 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.
Key to links to the strategy
1
4
Develop an HPP portfolio to
deliver enhanced margins.
Improve our return on capital
(over our investment cycle).
Read more on pages 22 to 25.
Our principal risks and uncertainties are:
Operational
disruption
Sustainability
and climate
change
Global
capacity
management
Technology
displacement
Scaling up
international
operations
Customer
concentration
External
Having assessed the inputs from our risk framework mechanism during the current year,
we have concluded that there are no further changes to our assessment.
2
5
Grow sales in our AZOTE®
Polyolefin Foams business
in excess of twice the rate
of global GDP growth.
Clarify and improve the Group
approach to sustainability and
climate change.
3
6
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.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 48
Risk management and principal risks
Continued
Operational disruption
Strategy 1 2 3 4
Risk trend
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 At the time of writing of this Annual Report,
the war in Ukraine has created significant
uncertainty around the cost and availability
of products and utilities, the impact of which
is too early to predict. However, Zotefoams
considers this risk to be more related to cost
than operational disruption at this time.
Mitigating actions
Safety, Health and Environment
policies
We have extensive Safety, Health and
Environment (SHE) policies and procedures
in place which are in line with best practice.
The reporting of incidents, including ‘near
misses’ and damage to plant or equipment
not resulting in personal injury, is mandatory
in order to track issues and to prevent
recurrences. Regular internal and external
audits are performed, with high levels of
Executive team engagement, and quarterly
reports are submitted to, and discussed
by, the Board.
COVID-19 in the workplace
We have adapted our on-site health and
safety measures in line with the changing
governance guidance in each of our global
facilities. The nature of our business
operations allows for social distancing without
major disruption, while all relevant measures
specific to face protection, cleanliness,
permitted gatherings and visitors to site are
reviewed on a regular basis to ensure the
highest standards of safety and business
continuity. All staff able to work from home
currently do so, supported by modern
technology and careful appraisal of their
working environments. We have limited travel
in line with World Health Organization advice.
All manufacturing sites have remained
operational, other than as specifically noted
elsewhere, throughout the pandemic. We
have plans and new procedures in place to
manage working conditions as the impacts
and risk of the pandemic subside.
International trade and Brexit
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.
Insurance
The Group ensures that it has updated and
sufficient insurance in place to cover capital
restatement and loss of profits in the event of
operational disruption caused by unforeseen
events. We also work closely with our
insurance advisers and their experts to ensure
operations maintain the highest level of fire
protection measures.
Maintenance strategy
We ensure that our assets are well looked
after through a well-resourced maintenance
team and proactive maintenance investment,
including annual shutdowns. Our pressure
equipment is operated under prevailing
regulations and is subject to systematic
internal and frequent external inspections.
Appropriate contingency plans are in place
in the event of the failure of certain major
pieces of equipment.
Operations outside the UK
Zotefoams has completed a large investment
programme in manufacturing capability
outside the UK, adding 60% capacity to that
with which it started 2018. The Kentucky, USA
site commissioned its first full manufacturing
line in April 2018 and a second line became
available in March 2020. These lines provide
polyolefin foam capacity, in the first instance,
but are specified to provide capacity for HPP
foams if needed. We also started our third
foam manufacturing location in Poland,
the first line of which was commissioned
in February 2021.
Seeking dual sources
Wherever possible, supplies and services
are sourced from more than one supplier
or location. However, this is not always
possible due to the special nature of the
raw materials, particularly those used to
manufacture high-performance products, and
the machinery used. We continually monitor
suppliers, and search for new ones, and have
expanded our procurement department to
support this. We have identified new
component suppliers in the USA as a result
of our investment activities at our Kentucky,
USA plant and continue to invest dedicated
resources in the search for, and testing and
approval of, alternative suppliers of critical
materials and services. We also endeavour
to have sufficient levels of safety stock to
mitigate short-term supply issues, which will
be further supported by our Poland plant,
close to key European customers.
Investing in IT
We continue to invest in our IT systems and
department. We operate the latest version
of the Microsoft Dynamics AX ERP system.
We have multiple redundancy points limiting
failure of any one hardware or operating
system, 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, part of the UK government’s
National Cyber Security Strategy, which
requires an annual, fully independent
assessment of our IT systems’ ability to
deal with common cyber-attacks. We
also train our employees on a regular basis
to spot potential cyber-attacks through
communication and online training.
Control Committees
X Board
X Executive Committee
X Planning and Capacity Committee
X Health and Safety Steering Committee
X Environmental Steering Committee
X Key Supplier Review Steering Committee
X Contract Review Steering Committee
X IT Steering Committee
X Maintenance Steering Committee
X Zotefoams Inc Executive Committee
X Zotefoams Poland Executive Committee
Zotefoams plc Annual Report 2021 49
Sustainability and climate change
Strategy 1 2 3 4 5 6
Risk trend
Description and context
What is the risk?
Zotefoams’ business model, strategy,
investments or operations are assessed
by stakeholders as having an unacceptable
future impact on the natural environment and
on national and international targets to tackle
climate change, with consequences ranging
from financial penalties and an inability to hire
the right staff, up to business viability.
our technology being used to meet the
growing demand for improved sustainability,
with foams which include recycled or
renewable content polymers. We recognise
the importance of reducing energy emissions
in our production processes and pursue
continuous improvement in our operations,
supported by investment in capital additions
or replacements which further this aim. This
will be supported by effective reporting on our
ESG performance, see below.
Control Committees
X Board
X Executive Committee
X Group Sustainability Steering Committee
X Environmental Steering Committee
X Key Supplier Review Steering Committee
X Zotefoams Inc. Executive Committee
X MEL Executive Committee
X IT Steering Committee
Material influencing factors
X Transitional risks exist relating to
developments in political and regulatory
requirements that affect the products that
Zotefoams manufactures. As businesses
progress towards a net zero greenhouse
gas target by 2050, there is potential for
abrupt government intervention aimed at
ensuring certain milestones are met. This
intervention may involve legal and regulatory
changes, including loss of financial
incentives, new taxation, compliance costs
relating to plastic products or enhanced
reporting expenditure, with a resulting
financial impact
X Growing global concerns over waste
generated from the over-consumption,
misuse and over-packaging of consumer
goods. 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
Sustainability-focused
developments
In 2021, we established sustainability targets
focused on the reduction of our Scope 1 and
2 carbon emissions. In parallel with these
specific Scope 1 and 2 targets, we have
calculated the carbon cost of our foams
(referred to as “carbon accounting”) and
ReZorce® circular barrier packaging
technology and are utilising this information
internally, and working with selected
customers, to assess how this can be used
constructively to make objective decisions,
steer our own business and guide our
customers in choosing the optimal materials
for their solutions. We are also developing Life
Cycle Assessments (LCAs) for our products
in use that will give us visibility of Scope 3
emissions on a case study basis. For further
information, refer to “Key targets” in the
Environmental, social and governance
(ESG) report on page 61.
Effective reporting on ESG
performance
With an environmentally conscious technology
and material solutions focused on non
single-use applications, 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 engaged in a plan to
adopt the Sustainability Accounting
Standards Board (SASB) framework and are
reporting against it from 2021. See our
disclosures on pages 67 to 69. Zotefoams
also publicly supports the Task Force on
Climate-related Financial Disclosures (TCFD)
guidance and has embarked on implementing
its recommendations. Finally, the Group has
very recently completed a bank refinancing
process which includes ESG targets.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 50
Risk management and principal risks
Continued
Global capacity management
Strategy
1 2 3 4 5
Risk trend
mainland Europe, which were previously
single sourced in the UK. In-house
project management expertise has been
developed or enhanced through either
new hires or existing staff having been given
the opportunity to grow. We have engaged
and developed relationships with experienced
consultants to lead and/or work alongside us.
Sufficient funding to support
investment
In March 2022, we completed a debt
refinancing that provides us with the
necessary funding to support our five-year
plan. This includes a £25m accordion.
As we go forward, we will consider further
opportunities as they arise and consider
options such as this accordion or an equity
raise, the latter being an option we
successfully drew upon in 2018.
Control Committees
X Board
X Executive Committee
X Planning and Capacity Steering Committee
X Group Sustainability Steering Committee
X Capital Planning Steering Committee
X Zotefoams Inc Executive Committee
Description and context
What is the risk?
As we grow our business at the rate we
target, it is critical that we create the required
capacity to match the anticipated demand.
Failure to execute well and in a timely manner
will impact both opportunity creation and the
speed of growth. We face material risks due
to the uncertainty of medium to long-term
demand, the high capital costs and long
construction periods of our unique
technology, the successful execution of our
investment projects, the risk of loss of an
important customer and the ability to finance
these investments.
Material influencing factors
X Zotefoams’ growth is founded upon its
unique offering, its relevance to the global
megatrends of environment, regulation
and demographics, listed on pages
20 and 21, and its ability to create new
markets and new applications. The nature
of demand differs between our Polyolefin
Foams and HPP business units. Polyolefin
foam sales are very diversified and more
aligned with GDP, but are boosted by the
benefit of the environment, regulation and
demographics megatrends. HPP sales are
more aligned with specific, often larger,
opportunities with the end-user who also
has a more direct involvement in the growth
trajectory. Together, this can make the
timing of growth difficult to predict, but
not having the right capacity available at
the right time may mean the opportunity
cannot be realised. We plan to invest in
order to maintain performance and price
for polyolefin foam products as we believe
this is the best approach to ensure the
future growth prospects of this profitable
business unit
X Our unique technology is highly capital
intensive with long lead times. The UK site
is highly developed, with space limitations
restricting further investment, meaning the
next growth initiatives have been in other
sites and geographies, most recently the
USA and Poland. New sites require sizeable
infrastructural investment, accurate risk
assessment and more time to implement
them. Because foam is costly to transport,
a geographical mismatch of capacity and
customers could impact sales growth and/
or margins in the Polyolefin Foams business
X The Group needs to have sufficient cash
or be able to draw on loan facilities or
access capital markets to finance this
capacity expansion. Funds for investment
are required up to a number of years before
the assets start generating cash, which
increases debt levels and leverage ratios.
Mitigating actions
New processes and longer-term
planning
During the year, we have continued to refine
our monthly sales and operations planning
process, which generates high levels of
cross-functional engagement to ensure
collaboration and consistency in planning
sales and production over the upcoming 24
months. We also meet quarterly as a Planning
and Capacity Steering Committee, 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 2021.
Current investment programme
completed
We have been engaged in a significant
programme of capital investment, the latest
phase of which is complete with the start-up
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, will initially expand
sheets manufactured by the UK and USA in
its high-temperature, low-pressure autoclave.
Building on our experiences
in the USA, UK and Poland
The experiences gained through the recent
investments in the Kentucky, USA and Brzeg,
Poland sites, as well as the work performed
around high-temperature, low-pressure
vessels in the UK, have provided a significant
increase in know-how, spread across more
personnel, which reduces uncertainty of
future execution. We have identified new
suppliers of critical equipment in the USA and
Zotefoams plc Annual Report 2021 51
Technology displacement
Strategy 1 2 3 4 5 6
Risk trend
Description and context
Mitigating actions
What is the risk?
The loss of our technological advantage could
increase competition and affect growth rates
and margins. Either our foam manufacturing
process or our MuCell® technology (including
ReZorce®) could be matched or bettered.
Material influencing factors
Our processes for the manufacture of our
products are unique to the Group. We are not
aware of anyone using autoclave technology
to make similar products in commercial
quantities. While the principles behind the
processes are not confidential, the precise
know-how is. Our autoclave technology is
flexible, allowing us to manufacture foams
from a range of polymers. For a product
with substantial growth opportunities, or a
product with a large consolidated market,
a competitor could target an alternative,
more economic, process.
Critical to the success of MuCell Extrusion
LLC (MEL) is the strength of its intellectual
property and, on the back of that, its ability
to grant commercial licences. Its intellectual
property could become dated or its patents
expire or be successfully challenged or
circumvented. We are also investing
significant resource in developing ReZorce,
which is high risk but offers the potential for
very high returns, and it is possible that
another party launches a solution before we
do which is perceived by the market as better,
or the market decides that plastic, albeit fully
circular, is not a path it wishes to pursue.
In this case, we may be required to write
off some or all of our investment in this
technology. The size of the opportunity
and the risk that this investment might not
result in an effective solution and require a
write-off are the justification for treating this
risk as being on an upward trend.
Reinforcing high barriers to entry
There are high barriers to entry for the
manufacturing of our unique foams.
Significant capital investment, know-how
and time are required to invest in autoclaves
and related infrastructure. High-performance
products are significantly more complex
to manufacture than our polyolefin foams
and certain materials require years to
be qualified for supply.
We have reduced, and continue to seek
to reduce, technology displacement risk
by entering new markets with significant
barriers and cost of market entry for
competitors. For example, the development
of high-performance products and ReZorce
mono-material barrier 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 and
have developed strong relationships with
respected universities to attract high-potential
individuals in the fields of material science and
engineering. We dedicate financial resource
to testing materials and solutions to remain at
the forefront of cellular materials technology.
Protecting our intellectual property
We actively maintain our intellectual property
and patent our technology, wherever we
believe it is appropriate to do so, and guard
our know-how to sustain protection when
technology is not subject to patent or patents
are no longer applicable. This know-how
spans multiple disciplines across our
business, making it difficult to poach. We
protect our know-how using confidentiality
and contractual agreements with employees,
suppliers and customers and by maintaining
cyber security. The Group keeps a watching
brief on competitor activity and maintains
close contact with its customers and
end-users of its products to understand
market activity.
MEL actively maintains and updates its
intellectual property portfolio. This is done
by undertaking research and development
to add new patents to the portfolio, further
developing its know-how and obtaining
licences for key third-party patents which are
complementary to the existing portfolio. In
some cases, our close connection with our
customers and dedication to a customised
solution has yielded new intellectual property
opportunities. Protecting these patents also
provides us with valuable insight into any
possible competitive threats on the horizon
and allows us to take timely action to
mitigate possible displacement risk.
MEL licences typically include a bundle of
patents and know-how and therefore are
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.
Control Committees
X Executive Committee
X Product Development Committee
X Zotefoams Inc Executive Committee
X MEL Executive Committee
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 52
Risk management and principal risks
Continued
Scaling up international operations
Strategy 1 2 3 4
Risk trend
Description and context
What is the risk?
Working more remotely with international
operations 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.
Material influencing factors
X Our business is growing in Asia and
our manufacturing facility in Poland
commenced operations in February 2021
X Until recently, most of Zotefoams’ revenue
was shipped from the UK. Following our
investments in the USA, Europe and Asia,
the Group now employs more people,
holds more assets and generates a higher
proportion of revenues outside the UK. We
are hiring people globally at a faster rate
than previously, with high expectations
of material contributions to the Group’s
growth strategy
X Failure to ensure responsible corporate
behaviour in these new areas will
undermine our reputation in these new
regions, could bring substantial financial
penalties and affect our growth path.
Failure to provide these distant operations
with effective financial and IT systems,
educate them effectively on all aspects of
Zotefoams’ culture and ethics and align
them on our strategic objectives could
impact business performance
X Critical to any Group’s success is its
people. The failure to attract, develop or
retain the right calibre of staff will impact
our ability to deliver. Getting this right from
a distance, in cultures less familiar to us,
will be challenging
X COVID-19 continues to tightly restrict
international travel, particularly in Asia,
requiring management and recruitment by
distance. This is making it more challenging
to ensure the right people are in the right
roles and that behaviours are aligned with
those at the corporate centre.
Mitigating actions
The Board and Executive Committee
have continued to review the Group’s
corporate culture, its communication
and the embedding of controls across
the organisation.
Direct engagement with
overseas employees
Key leaders, under normal circumstances,
have travelled frequently to overseas locations
to ensure that the right people are in the right
roles and that behaviours are aligned with
those at the corporate centre. Over the past
two years, as a result of the travel restrictions
imposed by COVID-19, this has not been
possible for most of the Group’s locations
and this engagement has taken place via the
Group’s videoconferencing facilities. While a
short period of reduced travel and physical
presence can be managed, the longer that
time passes, the more disruptive these travel
restrictions become, and the more overseas
staff additions or movements take place,
the less familiar the staff may become with
aspects of Zotefoams’ culture and ethics
and less aligned with our strategic objectives.
While many countries are loosening their
visitor controls in the early part of 2022,
China and India, where the Group has
important operations, remain restricted.
Hiring and developing
overseas leaders
The Group’s USA operations, comprising
Zotefoams Inc and MuCell Extrusion LLC
(MEL), have been part of the Group since
2001 and 2008 respectively, have
experienced management teams with
significant tenure at Zotefoams and
well-embedded reporting and control
structures, and engage in 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, clearer leadership and
greater assurance around governance.
Building up our global functions
We have invested significantly in human
resource over the past few years as we build
global functions and hire leaders with the skills
and experience to deliver the current and
future needs of the Zotefoams business.
Poland manufacturing site start-up
We recognise the importance and risks
surrounding the operation of a new
manufacturing site in a country with which
we are less familiar. The main aspects of the
Poland build and the running of the facility
since its commissioning in February 2021
have been very successful despite the inability
of UK experienced personnel to be physically
present. This is in part due to hiring the
General Manager for Zotefoams Poland in
2019 in advance of the project commencing
and basing him in the UK for several months
while he gained experience with Zotefoams’
unique technology, became familiar with the
key functional support staff in the UK required
to support the plant going forward, and
understood and adopted the Zotefoams
culture. Key players in his leadership team,
hired during H2 2019, shared this UK-based
experience and have successfully taken up
their operational roles during the year. Since
March 2020, the beginning of the pandemic,
UK and Poland teams have maintained
high levels of engagement, assisted by
communication technology and
personal familiarity.
Upgraded IT
We have up-to-date IT systems which
standardise information and improve
communication and visibility. We
use Microsoft Teams for effective
videoconferencing and have continued
to roll out and educate the upgrades that
Microsoft has introduced throughout the
period. The systems are implemented into
all new subsidiaries as they are set up.
Training
We have introduced a global training tool
which provides training across many facets,
from governance compliance to areas
of personal development, plus tracking
mechanisms across all our locations on
a risk-assessed basis. Key policies are
translated into local languages to
facilitate understanding.
Control Committees
X Board
X Audit Committee (in relation to Finance)
X Executive Committee
X HR and Training Steering Committee
X IT Steering Committee
X Zotefoams Inc Executive Committee
X MEL Executive Committee
X Zotefoams Poland Executive Committee
Zotefoams plc Annual Report 2021 53
Customer concentration
Strategy 1 2 3 4
Risk trend
We will continually review our customer
spread and balance, particularly as the HPP
business segment takes on more importance.
Control Committees
X Board
X Executive Committee
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 2021
represented 34% of Group sales (2020:
26% of Group sales), and projects in the
HPP portfolio have the potential to be
much larger than with our typical AZOTE®
customers. Divergence of interest with Nike
represents a material risk if the business is
lost, while our growth opportunities in HPP
are also likely to reshape this risk profile
X The Group’s capacity expansion
programme has completed, built in some
cases to service growth from these
customers. In an organisation with high
operational gearing, filling capacity is critical
to strong financial performance.
Mitigating actions
We have good knowledge of the end-users of
our major customers for polyolefin foams and,
with some additional short-term work and a
stable macroeconomic environment, would
expect to bring or identify additional converter
capacity, supply routes and channel partners
or take a direct approach to service these
markets.
We have a very close working relationship
with Nike, led by a dedicated Executive
team member. Visibility of future sales
is good, with a close relationship on
development and supply chain. Group
resources and regular engagement ensure
we maintain close oversight over customer
service levels and also understand Nike’s
future direction and expectations, enabling
us to align our resources accordingly and
remain a core technology for this important
customer into the long term.
We are excited by the size of the opportunities
offered by our ZOTEK® product portfolio and
have the risk appetite to pursue them. Where
we engage with large HPP customers, we
seek to ensure that our interests are protected
by balanced commercial contracts and strong
relationship management such as with Nike.
The Board is heavily involved in such
decisions. These relationships are by their
nature longer term, providing a unique
technical solution and competitive advantage
to the ZOTEK foams customer or end-user.
The loss of such a customer is likely to come
with a reasonable notice period, allowing us
time to take appropriate action. Continued
investment in the portfolio could yield further
successes that spread the risk of any single
loss, while the T-FIT® insulation business
provides further balancing with its more
broadly spread global customer base.
Existing large HPP customers are blue-chip
global organisations, which management
considers to have the financial strength or
strategic importance to withstand a
pandemic.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 54
Risk management and principal risks
Continued
External
Strategy 1 2 3 4 5 6
Risk trend
Description and context
What is the risk?
Business growth prospects are vulnerable
to movements in foreign exchange rates and
geopolitical and economic developments.
These factors are often out of our control
and may influence our business in a number
of ways, including influencing the other
key risks listed.
Material influencing factors
X COVID-19 has realised the previously
considered low risk likelihood of a
pandemic event severely impacting
demand, affecting continuity of operations
and the health of our staff, and restricting
the ability to manage a business and
people in different geographic locations
X Our markets are exposed to general
economic and political changes which
have an influence on economic stability
and market and consumer confidence,
which in turn may impact the Group’s
performance and ability to achieve our
strategic objectives. Being at the beginning
of the value chain, the Group often sees the
impacts of downturns early, accentuated
as customers deplete their inventories,
but it then benefits from seeing the
recovery sooner too. The profit impact on
such risk is accentuated by the Group’s
operational gearing and its demand for
skilled employees, given the business’s
uniqueness, which makes short-term cost
cutting often inadvisable
X At the time of writing of this Annual Report,
the war in Ukraine has created significant
uncertainty around the cost and availability
of products and utilities, the impact of
which is too early to predict
X Input costs can rise faster than the Group’s
ability to raise prices, which are typically
increased only after discussions and impact
assessment with our customers, placing
short to mid-term pressure on margins
due to the timing of inflation recovery
X Zotefoams is exposed to foreign exchange
fluctuations. This is both transactional
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 in 2021 a large proportion
of the Group’s revenue was 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 While a trade deal was concluded between
the UK and the European Union at the end
of 2020 allowing for tariff-free trade, there
remains the threat that this might be altered
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 free movement
of people.
either in US dollars or euros. For example,
there are US dollar costs associated with the
Group’s operations in Kentucky, USA and with
MEL. In addition, the majority of the Group’s
raw materials are purchased in euros or US
dollars. With our significant capital investment
in Kentucky, USA complete, we have reduced
exposure for transactional items to the US
dollar by increasing the operating cost base
in the USA. Raw materials are now purchased
locally and a larger workforce supports full
process production. While on a smaller scale,
at least to begin with, the same will apply for
the euro as our Poland manufacturing facility
ramps up production.
Mitigating actions
COVID-19 response
See ‘Operational disruption’ risk, above.
Diversifying our markets
Some of our markets can be cyclical.
However, this risk is spread geographically
and across a number of segments that are
expected to diversify further with the growth
of HPP and MEL. The Group is operationally
geared, but our experience is that, during
challenging times, certain operational labour
costs can be reduced, polymer prices
generally fall with reduced economic demand,
giving a cost benefit, and cash can be
generated from both reducing working capital
and slowing capital expenditure projects to
help offset the effects of a downturn. This was
our experience during 2020. Decisions in this
regard are, however, taken with respect to our
assessment of the underpinning reasons for a
downturn, our belief in the likely recovery and
an assessment of the impact of short-term
cost control on medium-term growth
potential.
Managing input cost pressure
2021 experienced an unprecedented increase
in input costs, including raw materials,
services, utilities and staff costs. Zotefoams’
policy is to adjust prices when the changes
are considered structural but keep price
changes infrequent to minimise disruption
to customers and allow adjustments further
along the supply chain where practical. This
results in Zotefoams sharing the benefits and
disadvantages of price movements through
the cycle without fluctuations being linked to
any particular input cost or index. The current
environment is a new experience for many
and is requiring regular consideration of
pricing and cost to achieve the right balance
between short-term margin management and
long-term strategic growth.
Managing exposure to the US
dollar and euro
We reduce our net foreign exposure for
transactional items by making purchases
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 2020, our short-term
amendments to the leverage covenant
to provide greater security at a time of
extreme uncertainty demonstrated the good
relationship we have with them. In March
2022, we completed a new refinancing round
to replace the existing one which was expiring
in 13 months, remaining with our incumbent
banks following a strong competitive process.
With our capacity expansion programme
complete and based on our most recent
five-year strategic plan, we expect our net
debt levels to fall. Our budgets and forecasts
going forward include investments in growth
opportunities, some of which can be slowed
if necessary. We stress-test our possible
outcomes and engage with our banks to
ensure their continued support under all
circumstances.
Control Committees
X Executive Committee
X Foreign Exchange Steering Committee
X Zotefoams Inc Executive Steering
Committee
X MEL Executive Committee
Zotefoams plc Annual Report 2021 The bottom-up five-year plan is reviewed
at least twice annually by the Directors. In
assessing the future prospects of the Group
and achievability of this plan, the Group has
considered the potential effect of risks that
could have a significant financial impact under
severe but plausible scenarios. The risks
considered were identified from the Group’s
principal risks and uncertainties assessment.
While testing against each individual scenario,
the Board has also considered the impact
of a combination of the scenarios over the
assessment period. This was in order to
stress-test an aggregation of severe but
plausible risks occurring that should represent
the greatest potential financial impact both in
the short-term and longer-term viability period.
The Directors considered mitigating factors
that could be employed when reviewing these
scenarios and the effectiveness of actions
at their disposal. These include experiences
and successes related to cost and capital
expenditure management during 2020 in
the face of the COVID-19 pandemic,
adequate insurance coverage, the unwinding
of working capital in a downturn and ceasing
some activities.
We are satisfied that we have robust
mitigating actions in place. We recognise,
however, that the long-term viability of the
Group could also be impacted by other,
as yet unforeseen, risks or that the mitigating
actions we have put in place could turn out
to be less effective than intended.
Viability statement
The viability period
In accordance with provision 30 of the
2018 UK Corporate Governance Code,
the Directors have assessed the prospects
of the Group over a longer period than
the twelve months required by the going
concern provision.
The Directors consider the timeline of five
years to be appropriate, being the period
upon which the Group actively focuses,
has reasonable visibility over its opportunity
portfolio and, given the nature of capital
investment needed to support the Group’s
anticipated rate of growth, covers investment
that in some cases requires long lead times
as a result of the unique nature and capital
intensity of its technology. A longer period of
assessment introduces greater uncertainty
since the variability of potential outcomes
increases as the period considered extends.
A shorter period of assessment impacts the
Group’s ability to put the right capacity in
the right place on time.
Assessing viability
The Group is considered to be viable if it
maintains interest cover and net borrowings
to EBITDA ratios, as prescribed by its existing
financial covenants and presented in the CFO
Review under ‘Debt facility’ on page 42,
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 54.
The Board reviews our internal controls
and risk management policies as well as
our governance structure. It also appraises
and approves major financing and investment
decisions as well as the Group’s performance
and prospects as a whole. The Board reviews
Zotefoams’ strategy and makes significant
capital investment decisions over a
longer-term time horizon, based on the
Group’s strategic growth objectives, individual
project investment returns, the continuing
performance of the business, the quality of
its portfolio of opportunities, its financing
arrangements and opportunities and
a multi-year assessment of return on capital.
55
Scenarios tested
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: Operational disruption
page 48; External page 54.
Scenario 2:
Significant operational disruption over a long
period. This risk focuses on the extreme
scenario of a fire at the Croydon, UK plant
requiring a significant rebuild over a period
in excess of a year.
Read more Principal risk: Operational disruption
page 48; Global capacity management page 50.
Scenario 3:
Business performance risks. These include
both Polyolefin Foams and High-Performance
Products growth at rates significantly below
those included within the five-year plan.
Read more Principal risk: Technology
displacement page 51; External page 54.
Scenario 4:
Loss of a key customer in HPP. This scenario
reflects losing the Footwear business.
Read more Principal risk: Operational disruption
page 48; Global capacity management page 50;
Customer concentration 53.
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 page 54.
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.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 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.
Over the past century, materials manufactured
using Zotefoams’ unique three stage process
have helped customers save energy by
insulating and have reduced the carbon
emissions of countless cars, planes and
trains by reducing weight which lowers 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, currently in development,
presents an opportunity to increase recycling
rates in consumer packaging, reducing waste
and creating the potential for circularity.
56
Environmental, social and governance
(ESG) report
Steve Good
Non-Executive
Chair
In 2021, sustainability was
central to long-term strategy
discussions. Following adoption
of the SASB framework in 2020,
the Board set clear targets
aimed at optimising the use of
raw materials, minimising waste
and improving recyclability. We
will continue to work hard to
become more sustainable and
to be more transparent about
our activities in this space
Zotefoams plc Annual Report 2021 57
Our operations (known as Scope 1
and 2 emissions)
Specific to the reduction of emissions
in our operations, major initiatives during
2021 included:
X A switch to a supplier accredited under
the Renewable Energy Guarantee of Origin
scheme in the UK. A renewable sourced
electricity contract has been agreed for
our Poland site from 2022 as part of our
commitment to using electricity from
renewable sources where feasible
X The business cases for all upgrades in
infrastructure and capacity enhancements
considered the need to reduce carbon
emissions. In H1 2021, we completed a
major upgrade of the steam generation
system at our UK site, which we estimate
will result in annual CO2 savings of 535
metric tonnes. We also have an ongoing
programme to improve energy efficiency
in process heating that we expect will
significantly reduce energy usage in 2022
X Our new sustainability targets on page
61 will help to reduce operating costs
by optimising raw material use and
repurposing foam scraps.
Sustainability risks
The SASB framework adopted in 2020
has been implemented through the risk
management framework. This ensures
that all business risks related to sustainability
are identified, assessed and, if above the
risk appetite of the Company, treated (utilising
a Business Risk Matrix) by the appropriate
Functional Steering Committees within the
Group. Further information about our risk
management framework can be found on
page 45.
Our ESG performance and plans
Zotefoams’ sustainability strategy is based
on the following principles:
1. We operate in markets where the vast
majority of our products offer unique
sustainability advantages for the benefit
of society
2. We seek to minimise our use of natural
resources through a series of measures
such as reducing energy and optimising
polymer usage.
Zotefoams products frequently form part of
the environmental sustainability agenda for
our customers. Building sustainability into
our own business model both enhances
operational resilience and enables us to
help keep the rise in global temperatures
to a minimum.
On page 62, we include our first response
to the Task Force on Climate-related Financial
Disclosures (TCFD). The combination of SASB
and TCFD reporting is in line with the Financial
Reporting Council’s recommendations to
listed businesses.
Our strengthened ESG framework
Zotefoams considers that managing
environmental, social and governance (ESG)
impacts contributes to long-term value
creation, supports resilience, enhances the
Group’s reputation and helps safeguard the
business’s future in an evolving business
environment. Our first ESG report, published
in 2020, explained Zotefoams’ approach to
ESG. In 2021, we built on this by:
X Forming a Group Sustainability Steering
Committee to provide governance and
set the direction for matters relating to
the long-term sustainability of the Group
Zotefoams products are used in many
different applications and are often combined
with other materials, making it difficult to
measure our environmental impact directly.
In setting targets, we therefore focus on
the carbon footprint of the manufacturing
process. Further details of our metrics are
on pages 65 to 67.
Carbon emissions
A parallel accounting methodology has been
implemented for the manufacturing process
by product item, which incorporates Scope 1
and 2 emissions. In order to also consider
Scope 3 emissions, we are working on a life
cycle assessment (LCA) template which will
be used to create LCA examples for major
products and application segments specific
to each use. Our Scope 1 and 2 emissions
data is being made available to our
customers to enable them to make
informed Scope 3 decisions.
Our materials in use (known as
Scope 3 emissions)
The vast majority of Zotefoams products
are aimed at a low-carbon market. The
key attributes of foams, and our foams
in particular, are:
X Introducing challenging sustainability
X Light weight
targets arising from our SASB assessment,
page 61
X Providing fuller disclosures compliant
with the TCFD, page 62
X Running customer focus groups on
sustainability and using the data garnered
to guide strategy. This exercise evidenced
that, given differing end-users’ concerns,
sustainability was defined differently across
a variety of customers and geographies.
Supporting customers, including by
providing evidence that challenges a public
perception of plastics as a non-sustainable
material, now forms a key part of our
strategy. We believe that plastics, used
appropriately, remain the optimal solution
both functionally and environmentally for
our customers’ needs.
Sustainability opportunities
Zotefoams considers that sustainability
opportunities arise principally in two distinct
areas. Firstly, in designing products valued by
our customers for their use-phase resource
efficiency (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, and/or reduce water consumption).
Thermal insulation is a typical example of this.
Secondly, in reducing the carbon footprint of
our operations.
X Reduced material usage
X Energy saving
X Reduced toxicity.
Further, Zotefoams block foams are generally
used for solutions other than single-use
applications.
Outside of foams, our MEL business also
aligns well with a low-carbon market, with
ReZorce® mono-material barrier packaging
in particular, see pages 8 and 9.
These sustainability benefits are recognised
by our customers and in some cases justify
a premium price for our products.
During the year, we amended our product
development process to further prioritise
sustainability and reflect input from the
Board on a variety of climate impact
scenarios. As a result:
X The Product Development Steering
Committee considers the potential
sustainability impact and benefit of
all new initiatives
X Sustainability factors continually inform
the new product development process
X Products containing recycled and bio-
based materials have been offered to
customers
X A number of development projects
aimed at reducing our carbon footprint
are under way.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 58
Environmental, social and governance
Continued
Environment
We use the governance provided by our
internal controls structure to evolve our
products to offer greater environmental
benefits to society while managing
the reduction of our carbon footprint
and waste.
X Renewable electricity: a REGO-accredited
supplier has been appointed in the UK. A
renewable sourced electricity contract has
been agreed for our Poland site from 2022
as part of our commitment to use electricity
from renewable sources wherever feasible
X Targets have been adopted in 2021, see
page 61.
Health and safety
We set internal targets for improvement on
occupational health. Our performance and
commentary are shown on page 65 and
benchmark externally against rubber and
plastics manufacturing industry statistics.
https://www.bls.gov/web/osh/summ1_00.htm
We plan to develop a holistic approach to
employee wellbeing by fostering a culture of
health which recognises and supports both
physical and mental health.
Governance
We manage the SASB, TCFD and other
sustainability requirements through our
internal controls framework. An independent
Group Sustainability Steering Committee is
responsible for longer-term ESG planning
and for ESG disclosures to stakeholders.
Business model and strategy
Our business model comprises solutions with
superior sustainability characteristics focused
on permanent applications, see page 18.
Accreditations
We are accredited to ISO 45001:2018
(occupational health and safety), ISO
14001:2015 (environmental management)
and ISO 9001:2015 (quality management).
