14th Mar 2006 07:02
Zotefoams PLC14 March 2006 14 March 2006 Zotefoams plc Preliminary Results for the Year Ended 31 December 2005 Zotefoams plc, the world's leading manufacturer of cross-linked polyolefin blockfoam, today announces its preliminary results for the 12 months ended 31December 2005. Highlights • Turnover up 11% at £28.0 million (2004: £25.2 million) • New product ZOTEK(R) sales of $1 million (2004: $0.006 million) • Pre-tax profit, pre-exceptional items up 40% to £1.8 million (2004: £1.3 million) • Pre-tax profit after exceptional items of £3.3 million • Pension scheme restructuring completed • Net debt reduced to £1.1 million (2004: £1.7 million) • Dividend of 3.0p, making a total of 4.5p declared for 2005 Commenting on the results, Bill Fairservice, Chairman, said: "I am pleased to report that 2005 was another year of solid performance by theCompany following a 39% profit increase in 2004. In spite of rising energy andmaterials costs and an increasingly competitive environment, we succeeded in ourobjective to grow sales of our polyolefin products in excess of the rate ofinflation in Europe and to achieve significant sales growth in North America andAsia. Our new ZOTEK high performance foams have also made good progress,particularly in the demanding aviation sector and we are now looking to build onthis early success. "We continue to generate cash, to return cash to shareholders through dividendsand to invest for the future. We believe this is an appropriate balance forZotefoams at this stage of its development. Going forward, we will continue tomaintain a focus on our core polyolefins products while pursuing higher marginopportunities for high performance materials and we look forward to furtherprogress in both divisions in 2006." Enquiries: Zotefoams plc 020 8664 1600David Stirling, Managing DirectorClifford Hurst, Finance Director Financial Dynamics 020 7831 3113Deborah Scott / Sarah MacLeod CHAIRMAN'S STATEMENT Bill Fairservice Our Strategy Zotefoams' strategy is to create sustained profit growth by expanding its salesinternationally and by broadening its potential market with new unique products.This strategy is supported by our commitment to quality, innovation and customerservice through investment in the training and development of our employees. Weaim to remain at the forefront of foam technology by concentrating our resourcesin key areas, exploiting our unique capability. We also seek to develop andmaintain relationships with others where our combination of expertise andresources will be beneficial. Our Objectives We intend to grow sales in our core polyolefin foams business in excess of therate of inflation in Europe and achieve significant growth in North America andAsia. Our sales growth in America is supported by our factory in Kentucky whichopened in mid-2001 while in Asia we will consider a similar operation, either asa license or joint venture, as sales increase to a level where this is sensible.We are also committed to developing a portfolio of unique foam products fromhigh-performance materials which will enjoy significant advantages overcompetitive materials, allow higher margins for Zotefoams and confirm ourposition as the pre-eminent foam technology company. We intend to achieve thesewhile continuing to improve our return on capital employed through a moreefficient use of assets and working capital. Our Board After 10 years with Zotefoams, John Marley retired from the Board as anon-executive Director in December. On behalf of the Board I would like to thankJohn for his service and contribution over the years. Effective 1 January 2006Nigel Howard joined the Board as a non-executive Director and Chairman of theRemuneration Committee. I am delighted to welcome Nigel who is currently anon-executive Director of Alliance One International Inc. based in NorthCarolina, USA and previously worked for Morgan Crucible in a number of rolesincluding Interim Chief Executive. Our Achievements During 2005 we grew sales by 11%. Profit before tax and exceptional itemsincreased by 40% to £1.8 million. Profit before tax including exceptional itemswas £3.3 million. Sales in Europe grew 7% which was approximately twice thelevel of inflation, while sales in North America and Asia grew 24% and 46 %respectively. During 2005 we made the first meaningful sales of ZOTEK (R) highperformance foams and continued to invest for the future with technologicaldevelopment in a number of exciting projects including polyamide (nylon) foams.Our return on capital employed, measured as profit before tax and exceptionalitems as a percentage of average equity, was 7.4%, up from 5.4% in 2004. Weended the year with a strong balance sheet and, despite the exceptional cashcosts relating to pensions restructuring and the bid approach, we reduced netdebt (borrowings less cash) to £1.1 million (2004:£1.7 million) at 31 December. The Directors are recommending a final dividend of 3.0p net per share payable on26 May 2006 to shareholders on the Company register at the close of business on28 April 2006. This would bring the total declared dividend to 4.5p for 2005 andis unchanged from the dividend declared for 2004. W H FairserviceChairman13 March 2006 MANAGING DIRECTOR'S REVIEW David Stirling Our Year I am pleased to report improved results for 2005 as sales increased 11% to £28.0million and profit before tax excluding exceptional items increased 40% to £1.8million. Profit before tax including exceptional items was £3.3 million.Importantly, in a year where our raw material and energy prices rose sharply, wewere able to recover these increases through price rises and a surcharge linkedto polymer prices and therefore gross margins for the year were satisfactory at22.6% (2004: 22.1%). Overall sales volume increased 3%. Unusually, sales in thesecond half of the year were stronger than in the first half as volumes rose by7% and sales value increased by 17%. Sales of our ZOTEK(R) high performancefoams grew to US$1 million (£555,000) which accounted for 2% of turnover. Before exceptional items our effective tax rate is 31% (2004: 11%) giving profitfor the year of £1.3 million (an increase of 9% over 2004) and earnings pershare of 3.5p (2004: 3.2p). After exceptional items profit for the year was £2.4million with earnings per share of 6.7p. On 14 January 2005 Zotefoams received a preliminary approach from a third partylooking to buy the company. Discussions continued with a number of partiesthrough most of 2005, absorbing a significant amount of management time andresource, until 2 November 2005 when the Zotefoams' Board terminateddiscussions. The costs of this unsolicited approach were £413,000 and these areclassified as an exceptional item. Effective 31 December 2005 Zotefoams closed its UK defined benefit scheme tofuture service accrual for existing members. The defined benefit scheme had beenclosed to new entrants from October 2001. All employees who were active membersof the defined benefit scheme as at 31 December 2005 were offered membership ofan alternative defined contribution scheme. This restructuring resulted in anexceptional profit of £2.0 million due to the actuarial impact of the reductionin future obligations on the defined benefit scheme. Net of associated costs,including explanatory presentations to employees, an exceptional gain of £1.9million is shown in the accounts for the period. Further detail is given in theFinance Director's review. Our Business Foams produced and sold by Zotefoams fall into two main business segments whichare best characterised by their constituent raw materials: polyolefins and highperformance polymers. Development of materials for sale in the high performancepolymer foams market is a key element in our business strategy. Zotefoams'proprietary technology allows the foaming of materials which we believe cannotcurrently be achieved by other means or, alternatively, our process gives eitheran economic or material performance advantage. We are seeking to exploit thistechnical advantage by foaming materials other than polyolefin to meet the needsof markets outside traditional polyolefin foams. However, we believe polyolefinfoam will continue to be our largest product group for the foreseeable futureand the combination of growth in this product and the development of newmaterials will make a real and sustainable positive difference to our business. Polyolefin foams Overall volumes in polyolefin foams grew 3% compared to 2004. Increased sellingprices, product mix and a temporary surcharge to customers in relation to rawmaterials costs combined with the volume increase to give an overall increase insales of polyolefin foams of 9% compared to 2004. In a climate of increasing material costs 2005 was always likely to be a year ofsubdued volume growth. Germany, which grew 9% in volumes, was the only majormarket where sales volumes increased significantly. In other areas we saw amixed picture with quite dramatic swings in timing of sales and product mix overthe business as a whole and in France and North America in particular. Thesecond six months saw a more encouraging picture with volumes up 7% and salesvalue, including the impact of raw material surcharges, up 14% on the previousyear. Sales in the UK and Eire grew 5% as Zotefoams continues to work on end-usermarket development and support of customers in specific market segments. UKmanufacturing overall continues to be a difficult market but new applications inconstruction together with some recovery in the marine segment, offset a slowerthan expected year in specialist packaging. In Germany sales grew by 15% as a