Zotefoams plc (LON:ZTF), a world leader in cellular material technology, today announced its unaudited preliminary results for the year ended 31 December 2021.
“Strong sales growth impacted by significant and unpredictable cost inflation.”
Financial highlights
| 2021 | 2020 | Change | |||||||||
| Revenue | £100.8m | £82.7m | 22% | ||||||||
| Gross margin | 26.4% | 33.6% | (720)bps | ||||||||
| Operating profit | £8.1m | £9.1m | (11)% | ||||||||
| Profit before tax | £7.0m | £8.3m | (16)% | ||||||||
| Taxation | £2.6m | £1.1m | (131)% | ||||||||
| Basic EPS | 9.01p | 14.87p | (39)% | ||||||||
| Cash generated from operations | £12.8m | £13.0m | (2)% | ||||||||
| Net debt | £34.3m | £35.6m | 4% | ||||||||
| Leverage ratio1 | 2.1x | 2.1x | – | ||||||||
| Final dividend2 | 4.40p | 4.27p | 3% | ||||||||
1 Leverage is that defined under the bank facility, with net debt at the end of the period divided by the preceding 12 months’ EBITDA, adjusted for the impact of IFRS2 and IFRS16
2 Final dividend is subject to approval at the May 2022 AGM
Results highlights
| • | Exceeded £100m sales for the first time in the Group’s history and delivered strong growth across all business units: |
| – Polyolefin Foams sales up 10% to a record £56.2m (2020: £50.9m) and 15% in constant currency | |
| – HPP sales up 41% to £42.3m (2020: £30.0m) and 47% in constant currency | |
| – MuCell Extrusion sales up 32% to £2.29m (2020: £1.73m) and 39% in constant currency | |
| • | Excluding the one-off PPE contract of the prior year, Polyolefin Foams sales up 36% |
| • | Profit margins impacted by: |
| – Significant and unpredictable cost inflation with a lag on sales price increases | |
| – Unfavourable currency movements | |
| • | Basic EPS reduced by 39% due to lower profit and a non-recurring significant increase in the deferred tax charge mostly reflecting the planned increase in UK corporation tax |
| • | Robust cash generation performance maintained, with net debt down 4% and year-end leverage ratio remaining at 2.1x |
Strategic progress
| • | Rapid recovery in Polyolefin Foams demonstrates structural growth prospects in this important business unit, underpinned by the megatrends of environment, regulation and demographics and facilitated by the Group’s well-invested global capacity |
| • | Poland manufacturing plant commissioned in February 2021 |
| • | Another excellent year of HPP growth in footwear products and worked closely with our partner to develop further long-term opportunities |
| • | Significant progress at MuCell Extrusion in developing the ReZorce® mono-material barrier packaging solution, which offers society a truly circular option using existing recycling infrastructure |
David Stirling, Zotefoams Group CEO, said:
“Geopolitical risks are currently much higher than normal. Whilst 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”.
An introduction from our 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 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 12 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 hard-working employees and their supportive families who have helped the Group continue to make good strategic progress during these very challenging times.
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, has 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 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”. 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).
Governance and the Board
There were no changes to the experienced and engaged Board during the year.
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 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.
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 whilst 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
22 March 2022