Carbon footprint
X We have embedded systems that consider
carbon footprint in every aspect of our
global operations to drive sustainability
initiatives through all areas of the business
X We are calculating the carbon cost of
our foams and ReZorce technology. We
will be utilising this information internally
and working with selected customers to
assess how this can be used constructively
to make objective decisions to steer our
own business and guide our customers
in choosing the optimal material solutions
for their applications
Zotefoams plc Annual Report 2021 59
Social
We enable our workforce to operate
in a safe environment, at home or
in the factory, and are guided by
strong ethical principles that
inform our activities.
zote.info/3NtUoei
Working practices
X A blended working policy, supported by
mental health initiatives and recognising
new ways of working, was introduced
in the UK in 2021
X Subject to legal requirements in force
in the geographies in which we operate,
the Group has in place policies relating to
maternity, paternity, adoption and parental
leave, as well as time off for dependants’
sickness and bereavement
X A performance management system is
in place, designed to encourage high
employee engagement with their line
manager through thorough, thoughtful
and regular discussions. The system
aims are: a) to provide employee-centric
development plans, b) to monitor and
develop performance in order to address
skills gaps and c) to support effective
succession planning
X Zotefoams has in place ethics and dignity
at work policies prohibiting child and forced
labour, discrimination, harassment and
abuse and supporting collective bargaining
arrangements where it is legal to do so.
Remuneration
X The Company compensates its staff in
line with market rates and taking account
of regulatory guidance, which includes
paying employees at or above the rates
published by the Living Wage Foundation
in the UK. In other geographies, the rate
of pay for Zotefoams employees is above
the minimum wage applicable locally.
Ethics
X Policies and internal controls are in place,
and are monitored by the Board, on
health and safety, modern slavery, ethics,
anti-corruption and bribery, anti-fraud,
whistleblowing and equal opportunities.
https://zote.info/3x0de78
X Biennial compliance training programmes
are delivered globally to relevant staff on
modern slavery, anti-bribery and corruption,
anti-fraud, anti-money laundering, insider
trading and data protection. All staff are
required to acknowledge that they have
read and understand policies applicable
to them, which are translated as necessary
for staff who do not speak English.
Suppliers
X A consistent, material improvement pattern
has been noted in our payment practices,
with the average settlement period in
the UK being reduced from 50 days in
2019 to 30 days during 2021. https://
check-payment-practices.service.gov.uk/
company/02714645/reports
X Compliance requirements are in place
to ensure key suppliers are aligned with
Zotefoams’ standards on ethics, modern
slavery, anti-fraud and anti-bribery and
corruption requirements. Zotefoams has
voluntarily added its details to the Modern
Slavery Statement Registry to share the
positive steps it has taken to tackle and
prevent modern slavery. The registry
enhances transparency and accessibility
and allows users such as consumers,
investors and civil society to scrutinise
the actions Zotefoams is taking to identify
and address modern slavery risks in its
operations.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 60
Environmental, social and governance
Continued
Governance
We manage Zotefoams by embedding
robust corporate governance systems
and principles within our business.
We are led by a diverse and independent
Board and operate under an effective
and principled management team.
Diversity and Inclusion
The Board adopted a new diversity policy
in 2021. https://zote.info/3wRSYEL
An Equal Opportunities Policy is in place
and can be viewed on our website.
https://zote.info/36Dv3ya
More information on diversity and inclusion
at Zotefoams may be found in our People
section on pages 72 and 73 and in our
Nomination Committee report on page 87.
Stakeholders
Considering all stakeholders when making
key business decisions is fundamental to our
ability to create value over the longer term.
See our s172(1) disclosures on page 74. Our
plans for 2022 include canvassing the views
of our shareholders on sustainability and other
matters through interaction with the Company
Chair. Zotefoams will continue to work with
customers and suppliers on improving the
sustainability characteristics of our products.
UK Corporate Governance
Code 2018
The Group complies with the requirements of
the UK Corporate Governance Code and has
due regard to best practice in governance
matters.
In particular:
X 71% of the Board is independent, with
29% executive representation, supporting
effective stewardship of the Company’s
assets. All Board committees are fully
independent
X Board and committee members in post
at year end attended 100% of all meetings
in 2021 (2020: 100%)
X Progression towards greater gender
diversity is noted in senior roles:
X 21% of senior managers are female
X 29% of the Board is female, with female
Board Committees representation
amounting to 45% overall. A Board
diversity policy was adopted in 2021
X An annual performance evaluation is carried
out for the Board and its committees with
the support of the Company Secretary.
The results are discussed by the Board
and actions agreed for the following year
X A formal process is in place for the Board
to consider relevant matters under s172(1)
of the Companies Act 2006
X An extended questionnaire for assessing
the external auditor’s effectiveness and
independence in accordance with FRC
guidance was implemented in 2021.
This evidenced that there is candid and
complete dialogue between the External
Auditor and the Audit Committee
X The Board’s working arrangements were
reviewed in 2021 to ensure that an optimal
mix of in-person and virtual meetings was
in place
X Articles of association were last amended
in 2020 to allow hybrid general meeting
arrangements and comply with current
best practice. The Board intends to
extend digital inclusion by broadcasting
the 2022 AGM on the Investor Meet
Company platform
X Thoughtful employee engagement
supports effective governance. The Board
strived to enhance the employee voice in
the boardroom during the year through
both informal engagement during plant
visits and Board representation on the Joint
Consultative Committee, which adopted
new terms of reference.
Executive remuneration
The Remuneration Committee sets executive
remuneration in light of prevailing conditions
and takes into account wider workforce pay
and conditions. Executive remuneration is
linked to ESG metrics. See our Directors’
Remuneration report on page 88.
Zotefoams plc Annual Report 2021 61
By the end of 2022, we plan to:
X Have developed AZOTE products that will
allow us to re-incorporate into our foams
50% of solid polymer waste produced at
our UK site
X Find applications that reuse 90% of all
AZOTE foam waste produced at the UK site.
TARGET 3: Zotefoams products have
historically been designed to use less material
and last longer. We will further develop our
product portfolio by designing and developing
new products which offer our customers
more sustainable solutions. By the end of
2026, 5% of our revenue will be generated
from new products designed and developed,
after 2022, for use-phase resource efficiency.
Targets and achievements for intermediate
years will be published on our website.
TARGET 4: We continually strive to reduce
the energy consumed in the manufacture
of our products. As we produce greater
quantities of products across multiple
manufacturing sites, the energy we consume
increases. Additionally, certain products we
develop which offer use-phase resource
efficiencies can require greater energy per unit
volume to manufacture. Setting a target which
accommodates growth and the changing
product mix is difficult, but we have
committed that by 2026 we will reduce the
energy consumed per unit revenue by 10%.
Details of this target will be published on
our website.
Key targets
Our sustainability targets focus on
the reduction of our Scope 1 and 2
carbon emissions.
In parallel with these specific Scope 1 and 2
targets, we have calculated the carbon cost
of a representative selection of our foams
(referred to as “carbon accounting”) and
ReZorce® mono-material barrier packaging
technology. We are utilising this information
internally and working with selected
customers to assess how this can be used
constructively to make objective decisions
to steer our own business and guide our
customers in choosing the optimal material
solutions for their applications. We are also
developing Life Cycle Assessments (LCA)
for our products in use, giving us visibility
of Scope 3 emissions on a case study basis.
TARGET 1: Improve purchase-to-product
(mass balance) of AZOTE® polyolefin foam
products. We purchase more polymer than
we sell as foam, with losses in the current
manufacturing process. This is waste
material and waste energy which, with some
investment, can be reduced. By the end of
2026, we plan to have halved the polymer
purchased that is not in the product (internal
waste and oversized materials). To support
this, in 2022, we will financially and
operationally plan the investments required to
achieve our 2026 target. Additionally, we aim
to implement improvements to reduce the
polymer waste rate during manufacture and
are targeting a 2.5% waste reduction for 2022.
Targets and achievements for intermediate
years will be published on our website.
TARGET 2: Re-purpose polymer waste,
that cannot be prevented, from our
UK manufacturing process. Inherent to
achieving longevity and light weight in our
foams is a manufacturing step, known as
crosslinking, which modifies the polymer.
Crosslinking is not practically reversable
and therefore utilising this modified polymer
to manufacture foams requires different
techniques than when dealing with
unmodified polymer. As we develop these
techniques, we are able to re-incorporate
this modified polymer in the manufacture
of certain products.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 62
Environmental, social and governance
Continued
Task Force on Climate-related Financial Disclosures (“TCFD”) response
Zotefoams is already well positioned to support the long-term goal of reducing carbon emissions, with foam products delivering high
performance, insulation and reduced weight and offering the potential for carbon emissions reduction in excess of the carbon emissions required
to manufacture the product. We are improving our energy intensity and material consumption and adapting our product range to enter new
markets where these benefits are clearly understood and valued. Measurement of energy consumption and polymer usage, which generate
carbon emissions, are monitored monthly and we have clear actions to improve these as described further in this report.
The table below shows our current progress against the TCFD recommendations.
Governance
The Board sets the strategic aims of the Group, ensures that the necessary resources are in place to achieve the Group’s objectives and
reviews management performance. The Board has oversight of climate-related matters (which include risks and opportunities) and is
updated on these matters as necessary through:
X The Audit Committee, which is responsible for keeping under review the adequacy and effectiveness of the Group’s internal control and risk
management systems, which consider climate-related risks by the appropriate Control Committees (see page 45); and
X Bi-annual business unit presentations, which consider both the physical and transition risks of climate change and opportunities arising from
climate change and are made by the executive function head to the Board. For examples of how we integrate sustainability and climate change
considerations into our strategy, see pages 18, 20, 24 (sustainability and climate change) and 27 (best energy saving application).
Strategy
Risks
Our risk exposure to climate change is partly mitigated through operating foam manufacturing facilities in countries with high regulatory standards
and through the implementation of well-established environmental management systems in all locations. The risk management framework on
page 45 aims to assess the Group’s principal risks and ensure these are effectively managed across the entire business.
RISK
MITIGATION
Increased use of energy to
satisfy operational needs or an
increase in energy prices or
taxation
An environmental management system is in place to ensure that systems function in an energy efficient
manner and facilities only operate when required and use the minimum amount of energy necessary.
Use of external consultants to:
X Give early warnings of forthcoming regulatory changes on energy pricing
X Analyse consumption patterns and identify opportunities to reduce usage without affecting operational
performance.
Increased water consumption
An environmental management system is in place to monitor consumption in order to assess water
usage efficiency and identify improvement opportunities by implementing technical, people or building
management controls.
Increased levels of waste
Waste reductions initiatives are in place. See page 66.
Poor public perception of
plastics causing a demand shift
We believe this perception is primarily related to single-use and/or non-recyclable plastics. We plan
to implement a communications strategy relating to the sustainability of our use of plastics and its
contribution to the low-carbon economy. ReZorce® mono-material barrier packaging is our
leading initiative. See page 8 for further details.
Adverse weather event causing
disruption to manufacture or
supply chain
Enhanced reporting obligations
A supplier management process is in place which assesses and mitigates risk through supplier selection
and second sourcing for key materials and components.
Each functional steering committee is responsible for active monitoring of key 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. This includes monitoring legal and regulatory changes which
may impact the Group’s risks.
Opportunities
Short-term: Our business model is centred around sustainability. The opportunities available to Zotefoams are detailed on pages 16 to 19.
Details of our Strategic Objectives, including sustainability and climate change, are provided on page 24.
Medium and long-term: We believe the benefits of plastics will be recognised and scarce resources will be managed to ensure optimal
use. The processing of polymers uses less energy compared to many other materials which, with our technology benefit of producing
lighter, longer-lasting products using less material and which have inherent thermal insulating performance, represents a significant
opportunity as sustainability increases in importance.
Risk management
Refer to our risk management framework on page 45 and sustainability and climate change risk on page 49.
Metrics and targets
The SASB framework provides performance metrics for our functional steering committees to implement. See further details on pages 67 to 69.
Our Scope 1 and 2 metrics are disclosed on page 66. The risks are managed through our risk management framework detailed on page 45.
Our targets are detailed on page 61.
We are committed to responding to the CDP questionnaire in 2022. CDP is a not-for-profit charity that runs the global disclosure system
for investors, companies, cities, states and regions to manage their environmental impacts. https://www.cdp.net/en
Zotefoams plc Annual Report 2021 63
prosecutions, fines or enforcement actions
taken as a result of non-compliance with SHE
legislation (2020: none).
Health and safety
The COVID-19 pandemic remains a threat
and continuing to protect the health of all
Group employees is paramount. Throughout
the year, Zotefoams maintained a range of
anti-COVID measures designed to mitigate
the risk of transmission. These continue
to apply in all locations in addition to any
governmental restrictions in force. Health
surveillance programmes also provide at-risk
employees Group-wide with medical
monitoring and support to ensure that
work-related medical conditions are identified
and addressed promptly through the
appropriate referral to medical specialists. The
change in work/life balance imposed by the
pandemic has also been recognised and a
number of wellbeing initiatives have been
launched in response. Further details are
provided in our People section on page 70.
Fostering a safety culture has a positive
impact on risk and performance.
Management focus remains on developing
safety leadership, using various engagement
methods to increase Group-wide awareness
of hazard identification and control, as
detailed in the case study below.
One of our core priorities in 2021 was to
review the risk assessment process around
our equipment to ensure that machinery was
engineered in a way that minimises the risk
of injuries to operators, regardless of levels
of skills and experience. All new capital
investment projects have been and are
currently subject to a design stage
occupational health and safety risk
assessment.
Safety, Health & Environment (SHE)
Zotefoams considers that the management of
SHE matters forms a key element of effective
governance. Separate policies relating to SHE
are in place. The Company is certified to
accredited standard ISO 45001:2018 for
Health and Safety, following a migration from
OHSAS 18001:2007, and ISO 14001:2015,
the International Standard for Environmental
Management Systems, and is regularly
audited by certification bodies to ensure that
the Company complies with those standards.
Following an integrated surveillance audit
carried out in 2021, Zotefoams UK was
granted ongoing certification. The auditor
commended the progress and maturity of the
management systems, the high degree of
executive oversight and the high level of focus
on safety engagement. The Company is also
certified to accredited standard ISO 9001:
Quality Management.
The Board has ultimate responsibility for
SHE policy and performance and receives
quarterly reports on Group SHE issues.
The Board has set a very low risk appetite
for health and safety matters. Annual
performance objectives are agreed by the
Board and performance against these is
monitored as part of its quarterly reporting
programme. RIDDORs (lost time accidents
reportable under the Reporting of Injuries,
Diseases and Dangerous Occurrences
Regulations 2013) are recorded immediately
and are subject to a thorough root cause
analysis reviewed by the Board, with
appropriate follow-up actions agreed with
management. Additionally, the Board has
a detailed review of SHE performance,
targets, metrics and approach through
monthly updates.
The Group CEO is directly responsible to
the Board for SHE performance. Group
committees on SHE normally meet once per
quarter to consider all SHE matters and are
overseen by steering committees, chaired by
the Group CEO (or appropriate responsible
person in subsidiary companies). The steering
committees consider overall performance
and the impact of current and impending
legislation.
On joining the Group, all employees receive
induction training on SHE matters, including
the Group’s SHE policies, and refresher
training is provided, as appropriate, to ensure
employees remain abreast of and familiar with
SHE matters. Employees are made aware that
each and every one of them has a part to
play in ensuring the safety of themselves
and their colleagues at work. Employees
are encouraged to report to their managers
any unsafe, or potentially unsafe, acts
or conditions. Senior managers are
responsible for ensuring that SHE policies are
implemented in their areas, that their teams
are informed of the departmental SHE
requirements and that employees receive and
understand training on environmental issues
and safe working practices. Regular audits
are conducted to ensure policy and
procedure implementation is appropriate.
The Group takes the reporting of all SHE
incidents very seriously and requires
employees to report all incidents, including
any near misses, as well as damage to plant
or equipment which has not resulted in
personal injury. The Group considers the
reporting of near misses to be as equally
important as actual incidents, since it raises
situations to management that could cause,
or might have caused, harm. It then ensures
appropriate corrective action can be taken to
eliminate or minimise the risk. The Group also
ensures that appropriate safety practices are
included in standard operating procedures to
reduce the risk of SHE incidents occurring.
Few controlled substances are used in the
manufacture of our foams, but where they are,
the Group has established procedures, in
which the relevant employees are trained, to
ensure that the storage and handling of such
substances are safe and in accordance with
regulatory requirements. The manufacturing
process involves manual handling and
processing of materials. When new or altered
equipment or materials are introduced, and at
regular periods thereafter, the risks to the
processes are assessed and improvements
made wherever possible, such as to the
design of the equipment, to reduce or
eliminate the risks identified.
The most strictly controlled parts of the
Group’s sites are where high-pressure gas
is used. The high-pressure autoclaves are
subject to the Pressure Systems Safety
Regulations 2000 in the UK, OSHA
(Occupational Safety and Health
Administration) in the USA and the Journal of
Laws of the Republic of Poland, Dz. U. 2022
poz. 68. Tightly defined procedures and
operational controls are in place to manage
the safety of these pressure systems. Fail-safe
mechanisms, known as pressure relief valves
and bursting discs (which act like fuses in an
electrical system), are included in the design
of the pressure systems which, when
triggered, allow safe depressurisation of
sections of the system and prevent any further
risks. Operation of these fail-safe mechanisms
releases harmless nitrogen gas into the
atmosphere. The air we breathe is composed
of 78% nitrogen.
All SHE incidents are investigated by
appropriate levels of management to
ascertain the root cause of the incident and,
wherever possible, working practices and
procedures are improved to minimise the
risk of recurrence. In 2021, there were no
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 64
Environmental, social and governance
Continued
CASE STUDY
Safety starts from the top
A programme of executive-level, quarterly, high-visibility
tours has been in place for a number of years. Based on a
predetermined schedule, the aim of these tours is to foster
direct engagement with the workforce on safety behaviour,
hazard and control measures. Further key initiatives
undertaken this year include field-level hazard assessments,
where tasks that have evolved into ‘common practice’
or ‘local knowledge’ but which have insufficient controls
in place, are identified. We have also adopted incident
and observation based software to monitor trends, along
with methodologies to establish root causes of incidents,
considering for example process gaps, human factors
and the visual environment.
These initiatives, among several others, contributed to
a reduction in minor incidents of 40% from 47 (2020)
to 27 (2021).
CASE STUDY
Reducing open blade
risk Group-wide
Open blades are used in many operations and thus constitute a
safety risk within Zotefoams. A Group-wide best practice review
was carried out by the SHE team and led to an open blade
elimination project at our manufacturing sites. The US sites took
the lead in the assessment and best practice was then shared
across our UK, Poland and China sites.
Using the ‘hierarchy of control’ principle, each activity was
assessed, and the use of blades eliminated by using alternative
equipment, substituting the use of an open blade with a safety
cutter or ceramic blade or creating better safe systems of work.
After extensive trials, 84% of open blade tasks across the Group
were successfully improved upon by at least one step of the
‘hierarchy of control’, contributing to a significant reduction
in open blade risk.
Zotefoams plc Annual Report 2021 Health and Safety performance
The primary metric used to monitor the
number of reportable lost time injuries is
RIDDOR. In 2021, we are very pleased to
report that there were no RIDDOR incidents
across the Group (2020: 1). The Group has
not experienced any fatality amongst staff
or contractors as a consequence of a
work-related incident.
The Group also uses metrics devised by
the United States Department of Labor
to measure staff absences resulting from
workplace incidents and accidents. This
allows comparison with a large, relevant
peer group and also provides an established
methodology with which we can benchmark
our performance annually. In 2021, there was
a slight decrease in Days Away From Work
(DAFW) and a slight increase in Days Away
Restricted or Transferred (DART). To combat
this in 2022, we will continue the programme
of increasing risk and hazard awareness,
which is also linked to the continuation of
expanding the new safety engagement
process. In both cases, the metrics are
compared with the latest benchmark data
for Rubber and Plastics Processors. Good
performance against this benchmark was
noted in both 2020 and 2021.
Year
2021 2020
2019
RIDDOR
DAFW
DART
0
1.2
1.7
1
1.3
1.6
1
1.1
1.3
Industry
(latest published
figures)
n/a
1.2
2.3
Environmental performance
An increase in Group energy usage of 5,479
MWh mainly arose through increased output
levels in our main USA site (up by 2,741 MWh)
and commencement of production in Poland
(up by 1,477 MWh). The main reason for this
increase was increased activity at these sites.
There were no significant environmental
incidents during the year (2020: none).
Previous years have been analysed against
an internal categorisation introduced in 2018,
guided by the Environmental reporting
guidelines at https://zote.info/36LLN69.
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)
65
SHE: Key metrics
Group: Reportable lost time injuries
Internally recorded environmental incidents
Level 1
Level 2
Company metrics
Energy usage (MWh)
2021
2020
2019
2018
2017
0
0
0
1
0
0
1
0
0
4
0
0
6
0
0
49,433 48,405 44,570 52,225 49,085
Energy consumption (kWh/kg)
9.22*
9.89*
11.60*
11.03*
11.05
Group metrics
Energy usage (MWh)
68,219
62,740 56,453 63,469 55,354
* Calculation shown as mix-neutral assessment of energy usage per kg of polymer processed.
In 2021, no incidents were reported at Level
1 or 2, meaning no significant impact to the
environment. The Company ensures that all
reports are taken seriously and investigated
and that the responses given are appropriate
to their level of impact or potential impact.
Nineteen internally reported Level 3 incidents
(2020: 24) relating to minor machine oil spills,
plastic granule spills and thermal oil spills were
recorded during the year. The incidents are
captured by daily inspections and actioned
as required. The decrease is attributed to a
significant increase in safety observations,
employee education and early-stage
implementation of the 5S method to
reduce waste and increase productivity.
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 2021, our adjusted energy
efficiency measure Specific Energy
Consumption (SEC) has decreased to
9.22 kWh/kg (2020: 9.89 kWh/kg), the lowest
recorded since 2015. In 2019, the Company
completed its second assessment under the
Energy Saving Opportunity Scheme (ESOS)
and remained compliant in 2021.
At our site in Kentucky, USA we suffered
an equipment failure in our silencer system
which regulates noise from part of our
process. A replacement system was installed
quickly to allow our processes to restart
and noise to be managed. Although this
new system meets all environmental and
local requirements for noise, there was a
noticeable change from the previous system.
Our team in Kentucky has liaised with the
local mayor, residents and authorities and
we have commissioned the design of a
bespoke silencer system to further reduce
local noise emissions. This is expected to
be implemented in H1 2022.
Specific Energy Consumption
(SEC) – UK
In October 2009, the Company entered into
a Climate Change Levy (CCL) agreement
which involves meeting specific targets to
reduce energy consumption. 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.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements We are committed to using renewable
electricity where feasible. Our UK site
switched supply during 2021 and is now
supplied with 100% REGO electricity, with our
Poland site switching to renewable electricity
from the start of 2022.
Water and waste
While none of our sites are located in regions
where water is scarce, we recognise that
usage of water is a key environmental metric
supporting our sustainability proposition. The
amount of waste produced is a key target
updated in 2021 to minimise our impact
on the environment and forms part of our
corporate objectives. Water usage decreased
by 2% across the Group in 2021. Our water
consumption is metered and we have specific
programmes to improve efficiency and reduce
water usage. The main water usage is at our
UK site, the largest of our manufacturing sites,
where we implemented specific initiatives to
prevent leaks and minimise water usage,
including relining our water storage pit.
Total waste across the Group was 3,124
tonnes for the year with more than 856 tonnes
being recycled. At our main site in the UK,
we continue to work with partners who sort
our waste, recycle significant portions and
recover energy through incineration. The
quantity quoted as recycled is known to
be understated as our partner for non-foam
waste is currently unable to report this reliably,
therefore we have not reported this as
recycled. During 2021, we further developed
outlets for our foam scrap, the majority of
which is now re-purposed into turf-underlay
and blocks of particle foam.
In 2022, we will embark on a number of
longer-term initiatives to reduce our waste,
in particular the waste that cannot be
recycled. This includes investment in
machinery to improve our circularity by
allowing scrap polymer from our process
to be re-incorporated as the base material
in the manufacture of our foam products.
66
Environmental, social and governance
Continued
Specific Energy Consumption (SEC)
T
C
U
D
O
R
P
G
K
/
H
W
K
14.0
13.5
13.0
12.5
12.0
11.5
11.0
10.5
10.0
9.5
9.0
SEC has
decreased to 9.22
kWh/kg, the lowest
ever recorded
2015
2016
2017
2018
2019
2020
2021
Mix-adjusted SEC KWh/kg 12m roll
CCL Target
Corporate Target
The SEC value has been reported in the Annual Report as a mix-adjusted value since 2018 to reflect the growth of Footwear
and to show the energy efficiency improvements made.
In order to benefit from a CCL exemption, the Company has entered into Climate Change Agreements (CCAs) as set out by
the Department for Business, Energy and Industrial Strategy. A CCA is a voluntary scheme setting targets to increase energy
efficiency and reduce carbon dioxide (CO2) emissions. 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.
Group: carbon emissions (CO2 tonnes)
2021
2020
2019
2018
2017
Scope 1 Emissions (direct emissions from
our operations which includes fuel)
Scope 2 Emissions (indirect emissions,
primarily electricity)
Total
Carbon emissions (kg) per material
gassed (kg)
7,418
7,078
5,626
6,661
5,561
6,792
7,464
6,787
8,148 10,849
14,210 14,542 12,413 14,809 16,410
1.5
1.6
1.6
1.7
2.1
Carbon emissions globally
Zotefoams products are used in applications
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 competitive processes,
both of which are beneficial for carbon
reduction. In making these foams, energy
(both gas and electricity) is the main source
of carbon emissions from our facilities.
The efficiency with which we use energy to
process polymer is measured by the weighted
specific energy consumption. In 2021, our UK
site, which processed approximately 80% of
Group polymer by tonnage during the year,
reduced the weighted specific energy
consumption by almost 7%. Overall carbon
emissions for 2021 were 14,210 metric tonnes
(2020: 14,542 metric tonnes), with the main
changes being due to the change in the
conversion factor for electricity to CO2
as UK generation switches from coal
to renewables and nuclear.
In 2021, 97.7% (2020: 93.2%) of the Group’s
carbon emissions arose from our use of
electricity and gas, primarily in processing
polymer but with some use in facility heating
and cooling. Direct carbon emissions from
other sources were minimal (2.3% of Group
emissions) as we do not operate our own
fleet of vehicles.
The methodology we have used is in
accordance with the guidance published
by the Department for Environment, Food
and Rural Affairs in June 2013. We have only
included emissions for which we are directly
responsible. We have not included emissions
for activities over which we have no direct
control. For example, we have included
business mileage on a Company van and
mileage claimed by employees in the UK,
but not other forms of business travel, such
as travel made by employees elsewhere in
the Group or travel using public transport
or air travel.
Zotefoams plc Annual Report 2021
67
Water and waste: Global
Water consumption (000m3)
X UK site
X USA site
X Other sites
Global consumption
Waste recycled (tonnes)
Total Waste (tonnes)
2021
79.3
5.2
1.9
86.4
856
2020
81.5
4.7
1.8
88.0
787
3,124
2,636
Notes
The quantity quoted as recycled is understated as our partner for
non-foam waste is currently unable to report this.
Sustainability Accounting Standards Board (SASB) disclosures
SASB Standards identify the subset of Environmental, Social and Governance (ESG) issues reasonably likely to have a material impact on the
financial performance of the typical company in an industry. The following table summarises our response to the sector-specific standards for
chemicals companies.
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) CO2
Percentage (%)
RT-CH-110a.1
Air quality
Energy
management
Water
management
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
Air emissions of the following
pollutants: (1) NOX (excluding
N2O), (2) SOX, (3) volatile organic
compounds (VOCs), and (4)
hazardous air pollutants (HAPs)
(1) Total energy consumed,
(2) percentage grid electricity,
(3) percentage renewable,
(4) total self-generated energy
(1) Total water withdrawn, (2) total
water consumed, percentage of
each in regions with high or
extremely high baseline water
stress
Number of incidents of
non-compliance associated
with water quality permits,
standards and regulation
Description of water
management risks and
discussion of strategies and
practices to mitigate those risks
Discussion
and analysis
n/a
RT-CH-110a.2
Quantitative
Metric tonnes
RT-CH-120a.1
See Group carbon
emissions table
page 66
See Group carbon
Emissions section on
page 66
See Group carbon
emissions table
page 66
Quantitative
Gigajoules (GJ),
Percentage (%)
RT-CH-130a.1
See SEC table page 66
Quantitative
Thousand cubic
meters (m³),
Percentage (%)
RT-CH-140a.1
See water data table
page 67
Zotefoams’ main
manufacturing sites
are located in areas
of low to medium
water stress.
Quantitative
Number
RT-CH-140a.2
None
Discussion
and analysis
n/a
RT-CH-140a.3
Water consumption
is monitored and is
a consideration when
making investment
decisions.
See water data table
page 67
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 68
Environmental, social and governance
Continued
Sustainability Accounting Standards Board (SASB) disclosures
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Hazardous
waste
management
Amount of hazardous
waste generated and
percentage recycled
Quantitative
Metric tonnes (t),
Percentage (%)
Community
relations
Workforce
health and
safety
Discussion of engagement
processes to manage risks
and opportunities associated
with community interests
1) Total recordable incident rate
(TRIR) and (2) fatality rate for
(a) direct employees and
(b) contract employees
Discussion
and analysis
n/a
Quantitative
Rate
RT-CH-320a.1
Discussion
and analysis
n/a
RT-CH-320a.2
See SHE key metrics table
page 65
The Group has not
experienced any fatality
amongst staff or contractors
as a consequence of a
work-related incident.
See Health and Safety
performance section
pages 63 to 65
Description of efforts to assess,
monitor and reduce exposure of
employees and contract workers
to long-term (chronic) health risks
Revenue from products designed
for use-phase resource efficiency
Quantitative
Reporting currency
Product design
for use-phase
efficiency
Safety and
environmental
stewardship
of chemicals
Quantitative
Percentage (%)
by revenue,
Percentage (%)
Nil
(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, (2) percentage
of such products that have
undergone a hazard assessment
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-150a.1 Zotefoams does not
produce significant
quantities of hazardous
waste. Waste classified as
hazardous (defined in the
UK by Directive 2008/98/
EC, other sites follow local
regulations) is managed
collected and treated,
including recycling, by
a responsible service
provider. The weight
of hazardous waste is
not currently recorded.
See waste data table
page 67
RT-CH-210a.1
See People section page 71
RT-CH-410a.1 Zotefoams products
have historically been
designed to use less
material and last longer,
which is our competitive
advantage. See the
‘Key Targets’ section
on page 61 for metrics.
RT-CH-410b.1 3.4% of revenue
was from products
containing a Category 1
substance. The hazardous
substance is a flame
retardant additive and
has been assessed
as non-hazardous in
the finished products
when bound into the
polymer matrix.
RT-CH-410b.2 We have developed
alternative flame retarded
products that do not
contain the GHS Category
1 substance. While
maintaining performance
standards does not allow
complete substitution,
efforts are made to
minimise the use of GHS
Category 1 substances.
Zotefoams plc Annual Report 2021 69
Sustainability Accounting Standards Board (SASB) disclosures
Topic
Accounting metric
Category
Unit of measure
Code
Supporting disclosure
Percentage of products by
revenue that contain GMOs
Discussion
and analysis
nil
RT-CH-410c.1 n/a
Genetically
modified
organisms
(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 page 63
See our DART and DAFW
figures on page 65
Operational
safety,
emergency
preparedness
& response
Process Safety Incidents
Count (PSIC), Process Safety
Total Incident Rate (PSTIR),
and Process Safety Incident
Severity Rate (PSISR)
Quantitative
Number, rate
RT-CH-540a.1
Number of transport incidents
Quantitative
Number
RT-CH-540a.2 Zotefoams had no
Production by
reportable
segment
n/a
Quantitative
Cubic meters (m³) or
metric tonnes (t)
reportable transport
incidents
RT-CH-000.A 8,109 tonnes of AZOTE®
polyolefin foam and 1,511
tonnes of HPP were
manufactured.
There is a lag between
manufacturing and sale.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 70
Our people
Culture is especially important in moments that matter. Since
early 2020, the impact of COVID-19 has challenged every part
of our business, but on an individual level it has also tested the
resilience of our people. These challenges were met head-on by
employees who have continued to exemplify Zotefoams’ Brand
Values: Trustworthy, Responsive, Pioneering and Reliable.
The consolidation of new working practices in 2021 took into
account employees’ mental, social and professional needs and
increased employment flexibility, extending our geographic
reach and increasing access to key talent. Our 2022 focus
will be on embedding Zotefoams’ culture and these
working practices.
The volatile environment created by global
economic uncertainty has required increased
flexibility. New working practices aimed at
striking a balance between business
requirements and personal needs evolved
rapidly in 2021. These included remote,
flexible and different ways of working.
Technology was leveraged to continue
to engage successfully with customers,
suppliers and colleagues at times when
face-to-face contact was difficult or
impossible, and we upgraded the IT
support infrastructure to ensure seamless
performance during remote working.
Managers were encouraged to develop
skills essential for building an agile
workforce, such as adaptability,
collaboration and communication.
Work–life balance challenges arising from
these new ways of working were recognised.
In addition to continuing to provide an
employee assistance programme available
24 hours a day and seven days a week in our
two largest sites in the UK and the USA, a
number of wellbeing initiatives were launched.
Managers were educated on the complex
issue of mental health through HR briefings
and mental health awareness courses were
made available to all employees through an
online training platform. Mental health first
aiders were also deployed to offer emotional
support to employees in any Zotefoams
location experiencing mental distress and
to signpost them towards appropriate internal
and external resources.
Zotefoams attracts professionals at the
beginning of their career and we actively
manage a pipeline of future talent. A positive
employee experience and training and career
development opportunities are key to
maximising the level of employee retention
required to support our knowledge-based
business. However, while a positive employee
experience is useful to aid retention, the
impact of staff turnover may only be mitigated
effectively by the codification of knowledge
and processes to support effective
succession planning. The 2022 people
strategy will focus on these areas.
Organisational development remains a key
component of our continued expansion in
markets, products and geographies. In the
wake of the pandemic and Brexit, structural
changes in the job market during the
year created a challenging recruitment
environment which required us to adapt our
strategy to address localised skills shortages.
Our people strategy
We are a knowledge-based business and
strongly believe that recognising the value
in our people will allow our Group to create
long-term value for our shareholders and
alignment with other stakeholders. Through
our people strategy, we focus our efforts on
the attraction, retention and training of the
right people, role model leadership and
evolution of a corporate culture designed
to guide our business in the prevailing
environment. The success of our people
strategy is evaluated through the
measurement of employee experience,
retention rate and performance.
Delivery of our people strategy
Our people strategy is delivered through
our Human Resources (HR) team, which
was refreshed and augmented in 2021 by
the addition of a Poland Business Partner to
serve the needs of the newly commissioned
Brzeg manufacturing plant locally. The UK
HR system was upgraded to offer employees
access to a more user-friendly, intuitive
platform. In 2022, a plan is in place to
accelerate the digitalisation of HR services
by moving to a HR cloud-based system
to drive standardisation, digitalisation
and automation of currently time-consuming
processes across all HR areas. This will allow
our HR team to fully focus on supporting
line managers and improving the
employee experience.