result of strong performances in the packagingand transport segments both through our main distributor and through directaccounts. In France, as our prices increased, some business was lost in theindustrial and construction segments although this was partly compensated for bygrowth in marine applications. Italy and Spain remain difficult markets forZotefoams with sales performing below our expectations for the second successiveyear and our approach in both countries is currently under review. Ourperformance in Scandinavia, with a volume increase of 7%, was particularlypleasing with strong contributions from the industrial segment and growth ofnewly developed accounts in packaging. In North America sales to the automotive and general construction segment wereat similar levels to 2004. Growth in this region came predominantly from themilitary, specialty construction and health and beauty segments. Althoughoverall volumes increased by only 3% in North America the more favourableproduct mix led to an overall increase in revenues from polyolefin foam of 15%. The Rest of the World sales volume grew by 21% during the year with strongcontributions in specific regions from the construction, sports and leisure andpackaging segments. During 2000 and 2001 Zotefoams entered into a worldwide sales and marketingalliance for polyolefin foams with the Sekisui Chemical Company Ltd ('Sekisui'),who act as exclusive agent and distributor for Zotefoams in Continental Europeand Asia respectively. Sekisui also act as agent for certain customers in NorthAmerica. As announced in December the Board has, for some time, been in discussions withSekisui in relation to certain of their obligations under two of thesecontracts. While still open to the prospect of resolution through other means,the Board has decided to pursue its rights through the prescribed disputeresolution processes and Zotefoams has therefore instigated arbitrationproceedings which are scheduled to be heard at the end of March 2006 and in June2006. Commercial arrangements with Sekisui continue as normal. Our major raw materials are commodity polymers and therefore are subject torapid and sometimes large price movements. Low density polyethylene, by far ourlargest raw material cost, averaged 1056 euros per tonne in 2005, up 24% on2004. In 2005 significant price increases were experienced in both gas andelectricity and Group energy costs were 5.8% of sales. While efforts areunderway to minimise the impact of energy price rises in our business weanticipate further increases in our energy costs in 2006. High Performance Foams Our high performance foams are marketed under the ZOTEK(R) brand. The firstZOTEK product, a fluoropolymer foam known as ZOTEK F30, was launched in January2004 with the key attributes of excellent fire, chemical and UV-lightresistance. This is a radical departure from existing materials both forZotefoams and for our customers and therefore requires a significant marketdevelopment effort. However, ZOTEK F30 has now gained acceptance in demandingaviation applications and the majority of the US$1 million of sales during 2005were in aviation in North America. Our materials partner, Arkema Inc., offers a wide range of fluoropolymers underthe Kynar(R) trademark and we anticipate developing a range of the ZOTEK F foamsexploiting the various properties of these polymers. We have already securedinitial orders for our second major product, ZOTEK F HT, offering highertemperature and improved chemical resistance, which was launched in January2006. Zotefoams are currently working on additional exciting projects in aviation,military and in the chemical industry with ZOTEK grades. These projects areoften for much larger values than offered by a typical polyolefin foamapplication. However, the performance requirements and test conditions are verydemanding and evaluation can take many months or sometimes years. Therefore theinherent uncertainty of such projects, particularly their timing and the uniquerequirements of specific applications which will vary from project to project,makes projecting revenues and success rates extremely difficult, especially atthis early stage in their development. Operational Capability Zotefoams operates a unique and proprietary manufacturing process which has beenused for production of polyolefin foams for many years. Our strategy is to applythis process to higher value polymers which cannot be foamed by conventionalmeans or where our process would give significant advantages. Therefore allproducts we make share significant common elements of equipment and processes. In April 2005 we commissioned a new high pressure autoclave to increase ourproduction capacity and flexibility. This capacity addition was required toallow older machinery to be removed from production as part of a rollingrefurbishment and upgrade programme planned to continue into 2015. In August oneof our older high pressure vessels was removed from service as part of thisprocess. As this work progressed it became apparent there was some unanticipatedcorrosion being caused by the water-cooling mechanism which Zotefoams have usedon this site since the 1940s. Further investigations uncovered the same issue,to varying degrees, on all high pressure vessels operating using water cooling.To minimise the extent of this corrosion (which ultimately would impair both theuseful life and operating pressure of these vessels as well as increase the riskof a health and safety incident) the Board has decided to accelerate therefurbishment and upgrade programme. Our target, which is based on the most prudent course from a safety perspectivewhile continuing to operate, is for a serial refurbishment of all water-cooledvessels on the shortest practical timescale. Approximately 60% of our HPcapacity remains to be refurbished on an accelerated timescale which will resultin capital expenditure of approximately £9 million being phased over 6 yearsrather than 10 years as originally planned. Expenditure on research and development, all of which has been charged toprofits in the year of expenditure, increased by 6% to £0.8 million in 2005. Themajority of this was spent on fluoropolymer, polyamide and silicone foams,although there are other projects being evaluated. Developments withfluoropolymer are aimed at extending the grade range and are strongly influencedby feedback from market evaluations of the ZOTEK F30 foams which were soldduring the year. Our polyamide foam development is at an advanced stage andmarket launch is expected around mid-2006. The technical development oflow-density silicone foam is well advanced and we are at the stage of addressingspecific engineering and handling aspects of this material. The production andcertain uses of PVDF, polyamide and silicone foams are covered by patents. Employees Customers, employees and technology define our business. 2005 broughtsignificant challenges of rising input costs against a backdrop of uncertaintycaused by the bid approach. In these challenging circumstances I am delighted atthe response from Zotefoams' employees and I would like to express my thanks toeach and every one for their effort during the year. The Future The key challenges for Zotefoams in the coming year are to manage the impact ofchanges in commodity prices (primarily energy and materials costs) andcompetitive environment while pursing our stated objectives to: 1. grow sales in our polyolefin business in excess of the rate of inflation inEurope and achieve significant growth in North America and Asia; 2. develop a high performance foams portfolio to deliver enhanced margins; 3. improve our return on capital employed. During 2004 and 2005 we met all these objectives and they continue to offer avalid benchmark of our performance into 2006. We continue to generate cash, toreturn cash to shareholders through dividends and to invest for the future. Ifirmly believe the balance is appropriate for Zotefoams at this stage in ourdevelopment and that our business will evolve and prosper while managing therisks outlined above. The combination of a solid foundation in polyolefin foamsand opportunities in development of high performance materials offers excitingprospects for the future. David StirlingManaging Director13 March 2006 FINANCE DIRECTOR'S REVIEW Clifford Hurst Finance Director's review Group turnover was £28.0 million, 11% higher than 2004. Roughly half of thisincrease was due to price rises and a material surcharge as high input prices onpolymer and energy were passed on. The average price of low densitypolyethylene, our major raw material, rose 24% while our energy prices increasedby £0.3 million. It is therefore pleasing that through a combination of priceincreases and efficiency improvements we were able to maintain gross margins ataround 22%. Underlying distribution and administrative expenses, pre-exceptional items,increased by £0.3 million with an additional investment of £0.1 million intechnical support. Sales of our new materials in the year exceeded £0.5 millioncompared to practically nil in 2004 and we have an exciting pipeline of newproducts. Profit before tax and exceptional items was £1.8million, a 40% increase comparedto 2004. Profit before tax after exceptional items was £3.3 million. There are two exceptional items shown within administrative expenses. In January2005 the Board announced that it had received a preliminary approach that mightlead to an offer for the share capital of the Company. Discussions continuedwith a number of parties until the Board announced in November 2005 that thesetalks were terminated. The advisory and