People policies
Our UK and US sites have in place policies
relating to maternity, paternity, adoption
and parental leave, as well as time off for
dependants’ sickness and bereavement.
We comply with local government guidance
in all other locations.
Our Purpose
Optimal material
solutions for the
benefit of society
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
Our Brand Values
Trustworthy
Responsive
Pioneering
Reliable
Zotefoams plc Annual Report 2021 71
Our culture
The pandemic has changed our social
interactions and impacted the way decisions
are made. Throughout this period of
uncertainty, we have recognised the
importance of continuing to provide direction
and support to our workforce through a
people-first leadership approach, conscious
that office-based employees required to
work remotely in order to limit COVID-19
transmission risks will have experienced the
pandemic differently from our factory-based
staff. While there may be a greater appreciation
and understanding of each other’s lives as
office and home have intertwined, the loss of
commonality is a risk which may impact the
Group over the long term. We also recognise
the importance of aligning Zotefoams’ culture
with its purpose; our values and habits serve
as a roadmap to drive the direction of the
business and achieve our objectives. The
output of performance reviews and employee
feedback during the year included a cultural fit
assessment which will allow us to identify the
changes we need to make in 2022 to respond
to an evolving environment.
Employee engagement
Zotefoams recognises that employee
engagement is a key enabler of our purpose.
In the UK, our Joint Consultative Committee,
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. New terms of
reference emphasising the importance of the
employee’s voice were adopted in November
2021. Employee engagement meetings are
held monthly in the USA. Feedback is elicited
from leavers in areas such as 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 on the organisation.
Employee safety remains the focus of our
health and safety strategy. Over the past
two years, we have successfully navigated
COVID-19 risks and restrictions by
implementing measures that kept our
employees safe during the pandemic.
Employees’ salaries, benefits and conditions
remain under review to promote a positive
employee experience.
The results of the most recent employee
engagement survey in the UK were discussed
by departmental representatives and reviewed
by the Executive team. Key findings, linked to
areas of improvement, were as follows:
X Communication at the right time and by the
right people is key. Employees appreciate
the business briefings provided to them
by management. A recent presentation
on the Group’s sustainability strategy was
particularly well received
X Decisions should be made at the right level
and with appropriate autonomy given to
staff. The ability to ‘challenge up’ is prized
and perceived as a significant contributing
factor to building a collaborative work
environment
X It is important to set behaviour expectations
clearly and encourage staff to raise any
behavioural concerns, in line with the
Dignity at Work policy, where situations
warrant it.
Zotefoams and its communities
In each of its global locations, Zotefoams
contributes to local employment levels and
the local economy. As our sites are located
close to residential areas, we understand that
building strong relationships supports our
social licence to operate. The Group has in
place a contact mechanism for stakeholders
to reach out to the business on issues of
concern. Our environmental and health and
safety record is sound, with any issues
handled by proactively engaging the local
community, and Group-wide policies will be
reviewed in 2022 to incorporate community
engagement considerations.
the new generation of high-pressure
autoclaves can hold 600–800 sheets,
compared with a maximum of 200 previously
(and just 27 in the earliest models still in
production when Peter joined Zotefoams).
With activity accelerating over the past two
decades, including further expansion in the
USA, entry into Asia, the construction of the
Polish manufacturing plant and moves into
new markets, things have changed
significantly since Peter’s first day at
Zotefoams. Though product protection,
construction and marine have remained core
markets over the years, new and exciting
sectors include footwear and aviation.
Asked what has kept him at Zotefoams,
Peter replies: “I haven’t had the same job for
43 years – it’s changed every three or four.
I’ve never had time to get bored because
something new always comes along. At the
moment, we’re exploring new technology for
a significant new market. So, yes, there are
always changes and challenges – that’s the
Zotefoams way.”
Four decades and counting – a
career characterised by change
and challenge
Senior Technologist Peter Winnicki joined
Zotefoams as a chemistry graduate straight
from King’s College, London in December
1978. In the intervening 43 years, Peter has
seen significant changes in products, markets
and the business itself.
During the 1980s he added new product
development to his original materials testing
role, then commissioned a raft of new
high-pressure autoclaves powered by thermal
oil, instead of steam, as previously. This was
a huge step; higher temperatures meant the
ability to produce lower-density polyethylene
foams and, eventually, to process engineering
polymers at lower densities and in thicker
sheets. It also meant higher productivity;
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 72
Our people
Continued
Organisation development
Significant progress was made during the year
against the HR strategy established in 2020 to
underpin our talent growth agenda. As well as
planned organisational development, we are
constantly monitoring and reacting to changes
in our business environment, with key skills and
labour shortages being particularly prevalent
recently. In the UK, we delivered an
organisational development plan to improve
our new product implementation process and
proactively strengthened our supply chain,
production and procurement teams to meet
the demands of an increasingly complex
global supply chain. This focused on key roles,
improving the customer services function
capability and creating a standalone logistics
function to address import/export challenges.
In a climate of enduring skills shortages in both
Poland and the USA, our terms and conditions
were realigned to local market norms and key
hires were made in the USA manufacturing
leadership structure. T-FIT® insulation products
remain a key strategic opportunity to grow and
enrich our product mix over the medium term
and the calibre and size of the HPP business
unit accordingly continued to be an area of
focus in 2021. Our team in Kunshan, China
was strengthened by the appointment of two
new business development managers in 2021.
The T-FIT team has expanded geographically
to cover more ground and access new
customers in existing markets. A further
increase in headcount is planned for 2022.
As working practices develop, we plan to
implement a new blended working policy
during 2022. This is partly in response to
continuing restrictions on certain employees
attending the workplace in various
jurisdictions and also recognises the evolving
expectations of our current and potential
employees. Our objective is to maintain a
positive environment to attract and retain
talented staff and has the added potential
benefits of enabling a wider geographical
recruitment pool, reducing the impact on our
carbon footprint from commuting and also
supporting a work pattern and work–life
balance which would, for example, allow the
recruitment of employees with child-care
obligations.
Performance management
Aligning to one of Zotefoams’ cultural pillars
“we are a learning organisation”, we launched a
new performance management system in the
UK, Poland, China and India in 2021. This is
designed to encourage higher employee
engagement, with more frequent feedback and
coaching throughout the year, leading to
detailed personal training plans. Managers
conducted an initial objective assessment of
employees’ performance in order to establish
a baseline of competence across the business
with the dual objectives of addressing skills
gaps by identifying learning and development
opportunities and supporting good succession
planning. Key data on organisational
performance against corporate objectives
will be analysed in 2022. This is similar to
the processes already embedded within
our main subsidiaries in the USA, informed
by local practice.
People development
The importance of retaining and managing
staff effectively was emphasised during the
pandemic and remains a priority in a global
environment affected by skills shortages. As
a learning organisation, Zotefoams has always
fostered employee development through a
variety of initiatives to equip them with key
job-related skills aligned to the fulfilment of
the Group’s objectives and we maintained
this approach in 2021.
UK Graduate Scheme
Our two-year Graduate Scheme is aimed
at increasing the organisation’s technical
capability and enables us to develop young
talent which understands the business. The
scheme comprises two or three development
roles for each individual. Graduates undertake
a programme of learning and hands-on
exposure to all major functions in the
business, to build broad business insight
and give them the experience that will enable
them to progress in their chosen career path.
2020’s graduates were asked to share
their insights with the Executive team. In
addition to identifying a number of areas for
development, graduates valued being given
responsibilities that allowed them to see
their contribution to the business and to gain
commercial insights through the different roles
they experienced as part of the scheme.
The scheme is being developed to include a
more formal approach to learning outcomes,
briefing managers on expectations for each
placement and extending the number of
mentors to include members of the senior
management team. From 2022, the scheme
will open to potential business and IT
graduates. The three graduates who
completed the scheme in 2021 are now
in full-time roles as a Process Engineer,
a Technologist and a Senior Customer
Service Representative.
Training and development
Since the introduction of an online training
library in 2020, more than 1,970 courses
have been completed in areas as diverse as
compliance, occupational health and safety,
and personal interests such as mindfulness
and travel photography. 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.
To build the future leadership of the Group,
some individuals identified as key talent are
studying MBAs or taking other advanced
qualifications at a world-class university,
supported by Zotefoams. The internal
“Management Academy” established in 2020
focuses on equipping our people managers
with a broad range of skills, including
performance management, motivating teams,
dealing with disciplinary matters and
behavioural safety.
LEAD Operational Business
Toolbox
Our LEAD programme, which covers
commercial, project management and
lean techniques, is intended to give a broad
range of employees the skills to identify and
address inefficiencies as well as enhance
cross-functional teamwork through integrated
training and projects. In 2021, these projects
were rescoped to reflect new working
practices, with production and technical
departments participants resuming
programmes suspended during the initial
COVID restrictions. A progress assessment
will be carried out in 2022.
Diversity
The Board is aware that diversity without
inclusion will fail to generate the essential
connections that attract and, crucially, retain
diverse talent to foster the innovation key to
business growth. Our new Board Diversity
Policy is accessible on our website:
https://zote.info/3wRSYEL. It demonstrates
our commitment to fostering an inclusive
culture, where every person is encouraged to
contribute to the organisation irrespective of
their race, ethnicity, gender, sexual orientation,
marital status, disability, age or religious
beliefs. The organisation has regard, in
particular, to female and ethnically diverse
representation in its workforce and
management.
We expect our workforce to reflect the world
and local communities in which we operate
and recognising this forms part of our people
strategy. Our principal site, with 64% of Group
employees, is located in South London and
36% of the workforce is from a non-white
ethnic group; 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.
Zotefoams plc Annual Report 2021 73
Gender
Around 25% of the total workforce is
female. We recognise that, in production
environments, the shift patterns and physical
nature of the work present a challenge to
attracting women and this is something which
is likely only to change over the longer term.
Across the business, we also see a gender
imbalance at managerial and professional
levels of the business, which we will address
over time through the recruitment and internal
development of more junior staff who will
increase the proportion of female employees
progressing into these roles. Our new blended
working policy is also expected 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 Gender Pay Gap has fallen significantly
since 2017 and stood at 5.4% in April 2021,
below a UK average of 7.9%. Our report can
be accessed at https://zote.info/3iRXA5y
Looking forward
In the coming years, we expect further
expansion of our business globally as well
as a continuation of supply chain and other
challenges, including shortages of talented
employees in the developed economies
where we operate. Zotefoams will embed the
changes it has made in working practices and
continue to develop policies and procedures to
attract and retain the right employees. We will
promote a culture where people constructively
challenge themselves and others and where
success is valued and recognised.
Ethnicity distribution of total workforce
Asian
Black
Hispanic or Latino
Mixed
White
Other
Unknown
UK
50
53
–
6
196
4
11
US
China
Poland
India
–
1
20
–
88
–
–
35
–
–
–
1
–
–
–
–
–
–
25
–
–
9
–
–
–
–
–
–
Group-
wide
94
54
20
6
310
4
11
Non-white ethnicity
36% 19% 100%
0% 100% 34%
Estimate of non-white
ethnicity in the country
14% 39% 100%
6% 100%
–
Role by gender1
Gender
Non-Executive Director
Director
Executive team2
Direct report to
Executive team
Other staff
Female Male Female Male
2021 2021
2020 2020
2
–
1
8
3
2
5
31
2
–
2
7
3
2
5
31
110 337
99 328
400
300
200
100
0
2019
2020
2021
121 378
110 369
Male
Female
1
In calculating headcount, we take into account all self-identified genders, including non-binary and intersex.
Staff are also provided with the option of ‘Prefer not to say’ on the equal opportunities form.
2 Following the departure of the HR Director in 2021, the HR function was reorganised with a female Head of HR reporting
directly to the Group CEO.
Age
Age equality forms part of our
commitment to equal opportunity in
employment and we have a good spread
of age groups across the business.
The average age of our employees is 43.
30% of our workforce is aged 51 or over.
<30
30–40
41–50
≥51
84
141
122
152
To cement the augmented T-FIT team, a team building exercise aimed at encouraging a collaborative spirit was
undertaken in October 2021 at Suzhou West Lake, Hangzhou, China. The exercise was well received by staff and
Global Commercial Head Paul Marty commented: “This team activity was a great opportunity to connect on a
deeper personal level. Ahead of a busy Q4, it gave all of us a chance to take stock in beautiful surroundings.”
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 74
s172(1) statement
Our shareholders and stakeholders
Decision
Context
Stakeholder
considerations
Strategic
actions
supported by
the Board
Impact
of these
actions on
the long-term
success of the
Company
Investing in the ReZorce® mono-material barrier
packaging solution – the first beverage carton for
the circular economy
In 2020, the Board approved a ReZorce market assessment focusing
primarily on cartons for aseptic liquid packaging while maintaining the
optionality of exploring alternative opportunities.
In 2021, the Group:
X Commissioned a pilot line for extrusion trials and a sterile carton
packaging machine to test the sheet’s capability to be formed into
a carton and sealed to the required industry standards
X Commissioned trial sterilisation and carton packing equipment
X Aligned with potential customers and trial partners to test product
on commercial equipment
Shareholders
Significant potential opportunities exist offering sustainable, profitable
growth over the medium term. This provides further evidence that
Zotefoams’ ESG planning forms part of its business model.
Employees
Leaders with market-relevant experience were hired during 2020 and
2021 to increase the capability of the MEL team and support the
realisation of the ReZorce opportunity.
Environment
Our ReZorce product line is planned to be made with increasing
amounts of recycled plastic content and, as it is classified as a
mono-material, can be readily recycled to support a circular economy.
The product won a number of awards in 2021, including the
British Plastics Federation and Horners Bottlemaker’s Award, Best
New Concept at the UK Packaging Awards and a Green Apple
Environmental Award, as well as being shortlisted for several
innovation, recycling and environmental awards.
Supported an IP registration programme
Invested £1.9m in capital assets and development costs
Diverted resources from the MEL licensing business to support
ReZorce and focused the latter on existing customers only
ReZorce mono-material barrier packaging offers society a truly circular
option using existing recycling infrastructure. The strongly negative
public perception of plastic is becoming more nuanced beyond the
environmental impact of ill-considered, single-use plastic used
predominantly in consumer packaging. The significant progress
achieved in 2021 is a step forward in creating value from ReZorce
cartons. In 2022, we will engage with partners to develop the
technology and commercial opportunity further and consider a number
of business models which can deliver value to our stakeholders
The Board is required to carry out its
statutory duty to act in a way which it
considers, in good faith, would be most likely
to promote the success of the Company for
the benefit of its members as a whole, and
in doing so have regard to:
X The likely consequences of any decision
in the long term
X Its environmental impact
X Key stakeholders (including employees,
customers, suppliers and communities) and
X Maintaining a reputation for high standards
of business conduct.
The Board has strived to embed these
considerations in its decision-making process
and made its first report on compliance in the
2019 Annual Report.
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 for itself specific
matters for approval, including significant new
business initiatives. The Board ensures that
management is acting in accordance with,
and making progress on, the agreed Group
strategy through regular Board meetings.
Supported by information packs circulated in
advance to enable effective preparation and
discussion, these meetings are the principal
forum for discussing the monthly reporting
of business performance and direct
engagement with the Executive team
and employee groups. A Board member
representing workforce engagement also
attends the UK Joint Consultative Committee,
which represents workforce views. Processes
are in place to ensure that the Board receives
relevant information which enables sound
decisions to be made in support of the
Group’s long-term success.
Key Board decisions in 2021
Considering all stakeholders when making
key business decisions is fundamental to
our ability to create value over the longer
term. In the midst of recovering from a
global pandemic, 2021 was focused on
balancing the needs and expectations of our
stakeholders – our customers, shareholders,
employees and suppliers and the wider
communities we operate in – in line with
our purpose, “optimal material solutions
for the benefit of society”.
Zotefoams plc Annual Report 2021 75
Decision
Context
Stakeholder
considerations
Agreeing sustainability targets
Informed by a global commitment to achieve net zero carbon emissions by 2050, Zotefoams’ sustainability
strategy aims to minimise the use of natural resources in Group operations. The sustainability targets agreed
in 2021 focus on the reduction of our Scope 1 and 2 carbon emissions (see page 61).
In parallel with these specific Scope 1 and 2 targets, we have calculated the carbon cost of our foams
(referred to as “carbon accounting”) and ReZorce mono-material barrier packaging solution. We are using
this information and working with selected customers to assess how this can be used constructively to make
objective decisions that steer us and our customers towards choosing the optimal materials for their solutions.
Environment
Zotefoams products deliver high performance, insulation and reduced weight, which offers the potential
for carbon emissions reductions in excess of the carbon emissions required to manufacture our products
in addition to other benefits to society.
Customers
Our products, when used appropriately, remain the optimal solution both functionally and environmentally for
many of our customers’ needs. We have the technical expertise to identify ways to reduce our customers’
carbon footprints and increase material efficiency.
Strategic actions
supported by the Board
Agreed targets on reducing waste and recyclability.
Introduced new reporting against the recommendations of the Task Force on Climate-related Disclosures.
Oversaw a number of sustainability initiatives. See our ESG report on page 56.
A bank refinancing facility commenced late 2021 and completed in March 2022 includes ESG commitments.
Impact of these
actions on the long-term
success of the Company
We view the transition to a lower carbon economy as an opportunity to demonstrate our competitive advantage
through the nature of the existing business and the proactive pursuit of opportunities with outstanding
sustainability credentials.
Decision
Context
Stakeholder
considerations
Strategic actions
supported by
the Board
Changing ways of working while improving employee engagement
A legacy of the pandemic will be a change in how people work. Enforced working from home requirements have
also brought new challenges and duties on the employer around employee welfare. New working practices,
aimed at striking a balance between business requirements and people needs, evolved rapidly in 2021.
Employees
Addressing challenges arising from new ways of working requires the consideration of employees’ mental,
social and professional needs.
Amplifying the employee voice to support good governance arrangements.
Shareholders
Our people are a key asset. Initiatives supporting the development of the talent pipeline and staff retention
contribute to the value of the business.
Work/life balance challenges arising from these new ways of working were recognised. In addition to continuing
to provide an employee assistance programme, available 24 hours a day and seven days a week in our two
largest sites in the UK and the USA, a number of wellbeing initiatives were launched. Further details are provided
in our People section on page 70.
We consolidated new working practices in 2021, including remote, flexible and different ways of working.
A blended working policy for UK employees was finalised and communicated to all staff, setting out how
the post-COVID working environment will look at Zotefoams.
A Board diversity policy was introduced to lead from the top in matters of diversity and inclusion.
The UK Joint Consultative Committee, attended by J Carling, the Board Director assigned responsibility for
employees, was relaunched with increased representation by departmental delegates and new terms of
reference highlighting the importance of the employee voice.
When permitted under prevailing COVID restrictions, senior managers were introduced to the Board for informal
discussions over lunch.
An updated online performance evaluation process was launched during the year in the UK, aimed at improving
the Group’s ability to help its employees develop in line with business needs.
Impact of these actions
on the long-term
success of the Company
A motivated workforce whose interests are aligned with those of the business.
A wider geographical reach to increase our access to key talent.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 76
s172(1) statement
continued
Decision
Context
Stakeholder
considerations
Meeting global supply chain challenges
The COVID-19 crisis has exacerbated the challenges of managing extended supply chains, with Brexit causing
additional logistical and administrative issues for UK manufacturers as well as increased costs.
Shareholders
Achieving revenue targets and profitability required significant management time and activity to mitigate supply
chain challenges. As a consequence, the Group maintained its strong financial position in 2021 and paid both
a final 2020 dividend in June 2021 and an interim 2021 dividend in October 2021.
Employees
New leaders, with improved skill sets, were hired in procurement and supply chain. A Sales and Operations
Planning (S&OP) Manager was hired, for the first time at Zotefoams, to manage the global challenges arising
from running a more integrated business across three main manufacturing sites. The supply chain function was
restructured to provide a clearer distinction between customer service and logistics management and improve
employee satisfaction. Staff benefited from new job opportunities and enhanced training.
Customers
A restructured supply chain function was launched in Q4 2021, following months of trials with selected
customers, to improve the customer experience. An increased focus on logistics management helped secure
road and container freight in a timely fashion, under challenging circumstances, to ensure timely deliveries.
Environment
A number of sustainability initiatives were implemented in 2021 to mitigate the impact of Zotefoams’ supply
chain on the environment. See our ESG report on page 56.
Supply chain partners
Monitoring the end-to-end supply chain was a key challenge in 2021. Measures were put in place to keep track
of the location and status of inventory, forecast customer demand accurately, and monitor a fluctuating
transport capacity.
Strategic actions
supported by
the Board
Continued a second-sourcing approach for key suppliers in line with our risk management process.
Monitored raw material and freight cost increases and made sales price increases where considered
appropriate.
Oversaw mitigation plans put in place to address supply chain issues.
Reorganised the procurement and customer-facing functions.
Impact of these actions
on the long-term
success of the Company
The flexibility and resilience of the Group provided confidence in the financial stability of the business and
allowed it to continue its investment programme in support of future growth.
Zotefoams plc Annual Report 2021 77
Decision
Context
Stakeholder
considerations
Strategic actions
supported by
the Board
Impact of these actions
on the long-term
success of the Company
Launching production in Poland
Building our Poland manufacturing plant was part of the strategy to increase global capacity and optimise
service levels for customers in continental Europe. Construction of the facility began in February 2019 and
production started in February 2021. This marks the culmination of a multi-year investment programme that
also increased capacity in the UK and USA and represents an overall increase of 60% compared to the
position at the end of 2017.
Shareholders
Additional capacity and a European location will enable the Group to meet its medium-term growth targets.
Customers
The Poland plant offers on-site storage for up to 15,000m3 of foam. The plant’s location in Brzeg, being close to
trans-European road and rail networks, offers excellent service to many of our customers in continental Europe.
Zotefoams also has significant foam production capability in the USA and UK, increasing the ability to serve
our customers globally.
Employees and local community
The site provides further employment opportunities to the local community.
Investment of £23m over a period of three years for a strategically located manufacturing and distribution site
with 15% of Zotefoams’ annual Group foam expansion capacity.
The eight hectare site is large enough to accommodate future expansion. We believe that near-shoring will
continue to be a key consideration for our European customers in light of global supply chain challenges, and
the location of our new plant will increase flexibility and responsiveness through integrated global capacity.
Zotefoams plc Annual Report 2021Strategic ReportGovernanceFinancial Statements 78
Board of Directors
Uniting
the skills
to take us
forward
Douglas Robertson
Senior Independent Director
A N R
Alison Fielding
Non-Executive Director
A N R
David Stirling
Group CEO
Appointed
August 2017
Appointed
May 2020
Skills
Extensive multinational
experience in both public and
private companies, strategic
planning, acquisitions and
divestments.
Experience
Doug 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.
Skills
Experienced entrepreneur and
Non-Executive Director, with
significant expertise in strategy
development and implementation
for start-ups, AIM/main
market listed and not-for-profit
organisations.
Experience
Alison spent 13 years with IP
Group plc as Chief Technology
Officer, Chief Operating Officer and
latterly as Director of Strategy and
IP Impact and brings extensive
investment, strategy development
and execution experience in
fast-growing, science-based
businesses. Alison has a PhD in
Organic Chemistry from Glasgow
University.
External appointments
Non-Executive Director and Chair
of the Remuneration Committee
of Nanoco plc, Non-Executive
Director and Chair of the
Remuneration Committee of Maven
Income and Growth VCT plc.
Appointed
September 1997 (Finance Director)
and May 2000 (Group CEO)
Skills
Global leadership, strategy and
commercial experience, with
a specific skillset in intellectual
property, business development,
finance and manufacturing. He
has over 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 with
BICC plc. David is a graduate of
Glasgow University and has an
MBA from Warwick University and
an MSc in Finance from London
Business School.
External appointments
None
Zotefoams plc Annual Report 2021
Chair of Committee
A Member of the Audit Committee
R Member of the Remuneration Committee
N Member of the Nomination Committee
79
Steve Good
Non-Executive Chair
N R
Gary McGrath
Group CFO
Catherine Wall
Non-Executive Director
A N R
Jonathan Carling
Non-Executive Director
A N R
Appointed
October 2014 (Board) and April
2016 (Chair)
Appointed
December 2015 (Executive Director)
and February 2016 (Group CFO)
Appointed
May 2020
Appointed
January 2018
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
Skills
Strong and relevant international
experience in the speciality
chemicals and plastics industries,
manufacturing and diverse
industrial markets which enables
him to give both guidance and
challenge to management. He
also has significant plc board
experience.
Experience
Steve was Chief Executive of Low
& Bonar plc between September
2009 and September 2014. Prior
to that role, he was Managing
Director of its technical textiles
division between 2006 and 2009,
Director of new business between
2005 and 2006 and Managing
Director of its plastics division
between 2004 and 2005. Prior to
joining Low & Bonar he spent 10
years with BTP plc (now part of
Clariant) in a variety of leadership
positions managing international
speciality chemicals businesses.
He is a Chartered Accountant.
External appointments
Senior Independent Director, Chair
of the Remuneration Committee
and member of the Nomination
Committee, Elementis plc. Chair,
Chair of the Nomination Committee
and member of the Remuneration
Committee, Devro plc.
Skills
Skilled independent Chair and
Non-Executive Director for
private equity owned, quoted
and family companies. Sectors:
industrials, business services,
consumer.
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
Experience
Catherine has 30 years’
experience in the private equity
industry, primarily with Equistone
Partners Europe, where she
led numerous management
buy-outs and later became UK
Portfolio Partner supervising
the management of all the
business’s UK investments.
Catherine also has extensive
industrial markets and Non-
Executive Director experience,
working with and helping
develop many management
teams to deliver ambitious
growth plans
External appointments
Chair of Mortgage and Surveying
Services Limited. Until 31
December 2020, she was also
Non-Executive Director and
Chair of the Audit Committee
of Mobeus Income & Growth
VCT plc.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
80
Corporate governance
Committed to the highest standards
of corporate governance
Provision 38 and company pension contributions
for the incumbent Group CEO, where an
explanation of our progress to date and our plans
towards bringing the Company into line with the
Code are set out on page 88 of the Directors’
Remuneration report.
The Code can be downloaded here
https://bit.ly/2AKGqTm.
Further details are provided in this report and
in the Board Committee reports that follow
on pages 81 to 103.
The disclosures required by Disclosure and
Transparency Rules DTR 7.2.6R have been
provided in the Directors’ report.
Board and Committee composition and
diversity
The Board maintained 29% female membership
in 2021. The Board acknowledges the benefits
of diversity, including that of gender and ethnicity
and is committed to setting an appropriate
‘tone from the top’ in such matters. Having
noted the aspirational targets set by the
Hampton-Alexander review and the Parker
review, the Board has adopted a Board diversity
policy which informs the Board recruitment
process. The diversity policy is mirrored in
Zotefoams’ wider recruitment strategy and is
having a positive impact on the talent pipeline
in what has historically been a male-dominated
industry.
Appointments to the Board are ultimately
proposed by the Nomination Committee and
approved by the Board. New appointments are
made on merit against objective criteria, taking
account of the specific skills and experience,
independence and knowledge needed to
ensure a rounded Board and the benefits
each candidate can bring to the overall Board
composition. Search consultants selected
by Zotefoams are required to cast their
search sufficiently broadly to identify the best
candidates, regardless of background. Care
is taken to ensure that appointees, as well
as the existing Directors, have sufficient time
to devote to their roles.
More details can be found in Our people on
pages 70 to 73, and our Nomination Committee
report can be found on page 87.
The Board members have gained their business
experience across a broad range of industries,
resulting in significant collective knowledge
of business practices with a high degree of
international exposure. The Board also benefits
from the broad cultural, educational and
professional backgrounds of its members,
which collectively include industrial, engineering,
energy, technology, intellectual property and
financial services.
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.
Director
S Good
J Carling
Tenure at 31 December 2021
7 years and 3 months
4 years
A Fielding
1 year and 7 months
G McGrath
6 years and 1 month
D Robertson
4 years and 4 months
D Stirling
C Wall
24 years and 4 months
1 year and 7 months
Board leadership and effectiveness
In line with the Code, we conducted an internal
review of Board effectiveness with the objective
of assessing whether the Board’s composition,
operations and structure remained effective for
the Group and its business environment, both
in the short and long term.
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.
Further information relating to the evaluation
process can be found on pages 81 and 82.
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, at
the recommendation of the Audit Committee,
I confirm that we believe that the 2021 Annual
Report presents a fair, balanced and
understandable assessment of the Group’s
position, its performance and its prospects,
as well as its business model and strategy.
Annual General Meeting
Given the UK government restrictions on public
gatherings due to COVID-19 and to protect the
health and wellbeing of our shareholders and
other attendees, the Board decided to hold a
closed meeting for the 2021 AGM. Shareholders
were given the opportunity to pre-register their
questions ahead of the meeting for the Board
to address any such questions during the
proceedings. A separate virtual presentation,
open to all existing shareholders and other
stakeholders, also took place post AGM on the
Investor Meet Company platform: https://www.
investormeetcompany.com/zotefoams-plc/
register-investor. It is our intention this year to
hold the Annual General Meeting in person. The
opportunity to listen to the AGM proceedings
and submit questions in real time to the Board
will also be open to both existing shareholders
and other stakeholders on the Investor Meet
Company platform. Further information is
provided in our Notice of the 2022 AGM.
The Directors and I are looking forward once
again to welcoming shareholders to the meeting.
S P Good
Chair
6 April 2022
Dear Shareholder
The Board recognises the importance of being
a well-managed business in the interests of our
shareholders and stakeholders and is committed
to the highest standards of corporate
governance.
In response to the continuing challenges caused
by COVID-19, the Board discussed with the
Executive team how the impact of the pandemic
would be mitigated across the Group’s current
and longer-term operations, having regard to
the macroeconomic environment and related
uncertainties.
Our purpose, “optimal material solutions for the
benefit of society”, is core to the articulation of
our sustainability strategy. Significant progress
was made in ESG matters in 2021. Details are
provided in our ESG report on pages 56 to 69.
Our purpose also drives and determines how
we engage with our different stakeholders.
Key areas of stakeholder focus for 2021
included:
X The conservation of resources by setting
sustainability targets aimed at reducing
polymer waste in the manufacturing process
X The support of customers by commissioning
a Poland plant key to increasing flexibility
and responsiveness through integrated
global capacity
X Employee engagement, with a reframing of
the Joint Consultative Committee’s terms
of reference to emphasise the importance
of the employee voice and new opportunities
for staff to meet the Board informally.
Further details may be found in our s172(1)
statement on page 74.
I am pleased to present the report on corporate
governance on behalf of the Board.
Statement of compliance with the 2018
UK Corporate Governance Code
Corporate governance plays an essential part
in the long-term success of the Group and the
Board and I are committed to upholding the
highest standards of governance in our worldwide
operations. Throughout the financial year ended
31 December 2021, the Board has considered
the contents and requirements of the Code and
confirms that the Group has been compliant with
the provisions of the Code, with the exception of
Zotefoams plc Annual Report 2021 81
The Directors also undertake CPD activities
through the year to support development areas
identified though the Board evaluation process.
Board evaluation
A formal review of the performance of the Board
and its Committees is carried out each year. The
review of the Chair’s performance is led by the
Senior Independent Director, together with the
other Non-Executive Directors in consultation
with the Executive Directors. The other
Non-Executive Directors’ performance is
evaluated by the Chair in consultation with
the Executive Directors. The Executive team’s
performance is evaluated by the Remuneration
Committee in conjunction with the Group CEO
(except in the case of the Group CEO, when the
Group CEO is not present).
The Board considered the merits of retaining the
services of an external facilitator and concluded
that, given the Group’s size and the Board’s
needs, this was not appropriate. The matter
will be kept under review in 2022.
The 2021 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 Board and its Committees
The Board’s role is to provide the entrepreneurial
leadership of the Group within a framework of
prudent and effective controls that enables 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’s role is to act as the
representative of the shareholders and other
stakeholders and focus on the governance
of the Group. Management is delegated to
the Executive Directors and the Executive team.
As part of their role as members of a unitary
Board, the Non-Executive Directors
constructively challenge and develop proposals
on strategy. The Non-Executive Directors
scrutinise the performance of management
in meeting agreed goals and objectives and
monitor the reporting of performance. They
satisfy themselves on the integrity of financial
information and that financial controls and
systems of risk management are robust and
defensible. They are responsible for determining
appropriate levels of remuneration of Executive
Directors and have a prime role in appointing
and, where necessary, removing Executive
Directors and in succession planning.
Three principal Committees report into the
Board, functioning within defined Terms of
Reference. These are the Audit, Remuneration
and Nomination Committees. The Terms of
Reference for these Committees are available
on the Group’s website, www.zotefoams.com.
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 August 2021.
Chair and Group CEO
The Chair is responsible for the leadership of the
Board, ensuring its effectiveness on all aspects
of its role and setting its agenda. The Chair is
also responsible for ensuring that the Directors
receive accurate, timely and clear information.
The Chair facilitates the effective contribution
of the Non-Executive Directors and ensures
constructive engagement between Executive
and Non-Executive Directors.
The Board considers that S Good has sufficient
time to devote to his role as Chair of the Group.
S Good is currently a Non-Executive Director
of Elementis plc and Chair of Devro plc.
The Group CEO is responsible for the running
of the Group’s business. He is supported by
the Group CFO and the Executive team.
Board balance and independence
The Board currently comprises two Executive
Directors, four independent Non-Executive
Directors and the Non-Executive Chair. D
Robertson was appointed Senior Independent
Director at the AGM held on 16 May 2018. The
Board considers D Robertson to be
independent.
S Good is also Chair of the Nomination
Committee and a member of the Remuneration
Committee. Only the respective Committee
Chairs and members are entitled to be present
at meetings of the Remuneration, Audit and
Nomination Committees, but others may attend
at the invitation of the Committee Chair. During
the year, the Chair met with the Non-Executive
Directors regularly without the Executive
Directors present and the Non-Executive
Directors met without the Chair present to carry
out a review of the Chair’s performance, in line
with the principles of the Code.
Information and professional development
Each month, all Directors receive management
reports and briefing papers in relation to Board
matters in a timely manner to ensure 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’ attendance at meetings of the Board and Committees is as follows:
Attendance at meeting
Eligible
Attended
Eligible
Attended
Eligible
Attended
Eligible
Attended
Board
Meetings
Audit Committee
Meetings
Remuneration Committee
Meetings
Nomination Committee
Meetings
J Carling
A Fielding
S Good
G McGrath
D Robertson
D Stirling
C Wall
11
11
11
11
11
11
11
11
11
11
11
11
11
11
4
4
–
–
4
–
4
4
4
–
–
4
–
4
4
4
4
–
4
–
4
4
4
4
–
4
–
4
2
2
2
–
2
–
2
2
2
2
–
2
–
2
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 82
The Board and its Committees
Continued
The process involved the following steps:
X Completion of a combined qualitative
questionnaire for the Board and its
Committees
X A skills matrix
X Individual interviews and a group discussion
and
X For the first time in 2021, feedback from the
Executive team on their interaction with the
Board.