other costs associated with thisapproach were £0.4 million. In December 2005 the Company closed its defined benefit pension scheme to futureaccrual of benefit. The actuarial gain from this curtailment, less associatedcosts, was £1.9 million. The tax charge for the year was £0.9 million, an effective tax charge of 26%.This is after an exceptional £0.3 million release of a deferred tax provision.The provision related to insurance proceeds received after a fire in 2000 whichwere recorded as an exceptional profit and now that the tax computations havebeen agreed with Her Majesty's Revenue and Customs the surplus provision hasbeen released as an exceptional item. Profit after tax was therefore £2.4 million with earnings per share of 6.7pence. Excluding exceptional items earnings per share are 3.5p compared to 3.2pin 2004. Cash flow and funding EBITDA excluding exceptional items was £5.3 million (2004: £5.0 million).Working capital increased by £0.7 million due to higher sales in the second halfof the year. Depreciation was £3.3 million, significantly above capitalexpenditure of £1.1 million. After a period of major capital expenditure in2000 to 2002 (£8 million was spent on opening a North American manufacturingfacility and £6 million on rebuilding the Croydon site following a fire)depreciation has been substantially above capital expenditure. Nevertheless,the capital expenditure in 2005 was abnormally low due to phasing of projectsand we expect capital expenditure to rise in 2006. With cash generated from operating activities of £3.2 million the Group producedstrong cash flow, reducing net debt (borrowings less cash) in the year from £1.7million to £1.1 million. Gearing (measured as net debt divided by shareholder'sequity) has fallen to 4% from 7% in 2004. A final dividend of 3.0p net per share is proposed which brings the totaldeclared for the year to 4.5p, the same level as 2004. Pensions The Company operates a defined benefit pension scheme in the UK which has beenclosed to new entrants since October 2001. Following the tri-annual actuarialvaluation in April 2005 the deficit on an ongoing valuation basis increased from£0.6 million to £3.8 million. In view of the risks involved in running definedbenefit pension schemes, the Board, after a period of consultation, closed thescheme to future accrual of benefit on 31 December 2005. Employees who were members of the scheme have been offered membership of analternative defined contribution scheme. The contribution level to this schemehas been set by an actuary to provide a similar level of benefit to that whichthe member could have expected, as at 31 December 2005, when they retired fromthe defined benefit scheme. The cash cost of doing this for the Company issimilar to that which it contributed to the defined benefit scheme for ongoingbenefits. However, by fixing the contribution level at 31 December 2005 theCompany now has a predictable cost for future service without bearing investmentor mortality risk. The Company retains the risk on employee service in the defined benefit schemeprior to 31 December 2005. By closing the scheme to future accrual the deficiton an ongoing valuation basis was reduced to a net present value of £2.5 millionas at 5 April 2005. The Company has agreed with the trustees to pay off thisdeficit in equal monthly instalments of £50,000 over the next five years.However, in the future there is a risk that investment performance and mortalitymay differ, either favourably or unfavourably, from current assumptions. TheCompany has therefore not eliminated all the risks associated with the scheme,but it has reduced them compared to leaving the scheme open to future benefitaccrual. Treasury In 2005 average exchange rates did not change significantly compared to 2004.However, with most of the costs of the business being in sterling and themajority of sales being in euros and US dollars the Group has a significantforeign exchange exposure. The Board therefore has defined policies andprocedures relating to treasury management. These are designed to provideappropriate business support, consistency of reporting and to mitigate risk.Foreign currency hedges are used to reduce the foreign currency exposure basedon a proportion of the next six month's anticipated sales. Translation exposureis not hedged. Interest rates on borrowings are all based on variable rates plusa bank margin and are unhedged as the interest rate risk is not, at present,considered material. Accounting policies During the year the Group adopted International Financial Reporting Standardsfor the first time. Details of the adjustments on transition and of theprincipal differences were shown in the Interim Report issued to shareholders, acopy of which can be accessed on the Zotefoams website www.zotefoams.com. Going concern