The main observations from the evaluation were:
X Good arrangements were in place for the
administration of the Board’s business
(including the flow and availability of
information, the conduct of meetings and
interactions with Executive Directors and the
Executive team). Face-to-face interaction
is valued by Directors and more in-person
meetings will be arranged in 2022, subject
to government restrictions
X The skills matrix evidenced a strong mix
of skills, experience and knowledge, with
developing knowledge in environmental,
social and governance (ESG) matters
X A positive Board culture enabled each
Director to contribute fully and effectively
to Board debate
X The Executive team valued Board input
and sought to leverage individual Directors’
expertise to inform executive action. Further
engagement is planned in that respect in 2022
X The Board had clear sight of its objectives,
with a good balance between a short and
long-term focus.
The outcome of the review highlighted that the
Board and its Committees are effective and well
run and that all Directors contribute effectively
and provide appropriate commitment to
their role.
The Board considers that it is functioning well
and that its current composition contains an
appropriate balance and diversity of views,
qualifications, skills, experience and personal
attributes necessary to carry out its duties and
responsibilities.
Re-election of Directors
The Code requires Directors to submit for
re-election annually at the AGM. The Company
implemented this practice in 2012 and will
continue to observe it.
Remuneration Committee and executive
remuneration
A report on the work of the Remuneration
Committee is contained within the Directors’
Remuneration report.
The report can be found on pages 88 to 99.
Financial reporting
The Directors’ responsibilities for preparing the
financial statements are set out in the Statement
of Directors’ responsibilities.
The statement can be found on page 103.
Audit Committee and Auditor
The Audit Committee report provides details
of the role and activities of the Committee and
its relationship with the External Auditor.
The report can be found on pages 84 to 86.
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 2021, these
meetings continued to be held virtually through
video conferencing technology. 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.
The Board also recognises the importance of
engaging with individual shareholders and the
Executive Directors now 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 roadshow.
The Annual Report, the AGM and the corporate
website www.zotefoams.com also support
communication with investors. The Chairs of the
Board Committees will normally be available
at the AGM to answer questions.
Internal control
The Board has applied the 2018 Code by
establishing procedures to manage risk,
overseeing the internal control framework, and
determining the nature and extent of the principal
risks the Group is willing to accept in order to
achieve its long-term strategic objectives. The
Board regularly reviews the process, which has
been in place throughout the year to the date
of approval of this report and which is in
accordance with the Financial Reporting
Council’s Guidance on Risk Management,
Internal Control and Related Financial and
Business Reporting. The Board is responsible
for the Group’s system of internal control and for
reviewing its effectiveness. Such a system is
designed to manage, rather than eliminate, the
risk of failure to achieve business objectives and
can only provide reasonable and not absolute
assurance against material misstatement or loss.
In compliance with the 2018 Code, the Board
regularly reviews the effectiveness of the Group’s
system of internal control, as well as how it is
reported to the Board. The Board’s monitoring
covers all controls, including financial,
operational and compliance controls and risk
management. It is based principally on reviewing
reports from management and the Internal
Control Committee to consider whether
significant risks are identified, evaluated,
managed and controlled and whether any
significant weaknesses are promptly remedied.
The Board has also performed a specific
assessment for the purpose of this Annual
Report. This assessment considered all the
significant aspects of internal control arising
during the period covered by the report. The
assessment also included a robust review of the
principal risks facing the Group, including those
that would threaten the Group’s business model,
future performance, solvency and liquidity.
The Audit Committee assists the Board in
discharging its review responsibilities.
During the course of its review of the system
of internal control 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 system of internal
controls are as follows:
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 documented.
Risk identification
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 45.
Information and communication
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.
Zotefoams plc Annual Report 2021 83
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 and reviews by
management, Internal Audit 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.
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
Audit and management.
Non-financial controls are reviewed regularly
by executive management, which reports any
issues and corrective actions taken.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 84
Audit Committee report
Maintaining financial control
through volatile times
X The Committee also reviewed the work
done by the External Auditor to challenge
underlying assumptions supporting the going
concern statement and concluded that the
challenge of management forecasts and
their assessment of going concern had been
appropriate. It also noted the renewal of the
Group’s banking facilities for a further four
years, with a one-year extension option, on
terms more favourable than the expiring facility
X While noting that the initial external audit scope
for the Group complied with the International
Standards on Auditing (UK), the Committee,
having considered the rate of growth of
operations in Poland and China, held robust
discussions with the External Auditor in respect
of the level of audit work to be undertaken
in respect of these Group components. It
was agreed that these components would
be subject to more audit testing than initially
proposed or required under the International
Standards on Auditing (UK). This resulted in a
more in-depth review of these operations than
previously proposed.
Global control
The Audit Committee reviewed the internal
controls framework, see page 45, to assess how
it had responded to challenges brought about
by disruption to the global supply chain and
evolving stakeholders’ expectations in relation
to environmental, social and governance
matters. The Committee satisfied itself that
the 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. The Committee
oversaw the embedding of the new principal risk
of sustainability and climate change in 2021 and
focused on ensuring that the improved ESG
disclosures were appropriate and supported
shareholder decision-making. Details of
Zotefoams’ strengthened ESG framework
may be found on page 57.
Group cyber security arrangements
The Audit Committee reviewed Group cyber
security arrangements, with a particular focus
on critical security updates used to combat
malware and ransomware in accordance with
the requirements of the Group’s Cyber Essentials
Plus accreditation and employee education. The
Committee satisfied itself that the level of work
performed by the Group’s IT department, its
competence, the Group-wide employee training
programme in place and the full annual
penetration testing, appropriately mitigated
the risk of a malicious attack.
Internal audit
Each year, the Audit Committee reviews the
need for an internal audit function and, given the
size of the Group, continues to be of the opinion
that the internal audit function is best performed
by an external audit firm with a broad range of
competencies that complements the services
provided by the External Auditor. As the Group
continues to grow, the matter will be kept under
review. Following a tender process in 2015,
Grant Thornton UK LLP has continued to be
used to provide internal audit services in 2021.
The Committee agreed the scope for the internal
audit work performed in 2021, reviewed the
report received and discussed the proposals
made with management. Grant Thornton UK
LLP has not undertaken any other work for
the Group and, therefore, the Audit Committee
considers it to be independent and objective
in its judgement. The External Auditor is aware
of the internal audit outsourcing arrangements
and fully supports them.
In recognition of the increased size and
complexity of the Group, the Audit Committee
requested that management develop a
multi-year rolling programme that covers the
most significant risks not already mitigated
through other audit methods and certifications.
Working closely with the Internal Auditor, these
risks were identified, presented to and approved
by the Audit Committee and converted into a
three-year rolling cycle of two audits per year,
beginning in 2022. A full scoping and planning
process will be followed for each internal audit
proposal and tabled for approval to the Audit
Committee.
During the year, the Audit Committee
monitored the effective implementation of
the actions arising from the 2020 internal audit
of the Purchase-to-Pay policies, processes,
procedures and controls in place in the UK.
Due challenge was delivered by the Committee
on areas requiring management actions.
Effective interim solutions to the audit findings
are in place but progress in implementing
longer-term systemic solutions has been
impeded by the redeployment of procurement
resources required to tackle global supply
chain disruptions and Brexit-related import/
export compliance challenges. The Audit
Committee has imposed a rigid timetable
for the implementation of the control
improvements in 2022.
For 2021, the Internal Auditor performed an
all-subsidiary review of policies, procedures,
processes and controls in relation to the payroll
function. Its report was presented to the Audit
Committee in December 2021 and due
challenge was delivered by the Committee
on areas requiring management actions,
with an emphasis on embedding global values
around compliance, control and accountability.
Following agreement, the actions were
approved and are being implemented to
an appropriate timetable.
The Committee will keep under review and
assess the continued independence and
effectiveness of internal audit in 2022.
MEL capitalisation costs
The Committee has considered the
assessments made in relation to the
carrying value of MEL’s goodwill, tangible and
intangible fixed assets on the basis of detailed
reports received from management outlining
the treatment of impairments, valuation
methodology and the basis for capitalisation
of costs in line with IAS 38. In order to consider
the assumptions related to the current ReZorce
initiative and how the decision not to impair
has been determined on the basis of this, the
Committee requested a report at the beginning
of 2021 to assess the effective treatment of
costs, a process which involved consulting
Dear Shareholder
The Audit Committee has reviewed the contents
of the 2021 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, which now incorporate
the consideration of climate-related risks by the
appropriate Control Committee and a principal
risk on sustainability and climate change.
While the Committee’s core duties were
unchanged in 2021, there was particular focus
on ensuring strong internal financial controls to
support agile decision-making in a fast-evolving
environment that presents new global
challenges, including multifaceted legal and
compliance environments, integrated supply
chains, cyber security risks and unprecedented
volatility. Further details are provided in the risk
management section on pages 45 to 54.
The environment in which Zotefoams now
operates also presents emerging opportunities.
The Audit Committee members have offered
guidance and advice to management on the
risks involved and controls required in the further
development of ReZorce® Circular Packaging
to the market. Further details on ReZorce are
provided on pages 8 and 9.
Challenging the External Auditor’s findings
The Audit Committee challenged the work done
by the External Auditor to test management’s
assumptions and estimates. Examples of these
challenges are found below under the section on
financial reporting and significant financial issues.
In addition:
X The Committee specifically discussed the
degree of rigour and challenge applied
to management judgements in relation
to the impairment of intangible assets in
MuCell Extrusion LLC (MEL) (a key audit
matter). The Committee concluded that the
challenge provided by the External Auditor
in respect of management’s impairment
assessment was robust and its assessment
in alignment with that of management in that
no impairment was required.
Zotefoams plc Annual Report 2021 85
with the External Auditor. The Committee
has received regular briefings on the project
development, has challenged management
and is satisfied that these assumptions and
the judgements and estimates disclosed in
the financial statements are appropriate.
Financial Reporting Council (FRC)
thematic review
During the second half of the year, in line with
the FRC’s review function of listed securities,
a review of Zotefoams’ interim financial report
to 30 June 2020 was carried out. I am pleased
to advise that, based on its review, there were
no questions or queries that the FRC wished
to raise with the Company. Zotefoams has
committed to considering the points made
in the FRC’s letter when preparing this and
future sets of reports and accounts.
It is important to note that the FRC’s letter
provides no assurance that the interim financial
report is correct in all material respects as the
FRC’s role is not to verify the information
provided but to consider compliance with
reporting requirements.
The Committee’s responsibilities
The Committee continues to fulfil a key role in
the Group’s governance framework, providing
valuable independent challenge and oversight
across the Group’s financial reporting and
internal control procedures. In a rapidly evolving
climate, it seeks to ensure that shareholders’
long-term interests are protected and 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
6 April 2022
Summary of the role of the Audit
Committee
The main responsibilities of the Audit
Committee are:
X To monitor significant financial reporting
issues and judgements and the clarity
and completeness of disclosures made
in connection with the preparation of the
Group’s and Company’s financial statements,
assumptions for the going concern and
viability statements, interim reports,
preliminary announcements and related
formal statements, including any matters
which the External Auditor may wish to raise
X To review and challenge, where necessary:
the application of significant accounting
policies and any changes to them; the
methods used to account for significant
or unusual transactions where different
approaches are possible; whether the
Group has adopted appropriate accounting
policies and made appropriate estimates
and judgements, taking into account the
External Auditor’s views on the financial
statements; and the clarity and completeness
of disclosures in the financial statements and
the context in which statements are made
X To review on behalf of the Board the integrity
of the Group’s internal financial controls
and assess the scope and effectiveness of
the systems established by management
to identify, assess, manage and monitor
financial and non-financial risks and make
recommendations to the Board
X To keep under review the adequacy and
effectiveness of the Group’s internal financial
controls and internal control and risk
management systems
X To review the Group’s systems and controls
for the prevention of bribery and receive
reports on non-compliance
X To review the adequacy and security of the
Group’s arrangements for its employees to
raise concerns, in confidence, about possible
wrongdoing in financial reporting or other
matters
X To review the Group’s procedures for
detecting fraud
X To consider and approve the remit of the
internal audit function and ensure 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 consider and approve the remit of the
Group’s internal audit function and to monitor
and review its effectiveness in the context of
the Group’s overall risk management system
X To review and approve the terms of
engagement of the External Auditor, including
any engagement letter issued at the start
of each external audit and the scope of
any audit before it begins
X To assess annually the qualification, skills
and resources, effectiveness, objectivity
and independence of the External Auditor
X To review tri-annually a policy in relation to
the provision of non-audit services by the
External Auditor and the approval by the
Committee of such services, in order to avoid
any threat to the External Auditor’s objectivity
and independence and the impact that such
services could have on the audited financial
statements, while taking into account any
relevant ethical guidance on the matter
X To report to the Board on how it has
discharged its responsibilities, including
making recommendations, when necessary,
on any actions or improvements required.
The Audit Committee’s Terms of Reference,
which are available on the Group’s website,
include all matters indicated by the Disclosure
and Transparency Rule 7.1 and the UK Corporate
Governance Code. The Terms of Reference are
reviewed annually by the Audit Committee to
ensure that they remain appropriate and reflect
current best practice. The Terms of Reference
were last reviewed in August 2021.
Composition of the Audit Committee
In line with the Code, the Committee comprises
the four independent Non-Executive Directors
and excludes the Company Chair.
The members of the Audit Committee during
2021 were D Robertson (Chair), J Carling, A
Fielding and C Wall.
Their biographies can be found on pages 78
and 79.
D Robertson is a Fellow of the Institute of
Chartered Accountants of England and Wales
and was Group Finance Director of SIG plc until
January 2017, having previously held that
position at both Umeco plc and Seton House
Group Limited. In the opinion of the Board, D
Robertson has significant, recent and relevant
financial experience to fulfil the requirements
of the role. All current members of the Audit
Committee have held, or currently hold,
board-level positions in manufacturing
industries with international reach.
The Audit Committee’s membership, as a whole,
has competence relevant to the sector in which the
Group operates and is able to function effectively
with the appropriate degree of challenge.
Meetings
The Audit Committee has a planned calendar,
linked to events in the Group’s financial calendar.
The Audit Committee met four times in 2021.
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
management 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 2021, the Audit
Committee has:
X Reviewed the financial statements in the 2020
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 audit of the
2020 Annual Report
X Noted the new mandatory European Single
Electronic Format (ESEF) applicable to
consolidated primary financial statements for
financial periods beginning 1 January 2021 or
later and satisfied itself that the ESEF process
had been integrated into the Annual Report
planning and appropriate testing had been
carried out in anticipation of the 2021 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
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 86
Audit Committee report
Continued
X Reviewed the Interim Report issued in
August 2021 and received the report from
the External Auditor on its review of the
Interim Report
X Agreed a programme of work for 2021 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 Noted that the FRC had written to Zotefoams
plc to advise that it had carried out a review
of the Company’s interim financial report to 30
June 2020 and had no questions or queries
it wished to raise. The Audit Committee
undertakes to ensure the points made in the
FRC’s letter are considered when preparing
this and future sets of reports and accounts
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 Reviewed and approved a plan for monitoring
the engagement of audit firms providing non-
audit services to ensure that the requirement
for independence would not hinder future
External Auditor tenders
X Reviewed and approved a three-year rolling
internal audit programme
X Reviewed Group-wide cyber security
arrangements
X Considered the inventory management
and working capital position of the Group
X Considered the risks impacting the Group,
its customers and the economic environment,
relating to Brexit 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, having regard in particular to
the continuing impact of COVID-19 and Brexit
in 2021
X Received reports from J Carling in relation to
his engagement with the Joint Consultative
Committee (JCC), which comprises
an employee representative from each
department and meets regularly to consider
a wide range of matters affecting the
employees’ current and future interests
X Reviewed the Group’s policies on ethics,
anti-bribery, corruption and fraud and
the arrangements in place for employees
to raise concerns, in confidence, about
possible wrongdoing in financial reporting
or other matters
X Satisfied itself that the requirements of the
Regulations made under section 3 of the
Small Business, Enterprise and Employment
Act 2015 relating to payment practices
reporting had been met, with a focus on
maintaining a high level of compliance with
suppliers’ payment terms in 2021
X Considered the provisions of the 2018 UK
Corporate Governance Code and the FRC
Guidance on Audit Committees
X Confirmed with management that
Zotefoams plc and its subsidiaries have
paid all applicable tax in the jurisdictions
in which they operate
X Reviewed its own effectiveness by conducting
a confidential evaluation through an online
portal, the anonymised outcome of which
was discussed by the Board. It was agreed
that the Committee remained effective, had
fulfilled its remit and had in place appropriate
Terms of Reference.
Financial reporting and significant
financial issues
The Audit Committee assesses whether suitable
accounting policies have been adopted and
whether management has made appropriate
estimates and judgements. The Committee
reviews accounting papers prepared by
management which provide details on the main
financial reporting judgements. The Committee
reviews reports by the External Auditor on the
full-year and half-year results which highlight any
issues with respect to the work undertaken on
the audit or review.
As the Group’s closed defined benefit pension
scheme represented one of the largest liabilities
on the consolidated statement of financial
position at £4.7m as at 31 December 2021, 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
2021 Audit was PKF’s second annual audit for
the Group and was led by two Audit Partners,
M Ling and J Archer. J Archer is the Responsible
Individual in charge of the audit and signs the
independent auditor’s report to the members of
Zotefoams plc on behalf of PKF Littlejohn LLP.
The Committee confirms that there were no
contractual obligations that acted to restrict the
Committee’s choice of External Auditor and that
the agreement with PKF will not restrict the
shareholders’ choice of auditor in future
general meetings.
Effectiveness of the External Auditor
The Audit Committee assesses the effectiveness
of the external audit process in a number of
ways. At least annually, the External Auditor
presents a report, which includes an
assessment and confirmation of its
independence, as well as the activities that
the External Auditor is undertaking to ensure
compliance with best practice and regulation.
At the conclusion of the annual audit, the Audit
Committee undertakes an assessment of the
External Auditor in relation to its fulfilment of
the agreed audit plan, the robustness and
perceptiveness of the External Auditor in
handling key accounting and audit judgements
and the thoroughness of the External Auditor’s
review of internal financial controls. As part of
this assessment, management’s opinions on
the External Auditor are also considered. An
extended questionnaire aligned with FRC
guidance was implemented in 2021 and
evidenced that there was candid and complete
dialogue between the External Auditor and the
Committee. The Committee also considered the
processes put in place by PKF Littlejohn LLP
to monitor its quality and drive improvements
consistently. The Committee noted established
practices aimed at simplifying and standardising
processes, strong supervisory arrangements at
all levels of the organisation and a good degree
of professional scepticism applied to
management judgements.
In November 2020, the Committee updated the
policy in relation to the provision of non-audit
services provided by the External Auditor. The
policy requires that no non-audit services will be
provided by the External Auditor without the prior
approval of the Audit Committee, which will only
be granted in compliance with the FRC Revised
Ethical Standard 2019. Other than the review of
the Group’s Interim Report, the External Auditor
did not provide any non-audit services in 2021.
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 2022 AGM
to re-appoint PKF as the External Auditor.
Zotefoams plc Annual Report 2021 Nomination Committee report
Cultivating agility
87
and its Committees remain key to the long-term
success of the Group. Key position succession
plans are in place for Executive roles and their
direct reports. The Group continues to develop a
pipeline of employees demonstrating high potential
through a talent pool initiative. Further details are
provided in our people section on page 72.
The Board’s annual evaluation process in 2021
was led by the Company Chair and facilitated by
the Company Secretary who is considered a
suitable and independent person to conduct this
process. The evaluation has demonstrated that
the Board collectively continues to provide an
appropriate balance of skills, knowledge and
experience to ensure there is robust and
effective challenge and stewardship of the
Group’s purpose and strategy. The Board also
recognises the importance of engaging with the
Executive team and interacts with them at Board
meetings and during strategic planning sessions.
The Board evaluation process was extended in
2021 to assess the level and quality of interaction
between the Board and members of the
Executive team. Full details of the Board’s annual
evaluation process, including action taken on
previous findings, are provided in the corporate
governance section on pages 81 and 82.
Recognising that a people strategy sits at the core
of the future of the Group, the Human Resources
function is managed through quarterly HR risk
steering committee meetings which focus on
the mitigation of risks and optimisation of
opportunities which 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 Board and its
Committees section on pages 81 to 83.
The Committee will continue to focus on
succession planning, talent development and
augmenting the Company’s sustainability
expertise in 2022.
S P Good
Chair of the Nomination Committee
6 April 2022
Key areas of focus
The Nomination Committee currently comprises
the Chair and the four independent
Non-Executive Directors.
The Nomination Committee operates within
defined Terms of Reference and is responsible for
putting in place succession plans for the Board,
reviewing the continuation in office of the Directors
and managing the recruitment of new Board
members within criteria set by the Board. The
Committee met twice in 2021. The Committee is
supported by the Company Secretary in planning
its activities, monitoring best practice and meeting
its Terms of Reference.
The main responsibilities of the Committee are to:
X Evaluate and review the structure, size and
composition of the Board, including the
balance of skills, knowledge, experience and
diversity of the Board, taking into account
the Group’s risk profile and strategy
X Identify and nominate suitable candidates for
appointment to the Board, including 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 and
X Seek engagement with shareholders on
significant matters related to the Committee’s
areas of responsibility when appropriate to
do so.
During 2021, the Committee:
X Reviewed and updated its Terms of Reference
in line with current best practice
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
X Reviewed the composition of the Board
and its Committees and assessed which
additional skills and/or experience would
complement those of the existing members,
having regard to the Group’s risk profile
and strategy. Following that review, the
Committee prepared a description of
the role and capabilities required for the
appointment of a new Company Chair
X Following a tender process, engaged Korn
Ferry executive search consultants for the
recruitment of a new Company Chair, noting
that it is a signatory of the voluntary Code
of Conduct on gender diversity and best
practice https://www.gov.uk/government/
publications/standard-voluntary-code-
of-conduct-executive-search-firms/
the-standard-voluntary-code-of-conduct-
for-executive-search-firms and accredited
by the Hampton-Alexander Steering Group
in its 2020 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
2021 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.
Dear Shareholder
I am pleased to present my report on the
activities of the Nomination Committee in 2021.
Having seen two additions to, and one departure
from, the Board in 2020 during a period where
physical meetings were avoided and short-term
problem solving took prominence, 2021 was an
opportunity to develop the Board’s teamwork
and focus further on strategic development.
While following the Group’s strict COVID-19
guidelines, the Board was able to meet
physically on several occasions and interact
more frequently with the Executive team.
This was of particular value to the 2020 new
appointees, A Fielding and C Wall, who brought
fresh insights to the Board and reinforced its
culture of challenge and innovation.
The principle of diversity is strongly supported
and recognised by the Board, which believes
that one of its significant benefits is that it
counters ‘groupthink’ by informing debate
from a range of perspectives. Female Board
membership of 29%, achieved in 2020,
remained in 2021 and progress continues to
be made within the Group with recruitment
of female graduates as part of the graduate
recruitment scheme. The Board has also
considered the Parker review published in
November 2020 and concluded that its
findings should be taken into account in Board
succession planning. The Board diversity
policy, adopted in June 2021 and published on
Zotefoams’ website https://zote.info/3wRSYEL,
aims to ensure that the Board’s membership
reflects diversity in its broadest sense. Please
see our diversity figures on page 73.
In line with the provisions of the UK Corporate
Governance Code, the Company Chair’s term
of office is due to end in 2023. Following an
assessment of the Board’s existing skillsets
against those required to deliver the strategy,
a recruitment process, led by the Senior
Independent Director was initiated for the
appointment of a new Company Chair in 2023.
The process will focus on identifying candidates
from diverse backgrounds whose skills
complement those of the existing Board
members, having regard to the Company’s
strategic vision and, in particular, to a sound
understanding of sustainability matters.
Effective succession planning for the Board and
the Executive Leadership team and a rigorous
assessment of the effectiveness of the Board
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 88
Directors’ Remuneration report
During 2021, despite another challenging year for Zotefoams,
our Executive team continued to manage the business well
and deliver progress on strategic goals. In line with the normal
policy review cycle, the Committee will review in 2022 the
Remuneration Policy both from a structural and opportunity
perspective to ensure it reflects the Group’s strategic priorities
and the calibre of Executives in role
Long-Term Incentive Plan (LTIP): 2019 Plan
outcome
Regarding longer-term performance, the Group
achieved an earnings per share of 9.01p in 2021
and relative TSR performance of below median
against the FTSE SmallCap Index (excluding
investment trusts) over the three-year
performance period. In line with performance
delivered, the 2019 Long-Term Incentive Plan
award will lapse in full.
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) over the
course of the year. Whilst, as set out above,
significant progress has been made over the
year to set Zotefoams’ up to deliver long-term
success, the Committee felt that the formulaic
outcome was an appropriate reflection of Group
performance delivered. It has, therefore, not
exercised discretion in relation to incentive
outcomes during the year.
Implementation of Remuneration Policy
in 2022
Base salary
Base salaries will increase by 4.0%, in line with
the anticipated base salary increases for the
wider workforce (of 4.0%), to £344,318 for D
Stirling and £229,190 for G McGrath, effective
from 1 April 2022.
Pension
The Committee has continued to review
D Stirling’s employer’s pension contributions,
in light of the 2018 Corporate Governance Code
and developing shareholder expectations around
the alignment of Executive Director pension
contributions with those provided to the majority
of the wider workforce, and is committed to
aligning the Group CEO employer’s pension
contributions with the workforce by the end
of 2022.
As previously disclosed, following the closure
of the Defined Benefit Pension Scheme in 2005,
D Stirling has been contractually entitled to a
pension contribution of 18.75% of salary from
January 2021, alongside 27 active members. For
2021, in acknowledgement of evolving corporate
governance requirements and the importance
of moving towards a best practice approach,
D Stirling voluntarily accepted a reduction in
his pension contribution to 15% of pensionable
salary for 2021 and has agreed to the same
reduction for 2022. As part of the wider
Remuneration Policy Review (see below) the
Committee intends to review the approach
to pensions going forward and will update
shareholders on its proposed approach as
part of the consultation process.
As communicated in the Directors’
Remuneration report last year, the Board
reviewed the pension contribution rate for the
wider workforce. Reflecting on market practice,
the Board decided to increase the employer
contribution for all UK employees on the two
direct contribution pension schemes currently
run by the Company that are not related to
the previous Defined Benefit Scheme by 1%,
for those meeting the maximum employee
contribution, with effect from April 2022.
Incentive awards
There will be no change in award levels for the
Group CEO and Group CFO under our annual
bonus and long-term incentive plan, which are
currently set at 75% and 150% of base salary
respectively. With respect to the long-term
incentive, the Committee is cognisant of external
views on windfall gains and as such, whilst it
does not consider it appropriate to adjust award
levels, it will review out-turns in the context of
share price performance over the period
between grant and vest. Details of the metrics for
the 2022 annual bonus are set out on page 90,
with 75% of the bonus based on financial
metrics; 5% based on safety related metrics;
5%-10% based on performance against ESG
related metrics; and 10%-15% based on other
strategic metrics. The metrics and targets for the
2022 LTIP award are set out on page 90. For the
2022 LTIP award, awards will be based 50% on
adjusted EPS growth (as defined on page 90);
20% on average ROCE (as defined on page 90);
and 30% on relative TSR against the FTSE Small
Cap Index excluding investment trusts.
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.
Dear Shareholder
I am pleased to present the Remuneration report
for the year ended 31 December 2021.
Introduction
Whilst 2021 was a mixed year for Zotefoams
financially, a significant revenue milestone of
£100.8m was achieved in the centenary year
(up 22% on 2020). However, due to extremely
challenging conditions caused by a difficult
supply chain environment, large swings in
product mix and ongoing pandemic restrictions,
profit before tax reduced by 16% to £7.0m (2020:
£8.3m). In this context, Zotefoams’ Executive
team continued to manage the business
effectively throughout what has been a difficult
and demanding year and continued to deliver
on the Group’s long-term strategic objectives,
having made strong progress on two priority
initiatives: the £23m Poland capacity expansion
was completed on time and within budget and
the ReZorce® mono-material barrier packaging
development facility in Massachusetts, USA was
commissioned.
2021 incentive outcomes
Annual bonus
Considering the performance delivered in 2021
and reflecting that 90% of the bonus is based on
financial KPIs, the Committee determined that
22.0% and 16.0% of the maximum bonus should
be paid to the Group CEO and Group CFO
respectively, reflecting the strategic progress
made in the year. A detailed description of
performance against the targets is set out
on pages 92 and 93.
Zotefoams plc Annual Report 2021 89
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.
A M Fielding
Chair of the Remuneration Committee
6 April 2022
Looking forward
In line with the three-year cycle, the Committee
will undertake a thorough review of the
Remuneration Policy during 2022, both from a
structural and opportunity perspective, to ensure
it is reflective of the Group’s strategic priorities
and the calibre of executives in role. Three
key areas that are currently areas of
consideration include:
X Does the current structure remain fit for
purpose in delivering on the Group’s short
and long-term strategic perspectives? The
Committee feels that the three-year review
cycle provides the right opportunity to take
a step back and consider whether it remains
fit for purpose going forward
X How can sustainability be further embedded
within the incentive framework? In 2021,
sustainability was central to our long-term
strategy discussions and our first response
to the Task Force on Climate-related Financial
Disclosures (TCFD) is included on page 62.
Alongside this, the Committee has increased
the ESG element in the 2022 Annual Bonus
from 5% to 10% for the Group CEO and will
further review the inclusion of appropriate ESG
targets for adoption in to any short-term and
long-term incentive arrangements as part of
the remuneration policy renewal
X Does the current remuneration opportunity
reflect the size and complexity of the Group’s
operations and the calibre of individuals in
role? Reflecting on the external context, the
Committee remains mindful of balancing
the need to attract, retain and motivate our
Executive Directors and Executive team to
ensure progress against our strategic goals
with the interests of all stakeholders, including
shareholders and employees. The Committee
is concerned that, despite implementation of
the delayed increases last year, Zotefoams’
overall remuneration opportunity has fallen
significantly behind market and is not
reflective of the calibre of the Executives.
As such, as part of the Remuneration Policy
review, the Committee intends to review the
overall remuneration levels to ensure they
are appropriate in the context of the above
and support delivery of the Group’s strategic
priorities.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 90
Directors’ Remuneration report
Continued
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 2021
The current Directors’ Remuneration Policy (the “Remuneration Policy”) was approved at the 2020 AGM held on 8 June 2020 and is intended to remain
in place until the AGM that will be held in 2023. A summary of the Remuneration Policy and how it will be implemented in 2022 has been set out below.
The full version may be found on pages 58 to 63 of the 2019 Annual Report. A copy of the 2019 Annual Report may be found by following this link:
https://zote.info/3Kar8ah
Element and purpose/
link to strategy
Salary
Positioned at a level needed to recruit
and retain Executive Directors of the
calibre required to develop and deliver
the business strategy.
Benefits
Provide market-competitive benefits
for the Executive Directors, to assist in
carrying out their duties effectively.
Retirement benefits
Provide competitive post-retirement
benefits and reward sustained
contribution.
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.
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.
Implementation for 2022
In line with the approach for the wider workforce, the base salaries for the Executive Directors will be increased
on 1 April 2022 by 4% to:
D Stirling – £344,318
G McGrath – £229,190
Benefits to be provided in line with approved policy.
D Stirling – 15%1 of salary
G McGrath – 6% of salary
1 Following the closure of the Defined Benefit Pension Scheme (the “DB Scheme”), there was a commitment to increase the level of contribution to
the replacement Defined Contribution Pension Scheme (the “DC Alternative Scheme”) for the members of that scheme (which includes D Stirling)
by 3% of pensionable salary every five years. The most recent increase was applicable from 1 January 2021. D Stirling has contractually waived his
entitlement to a 3% increase from 1 January 2021 on an existing contribution level of 15.75% and has agreed to a reduction in the contribution level
to 15% since 1 January 2021.
As set out in the letter from the Remuneration Committee Chair, as part of the remuneration review to be undertaken in 2022, the Committee intends
to review the approach to pensions going forward, and will update shareholders on its proposed approach as part of the consultation process.
Maximum opportunity – 75% of salary.
25% of the bonus is deferred into shares in the Company for three years under the deferred bonus share plan.
For 2022, the bonus will be assessed against the following measures for both Executive Directors:
Measure
Profit before tax
Free cash flow delivery
Strategic financial
Sustainability
Safety
Weighting – D Stirling %
Weighting – G McGrath %
60
15
10
10
5
60
15
15
5
5
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.
Maximum opportunity – up to 150% of salary.
Awards granted 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
(0% vesting)1
Maximum
(100% vesting)1
Adjusted EPS3
Average Return on Capital Employed
Relative Total Shareholder Return2
1 Straight-line vesting occurs between threshold and maximum.
2 Relative to the FTSE Small Cap Index excluding investment trusts
3 During both 2020 and 2021 the reported tax rate has deviated significantly, primarily due to rebates lowering the 2020 rate and accounting
for future tax rate increases adjusting deferred tax provisions in 2021. In line with the approach to the 2021 LTIP award, the Committee has
therefore considered it appropriate to set and measure EPS targets based on a constant tax rate of 19%. The Committee retains the discretion
to override this where it considers it appropriate.
25p
15%
Upper quartile
15p
9%
Median
50%
20%
30%
Non-Executive Director fees
The Non-Executive Directors (excluding the Company Chair) will receive a fee increase of 2.5% effective 1 April
2022, in line with the general salary increase that was given to the Company’s staff in the UK in 2021.
Following a review of the Company Chair’s fee during the year, the Committee has agreed to increase the Chair’s
fee to £125,000 effective 1 April 2022 to reflect the size and scale of the Group’s operations and the calibre of the
individual in role.
Zotefoams plc Annual Report 2021
91
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% in the second year after leaving.
The Committee considers that the remuneration framework in place at the Group appropriately addresses the following principles set out in the 2018
UK Corporate Governance Code:
Clarity
Simplicity
Risk
Predictability
Proportionality
Incentive arrangements are based on clearly defined financial, non-financial and personal performance objectives which are
aligned with the Group’s long-term strategy.
Incentive payments operate throughout the Group (with participation in the LTIP based on seniority) to ensure that there is
alignment on key priorities throughout the Group.
Remuneration arrangements are simple, comprising the following key elements:
X Fixed pay: comprises base salary, benefits and pension.
X Annual bonus: bonus which incentivises the delivery of financial, non-financial and personal performance objectives.
X LTIP: which 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.
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.
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.
The Remuneration Policy sets out the threshold targets and maximum level of pay that the Executive Directors may earn in
any given year. The actual incentive outcomes would vary depending upon the level of performance against pre-determined
performance measures.