statement After making enquiries, the Directors have a reasonable expectation that theGroup has adequate resources to continue in operational existence for theforeseeable future. For this reason they continue to adopt the going concernbasis in preparing the financial statements. C G HurstFinance Director13 March 2006 Consolidated income statementfor the year ended 31 December 2005 2005 2005 2005 2004 Pre- Exceptional Post- exceptional Items exceptional items (see note 3) items Note £000 £000 £000 £000Revenue 2 27,975 - 27,975 25,176Cost of sales (21,640) - (21,640) (19,607) ______ ______ ______ ______Gross profit 6,335 - 6,335 5,569Distribution costs (1,905) - (1,905) (1,863)Administrative expenses (2,407) 1,449 (958) (2,104) ______ ______ ______ ______Operating profit 2,023 1,449 3,472 1,602Financial income 4 813 - 813 750Finance costs 4 (997) - (997) (1,043) ______ ______ ______ ______Profit before tax 1,839 1,449 3,288 1,309Taxation 5 (569) (292) (861) (139) ______ ______ ______ ______Profit for the year 1,270 1,157 2,427 1,170 ______ ______ ______ ______Attributable to:Equity holders of the parent 1,270 1,157 2,427 1,170 ______ ______ ______ ______Earnings per shareBasic (p) 6 6.7 3.2 ______ ______Diluted (p) 6 6.7 3.2 ______ ______ Consolidated statement of recognised income and expensefor the year ended 31 December 2005 2005 2004 £000 £000Foreign exchange translation differences on investment in foreign subsidiary 846 (576)Effective portion of changes in fair value of cash flow hedges net of recycling (79) -Actuarial (losses)/gains on defined benefit schemes (42) 264Tax on items taken directly to equity 13 (79) ______ ______Net income/(expense) recognised directly in equity 738 (391)Profit for the year 2,427 1,170 ______ ______Total recognised income and expense for the year 3,165 779 ______ ______Attributable to equity holders of the parent 3,165 779 ______ ______ Consolidated balance sheetas at 31 December 2005 2005 2004 £000 £000Non-current assetsProperty, plant and equipment 28,364 29,795Deferred tax assets 132 - ______ ______Total non-current assets 28,496 29,795Current assetsInventories 3,933 3,126Trade and other receivables 6,182 5,675Cash and cash equivalents 432 298 ______ ______Total current assets 10,547 9,099 ______ ______Total assets 39,043 38,894 ______ ______EquityIssued share capital (1,816) (1,813)Share premium (13,753) (13,707)Capital redemption reserve (5) (5)Translation reserve (270) 576Hedging reserve 79 -Retained earnings (9,857) (9,104) ______ ______Total equity (25,622) (24,053) ______ ______LiabilitiesInterest-bearing loans and borrowings (1,100) (1,500)Employee benefits (5,220) (7,192)Deferred tax liabilities (2,730) (2,585) ______ ______Total non-current liabilities (9,050) (11,277)Interest-bearing loans and borrowings (400) (457)Tax payable (698) (577)Trade and other payables (3,273) (2,530) ______ ______Total current liabilities (4,371) (3,564) ______ ______Total liabilities (13,421) (14,841) ______ ______Total equity and liabilities (39,043) (38,894) ______ ______ Consolidated cash flow statementfor the year ended 31 December 2005 2005 2004 £000 £000Cash flows from operating activitiesProfit for the year 2,427 1,170Adjustments for:Depreciation, amortisation and impairment 3,322 3,371Loss on sale of property, plant and equipment - 23Financial income (813) (750)Financial expense 997 1,043Equity-settled share-based payments (14) 46Taxation 861 139 ______ ______Operating profit before changes in working capital and provisions 6,780 5,042(Increase)/decrease in trade and other receivables (346) 136Increase in stock (704) (13)Increase in trade and other payables 334 188Decrease in provisions and employee benefits (2,003) (92) ______ ______Cash generated from the operations 4,061 5,261Interest paid (151) (254)Tax paid (713) (520) ______ ______Net cash from operating activities 3,197 4,487Proceeds on disposal of property, plant and equipment - 1Interest received 26 -Acquisition of property, plant and equipment (1,070) (1,331) ______ ______Net cash used in investing activities (1,044) (1,330) ______ ______Proceeds from the issue of share capital 49 -Repayment of borrowings (400) (851)Proceeds from new loan - 2,000Payment of finance lease liabilities (57) (119)Dividends paid (1,631) (1,269) ______ ______Net cash used in financing activities (2,039) (239) ______ ______Net increase in cash and cash equivalents 114 2,918Cash and cash equivalents at 1 January 298 (2,616)Effect of exchange rate fluctuations on cash held 20 (4) ______ ______Cash and cash equivalents at 31 December 432 298 ______ ______ Cash and cash equivalents comprise cash at bank and short-term highly liquidinvestments with a maturity date of less than three months. Notes to the financial statements 1. Accounting policies Zotefoams plc (the 'Company') is