The Committee is satisfied that the remuneration framework does not reward poor performance. Incentives are directly aligned
to the Group’s strategic objectives, with performance targets calibrated to reward outperformance both over the short and long
term. Furthermore, the Committee retains the discretion to adjust formulaic outcomes under the incentive plans in the event that
it determines that the outcomes do not align with individual or Company performance.
The Committee also takes account of the pay and conditions for the wider workforce when considering executive remuneration.
Alignment with
culture
The Remuneration Policy has been set in the context of the nature, size and complexity of the Group. It has been designed
to support the delivery of the Group’s key strategic priorities and is in the best interests of the Group and its stakeholders.
Single total figure of remuneration (audited)
The following tables set out the single figure for total remuneration for Directors for the 2021 and 2020 financial years.
Executive Directors
D Stirling
2021
2020
G McGrath
2021
2020
Salary
(£)
Benefits
(£)
Bonus
(£)
LTIP1
(£)
CSOP
(£)
Pension
(£)
Total
fixed pay
(£)
Total
variable pay
(£)
324,258
303,000
215,406
200,500
14,119
14,642
12,517
12,754
54,627
63,630
26,445
57,143
nil
62,554
nil
42,156
nil
nil
nil
nil
48,365
47,722
23,054
21,434
386,742
365,364
250,977
234,688
54,627
126,184
26,445
99,299
Total
(£)
441,369
491,548
277,422
333,987
1 The performance period for the 2018 LTIP award (granted in May 2018) ended on 31 December 2020 and has been included in the 2020 comparative figures above. Details on out-turns against
the performance targets are set out on page 75 of the 2020 Annual Report. LTIP values for 2020 have been restated using the share price on the vesting date of 24 May 2021, being £3.98. The LTIP
awards made in May 2019 have been included in the 2021 table as the three-year performance period ended on 31 December 2021. As set out on page 93, the 2019 LTIP awards, which are not
due to vest until 20 May 2022, will lapse in full as performance achieved was below the trigger point.
Non-Executive Directors1,2
J Carling
S Good
D Robertson
A Fielding
C Wall
Fees paid in respect of 2021 (£)
Fees paid in respect of 2020 (£)
37,613
85,3333
42,667
42,667
37,638
36,700
83,886
41,943
26,395
23,284
1 Non-Executive Directors who also chair a Board Committee receive an additional fee.
2 The Non-Executive Directors (excluding the Company Chair) will receive a fee increase of 2.5% effective 1 April 2022.
3 The fee of the Company Chair will be increased to £125,000 effective 1 April 2022.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 92
Directors’ Remuneration report
Continued
Notes to the table (audited)
Base salary and pension contributions
The Company operates a Defined Contribution Pension Scheme (the “DC Scheme”) or a cash contribution equivalent. When participating in the DC
Scheme, individuals may elect to enter a salary sacrifice arrangement, whereby their salary is reduced and the Company makes a corresponding
contribution into their DC Scheme. G McGrath opted for the salary sacrifice arrangement and the amounts shown for his base salary are after salary
sacrifice. Similarly, the amounts shown for pension include the amounts of salary that were sacrificed. As at 31 December 2021, the base salary (before
salary sacrifice) for G McGrath was £220,375 p.a. (£200,500 p.a. as at 31 December 2020).
D Stirling receives a cash contribution in lieu of pension contributions in accordance with the rules of the Scheme, which apply to all members. As at
31 December 2021, the base salary for D Stirling was £331,075 p.a. (£303,000 p.a. as at 31 December 2020).
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 2021
The targets for the annual bonus for 2021 for D Stirling and G McGrath are as set out in the below table:
Measure
D Stirling
G McGrath
Trigger point
Maximum
Weighting (% max)
Targets
Performance
achieved
Pay-out
D Stirling
G McGrath
Profit before tax and any exceptional
items1
Meet Group operating cashflow
budget
Strategic financial – MEL
Strategic financial – S&OP
planning
Strategic financial – PLC costing
model
Strategic financial – Business
unit segment allocation
Sustainability
Safety
Total
60%
15%
10%
5%
0%
0%
5%
5%
60%
20%
0%
£7.9m
£7.1m
£9.3m
£7.0m
£8.5m
£5.2m
See below
See below
See below
0%
See below
See below
See below
10%
See below
See below
See below
5%
0%
5%
See below
See below
See below
n/a
See below
See below
See below
See below
See below
See below
n/a
n/a
100%
100%
0%
0%
7.5%
5%
n/a
n/a
4.5%
5%
22%
0%
0%
n/a
n/a
6%
5%
n/a
5%
16%
1 The reported PBT was £7.0m. There were no exceptional items.
The below table sets out the targets and performance for the Executive Directors.
Achieved in full or predominantly achieved
Partially achieved
Not achieved
Strategic financial metrics – D B Stirling & G C McGrath
Measure
D Stirling G McGrath
Objective
Performance
D Stirling G McGrath
Weighting (% max)
Scoring
Strategic financial
– MEL
10%
0% Present a strategy for MuCell (ReZorce®
product line) with an agreed implementation
plan and execute to critical milestones.
Satisfaction of target to be assessed by
MEL ReZorce working group against set
milestones.
Strategic financial
– S&OP planning
5%
0% Deliver a system to improve decision
making on Group capacity. Key
elements are:
X A business simulation model
(using Monte Carlo analysis)
to allow assessment of new
opportunities and existing business
on Group capacity. (2.5%)
X A decision-making approach which
examines the benefits of investing in
new capacity vs mix enrichment over
a 5-year horizon (2.5%)
75% attainment due to
milestones not being met
to anticipated timescales
Achieved
n/a
n/a
Strategic financial
– PLC costing model
0%
10% Develop and implement an updated
costing model at Group level by Q4.
60% attainment due to
delayed implementation
n/a
Zotefoams plc Annual Report 2021 93
Measure
D Stirling G McGrath
Objective
Performance
D Stirling G McGrath
Weighting (% max)
Scoring
0%
5% Reflecting on capacity investments, new
Achieved
n/a
Strategic financial
– Business Unit
segment allocation
Safety
5%
overseas assets and assets in the UK,
agree approach to asset allocation going
forward
5% Based on individual assessment, achieve
>90% compliance with the following:
X Conduct quarterly documented hi-
Achieved
visibility tours
X Participate in Safety Engagement &
Observation reviews
X Ensure Field Level Hazard Assessment
reviews conducted quarterly
X Participate in quarterly Safety Focus
Groups
X Participate in quarterly Safety Culture
Maturity Assessments
Sustainability
5%
0% X Align internal control systems to SASB
framework and set and implement clear
targets for improvement (2.5%)
X Further develop and implement a wider
sustainability strategy, making use as
necessary of the SASB framework (2.5%)
90% attainment due to
one element of the wider
sustainability strategy not
being fully implemented
to anticipated timelines
n/a
The annual bonus was based on base salary before salary sacrifice. The maximum opportunity for the bonus was 75% of salary. 25% of the bonus is
deferred into shares held in trust for three years under the Deferred Bonus Share Plan (DBSP). Full details of the operation of the DBSP are set out in the
Directors’ Remuneration Policy.
2021
D Stirling
G McGrath
Cash bonus (£) Deferred bonus (£)
Total bonus (£)
40,971
19,834
13,656
6,611
54,627
26,445
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. Whilst, as set out above, significant progress has been made over the year to set Zotefoams up to deliver long-term success, the
Committee felt that the formulaic outcome was an appropriate reflection of performance delivered. It has, therefore, not exercised discretion in relation
to incentive outcomes during the year.
LTIP
The 2019 LTIP award was subject to two performance conditions measured over the three financial years ended 31 December 2021. 30% of the award
was subject to relative total shareholder return against the FTSE SmallCap Index (excluding investment trusts). 70% of the award was subject to an EPS
growth target. 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 and EPS 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 and EPS. Where performance is below the EPS trigger point, then no part of the EPS award
vests. If performance is below the TSR trigger point, then no part of the TSR award vests. Between the trigger point and the maximum, the award vests
on a sliding scale basis.
The table below summarises the performance criteria for the 2019 award, which is due to vest on 24 May 2022.
Relative TSR performance
Annualised EPS growth
Performance
target
Median
performance
against peer
group
8%
Trigger point
% of award
vesting
6
14
Performance
target
Upper quartile
performance
against peer
group
22%
Maximum
% of award
vesting
30
70
Achievement
Below median
performance
against peer
group
-19%
Level of vesting
(% maximum)
0%
0%
Based on the above level of performance, the 2019 LTIP will lapse in full. The Committee considered the formulaic outturns under the LTIP relative to
Group and individual performance and determined that no discretion should be exercised.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 94
Directors’ Remuneration report
Continued
Scheme interests granted during 2021 (audited)
The table below sets out details of scheme interest granted to the Executive Directors during 2021:
Type
of award
Deferred
bonus2
(Unconditional
shares)
Type
of award
LTIP4
(Conditional
shares)
D Stirling
G McGrath
D Stirling
G McGrath
Date
of grant
08.04.2021
Date
of grant
26.04.2021
Number of
shares
granted
3,678
3,303
Number of
shares
granted
Face value¹
(£)
15,926
14,302
Face value3
(£)
Face value
(% of salary)
Performance
condition
Trigger point for
vesting (% of face
value)
End of
performance
period
115,192
76,676
484,958
322,806
150
150
30% based on relative
TSR growth5. 50% on
annualised EPS growth6
and 20% on Return on
Capital Employed
(ROCE)7
20% of maximum
award for meeting the
trigger points specified
in notes 5, 6 and 7
below
31.12.2023
1 Face value calculated using the average share price for the period 30 March 2021 to 7 April 2021 (£4.33). The share price was £4.15 on 8 April 2021.
2 Awards vest on the third anniversary of grant. There are no performance conditions for these awards.
3 Face value calculated using the average share price for the period 19 April 2021 to 23 April 2021 (£4.21). The share price was £4.16 on 26 April 2021.
4 Award is subject to a three-year performance period and, subject to performance, is released after a two-year holding period.
5 Relative TSR growth is measured against the FTSE SmallCap Index (excluding investment trusts). The trigger 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.
6 Annualised EPS growth is from the EPS for 2020. The trigger point is 5% annualised growth, where 10% of the award will vest, to the maximum of 15% annualised growth, where 50% of the award
will vest.
7 ROCE is defined as operating profit before exceptional items divided by the average sum of equity, net debt and other non-current liabilities. This measure excludes acquired intangible assets and their
amortisation costs. It is measured based on average ROCE. The trigger point is average ROCE of 8%, where 4% of the award will vest. Maximum vesting occurs for average ROCE of 10%, where 20%
of the award will vest.
Total pension entitlements (audited)
The Zotefoams Defined Benefit Pension Scheme (the “DB Scheme”) was closed to 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 2021
(£ p.a.)
Gross increase
in pension
(£)
Increase in accrued
pension net of
CPI inflation
(£)
Change in value
over the year
(£)
D Stirling
22,418
112
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 2021; and
– in the application of section 234 of the Act, the figure 20 is substituted for the figure 16.
(3) The following is additional information relating to the Director’s pension from the DB Scheme:
(a) Normal retirement age is 65.
(b) On death before retirement, a spouse’s pension is payable of one half of the member’s preserved pension at leaving, revalued from leaving to the date of death. On death in retirement, a spouse’s
pension is payable of one half of the member’s pension at death, without reduction for any part of the member’s pension commuted for cash at retirement.
(c) Members’ Guaranteed Minimum Pensions increase at statutory rates. Other pensions increase in payment at 5% p.a., or the increase in the Retail Prices Index if lower.
(d) From 1 January 2006, active employee members were able to pay contributions to the Defined Contribution Pension Scheme set up by the Company in order to receive retirement benefits. The
Company also contributes to this arrangement. Details of the contributions made into this Scheme have been disclosed in the single figure calculation and are not included in the above disclosure.
Zotefoams plc Annual Report 2021
95
Payments made to past Directors (audited)
No payments were made during 2021.
Payments for loss of office (audited)
No payments were made during 2021.
Statement of Directors’ shareholding and share interests (audited)
Executive Directors are required to hold shares in the Company equivalent to 200% of base salary, with a five-year period to build up this holding from: (1)
appointment to the Board; or (2) the date of the 2017 AGM (17 May 2017) for the current Executive Directors. The Remuneration Policy adopted at the
2020 AGM also requires 100% of the shareholding requirement to be held for one year following cessation of employment with the Group and 50% of the
shareholding requirement to be held for two years following cessation of employment with the Group. The Committee intends to keep under review the
mechanism to enforce the post cessation shareholding requirement during the course of 2022. Throughout 2021, D Stirling complied with the Policy,
holding 577% of base salary at 31 December 20211. G McGrath is making progress toward meeting the requirement and holds 184% of base salary
at 31 December 20211.
1
Includes shares owned outright and interest in share incentive schemes without performance conditions. Calculated on the basis of the average share price over the three months to 31 December
2021 of £4.02.
The tables below set out the Directors’ interests (including those of their connected persons) in Zotefoams shares as at 31 December 2021. There were
no changes in the Directors’ interests between the year end and the date of this report.
Executive Directors
D Stirling
G McGrath
Shares owned outright¹
449,824
61,257
Interest in share incentive
schemes without
performance conditions2
Interest in share incentive
schemes with performance
conditions3
47,127
65,206
202,866
134,691
Includes Partnership Shares, Dividend Shares and vested Matching Shares under the SIP.
1
2 Comprises: vested CSOP awards; DBSP shares; unvested Matching Shares under the SIP and the unvested portions of the 2017 LTIP and the 2018 LTIP awards due to vest 1 June 2022 and 24 May
2022 respectively.
3 Comprises: unvested LTIP shares.
Non-Executive Directors
J Carling
A Fielding
S Good
D Robertson
C Wall
Shares owned outright
3,323
9,121
30,047
7,302
7,936
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 96
Directors’ Remuneration report
Continued
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:
As at
31 Dec
2020
Date of
exercise or
release
Granted
during the
year
Exercised
or released
Lapsed or
cancelled
Scheme
D Stirling
LTIP (2017)1
54,434 08.06.2021
LTIP (2018)
15,717 08.06.2021
LTIP (2019)
LTIP (2020)
LTIP (2021)
73,070
87,674
–
–
–
–
DBSP (2017)
6,656 08.06.2021
DBSP (2018)
2,677
DBSP (2019)4
25%
11,835
DBSP (2019)4
–
–
75%
35,508 08.06.2021
DBSP (2020)
SIP3
–
609
G McGrath
CSOP
10,344
–
–
–
LTIP (2017)1
35,719 08.06.2021
LTIP (2018)
10,592 08.06.2021
LTIP (2019)
LTIP (2020)
LTIP (2021)
48,352
58,015
–
–
–
–
DBSP (2017)
4,419 08.06.2021
DBSP (2018)
DBSP (2019)4
25%
DBSP (2019)4
75%
DBSP (2020)
SIP3
2,497
7,444
22,335
–
561
–
–
–
–
–
–
–
–
115,192
–
–
–
–
3,678
105
–
–
–
–
–
76,676
–
–
–
–
3,303
106
(36,290)
(5,239)
–
–
–
(6,656)
–
–
(35,508)
–
–
–
(23,813)
(3,531)
–
–
–
(4,419)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at
31 Dec
2021
18,144
10,478
73,070
87,674
115,192
Market
price on
exercise
date
£4.77
£4.77
–
–
–
Exercise
price
Date from
which
exercisable
Expiry
date
– 01.06.20212
– 24.05.2021
– 20.05.2022
– 21.09.2023
– 26.04.2024
£2.90 05.04.2019 05.04.2026
–
£4.77
– 24.05.2021
2,677
11,835
–
–
– 20.05.2022
– 20.04.2023
–
£4.77
– See below5
3,678
714
10,344
11,906
7,061
48,352
58,015
76,676
–
–
–
–
–
–
–
–
– 08.04.2024
–
–
– 01.06.20212
– 24.05.2021
– 20.05.2022
– 21.09.2023
– 26.04.2024
–
£4.77
– 24.05.2021
2,497
7,444
22,335
3,303
667
–
–
–
–
–
– 20.05.2022
– 20.04.2023
– See below5
– 08.04.2024
–
–
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
1 30% based on relative TSR. 70% based on EPS growth. As set out in the 2019 Annual Report and Accounts, this award vested at 46.99% of maximum based on performance in the period ending
31 December 2019.
2 As set out in the Committee Chair’s cover letter of the 2019 Directors’ Remuneration report, the decision on the timing of the vesting of the 2017 award was deferred for a period of up to one year by
the Committee. The Committee set an exercise date of 1 June 2021 in 2020.
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”.
4 None of the 2019 bonus was paid in cash. At the request of the Executive Directors, the proportion of the bonus that would normally have been paid in cash (75% of the award) was deferred into
shares for a period of up to one year. The proportion of the bonus that would normally be deferred into shares (25%) will continue as normal and will be released after three years.
5 Not subject to Good Leaver/Bad Leaver provisions as defined under the DBSP rules. May not be exercised prior to 1 January 2021 and must be exercised by 20 April 2023.
Zotefoams plc Annual Report 2021 97
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 2021:
Director
J Carling
A Fielding
S Good
G McGrath
D Robertson
D Stirling
C Wall
Date of current service contract
or appointment letter
Unexpired terms at 31 December 2021
10 August 2020
19 March 2020
4 September 2019
15 April 2019
6 August 2020
13 May 2019
19 March 2020
1 year and 5 months
1 year and 5 months
5 months
–
1 year and 5 months
–
1 year and 5 months
Copies of the Directors’ service contracts and appointment letters are available for inspection at the Company’s registered office.
External appointments
During 2021, 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 to the average percentage
change for the UK workforce.
The employee subset consists of an average of the UK workforce employees for the period under review.
This group has been selected as this employee representative group is the largest group of employees within the organisation. The Non-Executive
Directors receive no taxable benefits or annual bonus.
D Stirling
G McGrath
J Carling
S Good
D Robertson
A Fielding
C Wall
Average employee
% change in
base salary
(2021 to 2020)
% change in
taxable benefit
(2021 to 2020)
% change in
annual bonus
UK employees
only
(2021 to 2020)
% change in
base salary
(2020 to 2019)
% change in
taxable benefit
(2020 to 2019)
% change in
annual bonus
UK employees
only
(2020 to 2019)
7.0
7.4
2.5
1.7
1.7
61.61
61.61
2.5
-3.5
-1.9
n/a
n/a
n/a
n/a
n/a
0
-14.1
-53.7
n/a
n/a
n/a
n/a
n/a
4.7
0
0
0
0
0
n/a
n/a
0
12.1
10.2
n/a
n/a
n/a
n/a
n/a
0
-24.5
7.8
n/a
n/a
n/a
n/a
n/a
300
1 A Fielding and C Wall were appointed to the Board in May 2020. Their increases reflect that they were only paid their respective fees for part of the prior year.
The UK employees’ salary review is negotiated with the unions and a 2.5% increase was agreed in relation to 2021. For 2022, a salary increase of 4.0%
has been agreed for UK employees.
The mean staff bonus in the UK was 1.07% of base salary in relation to 2021 (2020: 3.15% of base salary).
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 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 2021. The Group CEO’s total remuneration has been taken from the single total figure of remuneration for 2021, as disclosed on
page 91.
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 reduction in total pay ratio at the 50th and 75th percentiles in comparison to 2020 is due to a reduction in the value of the LTIP award for 2021.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 98
Directors’ Remuneration report
Continued
Year
2021 – Base salary
2021 – Total pay
2020 – Total pay
2019 – Total pay
Pay data (£’000)
CEO’s remuneration
UK employees 25th percentile
UK employees 50th percentile
UK employees 75th percentile
Method
Option A
25th percentile
pay ratio
50th percentile
pay ratio
75th percentile
pay ratio
11:1
15:1
17:1
21:1
9:1
12:1
14:1
17:1
Base salary
324,258
29,342
35,694
45,744
7:1
10:1
10:1
13:1
Total pay
441,369
29,539
35,861
46,112
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.
800
700
600
500
400
300
200
100
0
Jan 12
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
Dec 19
Dec 20
Dec 21
Zotefoams
FTSE SmallCap Index
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.
2021
2020
2019
2018
2017
2016
2015
2014
2013
2012
Group CEO’s
single figure of
remuneration (£)
Annual
bonus pay-out
(% of maximum)
LTIP vesting
(% of maximum)
Average share
price for the final
quarter (p)
EPS (p)
441,369
491,548
637,473
794,905
676,816
497,545
418,568
439,452
270,687
490,715
22.0
28.0
37.1
35.1
84.4
55.0
44.4
44.0
–
62.0
0.0
23.5
47.0
100.0
58.0
37.7
50.0
66.0
24.8
84.0
9.0
14.9
14.9
18.7
16.61
13.7
11.1
10.7
8.0
11.8
402.0
415.5
375.4
570.5
389.2
252.5
344.3
237.8
182.4
202.2
1 While basic earnings per share before exceptional item 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 being used for calculating the satisfaction of the EPS target for the vesting of the 2015 LTIP awards.
Zotefoams plc Annual Report 2021 99
Relative importance of spend on pay (unaudited)
The below table 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 2021 and 2020.
Total remuneration¹
Executive Directors’ remuneration
Profit after tax
Shareholder distributions2
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.
% change
2020/2021
10.8
-13.4
-39.0
214.6
2021
£’000
22,040
719
4,376
3,074
2020
£’000
19,900
830
7,163
977
Committee role and advisers (unaudited)
The Group has established a Remuneration Committee, which is constituted in accordance with the recommendations of the UK Corporate Governance
Code. A Fielding, S Good, D Robertson, J Carling and C Wall were members of the Committee during 2021 to the date of this report. All the members are
independent Non-Executive Directors, with the exception of S Good, who was independent on appointment as Chair of the Company. The Committee
was chaired by A Fielding throughout the year. The Committee’s Terms of Reference were last updated in August 2021 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 91 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 four times in 2021 with full attendance at each meeting. The Company Secretary acts as secretary to the Committee.
In 2021, the Remuneration Committee carried out the following work:
X Completed a review of the remuneration arrangements for the Executive Directors and the wider workforce and consulted with the Group’s largest
shareholders in relation to proposals arising out of the review
X Approved the 2020 Directors’ Remuneration report
X Considered and approved the annual bonus for the Executive team
X Considered and approved the grant of awards under the Long-Term Incentive Plan and the Deferred Bonus Share Plan in 2021 and the vesting of
awards made in 2018 under the Long-Term Incentive Plan
X Considered the salary reviews of the Executive team and concluded that no increase would be awarded above the salary review applicable to the
general workforce
X Considered the salary review of the Company Secretary and awarded a pay increase commensurate with market rates of pay and
X Considered the performance targets for the 2021 Executive Directors’ bonus and Long-Term Incentive Plan awards.
Deloitte LLP (Deloitte) was engaged in 2016 to assist and provide advice to the Remuneration Committee in relation to Directors’ remuneration. They
continued to work with the Committee through 2021 in respect of general remuneration advice. Deloitte is a member of the Remuneration Consultants
Group and adheres to its Code on executive remuneration consulting in the UK. The Committee is comfortable that Deloitte does not have connections
with Zotefoams plc that may impair its objectivity and independence. Deloitte provided no other services to the Company.
Total fees for advice provided to the Committee amounted to the following:
Deloitte LLP
Total
2021
(£)
24,300
24,300
2020
(£)
24,500
24,500
Shareholder voting (unaudited)
The table below sets out the results of the votes received on the 2020 Directors’ Remuneration report at the 2021 AGM as well as the previous Directors’
Remuneration Policy (approved at the 2020 AGM):
Votes in favour
Votes against
Discretion
Total votes
Votes withheld
Directors’ Remuneration
Policy
20,542,091
2,331,595
12,699
22,886,385
4,520
%
89.76
10.19
0.05
100.00
–
Annual Report on
remuneration
30,514,306
320,484
9,040
30,843,830
250
%
98.93
1.04
0.03
100.00
–
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 100
Directors’ report
The Directors present their Annual Report and
audited consolidated financial statements for
the year ended 31 December 2021
Results and dividends
Profit attributable to shareholders for the year
amounted to £4.4m (2020: £7.2m). An interim
dividend of 2.10p (2020: 2.03p) per share
was paid on 8 October 2021. The Directors
recommend that a final dividend of 4.40p
(2020: 4.27p) per share be paid on 1 June 2022
to shareholders who are on the Company’s
register at the close of business on 6 May 2022,
resulting in a total dividend of 6.50p per share
for the year (2020: 6.30p). 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 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.
Details of Directors who were in office during the
year and up to the date of signing of the financial
statements are set out on pages 78 and 79.
The Articles give the Directors power to appoint
and replace Directors. Under the Terms of
Reference of the Nomination Committee, any
appointment must be recommended by the
Nomination Committee for approval by the
Board of Directors. The Articles also require
Directors to retire and, if they so wish, submit
themselves for election at the first AGM following
their appointment and normally every three years
thereafter. Since 2012, the Board has required
Directors to stand for annual re-election
each year.
D Stirling and G McGrath, the Executive Directors,
have service contracts which are terminable
on twelve months’ written notice. All the other
Directors have letters of appointment which
are terminable on six months’ written notice.
The Company maintained Directors’ and
Officers’ Liability Insurance cover throughout
2021. The Company has issued Deeds of
Indemnity in favour of all Directors. These Deeds
were in force throughout the year ended 31
December 2021 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 2021 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 page 80
should be read as forming part of the
Directors’ report.
Employees
To ensure employee welfare, the Group has
documented and well-publicised policies on
occupational health and safety, the environment
and training. The Group operates an equal
opportunities, single-status, employment policy
and an open management style.
Zotefoams operates an equal opportunities
policy and we believe diversity (ethnicity, age,
gender, language, sexual orientation, gender
re-orientation, religion, socio-economic status,
personality and ability) of the employees
promotes a better working environment, which
in turn leads to innovation and business success.
Applications for employment by disabled
persons are always fully considered and, in the
event of an employee becoming disabled, every
effort is made to ensure that their employment
with Zotefoams continues and that appropriate
training is provided where necessary. Zotefoams’
policy is that the training, career development
and promotion of disabled persons should, as
far as possible, be identical to that of other
employees.
Zotefoams places considerable value on the
involvement of its people and holds formal and
informal meetings to brief them on matters
affecting them as employees and on the various
factors (including financial and economic factors)
affecting the performance of the Group; it also
ensures that their views are taken into account
in making decisions which are likely to affect their
interests. In the UK, there is a Joint Consultative
Committee (JCC), which comprises an employee
representative from each department. The JCC
meets regularly and considers a wide range of
matters affecting the employees’ current and
future interests. From January 2019, J Carling
has attended meetings of the JCC in his
capacity as Board representative, to provide
employees with an opportunity to engage with
the Board and allow the Board to have regard
to employees’ views in their decision-making.
In order to encourage employees to share in the
success of Zotefoams, an all-employee share
incentive scheme was established in 2015 in
the UK. Under the scheme, employees can
purchase shares each month directly from their
salary. For every four shares bought, one further
share is awarded. The shares vest on the third
anniversary of award and are normally exempt
from tax after five years.
The Company operates to a number of
recognised industry standards, including Quality
(ISO 9001), Environmental (ISO 14001) and
Occupational Health and Safety (ISO 45001).
Further details of our certifications are provided
in our SHE section on page 63.
Relationships with others
The Board has had regard to the fostering of the
Group’s business relationships with suppliers,
customers and others in its decision-making
process in order to achieve good-quality
outcomes.
Further information on this topic can be found
on pages 74 to 77 of the Strategic Report (the
s172(1) statement), which is incorporated into
this Directors’ report by cross-reference.
Zotefoams plc Annual Report 2021 101
Human rights
Zotefoams does not, at present, have a specific
policy on human rights; however, it believes in
recognising and respecting all human rights as
defined in international conventions. This belief is
embedded within the organisation’s values and
ethical policies. We conduct every aspect of our
business with honesty, integrity and openness,
respecting human rights and the interests of our
employees, customers and other stakeholders,
according to the principles set out in our Ethics
Policy, which covers:
X Ensuring our employees have the freedom to
join a union, associate or bargain collectively
without fear of discrimination against the
exercising of such freedoms
X Not using forced labour or child labour and
X Respecting the rights of privacy of our
employees and protecting access and use
of their personal information.
The Company operates an Equal Opportunities
Policy and a Dignity at Work Policy, which
promote the right of every employee to be
treated with dignity and respect and not be
harassed or bullied. We work hard to ensure
that goods and services are from sources that
do not jeopardise human rights, safety or the
environment, and expect our suppliers to
observe business principles consistent with
our own.
Business ethics
Zotefoams is committed to high standards of
business conduct and aims to maintain these
standards across all of our operations
throughout the world. Under our Ethics Policy,
we state that we will:
X Operate within the law
X Not tolerate any discrimination or harassment
X Not make any political donations or grant
public donation for the purpose of political
advocacy of any kind
X Not make or receive bribes
X Avoid situations that might give rise to conflicts
of interest
X Not enter into any activity that might be
considered anti-competitive
X Aim to be a responsible company within
our local communities and
X Support and encourage our employees
to report, in confidence, any suspicions
of wrongdoing.
Supporting our Ethics Policy, we have policies
on anti-bribery and corruption, anti-fraud,
anti-competitive behaviour, employee share
trading and whistleblowing.
In 2020, we introduced a declaration of
adherence to the principles laid out in the
Anti-Bribery and Corruption, Anti-Fraud and
Ethics policies in the business dealings of all new
suppliers. Suppliers’ ethical matters were further
reviewed in 2021 through the analysis of the top
50 suppliers by turnover as part of the work
to compile our modern slavery statement:
https://www.zotefoams.com/wp-content/
uploads/2021/06/20210615-Modern-Slavery-
Act-statement-FINAL.pdf. Suppliers’ ethical
disclosures will remain under review.
Substantial shareholdings
In accordance with the Disclosure and
Transparency Rules DTR 5, the Company,
as at 5 April 2022, had received notices of
the following material interests of 3% or
more in the issued ordinary share capital:
Ordinary
shares of
5.0p
6,036,096
4,007,910
2,629,129
2,569,337
Schroders plc
Invesco Ltd
Premier Miton
Group plc
BlackRock, Inc
Highclere International
Investors LLP
2,455,561
Canaccord Genuity
Group, Inc
Claire and Marc
Downes
Nicholas Adrian
Beaumont-Dark
AXA Investment
Pershing Securities
Limited
2,317,334
2,102,090
1,938,352
1,753,934
1,735,620
Percentage
of issued
share
capital
12.41
8.29
5.41
5.27
5.05
4.90
4.32
3.99
3.61
3.57
Directors’ shareholdings are shown in the
Directors’ Remuneration report on pages 95
and 96.
Research and development
The amount spent by the Group on R&D in
the year was £806k (2020: £1,014k). In the
opinion of the Directors, £627k (2020: nil)
of this expenditure met the requirements
for capitalisation under IAS 38, while £179k
(2020: £1,014k) 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 2021, the Zotefoams
Employees’ Benefit Trust (EBT) held 196,888
shares (approximately 0.4% of issued share
capital) (2020: 459,201 shares) to satisfy
share plans as described in the Directors’
Remuneration report. During the year, the EBT
released 262,313 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 26 May 2021, 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 25 May 2022.
The Directors seek new authorities for a
further year, in line with market practice.
The Company was given authority at the 2021
AGM to purchase up to 4,862,123 of its ordinary
shares. This authority will also expire on 25 May
2022 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.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 102
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 an Introduction from
our Chair and the Group CEO’s review on pages
30 to 37.
Greenhouse gas emissions
Information on the Group’s greenhouse gas
emissions may be found in the ESG report
on page 66.
Pension schemes
Refer to the post-employment benefits section
of the Group CFO’s review and note 23 to the
financial statements for information related
to the Company’s pension schemes.
In the UK, Zotefoams plc runs a number
of defined contribution pension schemes.
New joiners are eligible to join the Zotefoams
Stakeholder Pension Scheme.
Finance costs capitalised
Refer to note 6 to the financial statements
for details of borrowing costs capitalised
by the Group.
Events after the reporting period
Refer to note 27 to the financial statements for
details of any events after the reporting period
affecting the Group.
Disclosure of information to Auditor
The Directors who held office at the date of
approval of this Directors’ report confirm that,
in so far as they are each aware, there is
no relevant audit information of which the
Company’s External Auditor is unaware, and
each Director has taken all the steps that they
ought to have taken as a Director in order to
make themselves aware of any relevant audit
information and to establish that the Company’s
External Auditor is aware of that information.
Independent Auditor
A resolution to re-appoint PKF Littlejohn LLP as
the Company’s Auditor will be proposed at the
forthcoming AGM.
On behalf of the Board.
G C McGrath
Director
6 April 2022
Zotefoams plc Annual Report 2021 103
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.
governing the preparation and dissemination
of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
The Directors consider that the Annual
Report, taken as a whole, is fair, balanced and
understandable and provides the information
necessary for shareholders to assess the
position and performance, business model
and strategy of the Group and Company.
Each of the Directors, whose names and
functions are listed on pages 78 and 79 of
the Annual Report, confirm that, to the best
of their knowledge:
X The Consolidated and Company financial
statements, which have been prepared in
accordance with UK-adopted international
accounting standards, give a true and fair view
of the assets, liabilities, financial position and
profit of the Group and Company and
X The Group CEO’s review includes a fair review
of the development and performance of the
business and the position of the Group and
Company. A description of the principal risks
and uncertainties faced by the Group and the
Company is provided on pages 47 to 54.
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 and
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
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 104
Independent auditor’s report to
the members of Zotefoams plc
Opinion
We have audited the financial statements of Zotefoams plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 December
2021 which comprise the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of
Financial Position, the Company Statement of Financial Position, the Consolidated Statement of Cash Flows, the Company Statement of Cash Flows,
the Consolidated statement of Changes in Equity and the Company Statement of Changes in Equity and notes to the financial statements, including
significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and UK-adopted international
accounting standards and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.
In our opinion:
X the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at 31 December 2021 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 checking the mathematical accuracy of the spreadsheet used to model future financial performance, agreed the underlying cash flow projections to
management-approved forecasts, recalculating the impact on banking covenants and liquidity headroom for the base case scenario
X evaluating the assumptions regarding the loss in revenue and associated EBITDA impact, the associated potential cost savings and the potential
decrease in working capital levels that could be achieved in the downside scenario
X assessing the impact of the mitigating factors available to management in respect of the ability to restrict capital expenditure, cash payments
associated with dividends, bonus and share options
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.
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.
Zotefoams plc Annual Report 2021
105
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
Performance materiality
Basis of materiality
Rationale
Group financial statements
£350,000 (2020: £400,000)
£245,000 (2020: £240,000)
Company financial statements
£315,000 (2020: £360,000)
£220,500 (2020: £216,000)
5% of profit before tax (“PBT”)
5% of PBT capped at 90% of group
This 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.