a company incorporated in the UK. The Group financial statements consolidate those of the Company and itssubsidiaries (together referred to as the 'Group'). The Group financial statements have been prepared and approved by the Directorsin accordance with International Financial Reporting Standards as adopted by theEU ('Adopted IFRSs'). The accounting policies have, unless otherwise stated, been applied consistentlyfor the Group to all periods presented in these consolidated financialstatements and in preparing an opening IFRS balance sheet at 1 January 2004 forthe purposes of the transition to Adopted IFRSs. The principal exception isthat, as more fully explained below, financial instruments accounting isdetermined on different bases in current year and comparative year due totransitional provisions of IAS 32 and IAS 39. Transition to Adopted IFRS The Group's financial statements are presented in accordance with Adopted IFRSfor the first time and consequently the Group has applied IFRS 1. An explanationof how the transition to Adopted IFRS has affected the reported financialposition, financial performance and cash flows of the Group is provided in theInterim Report of the Company to shareholders. In addition to exempting companies from the requirement to restate comparativesfor IAS 32 and IAS 39, IFRS 1 grants certain exemptions from the fullrequirements of IFRSs in the transition period. The following exemptions havebeen taken in these financial statements: • Employee benefits - all cumulative actuarial gains and losses on defined benefit plans have been recognised in equity on 1 January 2004; • Cumulative translation differences - cumulative translation differences for all foreign operations have been set to zero at 1 January 2004; and • Share-based payments - the recognition and measurement requirements of IFRS 2 were not applied to share options awarded before 7 November 2002. The financial information does not constitute the Company's statutory accountsfor the year ended 31 December 2005 or 2004 but is derived from those accounts.Statutory accounts for 2004 have been delivered to the Register of Companies,and those for 2005 will be delivered following the Company's Annual GeneralMeeting. The auditors have reported on those accounts; their reports wereunqualified and did not contain statements under Section 237(2) or (3) of theCompanies Act. 2. Business segments The Group manufactures and sells high-performance foams for specialist marketsworldwide. These fall into two main business segments best categorised by theirconstituent raw materials. • Polyolefins: these foams are made from olefinic homopolymer and copolymer resin. The most common resin used is polyethylene. • High performance polymers (HPP): these foams exhibit high performance on certain key properties, such as improved chemical, flammability or temperature performance, due to the resins on which they are based. Turnover in the segment is currently derived from our ZOTEK (R) F foams made from PVDF fluoropolymer. Other polymers being assessed in development include polyamide (nylon) and silicone. Due to our unique manufacturing technology Zotefoams can produce polyolefinfoams with superior performance to other manufacturers. However, our strategy isto use the capabilities of our technology to produce foams from other materialsas well as polyolefins. The development of foams from high-performance polymersbusiness is currently in its early stages with costs (including the technicaland marketing costs to develop these materials) exceeding revenues. Polyolefins HPP 2005 2004 2005 2004 Note £000 £000 £000 £000Revenue 27,420 25,173 555 3Segment result 2,219 1,997 (196) (395)Exceptional items 3 - - - -Net financing costs - - - -Taxation - - - - ______ ______ ______ ______Profit for the period - - - -Segment assets 38,026 38,203 885 691Unallocated assets - - - - ______ ______ ______ ______Total assets Segment liabilities (9,752) (11,677) (241) (2)Unallocated liabilities - - - - ______ ______ ______ ______Total liabilitiesDepreciation 3,272 3,314 50 57Capital expenditure 1,053 1,297 17 34 ______ ______ ______ ______ (Continued from table above) Consolidated 2005 2004 Note £000 £000Revenue 27,975 25,176Segment result 2,023 1,602Exceptional items 3 1,449 -Net financing costs (184) (293)Taxation (861) (139) ______ ______Profit for the period 2,427 1,170Segment assets 38,911 38,894Unallocated assets 132 - ______ ______Total assets 39,043 38,894 Segment liabilities (9,993) (11,679)Unallocated liabilities (3,428) (3,162) ______ ______Total liabilities (13,421) (14,841)Depreciation 3,322 3,371Capital expenditure 1,070 1,331 ______ ______ Geographical segments UK and Eire Europe North Rest of the Total America WorldFor the year ending 31 December 2005 £000 £000 £000 £000Revenue from external customers 7,332 12,604 7,336 703 27,975Segment assets 29,744 - 9,167 - 38,911Capital expenditure 1,046 - 24 - 1,070 ______ ______ ______ ______ ______For the year ending 31 December 2004Revenue from external customers 6,985 11,764 5,909 518 25,176Segment assets 30,841 - 8,053 - 38,894Capital expenditure 1,040 - 291 - 1,331 ______ ______ ______ ______ ______ 3. Exceptional items The Company has classified the following items as exceptional: Bid costs Relating to legal, advisory and other costs incurred in respect of a preliminaryapproach for the share capital of the Company which was announced in January2005 and terminated in November 2005. Pension curtailment costs On 31 December 2005 the Zotefoams Defined Benefit Pension Scheme for UKemployees was closed to future accrual of benefits. The actuarial gain onclosing the scheme to future accrual of benefits and the associated costs havebeen classified as an exceptional item. Tax adjustment to exceptional items in prior year In 2001 and 2002 the Group recorded an exceptional profit on insurance proceedsfollowing a fire in 2000 at the Group's Croydon site. The tax computationsrelating to 2001 and 2002 have now been agreed with the Revenue resulting in a£267,000 release on the deferred tax provided in relation to these proceeds.This is released as an exceptional item because it relates to a previousexceptional item. 2005 2004 £000 £000Bid costs (413) -Pension curtailment:Actuarial gain 1,972 -Associated costs borne by the Company (110) - ______ ______Net curtailment gain 1,862 - ______ ______Exceptional items before taxation 1,449 -Tax on above (559) -Adjustment to tax on prior year exceptional item 267 - ______ ______Exceptional items after taxation 1,157 - ______ ______ 4. Finance income and costs Financial income 2005 2004 £000 £000Interest on bank deposits 26 -Expected return on assets of defined benefit pension fund 787 750 ______ ______ 813 750 ______ ______ Finance costs 2005 2004 £000 £000On bank loans and overdrafts 120 201On finance leases 16 24Interest on defined benefit pension obligation 861 818 ______ ______ 997 1,043 ______ ______ 5. Taxation 2005 2004 £000 £000UK corporation tax at 30% (2004: 30%) 917 871Overseas taxation 2 24Adjustment to prior year UK tax charge (84) (176) ______ ______Current taxation 835 719Deferred taxation 26 (580) ______ ______Total tax charge 861 139 ______ ______ Factors affecting the tax charge The tax charge for the period is lower (2004: lower) than the standard rate ofcorporation tax in the UK of 30% (2004: 30%). The differences are explainedbelow. 2005 2004 £000 £000Tax reconciliationProfit on ordinary activities before tax 3,288 1,309 ______ ______Tax at 30% (2004: 30%) 986 393Effects of:Research and development tax credits less expenses not deductible for tax 115 (8)purposesPartial recognition of US tax losses (54) -Higher/(lower) tax rates on overseas earnings 15 (17)Intra-group stock movements - 35Adjustments to tax charge in respect of previous periods 66 (264)Adjustment to tax charge on prior year exceptional items (267) - ______ ______Total tax charge 861 139 ______ ______ 6. Dividends and earnings per share 2005 2004 £000 £000Final dividend prior year of 3.0p (2004: 2.0p) net per 5p ordinary share 1,087 725 ______ ______Interim dividend of 1.5p (2004: 1.5p) net per 5p ordinary share 544 544 ______ ______Dividends paid during the year 1,631 1,269 ______ ______ The proposed final dividend for the year ended 31 December 2005 of 3.0p pershare (2004: 3.0p) is subject to approval by shareholders at the Annual GeneralMeeting and has not been included as a liability in these financial statements. Earnings per ordinary share Earnings per ordinary share is calculated by dividing profit after tax of£2,427,000 (2004: £1,170,000) by the weighted average number of shares in issueduring the year. Diluted earnings per ordinary share adjusts for the potentialdilutive effect of share option schemes in accordance with IAS 33. 2005 2004Average number of ordinary shares issued 36,276,976 36,255,772Deemed issued for no consideration - 30,973 ______ ______Diluted 36,276,976 36,286,745 ______ ______ Shares deemed issued for no consideration have been calculated based on thepotential dilutive effect of the Executive Share Option Scheme and optionsgranted under the HMRC Approved Share Option Scheme: Date from which exercisable Exercise price Number of shares under option 2005 20041 June 2005 77.0p - 177,47520 August 2005 80.5p - 654,49418 March 2006 80.0p 872,865 872,8657 April 2007 72.5p 1,130,034 1,130,03422 December 2008 77.0p 1,026,320 - ______ ______ ______ 3,029,219 2,834,868 ______ ______ The average fair value of one ordinary share during the year was considered tobe 72.0p (2004: 75.3p). This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Zotefoams