This is the primary key performance indicator
used by management in assessing the
performance of the company. As a profit
generating company, we consider the users
of the financial statements, such as investors,
will also consider PBT to be a key metric.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of materiality
allocated across components was between £68,000 and £315,000 (2020: £145,000 and £360,000). 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 to them misstatements
identified during our audit above £17,500 (group audit) and £15,750 (company audit) as well as misstatements below those amounts that, in our view,
warranted reporting for qualitative reasons.
Our approach to the audit
As part of designing our audit, we determined materiality and assessed the risk of material misstatement in the Financial Statements. In particular, we
looked at areas involving significant accounting estimates and judgement by the directors and considered future events that are inherently uncertain
such as the impairment of intangible assets and assumptions used in calculating the defined benefit pension scheme. We also addressed the risk of
management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk
of material misstatement due to fraud.
The Group has nine trading companies (including joint ventures) within the consolidated financial statements, one based in the UK, one based in
Europe, four in Asia and three in the USA. We identified four significant components, the parent company, Zotefoams Inc, MuCell Extrusion LLC (MEL)
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 have visited the U.S. components for the audit and we engaged the assistance of PKF network firms to assist with inventory count
procedures as we were not able to visit the some of the overseas components due to the COVID travel restrictions in place
In addition, we identified components which were material but not significant to the group and performed an audit of specific account balances and
classes of transactions to ensure that balances which were material to the group were subject to audit procedures, including:
X Revenue, cost of sales and bank in Zotefoams Operations Ltd
X Property, plant and equipment, inventory, creditors, revenue, cost of sales and expenses in Zotefoams T-FIT Material Technology (Kunshan) Co. Ltd
X Inventories, revenue, cost of sales and expenses in Zotefoams Midwest LLC and
X Inventories, revenue and cost of sales in T-FIT Insulation Solutions India Private Ltd.
The components identified as not significant and not material were subject to review procedures undertaken by the same audit team.
The approach gave the audit team the following coverage:
Coverage of PBT
Coverage of gross assets
Full
Specific
Analytical
Full
Specific
Analytical
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 106
Independent auditor’s report to the members of Zotefoams plc
Continued
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) 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 MEL (see notes 12 and 26)
The Group’s consolidated statement of financial position
as at 31 December 2021 includes intangible assets with a
carrying value of $6.9m (2020: $5.9m) in respect of its cash
generating unit, MEL, and are comprised of goodwill that arose
on the acquisition of MEL in a previous accounting period and
capitalised developments costs relating to a new opportunity
derived from the MuCell® technology called ReZorce®.
MEL has historically been loss making and has continued
to incur losses in 2021. The ReZorce solution is not yet fully
developed and is seeking to be a new breakthrough product
for an established market.
Goodwill is required to be tested for impairment annually and
Intangible Assets are required to be tested for impairment when
an indication of impairment exists and the losses being incurred
in MEL are an example of a potential impairment trigger.
The impairment reviews undertaken require a significant
amount of estimates and judgements to be made by
management, many of which are new in the current year
given the development of the ReZorce technology.
We have assessed this to be a key audit matter due to the
financial significance of the balance and the level of judgement
and estimation required in considering the balances
recoverable amount.
There is no change in the risk profile from the prior year.
Pension assumptions (see notes 23 and 26)
The group’s closed defined benefit pension scheme
represents one of the largest liabilities on the consolidated
statement of financial position at £4.7m as at 31 December
2021 (2020: £8.9m). The valuation of the schemes liabilities
requires management to use their judgment in making a
number of key assumptions, being the rate of inflation (CPI and
RPI), the discount rate and the life expectancy of the scheme
members.
While historic assumptions are noted as being within
acceptable ranges, the liability is highly sensitive to small
changes.
Given the financial significance and the inherent estimation
within the calculation this has been assessed as a key audit
matter.
There is no change in the risk profile from 2020.
Our work in this area included:
X Obtaining and reviewing the MEL goodwill impairment assessment prepared by
Management
X Gaining an understanding of the ReZorce technology through discussions with key
management and understanding how it linked to the original Mucell technology.
X Gaining an understanding of the potential market size for the ReZorce solution, how
management are aiming to break into the market and potential customers appetite for
ReZorce
X Ensuring that there was a board approved plan in place for the development of
ReZorce and that sufficient funding was in place for its development and
X Challenging management on the development of ReZorce and obtaining supporting
evidence thereof through visiting MEL and seeing evidence of agreements for trial runs
with potential customers.
Key observations
The impairment considerations changed during the year to reflect the stage of the
development of ReZorce.
Resources have been allocated to ReZorce and board approved development is in place
with funding committed.
The Company has made development progress and have engaged with partners for
collaboration and trial runs.
Based on the work performed we do not consider there to be an impairment.
Our work in this area included:
X An assessment of the independence and competence of management’s actuary to
calculate the pension scheme liability
X An assessment of the appropriateness of the key assumptions used by management
to value the pension liability
X A comparison of key assumptions to benchmarks performed by the PKF Actuarial team
X Obtaining confirmations and control reports from the investment manager and
custodian to confirm pension assets
X Testing employee data used by the actuary
X Testing contributions and payments/claims paid to bank statements
X An assessment of whether adequate disclosures have been included in the annual
report and accounting in line with IAS 19.
Key observations
We are satisfied that the overall methodology is appropriate and the assumptions applied
in relation to determining the pension valuation are within an acceptable range.
The discount rate has increased from 1.2% in 2020 pa to 1.8% pa in 2021. We are
comfortable that the proposed increment is reasonable and note that an assumption of
1.8% pa is toward the more prudent end of the scale.
The RPI assumption is derived from the Bank of England’s implied RPI inflation curves
with a deduction of 0.3% to reflect the “inflation risk premium”.
Based on the average scheme duration of 16 years, and allowing for the adjustment, the
proposed assumption, based on financial conditions as at 31 December 2021, is within
the range that is expected at this date.
CPI has been derived as 1% less than RPI until 2030 and 0% less than RPI thereafter
(equivalent to a reduction of 0.5% pa to the RPI assumption). This is a change in
approach from the year ended 31 December 2020 when CPI was set as 1% less than
RPI at all future terms. This is a more prudent approach that reflects RPI Reforms by the
UK Treasury and Statistics Authority and is within the range expected.
No issues were noted that indicate the valuation of the group’s pension scheme assets
are materially misstated.
Zotefoams plc Annual Report 2021 107
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
The Listing Rules require us to review 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 Statement specified for our
review.
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 43 and note 2.1i of this annual report;
X Directors’ explanation as to its assessment of the group’s prospects, the period this assessment covers and why this period is appropriate, set out on
page 55 of this annual report;
X Directors’ statement on whether they have a reasonable expectation that the group will be able to continue in operation and meet its liabilities set out on
pages 43, 55 and note 2.1i of this annual report;
X Directors’ statement that they consider the annual report and the financial statements, taken as a whole, to be fair, balanced and understandable set
out on page 103 of this annual report;
X Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 82 of this annual report;
X The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out on page 82 of this
annual report; and
X The section describing the work of the audit committee set out on page 84 to 86 of this annual report.
Responsibilities of directors
As explained more fully in the statement of directors’ responsibilities, the directors are responsible for the preparation of the group and parent company
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the group and parent company financial statements, the directors are responsible for assessing the group’s and the parent company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
108
Independent auditor’s report to the members of Zotefoams plc
Continued
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to
fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an
audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined
above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting
irregularities, including fraud is detailed below.
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, application of audit knowledge and experience of the sector.
Our audit procedures were designed to ensure 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.
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. Auditing standards limit the required audit procedures to identify non-compliance with these laws and regulations to enquiry
of the Directors and other management and inspection of regulatory and legal correspondence, if any. The identified actual or suspected non-compliance
was not sufficiently significant to our audit to result in our response being identified as a key audit matter.
We also identified the risks of material misstatement of the financial statements due to fraud. We considered, in addition to the non-rebuttable presumption
of a risk of fraud arising from management override of controls, that the recognition of revenue, posting of unusual journals and manipulating the group’s
alternative performance profit measures and other key performance indicators to meet remuneration targets and externally communicated targets.
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; reviewing accounting estimates for evidence of bias; 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 ended 31 December 2020 and subsequent
financial periods. Our total uninterrupted period of engagement is two years.
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
6 April 2022
Zotefoams plc Annual Report 2021 Consolidated income statement
For the year ended 31 December 2021
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance costs
Finance income
Share of (loss)/profit from joint venture
Profit before income tax
Income tax expense
Profit for the year
Profit attributable to:
Equity holders of the Company
Earnings per share:
Basic (p)
Diluted (p)
109
2020
£’000
82,652
(54,874)
27,778
(6,793)
(11,876)
9,109
(872)
26
38
8,301
(1,138)
7,163
7,163
7,163
14.87
14.63
Note
3
6
6
9
7
8
8
2021
£’000
100,750
(74,184)
26,566
(7,316)
(11,117)
8,133
(1,116)
11
(20)
7,008
(2,632)
4,376
4,376
4,376
9.01
8.87
All activities of the Group are continuing.
The notes on pages 117 to 154 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 ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
110
Consolidated statement
of comprehensive income
For the year ended 31 December 2021
Profit for the year
Other comprehensive income
Items that will not be reclassified to profit or loss
Actuarial gains/(losses) on defined benefit pension schemes
Tax relating to items that will not be reclassified
Total items that will not be reclassified to profit or loss
Items that may be reclassified subsequently to profit or loss
Foreign exchange translation losses on investment in foreign subsidiaries
Change in fair value of hedging instruments
Hedging (losses)/gains reclassified to profit or loss
Tax relating to items that may be reclassified
Total items that may be reclassified subsequently to profit or loss
Other comprehensive income for the year, net of tax
Total comprehensive income for the year
Total comprehensive income attributable to:
Equity holders of the Company
Total comprehensive income for the year
The notes on pages 117 to 154 form an integral part of these financial statements.
Note
23
2021
£’000
4,376
3,517
(444)
3,073
(96)
(344)
(1,251)
376
(1,315)
1,758
6,134
6,134
6,134
2020
£’000
7,163
(2,460)
467
(1,993)
(583)
952
82
(256)
195
(1,798)
5,365
5,365
5,365
Zotefoams plc Annual Report 2021
Consolidated statement
of financial position
As at 31 December 2021
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in joint venture
Trade and other receivables
Deferred tax assets
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liability
Lease liabilities
Interest-bearing loans and borrowings
Total current liabilities
Non-current liabilities
Lease liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Post-employment benefits
Total non-current liabilities
Total liabilities
Total net assets
Equity
Issued share capital
Share premium
Own shares held
Capital redemption reserve
Translation reserve
Hedging reserve
Retained earnings
Total equity
111
Note
2021
£’000
2020
£’000
10
11
12
9
15
19
14
15
21
16
17
21
11
18
11
18
19
23
20
20
91,401
1,104
6,224
163
11
492
92,925
1,397
5,888
183
54
509
99,395
100,956
25,954
24,338
173
8,055
58,520
157,915
23,033
22,150
1,580
8,503
55,266
156,222
(9,242)
(7,851)
(600)
(83)
(486)
(26,564)
(36,975)
(643)
(14,710)
(3,155)
(4,657)
(23,165)
(60,140)
97,775
2,431
44,178
(10)
15
2,228
(310)
49,243
97,775
(53)
(101)
(420)
(23,430)
(31,855)
(986)
(19,263)
(891)
(8,851)
(29,991)
(61,846)
94,376
2,431
44,178
(23)
15
2,324
909
44,542
94,376
The notes on pages 117 to 154 form an integral part of these financial statements.
The financial statements on pages 109 to 116 were authorised for issue by the Board of Directors on 6 April 2022 and were signed on its behalf by:
G C McGrath
Group CFO
Company number: 2714645
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
112
Company statement
of financial position
As at 31 December 2021
Non-current assets
Property, plant and equipment
Right-of-use assets
Intangible assets
Investment in subsidiaries
Trade and other receivables
Total non-current assets
Current assets
Inventories
Trade and other receivables
Derivative financial instruments
Cash and cash equivalents
Total current assets
Total assets
Current liabilities
Trade and other payables
Derivative financial instruments
Lease liabilities
Interest-bearing loans and borrowings
Total current liabilities
Non-current liabilities
Lease liabilities
Interest-bearing loans and borrowings
Deferred tax liabilities
Post-employment benefits
Total non-current liabilities
Total liabilities
Total net assets
Equity
Issued share capital
Share premium
Capital redemption reserve
Hedging reserve
Retained earnings
Total equity
Note
2021
£’000
2020
£’000
10
11
12
13
15
14
15
21
16
17
21
11
18
11
18
19
23
20
20
41,401
519
1,010
30,822
11
41,960
780
1,546
30,822
54
73,763
75,162
18,695
54,337
173
5,034
78,239
152,002
(6,667)
(600)
(251)
(26,564)
(34,082)
16,854
49,502
1,580
6,328
74,264
149,426
(6,188)
(53)
(279)
(23,430)
(29,950)
(274)
(504)
(14,710)
(19,263)
(3,155)
(4,657)
(22,796)
(56,878)
95,124
2,431
44,178
15
(310)
48,810
95,124
(891)
(8,851)
(29,509)
(59,459)
89,967
2,431
44,178
15
909
42,434
89,967
The notes on pages 117 to 154 form an integral part of these financial statements.
The financial statements on pages 109 to 116 were authorised for issue by the Board of Directors on 6 April 2022 and were signed on its behalf by:
G C McGrath
Group CFO
Company number: 2714645
Zotefoams plc Annual Report 2021
Consolidated statement
of cash flows
For the year ended 31 December 2021
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Disposal of assets
Finance costs
Share of profit from joint venture
Net exchange differences
Equity-settled share-based payments
Taxation
Operating profit before changes in working capital and provisions
(Increase)/decrease in trade and other receivables
Increase in inventories
Increase in trade and other payables
Employee defined benefit contributions
Cash generated from operations
Interest paid
Income taxes paid, net of refunds
Net cash flows generated from operating activities
Cash flows from investing activities
Interest received
Interest paid
Purchases of intangibles
Proceeds on disposal of property, plant and equipment
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from options exercised and issue of share capital
Repayment of borrowings
Proceeds from borrowings
Principal elements of lease payments
Dividends paid to equity holders of the Company
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Exchange losses on cash and cash equivalents
Cash and cash equivalents at 31 December
113
Note
2021
£’000
2020
£’000
4,376
7,163
10,11,12
4
6
9
24
7
23
6
6
12
11
8
16
7,624
53
1,105
20
376
360
2,632
16,546
(1,636)
(2,843)
1,506
(779)
12,794
(789)
(1,087)
10,918
11
(32)
(1,069)
88
(6,002)
(7,004)
40
(7,739)
6,974
(543)
(3,074)
(4,342)
(428)
8,503
(20)
8,055
6,746
40
846
(38)
(133)
300
1,138
16,062
1,199
(4,536)
980
(700)
13,005
(456)
(1,113)
11,436
26
(604)
(346)
–
(12,363)
(13,287)
–
(8,053)
13,180
(433)
(977)
3,717
1,866
6,656
(19)
8,503
Cash and cash equivalents comprises cash at bank and short-term highly liquid investments with a maturity date of less than three months, per the
breakdown on note 21.
During the year, the Group paid interest of £821k, of which it capitalised £32k (2020: paid interest of £1,060k, of which it capitalised £604k) on qualifying
assets under IAS 23 “Capitalisation of Borrowing Costs”. The interest paid has been split between operating activities of £789k (2020: £456k) and
investing activities of £32k (2020: £604k) to reflect the Group’s utilisation of the interest paid.
The net exchange differences of £376k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts
in the income statement (2020: £133k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 117 to 154 form an integral part of these financial statements.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
114
Company statement
of cash flows
For the year ended 31 December 2021
Cash flows from operating activities
Profit for the year
Adjustments for:
Depreciation and amortisation
Disposal of assets
Finance costs
Net exchange differences
Equity-settled share-based payments
Taxation
Operating profit before changes in working capital and provisions
(Increase)/decrease in trade and other receivables
Increase in inventories
Increase in trade and other payables
Employee defined benefit contributions
Cash generated from operations
Interest paid
Income taxes paid, net of refunds
Net cash flows generated from operating activities
Cash flows from investing activities
Investment in subsidiaries
Interest received
Interest paid
Loans given to subsidiaries, net of prepayments
Purchases of intangibles
Purchases of property, plant and equipment
Net cash used in investing activities
Cash flows from financing activities
Proceeds from options exercised and issue of share capital
Repayment of borrowings
Proceeds from borrowings
Principal elements of lease payments
Dividends paid to equity holders of the Company
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at 1 January
Cash and cash equivalents at 31 December
Note
2021
£’000
2020
£’000
6,038
6,951
10,11,12
4,185
3,958
105
628
(438)
360
2,608
13,486
(2,536)
(1,841)
572
(779)
8,902
(783)
(981)
7,138
–
–
(32)
(1,334)
(132)
(2,831)
(4,329)
40
(7,739)
6,974
(304)
(3,074)
(4,103)
(1,294)
6,328
5,034
38
574
(133)
300
1,199
12,887
975
(2,492)
1,481
(700)
12,151
(451)
(1,095)
10,605
(246)
6
(166)
(7,555)
(111)
(4,144)
(12,216)
–
(8,053)
13,180
(318)
(977)
3,832
2,221
4,107
6,328
24
23
13
12
8
16
Cash and cash equivalents comprises cash at bank and short-term highly liquid investments with a maturity date of less than three months, per the
breakdown on note 21.
During the year, the Company paid interest of £815k, of which it capitalised £32k (2020: paid interest of £617k, of which it capitalised £166k) on qualifying
assets under IAS 23 “Capitalisation of Borrowing Costs”. The interest paid has been split between operating activities of £783k (2020: £451k) and investing
activities of £32k (2020: £166k) to reflect the Group’s utilisation of the interest paid.
The net exchange differences of £438k within operating activities relate to the foreign exchange movement on borrowings and open forward contracts in
the income statement (2020: £133k).
Refer to note 18 for a reconciliation of liabilities arising from financing activities.
The notes on pages 117 to 154 form an integral part of these financial statements.
Zotefoams plc Annual Report 2021
Consolidated statement
of changes in equity
For the year ended 31 December 2021
Note
Share
capital
£’000
Share
premium
£’000
2,415
44,178
Own
shares
held
£’000
Capital
redemption
reserve
£’000
(9)
–
15
–
Balance as at 1 January 2020
Profit for the year
Other comprehensive income for the year
Foreign exchange translation losses on investment in
subsidiaries
Change in fair value of hedging instruments recognised
in other comprehensive income
Reclassification to income statement – administrative
expenses
Tax relating to effective portion of changes in fair value
of cash flow hedges, net of recycling
Actuarial loss on defined benefit pension scheme
23
Tax relating to actuarial loss on defined benefit pension
scheme
Total comprehensive income for the year
Transactions with owners of the Parent:
Options exercised
Proceeds of shares issued, net of expenses
Equity-settled share-based payments net of tax
Dividends paid
8
Total transactions with owners of the Parent
Balance as at 31 December 2020
Balance as at 1 January 2021
Profit for the year
Other comprehensive income for the year
Foreign exchange translation losses on investment in
subsidiaries
Change in fair value of hedging instruments recognised
in other comprehensive income
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 loss on defined benefit pension
scheme
Total comprehensive income for the year
Transactions with owners of the Parent:
Options exercised
Equity-settled share-based payments net of tax
Dividends paid
8
Total transactions with owners of the Parent
–
–
–
–
–
–
–
–
–
16
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
2,431
44,178
2,431
44,178
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2
(16)
–
–
(14)
(23)
(23)
–
–
–
–
–
–
–
–
13
–
–
13
(10)
115
Translation
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
2,907
131
40,003
89,640
–
(583)
–
–
–
–
–
–
–
952
82
(256)
–
–
7,163
7,163
–
–
–
–
(583)
952
82
(256)
(2,460)
(2,460)
467
467
(583)
778
5,170
5,365
15
15
–
2,324
2,324
–
–
–
–
–
–
(96)
–
–
–
–
–
–
–
–
–
–
(2)
–
348
(977)
(631)
–
–
348
(977)
(629)
909
909
44,542
94,376
44,542
94,376
–
–
(344)
(1,251)
376
–
–
4,376
4,376
–
–
–
–
(96)
(344)
(1,251)
376
3,517
3,517
(444)
(444)
(96)
(1,219)
7,449
6,134
–
–
–
–
–
–
–
–
27
299
40
299
(3,074)
(3,074)
(2,748)
(2,735)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance as at 31 December 2021
2,431
44,178
15
2,228
(310)
49,243
97,775
The aggregate current and deferred tax relating to items that are debited to equity is £129k (2020: credited £259k).
The notes on pages 117 to 154 form an integral part of these financial statements.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
116
Company statement
of changes in equity
For the year ended 31 December 2021
Balance as at 1 January 2020
Profit for the year
Other comprehensive income for the year
Change in fair value of hedging instruments recognised in other
comprehensive income
Reclassification to income statement – administrative expenses
Tax relating to effective portion of changes in fair value of cash flow hedges,
net of recycling
Actuarial loss on defined benefit pension scheme
Tax relating to actuarial loss on defined benefit pension scheme
Total comprehensive income for the year
Transactions with owners:
Options exercised
Proceeds of shares issued, net of expenses
Equity-settled share-based payments net of tax
Dividends paid
Total transactions with owners
Balance as at 31 December 2020
Balance as at 1 January 2021
Profit for the year
Other comprehensive income for the year
Change in fair value of hedging instruments recognised in other
comprehensive income
Reclassification to income statement – administrative expenses
Tax relating to effective portion of changes in fair value of cash flow hedges,
net of recycling
Actuarial loss on defined benefit pension scheme
Tax relating to actuarial loss on defined benefit pension scheme
Total comprehensive income for the year
Transactions with owners:
Options exercised
Equity-settled share-based payments net of tax
Dividends paid
Total transactions with owners
Balance as at 31 December 2021
Note
Share
capital
£’000
Share
premium
£’000
2,415
44,178
–
–
–
–
–
–
–
–
16
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
2,431
44,178
2,431
44,178
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
23
8
23
8
Capital
redemption
reserve
£’000
Hedging
reserve
£’000
Retained
earnings
£’000
Total
equity
£’000
15
–
131
38,107
84,846
–
6,951
6,951
–
–
–
–
–
–
–
–
–
–
–
952
82
(256)
–
–
–
–
–
952
82
(256)
(2,460)
(2,460)
467
467
778
4,958
5,736
–
–
–
–
–
(2)
–
348
(977)
(631)
(2)
16
348
(977)
(615)
15
15
–
909
909
42,434
89,967
42,434
89,967
–
6,038
6,038
–
–
–
–
–
–
–
–
–
–
(344)
(1,251)
376
–
–
–
–
–
(344)
(1,251)
376
3,517
3,517
(444)
(444)
(1,219)
9,111
7,892
–
–
–
–
40
299
40
299
(3,074)
(3,074)
(2,735)
(2,735)
2,431
44,178
15
(310)
48,810
95,124
The aggregate current and deferred tax relating to items that are debited to equity is £129k (2020: credited £259k).
The notes on pages 117 to 154 form an integral part of these financial statements.
Zotefoams plc Annual Report 2021
Notes
117
1. General information
Zotefoams plc (the “Company”) is a public limited company, which is
listed on the London Stock Exchange and incorporated and domiciled in
England, UK. The registered office of the Company is 675 Mitcham Road,
Croydon, CR9 3AL.
The Company, its subsidiaries and joint venture (together referred to as the
“Group”) are engaged in the manufacturing and sale of high-performance
foams and licensing of related technology for specialist markets worldwide.
2. Significant accounting policies
The principal accounting policies applied in the preparation of these
financial statements are set out below. These policies have been
consistently applied to all of the years presented, unless otherwise stated.
2.1 Basis of preparation
The financial statements of Zotefoams plc have been prepared in
accordance with International Accounting Standards in conformity
with the requirements of the Companies Act 2006 and as applied in
accordance with the provisions of the Companies Act 2006. The financial
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 IFRS 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.
i) 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 54. 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 2021, the Group’s gross finance facilities were £47.3m
(2020: £53.8m), comprising a multi-currency term loan of £20.0m, a
multi-currency revolving credit facility of £25.0m, and a remaining balance
of £2.3m (2020: £3.8m) of a further £7.5m sterling annually renewable
term loan, repayable in equal quarterly instalments. In line with the bank
financing agreement, a repayment of £5.0m was made on 30 June 2021.
The bank facility is for a five-year period and expires in May 2023. At
the date of the statement of financial position, £5.3m was undrawn on
the facility (2020: £10.7m). At the same date, the Group also held £8.1m
(2020: £8.5m) of cash and cash equivalents. The facility is subject to two
covenants, which are tested semi-annually: net debt to EBITDA (leverage)
and EBITDA to net finance charges.
In March 2022, the Group completed a bank refinancing 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 will
be a £50m multi-currency revolving credit facility, with a £25m accordion,
on a 4+1 tenor, and an interest rate ratchet on slightly improved terms to
the previous facility, with a small element related to the achievement of
sustainability targets. The finance cost and leverage covenants remain, with
the former remaining at 4:1 and the latter increasing to 3.5:1 from 3.0:1.
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
preparing the Annual Report.
2.2 Basis of consolidation
i) Subsidiaries
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.
They are deconsolidated from the date on which that control ceases.
ii) Transactions eliminated on consolidation
Intra-group balances and transactions, including any unrealised gains
and losses or income and expenses arising from such transactions, are
eliminated in 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.
iii) Joint arrangements
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 cost.
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 amount 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 amount 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.
v) Accounting for business combinations
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.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 118
Notes
Continued
2. Significant accounting policies (continued)
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 the net recognised amount of the identifiable assets acquired
and liabilities assumed.
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
which the replacement awards relate to past and/or future services.
2.3 Foreign currency
i) Functional and presentation currency
Items included in the financial statements of each of the Group’s entities
are measured using the currency of the primary economic environment in
which each entity operates (“the functional currency”). The consolidated
financial statements are presented in sterling, which is the Group’s
presentation currency.
The Company’s financial statements are prepared and presented in
sterling, which is its functional currency.
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). Foreign exchange gains and
losses resulting from the settlement of monetary assets and liabilities
denominated in foreign currencies are recognised in the income
statement, except when deferred in other comprehensive income
as qualifying cash flow hedges. All foreign exchange gains and losses
are presented in the income statement within administrative expenses.
Translation differences related to items classified through other
comprehensive income are recognised in other comprehensive income,
while remaining translation differences are recognised in the income
statement.
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 for each statement of financial position presented
are translated at the closing rate at the date of that statement of financial
position
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); and
X All resulting exchange differences are recognised in other
comprehensive income.
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
in other comprehensive income.
2.4 Derivative financial instruments
The Group uses derivative financial instruments to hedge its exposure to
foreign exchange risks arising from operational, financing and investment
activities. In accordance with its treasury policy, 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. 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).
At the inception of the transaction, the Group 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.
i) Cash flow hedging
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
remains 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
income statement.
Zotefoams plc Annual Report 2021 119
2. Significant accounting policies (continued)
2.5 Investments in subsidiaries and joint arrangements
The Company’s investments in subsidiaries and joint arrangements are
stated at cost less provision for impairment.
2.6 Property, plant and equipment
i) Owned assets
Items of property, plant and equipment are stated at cost or deemed
cost less accumulated depreciation and any impairment losses.
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. The carrying
amount of the replaced part is derecognised. All other repairs and
maintenance are charged to the income statement during the financial
year in which they are incurred.
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.
ii) Depreciation
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 useful lives are reviewed, and adjusted if
appropriate, at the end of each financial year.
2.7 Intangible assets
i) Research and development
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 and
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.
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
period.
ii) Goodwill
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 acquisition date less any accumulated impairment
losses. Goodwill is tested annually for impairment or more frequently if
there are indications that goodwill may be impaired.
iii) Software
Acquired computer software licences are capitalised on the basis of the
costs incurred to acquire and bring to use the specific software.
iv) Other intangible assets
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
period.
v) Amortisation
The estimated useful lives of the Group’s intangible assets are as follows:
Marketing related
Customer related
Technology related
Software related
5–15 years
2–10 years
5–20 years
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
each reporting date and adjusted if appropriate.
2.8 Financial assets
i) Classifications
The Group classifies its financial assets in the following categories: a) those
to be measured subsequently at fair value; and b) those to be measured at
amortised cost.
The classification depends on the purpose for which the financial assets
were acquired. Management determines the classification of its financial
assets at initial recognition.
a) Financial assets subsequently measured at fair value through profit
or loss
Financial assets at fair value through profit or loss are financial
assets held for trading. A financial asset is classified in this category
if acquired principally for the purpose of selling it in the short term.
Derivatives are also categorised as held for trading unless they are
designated as hedges. Assets in this category are classified as current
assets if expected to be settled within 12 months, otherwise they are
classified as non-current assets.
b) Financial assets at amortised cost
Financial assets at amortised cost are held for collection of contractual
cash flows where those cash flows represent solely payments of principal
and interest.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
120
Notes
Continued
2. Significant accounting policies (continued)
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) Offsetting financial instruments
Financial assets and liabilities are offset, and the net amount is reported in
the statement of financial position, when there is a legally enforceable right
to offset the recognised amounts and there is an intention to settle on a net
basis or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and it must be
enforceable in the normal course of business and in the event of default,
insolvency or bankruptcy of the Group or the counterparty.
iv) 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.
Further details are provided in note 21.
2.9 Trade and other receivables
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
and foreign currency risk can be found in note 21.
2.10 Inventories
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
proportion of attributable overheads.
2.11 Cash and cash equivalents
Cash and cash equivalents comprise cash balances and short-term highly
liquid investments with an original maturity of three months or less.
2.12 Impairment of non-financial assets
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 technology solution for the packaging industry
that uses MuCell® technology, the recoverable amount of an asset or
CGU is the greater of its value in use and its fair value less costs to sell.
In assessing value in use, the estimated future cash flows are discounted
to their present value using a discount rate that reflects current market
assessments of the time value of money and the risks specific to the
asset or CGU. For the purpose of impairment testing, assets that cannot
be tested individually are grouped together into the smallest group of
assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or CGUs. Subject to an
operating segment ceiling test, for the purposes of goodwill impairment
testing, CGUs to which goodwill has been allocated are aggregated so that
the level at which impairment testing is performed reflects the lowest level
at which goodwill is monitored for internal reporting purposes. Goodwill
acquired in a business combination is allocated to groups of CGUs that are
expected to benefit from the synergies of the combination.
In the case of ReZorce, management judgements based on factors such
as market potential, customer interest, technology development status,
funding capability and Board appetite form the basis for assessing the
recoverable amount.
The Group’s corporate assets do not generate separate cash inflows and
are utilised by more than one CGU. Corporate assets are allocated to
CGUs on a reasonable and consistent basis and tested for impairment as
part of the testing of the CGU to which the corporate asset is allocated.
ii) Impairment losses
Impairment losses are recognised in the income statement. Impairment
losses recognised in respect of CGUs are allocated first to reduce the
carrying amount of any goodwill allocated to the CGU (or group of CGUs),
and then to reduce the carrying amounts of the other assets in the CGU (or
group of CGUs) on a pro rata basis.
iii) Reversal of impairment
An impairment loss in respect of goodwill is not reversed. In respect of
other assets, impairment losses recognised in prior years are assessed at
each reporting date for any indications that the loss has decreased or no
longer exists. An impairment loss is reversed if there has been a change in
the estimates used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying amount does
not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
2.13 Dividends
Final dividends are recognised as a liability in the financial year in which
they are approved. Interim dividends are recognised when paid.
2.14 Interest-bearing loans and borrowings
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,
where material.
Zotefoams plc Annual Report 2021 121
2. Significant accounting policies (continued)
2.15 Employee benefits
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 comprehensive income in the year in which they arise.
2.16 Share-based payment 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 a Monte Carlo 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.
i) 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
directly to equity.
2.17 Trade and other payables
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
method.
2.18 Borrowing costs
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
are incurred.
2.19 Revenue
Revenue comprises of the sale of foam, sale of equipment and licence
and royalty income. All these revenue streams are revenues arising from
contracts with customers. The recognition and measurement principles
of IFRS 15 are applied as set out below.
Revenue excludes inter-company revenues and value added taxes and
is stated net of discounts and returns.
i) Sale of foam
Revenue from the sale of foam is recognised when control of the goods
has been transferred to a third party. 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 equipment
Revenue from the sale of equipment is recognised when control of the
goods has been transferred to a third party. 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.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 122
Notes
Continued
2. Significant accounting policies (continued)
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
when the usage occurs.
2.20 Leases
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 and
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.
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 and
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.
Low-value assets comprise small items of equipment.
2.21 Current and deferred tax
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.
Deferred tax is recognised on temporary differences arising between the
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
a net basis.
2.22 Share capital
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.
Where any Group company purchases the Company’s equity share capital
(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
Company’s equity holders.
2.23 Exceptional items
Exceptional items are disclosed separately in the financial statements
where it is necessary to do so to provide further understanding of the
financial performance of the Group. These are items that are material,
either because of their size or their nature, or that are non-recurring, and
are presented within the line items to which they best relate.
Zotefoams plc Annual Report 2021 2.24 New standards and interpretations
The IASB and IFRS Interpretations Committee have issued the following standards and interpretations with an effective date of implementation for
accounting periods beginning after the date on which the Group’s financial statements for the current year commenced.
i) New standards and amendments – applicable 1 January 2021
The following standards and interpretations apply for the first time to financial reporting periods commencing on or after 1 January 2021:
Interest rate benchmark reform – Amendments to IFRS 17 “Insurance Contracts”
Interest rate benchmark reform – Amendments to IFRS 16 “Leases”
Interest rate benchmark reform – Amendments to IFRS 9 “Financial Instruments”
Effective for accounting
periods beginning on
or after
1 January 2021
1 January 2021
1 January 2021
Interest rate benchmark reform – Amendments to IAS 39 “Financial Instruments: Recognition and Measurement”
1 January 2021
Interest rate benchmark reform – Amendments to IFRS 7 “Financial Instruments: Disclosures”
1 January 2021
123
Impact
None
None
None
None
None
ii) Forthcoming requirements
As at 31 December 2021, the following standards and interpretations had been issued but were not mandatory for annual reporting periods ending on
31 December 2021.
COVID-19 related Rent Concessions – Amendments to IFRS 16
Income Taxes – Deferred tax amendments to IAS 12
Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16
Reference to the Conceptual Framework – Amendments to IFRS 3
Onerous Contracts: Cost of Fulfilling a Contract – Amendments to IAS 37
Annual Improvements to IFRS Standards 2018–2020
Classification of Liabilities as Current or Non-current – Amendments to IAS 1
Effective for accounting
periods beginning on
or after
Expected
Impact
1 March 2021
1 May 2021
1 January 2022
1 January 2022
1 January 2022
1 January 2022
1 January 2023
None
None
None
None
None
None
None
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 124
Notes
Continued
3. Segment reporting
The Group’s operating segments are reported in a manner consistent with the internal reporting provided to and regularly reviewed by the Group Chief
Executive Officer, David Stirling, who is considered to be the ‘chief operating decision maker’ for the purpose of evaluating segment performance
and allocating resources. The Group Chief Executive Officer primarily uses a measure of profit for the year (before exceptional items) to assess the
performance of the operating segments.
The Group manufactures and sells high-performance foams and licenses related technology for specialist markets worldwide. The Group’s activities
are categorised as follows:
X Polyolefin Foams: these foams are made from olefinic homopolymer and copolymer resin. The most common resin used is polyethylene.
X High-Performance Products (HPP): these foams exhibit high performance on certain key properties, such as improved chemical, flammability,
temperature or energy management performance. Revenue in the segment is currently mainly derived from products manufactured from three main
polymer types: polyvinylidene fluoride (PVDF) fluoropolymer, polyamide (nylon) and thermoplastic elastomers. Foams are sold under the brand name
ZOTEK®, while technical insulation products manufactured from certain materials are branded as T-FIT®.
X MuCell Extrusion LLC (MEL): licenses microcellular foam technology and sells related machinery. It is also currently developing a fully circular solution
for mono-material barrier packaging, which it has branded ReZorce®.
Group revenue
56,166
50,904
42,294
30,016
2,290
1,732
100,750
82,652
Polyolefin Foams
HPP
MEL
Consolidated
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
2021
£’000
2020
£’000
Segment profit/(loss) pre-amortisation
Amortisation of acquired intangible assets
Segment profit/(loss)
Foreign exchange gains/(losses)
Unallocated central costs
Operating profit
Financing costs
Financing income
Share of (loss)/profit from joint venture
Taxation
Profit for the year
Segment assets
Unallocated assets
Total assets
Segment liabilities
Unallocated liabilities
Total liabilities
Depreciation of PPE
Depreciation of right-of-use assets
Amortisation
Capital expenditure:
684
4,836
8,732
7,907
–
–
–
–
(494)
(194)
(1,184)
8,922
11,559
(262)
(194)
(262)
684
4,836
8,732
7,907
(688)
(1,446)
8,728
11,297
–
–
–
–
(20)
–
–
–
–
–
38
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,168
(300)
(1,763)
(1,888)
8,133
9,109
(1,116)
(872)
11
(20)
26
38
(2,632)
(1,138)
4,376
7,163
107,633 106,792
40,189
41,046
9,601
7,875
157,423 155,713
–
–
–
–
–
–
492
509
157,915 156,222
(40,795)
(46,676)
(15,224)
(13,234)
(883)
(944)
(56,902)
(60,854)
–
–
–
–
–
–
(3,238)
(992)
4,793
4,478
1,052
302
638
307
494
90
289
813
71
153
133
133
194
(60,140)
(61,846)
5,978
5,406
525
1,121
414
926
5,996
12,776
230
1,069
639
346
115
36
279
447
623
235
Property, plant and equipment (PPE)
4,093
9,928
743
2,401
1,160
Right-of-use assets
Intangible assets
223
98
13
89
7
34
3
22
–
937
Unallocated assets made up of deferred tax assets are £492k for the year (2020: £509k). Unallocated liabilities are made up of corporation tax £83k
(2020: £101k) and deferred tax liabilities £3,155k (2020: £891k).
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 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.
Zotefoams plc Annual Report 2021
125
3. Segment reporting (continued)
Geographical segments
Polyolefin Foams, HPP and MEL are managed on a worldwide basis but operate from UK, USA, European and Asian locations. In presenting information
on the basis of geographical segments, segmental revenue is based on the geographical location of customers. Segment assets are based on the
geographical location of assets.
For the year ended 31 December 2021
Group revenue from external customers
Non-current assets
Capital expenditure – PPE
For the year ended 31 December 2020
Group revenue from external customers
Non-current assets
Capital expenditure – PPE
United
Kingdom
£’000
Continental
Europe
£’000
North
America
£’000
Rest of
the world
£’000
Total
£’000
10,768
42,944
2,776
19,106
44,343
4,090
28,200
19,830
798
17,856
21,050
7,095
19,959
35,521
2,391
17,629
34,351
1,423
41,823
100,750
445
31
98,740
5,996
28,061
520
168
82,652
100,264
12,776
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 £33,850k to the Group’s revenue (2020: One customer of the Group located
in the United Kingdom and one customer located in ‘Rest of the world’ contributed £13,904k and £21,608k respectively to the Group’s revenue).
Analysis of revenue by category
Breakdown of revenues by products and services for the Group:
Sale of foam
Licence and royalty income
Sale of equipment
Group revenue
2021
£’000
2020
£’000
98,460
80,920
1,066
1,224
908
824
100,750
82,652
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
126
Notes
Continued
4. Expenses by nature
Included in profit for the year are:
Changes in inventories of finished goods and work in progress
Changes in raw materials and consumables used
Inventory write-(back)/down
Staff costs (note 5)
Operating lease charges (note 11)
Amortisation (note 12)
Depreciation of PPE and right-of-use assets (note 10 and note 11)
Disposal of assets
Research and development costs expensed
Development costs capitalised (note 12)
Net exchange (gains)/losses
External Auditor’s remuneration:
Group – Fees payable to the Group’s External Auditor and its associates for the audit of the Company and consolidated
financial statements
Previous Auditor (PwC)
PKF Littlejohn LLP
Fees payable to the External Auditor and its associates in respect of other services:
– audit-related assurance services (PwC)
2021
£’000
1,958
963
(1)
2020
£’000
297
4,132
17
25,196
22,784
192
1,121
6,503
53
806
(627)
(1,168)
–
195
–
228
926
5,820
40
1,014
–
300
38
175
30
Total cost of sales, distribution costs and administrative expenses
92,617
73,543
5. Staff numbers and expenses
The monthly average number of people employed by the Group and Company (including Executive Directors) during the year, analysed by category,
was as follows:
Production
Maintenance
Distribution and marketing
Administration and technical
The aggregate payroll costs of these persons were as follows:
Wages and salaries*
Social security costs*
Share options granted to directors and employees (note 24)
Pension costs, including past service costs
* Net of directly attributable costs capitalised
Number of employees
Group
Company
2021
258
36
87
115
496
2020
225
36
77
114
452
2021
166
25
49
90
330
2020
153
23
44
88
308
Group
2021
£’000
2020
£’000
20,842
18,857
2,796
360
1,198
25,196
820
2,584
300
1,043
22,784
672
Company
2021
£’000
14,462
1,495
360
855
17,172
284
2020
£’000
13,502
1,488
300
759
16,049
207
Zotefoams plc Annual Report 2021
5. Staff numbers and expenses (continued)
Details of aggregate Directors’ emoluments are provided below:
Aggregate emoluments
Aggregate gains made on the exercise of the share options
Aggregate amounts receivable under long-term incentive schemes
Company contribution to money purchase pension scheme
127
2021
£’000
648
159
–
71
878
2020
£’000
652
26
109
69
856
Further details of Directors’ emoluments, including details of the highest-paid Director, are included in the Directors’ Remuneration report on pages 88 to 99.
6. Finance income and costs
Finance income
Interest income
Finance costs
Finance costs on bank loans
Lease liabilities interest
Amount capitalised
Finance costs expensed
Interest on defined benefit pension obligation (note 23)
2021
£’000
11
2021
£’000
1,014
32
(32)
1,014
102
1,116
2020
£’000
26
2020
£’000
1,280
31
(604)
707
165
872
Capitalised borrowing costs
The capitalisation rate used to determine the amount of borrowing costs to be capitalised is the weighted average interest rate applicable to the entity’s
general borrowings during the year, in this case 2.46% (2020: 2.46%).
7. Income tax expense
UK corporation tax
Overseas tax
Adjustment for tax for prior years
Total current tax
Deferred tax
Income tax expense
2021
£’000
673
79
(272)
480
2,152
2,632
2020
£’000
1,105
120
(381)
844
294
1,138
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
128
Notes
Continued
7. Income tax expense (continued)
Factors affecting the tax charge
The weighted average applicable tax rate for the Group is 18.96% (2020: 19.65%). The main elements of the income tax expense are as follows:
Tax reconciliation
Profit before tax
Tax at the UK tax rate of 19% (2020: 19%)
Effects of:
Expenses not deductible for tax purposes
Research and development and other tax credits
(Utilisation of) tax losses for which no deferred income tax asset recognised
Effect of different overseas tax rates
Changes in tax rates
Capital allowance super deductions
Other differences
Adjustments to prior year UK corporation tax charge
2021
£’000
7,008
1,332
173
(199)
420
20
1,024
(101)
(53)
16
2,632
The main rate of UK corporation tax substantively enacted for the period was 19%. The Group has not identified any uncertain tax positions
as at 31 December 2021 (2020: none).
An increase in the UK corporate tax rate from 19% to 25% (effective from 1 April 2023) was substantively enacted on 14 May 2021.
8. Dividends and earnings per share
Prior year final dividend of 4.27p (2020: nil) per 5.0p ordinary share
Interim dividend of 2.10p (2020: 2.03p) per 5.0p ordinary share
Dividends paid during the year
2021
£’000
2,058
1,016
3,074
2020
£’000
8,301
1,577
223
(250)
(147)
(28)
79
–
65
(381)
1,138
2020
£’000
–
977
977
The proposed final dividend for the year ended 31 December 2021 of 4.40p per share (2020: 4.27p) is subject to approval by shareholders at the AGM
and has not been recognised as a liability in these financial statements. The proposed dividend would amount to £2,130k if paid to all shareholders on the
Company register at the close of business on 31 May 2022.
Earnings per ordinary share
Earnings per ordinary share is calculated by dividing consolidated profit after tax attributable to equity holders of the Company of £4,376k (2020: £7,163k) 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 2021 was 196,888 (2020: 459,201). 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’.
Weighted average number of ordinary shares in issue
Adjustments for share options
Diluted number of ordinary shares issued
2021
2020
48,577,945
48,186,077
755,954
779,660
49,333,899
48,965,737
9. Investments in joint venture
During 2013 the Group entered into joint-venture arrangements with INOAC Corporation. As a result, the Group has 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 remains non-trading. The registered
address is 100, Jayumuyeok 5-gil, Masanhoewon-gu, Chang-won-si, Gyeongsangnam-do, Republic of Korea. As at the end of the year, there were no
contingent liabilities relating to the Group’s interest in the joint ventures.
The joint ventures have 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.
A summarised statement of financial position of Inoac Zotefoams Korea Limited is not presented as the company is dormant.
Set out below is the summarised financial information for Azote Asia Limited, which is accounted for using the equity method.
Zotefoams plc Annual Report 2021
129
2020
£’000
371
1,027
1,398
(76)
(956)
(1,032)
366
2020
£’000
2,694
(2)
76
–
76
–
76
–
As at 31 December
2021
£’000
323
1,102
1,425
(79)
(1,021)
(1,100)
325
As at 31 December
2021
£’000
3,766
(2)
(41)
–
(41)
–
(41)
–
9. Investments in joint venture (continued)
Summarised statement of financial position:
Cash and cash equivalents
Other current assets (excluding cash)
Total current assets
Financial liabilities (excluding trade payables)
Other current liabilities (including trade payables)
Total current liabilities
Net assets
Summarised statement of comprehensive income:
Revenue
Finance costs
(Loss)/profit before tax
Income tax expense
(Loss)/profit after tax
Other comprehensive income
Total comprehensive income
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:
Opening net assets
(Loss)/profit for the year
Other comprehensive income
Closing net assets
Interest in joint venture @ 50%
Information of the joint venture
Carrying value at 1 January
Share of (loss)/profit for the year
Carrying value at 31 December
2021
£’000
366
(41)
–
325
163
2021
£’000
183
(20)
163
2020
£’000
290
76
–
366
183
2020
£’000
145
38
183
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
130
Notes
Continued
10. Property, plant and equipment
Group
Cost
Balance at 1 January 2020
Additions
Disposals
Transfers
Effect of movement in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Disposals
Transfers
Effect of movement in foreign exchange
Balance at 31 December 2021
Accumulated depreciation
Balance at 1 January 2020
Depreciation charge for the year
Disposals
Effect of movement in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Depreciation charge for the year
Disposals
Transfers
Effect of movement in foreign exchange
Balance at 31 December 2021
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures and
fittings
£’000
Under
construction
£’000
31,075
83,974
3,915
159
–
1,857
(298)
32,793
32,793
16
(88)
720
(51)
15,866
(1,472)
99,037
99,037
404
(122)
13,346
11,239
(291)
233
115
(2)
36
(33)
4,031
4,031
254
(133)
(291)
10
29,532
11,782
–
(17,759)
1,178
24,733
24,733
5,322
–
(24,774)
(815)
Total
£’000
148,496
12,776
(53)
–
(625)
160,594
160,594
5,996
(343)
(480)
(863)
45,776
110,791
3,871
4,466
164,904
11,471
1,277
–
(170)
12,578
12,578
1,479
–
51
52
48,936
3,642
(13)
(370)
52,195
52,195
4,184
(87)
(79)
148
2,437
487
–
(28)
2,896
2,896
315
(114)
(125)
10
14,160
56,361
2,982
–
–
–
–
–
–
–
–
–
–
–
19,604
20,215
31,616
35,038
46,842
54,430
1,478
1,135
889
29,532
24,733
4,466
62,844
5,406
(13)
(568)
67,669
67,669
5,978
(201)
(153)
210
73,503
85,652
92,925
91,401
Depreciation is included in cost of sales in the income statement.
During the year, the Group has capitalised borrowing costs amounting to £32k (2020: £604k) on qualifying assets. Borrowing costs were capitalised
at the rate of its general borrowings of 2.46% (2020: 2.46%).
Bank borrowings are secured on property, plant and equipment. Refer to note 18 for details.
Zotefoams plc Annual Report 2021
10. Property, plant and equipment (continued)
Company
Land and
buildings
£’000
Plant and
equipment
£’000
Fixtures and
fittings
£’000
Under
construction
£’000
Cost
Balance at 1 January 2020
Additions
Disposals
Transfers
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Disposals
Transfers
Balance at 31 December 2021
Accumulated depreciation
Balance at 1 January 2020
Depreciation charge for the year
Disposals
Balance at 31 December 2020
Balance at 1 January 2021
Depreciation charge for the year
Disposals
Transfers
22,131
58,126
2,927
130
–
1,795
24,056
24,056
–
(88)
104
24,072
7,118
841
–
7,959
7,959
856
–
50
31
(51)
6,136
64,242
64,242
96
(78)
2,894
67,154
40,742
1,772
(13)
42,501
42,501
1,901
(78)
(49)
53
–
36
3,016
3,016
203
(128)
(457)
2,634
1,741
398
–
2,139
2,139
218
(111)
(154)
Balance at 31 December 2021
8,865
44,275
2,092
7,336
3,876
–
(7,967)
3,245
3,245
2,477
–
(2,949)
2,773
–
–
–
–
–
–
–
–
–
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
15,013
16,097
15,207
17,384
21,741
22,879
1,186
877
542
7,336
3,245
2,773
131
Total
£’000
90,520
4,090
(51)
–
94,559
94,559
2,776
(294)
(408)
96,633
49,601
3,011
(13)
52,599
52,599
2,975
(189)
(153)
55,232
40,919
41,960
41,401
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
132
Notes
Continued
11. Leases
(i) Amounts recognised in the statement of financial position relating to leases:
Right-of-use assets
Property
Equipment
Lease liabilities
Lease liability falls due within 1 year
Lease liability falls due within 1-3 years
Lease liability falls due in more than 3 years
Group
Company
2021
£’000
494
610
1,104
2020
£’000
560
837
1,397
2021
£’000
–
519
519
Group
Company
2021
£’000
486
553
90
2020
£’000
420
705
281
1,129
1,406
2021
£’000
251
274
–
525
2020
£’000
–
780
780
2020
£’000
279
437
67
783
Additions to the right-of-use assets during the financial year were £230k for the Group and £28k for the Company (2020: £639k for the Group and £16k
for the Company).
(ii) Amounts recognised in the income statement relating to leases:
Depreciation charge of right-of-use assets
Property
Equipment
Interest expenses (included in finance costs)
Expense relating to short-term leases (included in cost of sales and administrative
expenses)
Expense relating to leases of low-value assets that are not shown above as short-term
leases (included in administrative expenses)
The total cash outflow for leases
Group
2021
£’000
194
331
525
39
192
72
543
2020
£’000
99
315
414
31
228
22
433
Company
2021
£’000
2020
£’000
–
288
288
17
13
15
304
–
300
300
24
28
22
318
Zotefoams plc Annual Report 2021
133
12. Intangible assets
Group
Cost
Balance at 1 January 2020
Additions
Effect of movement in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Transfer
Effect of movement in foreign exchange
Marketing
related
£’000
Customer
related
£’000
Technology
related
£’000
Software
related
£’000
Goodwill
£’000
Capitalised
development
£’000
Total
£’000
240
–
(8)
232
232
–
–
3
387
4,969
–
(8)
379
379
–
–
3
234
(177)
5,026
5,026
277
–
63
3,160
112
1
3,273
3,273
165
466
(3)
2,304
718
11,778
–
(76)
2,228
2,228
–
–
26
–
–
718
718
627
14
12
346
(268)
11,856
11,856
1,069
480
104
Balance at 31 December 2021
235
382
5,366
3,901
2,254
1,371
13,509
Accumulated amortisation
Balance at 1 January 2020
Charge for the year
Effect of movement in foreign exchange
Balance at 31 December 2020
Balance at 1 January 2021
Charge for the year
Transfer
Effect of movement in foreign exchange
228
12
(8)
232
232
–
–
3
387
–
(8)
379
379
–
–
3
2,752
266
(106)
2,912
2,912
194
–
37
1,797
558
–
2,355
2,355
743
148
–
Balance at 31 December 2021
235
382
3,143
3,246
–
–
–
–
–
–
–
–
–
–
90
–
90
90
184
5
–
5,164
926
(122)
5,968
5,968
1,121
153
43
279
7,285
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
12
–
–
–
–
–
2,217
2,114
2,223
1,363
918
655
2,304
2,228
2,254
718
628
1,092
6,614
5,888
6,224
Amortisation is included in cost of sales in the income statement.
Goodwill arising on acquisition is allocated to the cash generating unit (CGU) that is expected to benefit, this being MEL. The recoverable amount
of the CGU has been determined based on an assessment of the MuCell® technology and the potential of the ReZorce® mono-material barrier
packaging solution.
The business has prepared financial models approved by management which support the carrying value of intangibles, please see the Group CFO’s
review on page 38 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; and
X Board risk appetite.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
134
Notes
Continued
12. Intangible assets (continued)
Company
Cost
Balance at 1 January 2020
Additions
Balance at 31 December 2020
Balance at 1 January 2021
Additions
Transfer
Balance at 31 December 2021
Accumulated amortisation
Balance at 1 January 2020
Charge for the year
Balance at 31 December 2020
Balance at 1 January 2021
Charge for the year
Transfer
Balance at 31 December 2021
Net book value
At 1 January 2020
At 31 December 2020 and 1 January 2021
At 31 December 2021
13. Investment in subsidiaries
Company
Shares in Group undertakings – at cost
Additions during the year
Customer
related
£’000
Software
related
£’000
Capitalised
development
£’000
Total
£’000
121
–
121
121
–
–
3,160
111
3,271
3,271
132
393
121
3,796
121
–
121
121
–
–
1,796
558
2,354
2,354
737
148
121
3,239
–
–
–
1,364
917
557
718
–
718
718
–
14
732
–
89
89
89
185
5
279
718
629
453
3,999
111
4,110
4,110
132
407
4,649
1,917
647
2,564
2,564
922
153
3,639
2,082
1,546
1,010
2021
£’000
30,822
–
30,822
2020
£’000
30,576
246
30,822
Zotefoams plc Annual Report 2021
135
13. Investment in subsidiaries (continued)
The following is a complete list of the subsidiary undertakings of the Company:
Registered office
Ownership
Incorporated in:
100%
100%
100%
Zotefoams International Limited
675 Mitcham Road, Croydon CR9 3AL
Zotefoams Pension Trustees Limited
675 Mitcham Road, Croydon CR9 3AL
Zotefoams Inc. (indirectly owned)
Zotefoams Midwest LLC (indirectly owned)
MuCell Extrusion LLC (indirectly owned)
Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle, Delaware
Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle, Delaware
100%
Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle, Delaware
100%
Zotefoams Operations Limited (indirectly owned)
675 Mitcham Road, Croydon CR9 3AL
Zotefoams Technology Limited (indirectly owned)
675 Mitcham Road, Croydon CR9 3AL
KZ Trading and Investment Limited (indirectly owned)
15/F OTB Building, 160 Gloucester Road, Hong Kong
Zotefoams T-FIT Material Technology (Kunshan) Limited
(indirectly owned)
181 Huanlou Road, Kunshan, Jiangsu
Zotefoams France SAS (indirectly owned)
29 Boulevard Albert Einstein, Nantes
Zotefoams Poland Sp. z.o.o. (indirectly owned)
ul. Grzybowska 2/29, 00-131, Warszawa
100%
100%
100%
100%
100%
100%
T-FIT Insulation Solutions India Private Limited
(indirectly owned)
335 Udyog Vihar Phase IV Gurgaon, Gurgaon, Haryana 122015 100%
Great Britain
Great Britain
USA
USA
USA
Great Britain
Great Britain
Hong Kong
China
France
Poland
India
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. purchases, manufactures and distributes cross-linked block foams. Zotefoams Midwest LLC, based in Oklahoma, USA is a trading
company with operations in Oklahoma, USA and supplies specialist materials, based on AZOTE® foams, for the construction industry. MuCell Extrusion
LLC 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 is a trading company and distributes T-FIT® technical insulation products. KZ Trading and Investment
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 is a wholly owned subsidiary of Zotefoams International Limited and did not engage in any trading activities in 2021.
Zotefoams Poland Sp. z.o.o., is a wholly owned subsidiary of Zotefoams International Limited and engaged in trading activities in 2021. T-FIT Insulation
Solutions India Private Limited distributes T-FIT technical insulation products. 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 2021 of these companies have
been guaranteed by the Company and no liability is expected to arise under this guarantee.
The Company has a branch in Italy.
14. Inventories
Raw materials and consumables
Work in progress
Finished goods
Inventories are shown net of:
Provision for impairment losses
Group
Company
2021
£’000
14,637
5,704
5,613
25,954
2020
£’000
13,674
5,348
4,011
23,033
2021
£’000
11,759
4,342
2,594
18,695
2020
£’000
10,167
4,268
2,419
16,854
1,772
1,773
1,051
1,100
In 2021, the value of inventory recognised by the Group as an expense in cost of goods sold was £46,878k (2020: £31,760k).
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
136
Notes
Continued
14. Inventories (continued)
Movement in provision
Movements in the inventory provision during the financial year are set out below:
Provision for impairment losses as at 1 January
Inventories written off against provision
Additional provisions recognised
Unused amounts reversed
Provision for impairment losses as at 31 December
15. Trade and other receivables
Amounts falling due over one year:
Prepayments and accrued income
Amounts falling due within one year:
Trade receivables
Amounts owed by Group undertakings
Other receivables
Prepayments and accrued income
Group
Company
2021
£’000
1,773
(138)
169
(32)
1,772
2020
£’000
1,756
(633)
816
(166)
1,773
2021
£’000
1,100
(119)
102
(32)
1,051
2020
£’000
1,315
(633)
584
(166)
1,100
Group
2021
£’000
2020
£’000
Company
2021
£’000
2020
£’000
11
54
11
54
20,885
19,766
–
2,438
1,015
–
1,331
1,053
14,356
37,746
1,903
332
15,836
32,815
488
363
24,349
22,204
54,348
49,556
Amounts owed by Group undertakings are payable on demand. The trading portion does not attract any interest. Unsecured loans provided to Group
undertakings totalling £25,327k (2020: £23,519k) attract an interest charge of 1.73% for loans linked to US dollar LIBOR, 1.60% for euro and 1.83% for
sterling (2020: 2.32% for loans linked to US dollar LIBOR, 2.10% for euro and 1.81% for sterling).
Bank borrowings are secured on the trade receivables of the Group. Refer to note 18 for details.
16. Cash and cash equivalents
Cash at bank and in hand
17. Trade and other payables
Trade payables
Amounts owed to Group undertakings
Other taxation and social security
Other payables
Accruals and deferred income
Group
2021
£’000
8,055
2020
£’000
8,503
Company
2021
£’000
5,034
2020
£’000
6,328
Group
Company
2021
£’000
4,322
–
921
1,042
2,957
9,242
2020
£’000
3,864
–
811
809
2,367
7,851
2021
£’000
3,459
30
413
680
2,085
6,667
2020
£’000
3,276
30
452
687
1,743
6,188
Amounts owed to Group undertakings are unsecured, repayable on demand and attract no interest.
Zotefoams plc Annual Report 2021
137
18. Interest-bearing loans and borrowings
Current bank borrowings
Non-current bank borrowings
Group
Company
Note
21
2021
£’000
26,564
14,710
41,274
2020
£’000
23,430
19,263
42,693
2021
£’000
26,564
14,710
41,274
2020
£’000
23,430
19,263
42,693
In May 2018, the Group completed a debt refinancing to enable it to continue to grow capacity and meet its expected demand growth. These facilities
are secured against the property, plant and equipment and trade receivables of the Group. The total facility of £47.25m comprises: a £20m multi-currency
term loan, with £5m repayable during year four with the remainder at the end of year five; a £25m multi-currency revolving credit facility, repayable on
demand, and a further £2.25m sterling term loan, renewable annually and repayable over five years in equal quarterly repayments over the term. The
negotiated facility also includes a £25m accordion feature to provide additional flexibility to pursue further investment opportunities in the future.
At the end of the financial year, the Group has utilised £19.8m ($20.6m and £4.5m) of the multi-currency term loan, £19.5m (€17.5m and $6.5m) of the
revolving facility and has an outstanding £2.25m on the sterling term loan. The total amount of £41.3m above is net of £0.3m loan origination fees paid
upfront, being amortised over the period of the loan.
The Group and the Company have the following undrawn borrowing facilities as at the end of the financial year:
Floating rate:
Expiring within one year
Expiring beyond one year
Total
2021
£’000
2020
£’000
5,307
–
5,307
–
10,191
10,191
The difference of £0.4m between the utilised amount of £42m and £41.6m (£41.3m + £0.3m loan origination fees) is due to the different exchange rates
used by the Group and the bank.
Reconciliation of liabilities arising from financing activities:
Group
Long-term borrowings
Short-term borrowings
Total liabilities
Group
Long-term borrowings
Short-term borrowings
Total liabilities
Non-cash changes
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
156
(12)
144
–
–
–
Non-cash changes
–
–
–
30
(828)
(798)
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
87
(32)
55
(5,000)
5,000
–
–
–
–
(651)
815
164
Net cash
inflows/
(outflows)
£’000
(4,739)
3,974
(765)
Net cash
inflows/
(outflows)
£’000
3,197
1,930
5,127
2020
£’000
19,263
23,430
42,693
2019
£’000
21,630
15,717
37,347
2021
£’000
14,710
26,564
41,274
2020
£’000
19,263
23,430
42,693
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
138
Notes
Continued
18. Interest-bearing loans and borrowings (continued)
Company
Long-term borrowings
Short-term borrowings
Total liabilities
Company
Long-term borrowings
Short-term borrowings
Total liabilities
Non-cash changes
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
156
(12)
144
–
–
–
Non-cash changes
–
–
–
30
(828)
(798)
Loan
origination fee
£’000
Loan
restructure
£’000
Recognition
of lease
liabilities
£’000
Foreign
exchange
movement
£’000
87
(32)
55
(5,000)
5,000
–
–
–
–
(651)
815
164
Net cash
inflows/
(outflows)
£’000
(4,739)
3,974
(765)
Net cash
inflows/
(outflows)
£’000
3,197
1,930
5,127
2020
£’000
19,263
23,430
42,693
2019
£’000
21,630
15,717
37,347
2021
£’000
14,710
26,564
41,274
2020
£’000
19,263
23,430
42,693
In March 2022, the Group completed a bank refinancing 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 comprises a £50m multi-currency revolving credit facility, with a £25m accordion, on a
4+1 tenor, and with an interest rate ratchet on slightly improved terms to the previous facility and including a small element related to the achievement
of sustainability targets. The finance cost and leverage covenants remain in place, with the former remaining at 4:1 and the latter increasing to 3.5:1
from 3.0:1.
19. Deferred tax assets and liabilities
Recognised deferred tax assets and liabilities – Group
Deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment
Rolled-over gain
Inventories
Derivatives financial instruments
Defined benefit pension scheme
Share option charges
Tax value of recognised losses carried forward
Set off
Deferred tax (assets)/liabilities
Assets
Liabilities
Net
2021
£’000
–
–
(321)
(81)
2020
£’000
–
–
(374)
–
(1,164)
(1,681)
(216)
(171)
(1,953)
1,461
(492)
(317)
(140)
(2,512)
2,003
(509)
2021
£’000
3,810
806
–
–
–
–
–
4,616
(1,461)
3,155
2020
£’000
1,986
613
–
295
–
–
–
2,894
(2,003)
891
2021
£’000
3,810
806
(321)
(81)
2020
£’000
1,986
613
(374)
295
(1,164)
(1,681)
(216)
(171)
2,663
–
2,663
(317)
(140)
382
–
382
Unrecognised deferred tax assets
The Group has tax losses carried forward in the USA of $2,855k (2020: $1,100k) which expire between 2022 and 2037 under prevailing tax legislation.
In addition to this, the Group has further tax losses in the USA of $22,661k (2020: $15,622k) which are carried forward indefinitely. At year-end exchange
rates, these tax losses translate to £18,913k (2020: £12,240k). Applying the enacted US corporation tax rate of 21% (2020: 21%), the Group has
recognised a deferred tax asset of £138k (2020: £140k) on such tax losses expected to be utilised in future periods.
The Group can potentially recover £402k (2020: £374k) of the deferred tax asset within twelve months of the reporting period. The remainder of the
deferred tax asset will be recovered more than twelve months after the reporting period.
The Group can potentially settle none (2020: £295k) of the deferred tax liability within twelve months of the reporting period. The remainder of the
deferred tax liability will be settled more than twelve months after the reporting period.
Zotefoams plc Annual Report 2021
139
Defined
benefit
pension
scheme
£’000
(1,177)
(37)
(467)
(1,681)
(1,681)
Share
option
charges
£’000
(211)
(58)
(48)
(317)
(317)
Tax value of
recognised
losses carried
forward
£’000
(138)
Total
£’000
347
(2)
294
–
(140)
(140)
(259)
382
382
73
40
(31)
2,152
(376)
(81)
444
(1,164)
61
(216)
–
(171)
129
2,663
19. Deferred tax assets and liabilities (continued)
Movement in deferred tax
Property,
plant and
equipment
£’000
Rolled-over
gain
£’000
Inventories
£’000
Derivative
financial
instruments
£’000
Balance at 1 January 2020
Charged/(credited) to the
income statement
Recognised in other
comprehensive income and
equity
Balance at 31 December 2020
Balance at 1 January 2021
Charged/(credited) to the
income statement
Recognised in other
comprehensive income and
equity
Balance at 31 December 2021
1,481
505
–
1,986
1,986
1,824
–
3,810
548
65
–
613
613
193
–
806
(190)
(184)
–
(374)
(374)
53
–
(321)
Deferred tax assets and liabilities – Company
Deferred tax assets and liabilities are attributable to the following:
34
5
256
295
295
–
Liabilities
Net
Property, plant and equipment
Rolled-over gain
Derivative financial instruments
Defined benefit pension scheme
Share option charges
Set off
Deferred tax (assets)/liabilities
Movement in deferred tax
Assets
2021
£’000
–
–
(81)
(1,164)
(216)
(1,461)
1,461
–
2020
£’000
–
–
–
(1,681)
(317)
(1,998)
1,998
–
2021
£’000
3,810
806
–
–
–
4,616
(1,461)
3,155
Balance at 1 January 2020
Charged/(credited) to the income statement
Recognised in other comprehensive income and equity
Balance at 31 December 2020
Balance at 1 January 2021
Charged to the income statement
Recognised in other comprehensive income and equity
Balance at 31 December 2021
Property,
plant and
equipment
£’000
Rolled-over
gain
£’000
Derivative
financial
instruments
£’000
1,481
505
–
1,986
1,986
1,824
–
3,810
548
65
–
613
613
193
–
806
34
–
256
290
290
5
(376)
(81)
2020
£’000
1,986
613
290
–
–
2,889
(1,998)
891
Defined
benefit
pension
scheme
£’000
(1,177)
(37)
(467)
(1,681)
(1,681)
73
444
2021
£’000
3,810
806
(81)
(1,164)
(216)
3,155
–
3,155
Share
option
charges
£’000
(211)
(58)
(48)
(317)
(317)
40
61
(1,164)
(216)
2020
£’000
1,986
613
290
(1,681)
(317)
891
–
891
Total
£’000
675
475
(259)
891
891
2,135
129
3,155
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
140
Notes
Continued
20. Issued share capital
Issued, allotted and fully paid ordinary shares of 5p each:
Opening balance 1 January 2020
Share issue to Employee Benefit Trust
As at 31 December 2020
At 1 January 2021 and 31 December 2021
Number of
shares
Par value
£’000
48,301,234
320,000
48,621,234
48,621,234
2,415
16
2,431
2,431
Share
premium
£’000
Total
£’000
44,178
46,593
–
44,178
44,178
16
46,609
46,609
The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled, on a poll, to one vote per share at meetings
of the Company.
Nature and purpose of other reserves
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 entity 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 hedging reserve (see note 21 for details). The cash flow hedging 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
reclassified to the income statement as appropriate.
21. Financial instruments and financial risk management
Policy
The Group’s and Company’s principal financial instruments include cash in hand and at bank and interest-bearing loans and borrowings, the main
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
Company’s currency exposure. Per the Group’s and Company’s policy, no trading in financial instruments is undertaken.
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 throughout
the year.
Credit risk
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 clients 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
the carrying amount of each financial asset, including derivative financial instruments, in the statement of financial position.
Zotefoams plc Annual Report 2021 141
Group
Company
2021
£’000
20,529
356
20,885
2020
£’000
19,427
339
19,766
2021
£’000
14,039
317
14,356
Group
Company
2021
£’000
7,849
206
8,055
2020
£’000
8,220
283
8,503
2021
£’000
5,034
–
5,034
Group
Company
2021
£’000
92
81
173
2020
£’000
966
614
1,580
2021
£’000
92
81
173
2020
£’000
15,511
325
15,836
2020
£’000
6,328
–
6,328
2020
£’000
966
614
1,580
21. Financial instruments and financial risk management (continued)
Credit quality of financial assets
Counterparties without external credit rating:
Existing customers with no defaults in the past
Existing customers with some defaults in the past, net of impairment allowance
Cash at bank
Moody’s P-1
Moody’s P-3
Derivative financial assets
Moody’s P-1
Moody’s P-2
While cash and cash equivalent are subject to impairment review under IFRS 9 “Financial Instruments”, the identified impairment loss was immaterial
(2020: immaterial).
Trade receivables are analysed as follows:
Gross carrying amount
– due for less than 60 days
– due for more than 60 days
Expected loss rate
– due for less than 60 days
– due for more than 60 days
Loss allowance
Group
Company
2021
£’000
20,980
20,132
848
0.05%
9.91%
95
2020
£’000
19,798
19,324
474
0.06%
4.43%
32
2021
£’000
14,367
14,248
119
0.08%
0.00%
11
2020
£’000
15,847
15,841
6
0.07%
0.00%
11
Trade receivables net of allowances
20,885
19,766
14,356
15,836
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
142
Notes
Continued
21. Financial instruments and financial risk management (continued)
Loss allowances analysed as follows:
At 1 January 2020
Increase in loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectable
Reversal of loss allowance on collection of dues
At 31 December 2020
At 1 January 2021
Increase in loss allowance recognised in profit or loss during the year
Receivables written off during the year as uncollectable
Reversal of loss allowance on collection of dues
At 31 December 2021
Group
£’000
Company
£’000
112
11
(42)
(49)
32
32
96
–
(33)
95
49
11
–
(49)
11
11
11
–
(11)
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 2021
and 2020, the Group and Company insured a material portion of its trade receivable balances to mitigate credit risk. The uninsured exposure as at
31 December 2021 for the Group was £13,011k (2020: £12,037k) and for the Company was £7,183k (2020: £8,467k). 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 its operations and closely monitors its borrowing levels to manage the interest rate risk.
The interest rate profile of the Group’s and Company’s borrowings at 31 December is shown below:
Group
Dollar short-term borrowings
Sterling short-term borrowings
Euro short-term borrowings
Dollar long-term borrowings
Total*
Company
Dollar short-term borrowings
Sterling short-term borrowings
Euro short-term borrowings
Dollar long-term borrowings
Total*
2021
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Effective
interest rate
%
1.86%
1.84%
1.81%
2.03%
–
–
–
–
–
4,812
6,750
14,675
15,284
41,521
2.35%
1.97%
2.10%
2.35%
2021
Effective
interest rate
%
Fixed
rates
£’000
Variable
rates
£’000
Effective
interest rate
%
1.86%
1.84%
1.81%
2.03%
–
–
–
–
–
4,812
6,750
14,675
15,284
41,521
2.35%
1.97%
2.10%
2.35%
2020
Fixed
rates
£’000
–
–
–
–
–
2020
Fixed
rates
£’000
–
–
–
–
–
Variable
rates
£’000
500
8,250
14,842
19,492
43,084
Variable
rates
£’000
500
8,250
14,842
19,492
43,084
*
The total amount of £41,521k is gross of an outstanding amount of £247k loan origination fees paid upfront and being amortised over the period of the loan (2020: £43,084k is gross of £391k loan
origination fees).
The impact on post tax profit of a 1% shift in the variable rate borrowings would be £336k (2020: £349k).
Zotefoams plc Annual Report 2021
143
21. Financial instruments and financial risk management (continued)
Liquidity risk
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:
2021
2020
Group
Non-derivative financial
liabilities
Interest-bearing loans and
borrowings
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
(41,274)
(42,052)
(27,212)
(14,840)
Trade and other payables
(5,364)
(5,364)
(5,364)
–
More
than
2 years
£’000
–
–
Lease liabilities
(1,129)
(1,130)
(479)
(363)
(288)
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
(42,693)
(44,388)
(24,199)
(5,400)
(14,789)
(4,673)
(1,406)
(4,673)
(1,467)
(4,673)
(448)
–
–
(399)
(620)
Total non-derivative
financial liabilities
(47,767)
(48,546)
(33,055)
(15,203)
(288)
(48,772)
(50,528)
(29,320)
(5,799)
(15,409)
Derivative financial liabilities
(600)
(600)
(600)
–
–
(53)
(53)
(53)
–
–
2021
2020
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Carrying
amount
£’000
Contractual
cash flows
£’000
1 year
or less
£’000
1 to 2
years
£’000
More
than
2 years
£’000
Company
Non-derivative financial
liabilities
Interest-bearing loans
and borrowings
(41,274)
(42,052)
(27,212)
(14,840)
Trade and other payables
(4,139)
(4,139)
(4,139)
–
Lease liabilities
(524)
(516)
(249)
(200)
Total non-derivative
financial liabilities
(45,937)
(46,707)
(31,600)
(15,040)
Derivative financial liabilities
(600)
(600)
(600)
–
–
–
(67)
(67)
–
(42,693)
(44,388)
(24,199)
(5,400)
(14,789)
(3,963)
(3,963)
(3,963)
–
–
(783)
(815)
(296)
(252)
(267)
(47,439)
(49,166)
(28,458)
(5,652)
(15,056)
(53)
(53)
(53)
–
–
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. Foreign exchange risk 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 cover 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 the movement 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, the impact of which should reverse through forward currency contracts, but are subject to the timing between accounts receivable
recording and cash received.
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 144
Notes
Continued
21. Financial instruments and financial risk management (continued)
The euro and US dollar rates used in preparing the financial statements are as follows:
Euro/sterling
US dollar/sterling
2021
2020
Average
Closing
Average
Closing
1.163
1.376
1.192
1.351
1.125
1.284
1.111
1.366
In respect of other monetary assets and liabilities held in currencies other than the euro and the US dollar, the Group and the Company ensure that the
net exposure is kept to a manageable level by buying or selling foreign currencies at spot rates, where necessary, to address short-term imbalances.
Where possible, the Group tries to hold the majority of its cash and cash equivalent balances in the local currency of the respective entity or, for
borrowings, in a currency which provides an offset, albeit often partial, against monetary working capital net assets in that currency.
Recognised assets and liabilities
The table below shows non-derivative financial instruments of the Group and Company in currencies other than sterling:
Group – 2021
Cash and cash equivalents
Trade receivables
Trade payables
Group – 2020
Cash and cash equivalents
Trade receivables
Trade payables
Company – 2021
Cash and cash equivalents
Trade receivables
Trade payables
Company – 2020
Cash and cash equivalents
Trade receivables
Trade payables
Euro
£’000
1,483
3,494
(3,016)
Euro
£’000
834
3,700
(2,254)
Euro
£’000
512
3,288
(2,601)
Euro
£’000
512
3,352
(2,133)
US dollar
£’000
2,056
11,212
(540)
US dollar
£’000
3,391
11,553
(522)
US dollar
£’000
390
6,378
3
US dollar
£’000
2,063
8,287
(244)
Other
£’000
436
1,242
(317)
Other
£’000
542
736
(123)
Other
£’000
78
248
–
Other
£’000
36
139
–
Total
£’000
3,975
15,948
(3,873)
Total
£’000
4,767
15,989
(2,899)
Total
£’000
980
9,914
(2,598)
Total
£’000
2,611
11,778
(2,377)
Zotefoams plc Annual Report 2021 145
21. Financial instruments and financial risk management (continued)
Forecast transactions
The Group and the Company classify their forward exchange contracts used to hedge forecast transactions as cash flow hedges. The fair value of such
forward exchange contracts is shown in the table below:
31 December 2021
Assets
Forward exchange contracts
Total assets
Liabilities
Forward exchange contracts
Total liabilities
31 December 2020
Assets
Forward exchange contracts
Total assets
Liabilities
Forward exchange contracts
Total liabilities
Level 1
£’000
Level 2
£’000
Level 3
£’000
Total
£’000
–
–
–
–
173
173
(600)
(600)
–
–
–
–
Level 1
£’000
Level 2
£’000
Level 3
£’000
–
–
–
–
1,580
1,580
(53)
(53)
–
–
–
–
173
173
(600)
(600)
Total
£’000
1,580
1,580
(53)
(53)
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 2021 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 2021 or 2020 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 (2020: Handelsbanken and NatWest mid-market rates) at
the statement of financial position date.
The maturity profile of the forward contracts as at 31 December is as follows:
Group and Company:
Sell EUR
Buy EUR
Sell USD
Foreign
currency
€3,000
2021
Contract
value
£’000
Transaction
fair value
£’000
Contract
fair value
£’000
2,554
2,522
–
–
–
32
–
Foreign
currency
€2,800
€600
$38,300
27,968
28,427
(459)
$33,600
2020
Contract
value
£’000
Transaction
fair value
£’000
2,509
553
26,101
2,519
566
24,551
Contract
fair value
£’000
(10)
(13)
1,550
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
146
Notes
Continued
21. Financial instruments and financial risk management (continued)
Sensitivity analysis
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 the retranslation of monetary items at 31 December 2021, it is estimated that an increase of one percentage point in the value of sterling
against the euro would increase the Group’s profit before tax by approximately £6k (2020: increase of £11k) before forward exchange contracts and £2k
(2020: increase of £39k) after forward exchange contracts are included.
In respect of the retranslation of monetary items at 31 December 2021, 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 £240k (2020: £251k) before forward exchange contracts and £79k
(2020: £82k) after forward exchange contracts are included.
Financial instruments by category
Group
Trade and other receivables
Cash and cash equivalents
Bank overdraft
Derivative financial instruments – assets
– liabilities
Interest-bearing loans and
borrowings
Trade and other payables
Lease liability
Company
Trade and other receivables
Cash and cash equivalents
Bank overdraft
Derivative financial instruments – assets
– liabilities
Interest-bearing loans and
borrowings
Trade and other payables
Lease liability
Financial
assets at
amortised
cost
£’000
23,323
8,055
–
–
–
–
–
–
Financial
assets at
amortised
cost
£’000
54,008
5,034
–
–
–
–
–
–
2021
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
–
–
–
173
(600)
–
–
–
–
–
–
–
–
(41,274)
(5,364)
(1,129)
2021
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
–
–
–
173
(600)
–
–
–
–
–
–
–
–
(41,274)
(4,139)
(524)
Financial
assets at
amortised
cost
£’000
21,097
8,503
–
–
–
–
–
–
Financial
assets at
amortised
cost
£’000
49,139
6,328
–
–
–
–
–
–
2020
Derivatives
used for
hedging
£’000
Financial
liabilities at
amortised
cost
£’000
–
–
–
1,580
(53)
–
–
–
2020
Derivatives
used for
hedging
£’000
–
–
–
1,580
(53)
–
–
–
–
–
–
–
–
(42,693)
(4,673)
(1,406)
Financial
liabilities at
amortised
cost
£’000
–
–
–
–
–
(42,693)
(3,963)
(783)
Capital management
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).
i) 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 3.00:1.00.
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 these covenants throughout the financial year.
Zotefoams plc Annual Report 2021
147
21. Financial instruments and financial risk management (continued)
Net borrowings comprise current and non-current interest-bearing loans and borrowings of £41,274k, as per note 18, and cash and cash equivalents
of £8,055k as per note 16.
Net borrowings
EBITDA
Net borrowings/EBITDA
Net finance charges
EBITDA/Net finance charges
EBITDA comprises:
Profit for the year
Depreciation and amortisation
Finance costs
Share of loss/(profit) from joint venture
Equity-settled share-based payments
Taxation
As at
31 December
2021
£’000
As at
31 December
2020
£’000
33,219
16,117
2.06
1,002
16.08
2021
£’000
4,376
7,624
1,105
20
360
2,632
16,117
34,190
16,155
2.12
681
23.72
2020
£’000
7,163
6,746
846
(38)
300
1,138
16,155
Note
10,11,12
6
9
24
7
Net finance charges comprise interest income of £11k and finance costs expensed of £1,014k as per note 6.
The Group’s objective is to maintain leverage below the Board’s appetite of 2.0. However, it has accepted an increase in this ratio, while remaining below
the covenant level, as the Group invested in its capacity expansion programme. Subject to short-term macro-economic and geopolitical volatility as well
as any potential longer-term strategic investments, it is expected to reduce quickly back below the Board’s appetite as capacity utilisation improves.
The bank covenant definition does not include the impact of IFRS 16 “Leases”, which would have moved the ratio from 2.06 to 2.13.
The Group defines its return on capital as operating profit before exceptional items divided by the average sum of its equity, net debt and other non-
current liabilities. This measure excludes acquired intangible assets and their amortisation costs. The Group also excludes significant capacity investments
under construction until they enter production. In 2021, the return on capital was 6.1% (2020: 9.0%) and there are no longer any significant capacity
investments to be excluded following the commissioning of the Poland manufacturing facility in February 2021.
22. Commitments – Group
Group
2021
£’000
2020
£’000
Company
2021
£’000
2020
£’000
Capital expenditure contracted for at the end of the reporting period but not yet incurred
is as follows:
Property, plant and equipment
1,383
1,475
742
471
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
148
Notes
Continued
23. Post-employment benefits
Defined benefit pension plans
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 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 Scheme in accordance with the Scheme’s Trust Deed and Rules, which set out their powers. The Trustees of the Scheme
are required to act in the best interests of the beneficiaries of the Scheme. There is a requirement that one-third of the Trustees are nominated by the
members of the Scheme.
There are three categories of pension scheme members:
X Deferred member 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; and
X Pensioner members: in receipt of pension.
The defined benefit obligation is valued by projecting the best estimate of future benefit outgoings (allowing for future salary increases for deferred
members with salary linkage, revaluation to retirement for deferred members and annual pension increases for all members) and then discounting
to the statement of financial position date. The majority of benefits receive increases in line with inflation (subject to a cap of no more than 5% per
annum). The valuation method is known as the Projected Unit Method. The approximate overall duration of the Scheme’s defined benefit obligation
as at 31 December 2021 was 15 years (2020: 16 years).
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 2022.
Method and assumptions
The initial results of the valuation as at 5 April 2020 have been updated to 31 December 2021 by a qualified independent actuary.
The assumptions used were as follows:
Discount rate
RPI inflation
CPI inflation
Salary increases
Pension increases
– Post 88 GMP
– Non GMP
Revaluation of deferred pensions in excess of GMP
Mortality (pre and post-retirement)
Life expectancies (in years):
For an individual aged 65 in 2021
At age 65 for an individual aged 45 in 2021
As at
31 December 2021
As at
31 December 2020
1.80%
3.40%
2.90%
2.90%
2.40%
3.30%
2.90%
1.20%
2.90%
2.30%
2.30%
2.10%
2.90%
2.30%
100% S3PMA_M /
100% S3PFA_M
CMI_2019_M/F
1.25% (yob)
100% S3PMA_M /
100% S3PFA_M
CMI_2019_M/F
1.25% (yob)
Year ended 31 December 2021
Year ended 31 December 2020
Males
Females
Males
Females
21.3
22.6
23.7
25.2
21.3
22.6
23.6
25.2
Zotefoams plc Annual Report 2021
149
23. Post-employment benefits (continued)
Risks
Through the Scheme, the Company is exposed to a number of risks:
X Asset volatility: the Scheme’s defined benefit obligation is calculated using a discount rate set with reference to corporate bond yields; however, the
Scheme invests significantly in equities and other growth assets. These assets are expected to outperform corporate bonds in the long term, but are
subject to increased volatility and risk in the short term
X Changes in bond yields: a decrease in corporate bond yields would increase the Scheme’s defined benefit obligation; however, this would be partially
offset by an increase in the value of the Scheme’s bond holdings
X Inflation risk: a significant proportion of the Scheme’s defined benefit obligation is linked to inflation, therefore higher inflation will result in a higher
defined benefit obligation (subject to the appropriate caps in place). The majority of the Scheme’s assets are either unaffected by inflation, or are
only loosely correlated with inflation, therefore an increase in inflation would also increase the deficit
X Life expectancy: if Scheme members live longer than expected, the Scheme’s benefits will need to be paid for longer, increasing the Scheme’s
defined benefit obligation.
The Trustees and Company manage risks in the Scheme through the following strategies:
X Diversification: investments are well diversified, such that the failure of any single investment would not have a material impact on the overall level
of assets
X Investment strategy: the Trustees are required to review their investment strategy on a regular basis
X ALM: the Scheme invests in an asset-liability matching (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.
Discount rate
RPI inflation
Assumed life expectancy
Change in assumption
+0.5%/–0.5% p.a.
+0.5%/–0.5% p.a.
+1 year
Change in defined
benefit obligation
–8%/+9%
+7%/–7%
+5%
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 2021
Year ended 31 December 2020
Asset class
Equities and other growth assets
Diversified Credit Funds
Liability Driven Investments
Cash
Other
Total
Actual return on assets over the year
Market
value
£’000
17,831
6,312
8,312
705
997
34,157
2,674
% of total
Scheme
assets
52%
19%
24%
2%
3%
100%
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:
Market value of plan assets
Present value of defined benefit pension scheme obligation
Deficit – recognised as a liability in the statement of financial position
Market
value
£’000
16,319
6,308
7,409
804
1,078
31,918
2,949
% of total
Scheme
assets
51%
20%
23%
3%
3%
100%
2021
£’000
34,157
(38,814)
(4,657)
2020
£’000
31,918
(40,769)
(8,851)
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021
150
Notes
Continued
23. Post-employment benefits (continued)
The movement in the defined benefit obligation over the year is as follows:
Value of defined benefit obligation at the start of the year
Interest cost
Benefits paid
Actuarial losses/(gains): experience differing from that assumed
Actuarial (gains)/losses: changes in demographic assumptions
Actuarial (gains)/losses: changes in financial assumptions
Value of defined benefit obligation at the end of the year
The movement in the value of the plan assets over the year is as follows:
Market value of plan assets at the start of the year
Interest income
Actual return on plan assets
Employer contributions
Benefits paid
Market value of assets at the end of the year
The table below outlines where the Company’s post-employment amounts and activity are included in the financial statements.
Statement of financial position for:
– Defined benefit pension scheme obligations
Income statement charge for:
– Defined benefit pension scheme interest cost
Actuarial gains/(losses) recognised in other comprehensive income for:
– Defined benefit pension scheme
2021
£’000
2020
£’000
40,769
36,486
482
(1,214)
186
(81)
(1,328)
38,814
721
(1,291)
(117)
19
4,951
40,769
2021
£’000
2020
£’000
31,918
29,560
380
2,294
779
(1,214)
34,157
556
2,393
700
(1,291)
31,918
2021
£’000
2020
£’000
(4,657)
(8,851)
(102)
(165)
3,517
(2,460)
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 2021 were
£855k (2020: £755k).
For certain non-UK based employees of the Company, the Company makes contributions into individual schemes. The contributions paid by the
Company in 2021 were £5k (2020: £4k).
For USA-based employees, Zotefoams Inc. operates a 401(k) plan. The contributions paid by Zotefoams Inc. in 2021 were £279k (2020: £263k).
Zotefoams plc Annual Report 2021
151
24. Share-based payments
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 Group before the
options vest.
In 2007, the Company introduced a LTIP scheme for senior management personnel. Shares are awarded in the Company and vest after three years to
the extent performance conditions are met. Dependent on the circumstances, awards are normally forfeited if the employee leaves the Group 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 Group 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. Depending on the circumstances, awards are
normally forfeited if the employee leaves the Group 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. No new awards are made under the 2007 Plan. Depending on the circumstances, awards
are normally forfeited if the employee leaves the Group before the award vests.
Details of the vesting conditions for the share, share option and LTIP awards are given in the Directors’ Remuneration report on pages 88 to 99.
Movements in share options during the year are as follows:
The options outstanding at 31 December 2021 have an exercise price between 245.7p and 572.0p and a weighted contractual life of seven years
(2020: six years).
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.
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
Movements in LTIP awards during the year are as follows:
Outstanding at the beginning of the year
Exercised during the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
2021
2020
Number
of share
options
89,266
(14,694)
40,690
(13,336)
101,926
57,994
Weighted
average
exercise
price (p)
327
270
433
426
364
293
Number
of share
options
97,120
–
–
(7,854)
89,266
77,598
2021
2020
Number
of share
options
827,665
(155,084)
354,372
(373,297)
653,656
–
Weighted
average
exercise
price (p)
–
–
–
–
–
–
Number
of share
options
741,767
–
264,615
(178,717)
827,665
–
Weighted
average
exercise
price (p)
331
–
–
382
327
290
Weighted
average
exercise
price (p)
–
–
–
–
–
–
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 152
Notes
Continued
24. Share-based payments (continued)
Movement in Deferred Bonus Share Plan awards during the year are as follows:
Outstanding at beginning of the year
Exercised during the year
Granted during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
2021
2020
Number
of share
options
155,884
(79,289)
14,790
(306)
91,079
–
Weighted
average
exercise
price (p)
–
–
–
–
–
–
Number
of share
options
49,135
(33,014)
139,763
–
155,884
–
Weighted
average
exercise
price (p)
–
–
–
–
–
–
Fair value of share options and assumptions
The expected volatility is based on historic volatility for a three-year period prior to the award.
Share price (p)
Exercise price (p)
Expected volatility
Option life
Expected dividends (p) (assumed to be increasing at 2.5% p.a.)
Risk free interest rate (based on national government bonds)
Fair value at grant date (p)
05-Apr-16
27-Mar-17
24-Aug-17
16-Apr-19
08-Apr-21
290
290
35%
305.5
305.5
35%
305.5
327.5
35%
572
572
25%
415
433
40%
Five years
Five years
Five years
Three years
Three years
5.6
2.00%
80
5.7
2.00%
103.1
5.7
2.00%
111.1
5.5
2.00%
103
6.3
2.00%
99
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:
Within administrative expenses – share-based payment charge
– related National Insurance
Of the above, amounts relating to Directors of Zotefoams plc aggregate to £169k (2020: £177k).
2021
£’000
360
36
2020
£’000
300
57
Zotefoams plc Annual Report 2021
153
25. Related parties
Directors
The Directors of the Company as at 31 December 2021 and their immediate relatives control approximately 1.2% (2020: 1.1%) of the voting shares of
the Company. Details of Directors’ pay and remuneration are given in the Directors’ Remuneration report on pages 88 to 99. Executive Directors are
considered to be the only key management personnel. Details of compensation paid to key management personnel are included in note 5.
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:
Sale of goods: subsidiaries of the Company
Sale of services: subsidiaries of the Company
Loans given (net of repayments): subsidiaries of the Company
Interest income: subsidiaries of the Company
Sale of goods: joint venture of the Company
Sale of services: joint venture of the Company
Total
Balances between the Company and its active subsidiaries and joint venture are as follows:
Zotefoams Inc.
KZ Trading and Investment Limited
Azote Asia Limited
MuCell Extrusion LLC
Zotefoams International Limited
Zotefoams Operations Limited
Zotefoams T-FIT Material Technology (Kunshan) Limited
Zotefoams Poland Sp. z.o.o.
Zotefoams France SAS
T-FIT Insulation Solutions India Private Limited
2021
£’000
3,857
1,246
2,748
468
2,951
733
2020
£’000
6,465
760
8,606
569
2,155
407
12,003
18,962
Receivable from/(payable to)
Investment in
2021
£’000
12,541
247
1,065
4,410
17,037
–
2,993
304
(39)
253
2020
£’000
9,426
1,498
896
3,424
15,087
76
2,402
523
(30)
379
2021
£’000
2020
£’000
–
–
–
–
–
–
–
–
30,822
30,822
–
–
–
–
–
–
–
–
–
–
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 154
Notes
Continued
26. Accounting estimates and judgements for the Group and Company
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 2.12.
The determination of impairment in the carrying value of goodwill and intangible assets requires judgements to be made by Directors. These assets are
assessed on an ongoing basis to determine whether circumstances exist that could lead to the conclusion that the carrying value of such assets is not
supportable. In relation to the operational MuCell business that licenses technology and sells related technology, the Directors use a model that includes
the use of this technology within ReZorce. In relation to the ReZorce solution and given the stage of its development, the Directors consider different
factors, such as the potential market size, the ability to penetrate this market, potential customer interest, development partnerships with potential
customers and future delivery partners, current technological development status, Group funding availability and the Board’s commitment to the project.
Based on the judgements and estimates above, the Directors have concluded that the opportunity and strategy supports the carrying value of the
underlying intangible assets.
ii) Pension assumptions
The present value of the defined benefit pension obligations depends on a number of factors that are determined on an actuarial basis using a number of
assumptions. Any changes in these assumptions will impact the carrying amount of pension obligations. The Company engages an independent actuary
to perform the valuation and assist in determining appropriate assumptions at the end of each year. The valuation is prepared by an independent qualified
actuary, but significant judgements are required in relation to the assumptions for pension increases, inflation, the discount rate applied, investment returns
and member longevity, all of which underpin the valuations. Note 23 contains information about the assumptions relating to retirement benefit obligations.
Key judgements
i) Unrecognised deferred tax assets
At year-end exchange rates, the Group has tax losses carried forward of £18,913k in the USA while tax losses of £657k have been recognised on the
statement of financial position. Based on projections, the Group anticipates using all these carried forward tax losses; however, management have
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
consecutive years of profit in the USA, further consideration will be given to recognising a deferred tax asset.
27. Events after the reporting period
There are no events after the reporting period affecting these financial statements, other than those disclosed in note 18.
Zotefoams plc Annual Report 2021 Five-year trading summary
Group revenue
Operating profit (before exceptional item)
Profit before tax (before exceptional item)
Profit before tax
Profit after tax
Capital expenditure (including intangibles)
Cash generated from operations
Basic earnings per share before exceptional item (p)
Basic earnings per share (p)
Dividends per ordinary share (p)
2021
£m
100.8
8.1
7.0
7.0
4.4
7.1
12.2
9.01
9.01
6.50
2020
£m
82.7
9.1
8.3
8.3
7.2
12.7
13.0
14.87
14.87
6.30
2019
£m
80.9
9.1
8.8
9.8
8.2
24.4
11.8
14.91
17.10
2.03
2018
£m
81.0
11.6
10.8
9.9
7.9
16.1
7.1
18.66
16.96
6.12
155
2017
£m
70.1
9.4
8.8
7.5
6.0
12.2
10.0
16.04
13.70
5.93
Strategic ReportGovernanceFinancial StatementsZotefoams plc Annual Report 2021 156
Notice of the 2022
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, you are
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
COVID-19
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.
Subject to any government restrictions in place at the time,
our intention is to hold the Annual General Meeting in person.
In addition, both existing shareholders and any other stakeholders
may register with the Investor Meet Company platform to listen
to the proceedings in real time and submit questions: https://
www.investormeetcompany.com/zotefoams-plc/register-investor.
Investors who already follow Zotefoams plc on the Investor Meet
Company platform will automatically be invited. The platform does
not offer voting facilities and participants will not be treated as legally
attending or participating in the meeting.
Shareholders are strongly encouraged to submit a proxy form
indicating their votes in accordance with the notes below and email
any question for the Board to investorinfo@zotefoams.com a minimum
of 48 hours prior to the AGM. The Board will do its best to answer
these questions.
The Board is monitoring the situation and will make any further
announcement required through the release of an RNS and on
the AGM page of its website: https://www.zotefoams.com/agm/.
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 25 May 2022
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 2021.
2.
3.
To approve the Annual Statement by the Chair of the Remuneration
Committee and the Annual Report on Remuneration for the
year ended 31 December 2021 set out on pages 88 to 99 of the
Annual Report.
To declare a final dividend for the year ended 31 December 2021 of
4.40 pence per ordinary share, such dividend to be payable on 1 June
2022 to shareholders on the register of members of the Company at
the close of business on 6 May 2022.
4. To re-elect S P Good as a Director.
5. To re-elect D B Stirling 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 A M Fielding as a Director.
9. To re-elect D G Robertson 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
£810,353 (such amount to be reduced by the nominal amount of
any allotments or grants made under paragraph (b) below in excess
of £810,353), and further
(b) to allot equity securities (as defined in Section 560 of the Act) up
to an aggregate nominal amount of £1,620,706 (such amount to be
reduced by the nominal amount of any allotments or grants made
under paragraph (a) above) in connection with an offer by way of
rights issue:
(i) in favour of holders of ordinary shares in the capital of the
Company, where the equity securities respectively attributable
to the interests of all such holders are proportionate (as nearly as
practicable) to the respective number of ordinary shares in the
capital of the Company held by them, and
(ii) to holders of any other equity securities as required by the
rights of those securities or as the Directors otherwise consider
necessary,
but subject to such exclusions or other arrangements as the
Directors may deem necessary or expedient to deal with treasury
shares, fractional entitlements or legal, regulatory or practical
problems arising under the laws or requirements of any overseas
territory or by virtue of shares being represented by depository
receipts or the requirements of any regulatory body or stock
exchange or any other matter whatsoever,
(c) provided that, unless previously revoked, varied or extended,
this authority shall expire on the earlier of 30 June 2023 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 £121,553,
Zotefoams plc Annual Report 2021 157
such authority to expire at the conclusion of the next AGM of the
Company (or, if earlier, on 30 June 2023) 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.
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 £121,553; and
(b) used only for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors determine to be an
acquisition or other capital investment of a kind contemplated by
the Statement of Principles on Disapplying Pre-Emption Rights
most recently published by the Pre-Emption Group prior to the date
of this notice,
such authority to expire at the conclusion of the next AGM of the
Company (or, if earlier, on 30 June 2023) 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
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 23 May 2022 (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 23 May 2022.
purchased is 4,862,123, representing approximately 10% of the
issued ordinary share capital as at 5 April 2022;
(v)
(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 2023 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: 6 April 2022
By order of the Board
Registered Office:
675 Mitcham Road
Croydon
CR9 3AL
L Harratt
Company Secretary
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 that
his CREST sponsor or voting service provider(s) take(s)) such action as
shall be necessary to ensure that a message is transmitted by means
Zotefoams plc Annual Report 2021 158
Notice of the 2022 Annual General Meeting
Continued
of 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 5 April 2022 (being the latest practicable
date before publication of this notice), the Company’s issued share
capital comprised 48,621,234 ordinary shares of 5 pence each. Each
ordinary share carries the right to one vote at a general meeting of the
Company. No ordinary shares were held in treasury and accordingly
the total number of voting rights in the Company as at the close of
business on 5 April 2022 is 48,621,234.
(xii) Shareholders should note that it is possible that, pursuant to requests
made by shareholders of the Company under Section 527 of the
Companies Act 2006, the Company may be required to publish on
a website a statement setting out any matter relating to: (1) the audit
of the Company’s accounts (including the auditor’s report and the
conduct of the audit) that are to be laid before the AGM; or (2) any
circumstance connected with the Auditor of the Company ceasing to
hold office since the previous meeting at which annual accounts and
reports were laid in accordance with Section 437 of the Companies
Act 2006. The Company may not require the shareholders requesting
any such website publication to pay its expenses in complying with
Section 527 or 528 of the Companies Act 2006. Where the Company
is required to place a statement on a website under Section 527 of the
Companies Act 2006, it must forward the statement to the Company’s
Auditor not later than the time when it makes the statement available
on the website. The business which may be dealt with at the AGM
includes any statement that the Company has been required under
Section 527 of the Companies Act 2006 to publish on a website.
(xiii) Copies of the Executive Directors’ service contracts with the Company
and any of its subsidiary undertakings, deeds of indemnity in favour of
the Directors and letters of appointment of the Non-Executive Directors
are available for inspection at the registered office of the Company
during the usual business hours on any weekday (Saturday, Sunday
or public holidays excluded) from the date of this notice until the
conclusion of the AGM.
Explanatory notes to the resolutions
Ordinary business
Resolution 1 – Receiving the Annual Report
Shareholders will be asked to receive the Company’s Annual Report for the
financial year ended 31 December 2021, 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 2021 which can be found on
pages 88 to 99 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 104 to 108 of the Annual Report.
The shareholders approved the current Directors’ Remuneration Policy
at the AGM held on 8 June 2020 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 2023, unless, in the interim, there
are specific changes that require shareholder approval. The Directors’
Remuneration Policy may be found in the 2019 Annual Report on
pages 58 to 63.
Resolution 3 – Declaration of dividend
This resolution concerns the Company’s final dividend payment. The
Directors are recommending a final dividend of 4.40 pence per ordinary
share in respect of the year ended 31 December 2021 which, if approved,
will be payable on 1 June 2022 to the shareholders on the register of
members on 6 May 2022.
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 report and financial statements for the year ended 31
December 2021. With the Chair having undertaken performance reviews
of the Directors, and the Non-Executive Directors having undertaken a
performance review of the Chair, the Board is satisfied that each Director
continues to be effective and demonstrates commitment to the role and
recommends that each Director should be re-elected.
In line with the provisions of the UK Corporate Governance Code, the
Company Chair’s term of office is due to end in 2023. Following an
assessment of the Board’s existing skillsets against those required to
deliver the strategy, a recruitment process, led by the Senior Independent
Director, was initiated for the appointment of a new Company Chair in
2023. Further details are provided on page 87 of the Annual Report 2021.
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.
Zotefoams plc Annual Report 2021 159
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 £810,353, representing approximately one-third of the nominal
value of the issued ordinary share capital of the Company as at 5 April
2022, 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 £1,620,706 representing approximately two-thirds of the nominal value of
the issued ordinary share capital of the Company as at 5 April 2022, 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 2023, 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 £121,553, representing approximately 5%
of the nominal value of the issued ordinary share capital of the Company
as at 5 April 2022, 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 2023, 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 4,862,123 ordinary shares (representing approximately 10% of the
Company’s issued ordinary shares as at 5 April 2022, 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 2023, 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
generally 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 5 April 2022, 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 835,347 ordinary shares in the capital of the Company representing
1.7% 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% 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.
Zotefoams plc Annual Report 2021 160
Company information
Registered office
675 Mitcham Road
Croydon CR9 3AL
cosec@zotefoams.com
Registered number
2714645
Financial adviser and broker
Investec Bank plc
30 Gresham Street
London EC2V 7QN
Joint broker
Peel Hunt LLP
7th Floor, 100 Liverpool Street
London EC2M 2AT
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
25 May 2022
Payment of final dividend
1 June 2022 to shareholders on
the register at the close of business
on 6 May 2022
Payment of interim dividend
October 2022
Announcement of 2022 results
March 2023
Website
The Company has a website (www.zotefoams.com) which provides
information on the business and products.
AZOTE®, ZOTEK®, T-FIT®, Plastazote®, Evazote® and ReZorce®
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
Zotefoams plc Annual Report 2021 Print: Colourset Print Mail Solutions
www.colourset.co.uk
13-14 May 2015 Olympia, LondonIn partnership withCIPD Enterprises Limited151 The Broadway London SW19 1JQ United Kingdom T +44 (0)20 8612 6200 F +44 (0)20 8612 6201E cipd@cipd.co.uk W cipd.co.ukIssued by CIPD Enterprises Limited, which is wholly owned by the Chartered Institute of Personnel and DevelopmentRegistered office as stated Registered in England and Wales (2921009) Issued: March 2015 Reference: 6800 © CIPD Enterprises Limited 2015To get fast-track entry, register now for your exhibition badge at cipd.co.uk/free-show WhenWednesday 13 May 09:00–17:30Thursday 14 May 09:00–17:00WhereOlympia, LondonHammersmith RoadLondon S14 8UXCert no. SW-COC-005535 EM Z
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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