Zotefoams : Annual Report 2016 and Notice of 2017 AGM

Zotefoams plc 2016 Annual Report and Notice of the 2017 Annual General Meeting

In compliance with Listing Rule 9.6.1, the following documents have been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM

1. Annual Report for the year ended 31 December 2016, incorporating the Notice of the 2017 Annual General Meeting; and

2. Form of Proxy for the 2017 Annual General Meeting.

   Copies of the 2016 Annual Report and the Notice of the 2017 Annual General Meeting are available on our website at:

   http://www.zotefoams.com/investors/annual-interim-reports/ http://www.zotefoams.com/investors/agm/

   A condensed set of the financial statements, the Chairman's statement and Strategic report in respect of the Annual Report were included in the unaudited preliminary results announcement issued on 14 March 2017, which may be found at:

   http://www.zotefoams.com/wp-content/uploads/2017/03/Zotefoams-Prelim-Statement- 14.03.17.pdf

   This announcement contains additional information for the purposes of compliance with the Disclosure and Transparency Rules, including the statement of Directors' responsibilities in respect of the Annual Report, principal risks and uncertainties and details of related party transactions. This information is extracted from the 2016 Annual Report in full unedited text. This announcement is not a substitute for reading the full Annual Report. Page and note references in the text below refer to page numbers and notes in the 2016 Annual Report.

   Statement of Dir ec tors ' responsibilities in respect of the Annual Report

   The Directors are responsible for preparing the Annual Report, the Directors' remuneration report and the financial statements in accordance with applicable law and regulations.

   Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards ('IFRSs') as adopted by the European Union. 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 the Company and of the profit or loss of the Group for that period. In preparing these financial statements, the Directors are required to:

   • select suitable accounting policies and then apply them consistently;

   • make judgements and accounting estimates that are reasonable and prudent;

   • state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the financial statements; and

   • prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

     The Directors consider the Annual Report, taken as a whole, to be fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's performance, business model and strategy.

     The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any

     time the financial position of the Company and the Group and enable them to ensure that the financial statements and the Directors' remuneration report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the Regulation. They are also responsible for safeguarding the assets of the Company and the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

     The Directors are responsible for the maintenance and integrity of the Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Each of the Directors, whose names and functions are listed on pages 32 and 33 of the Annual Report, confirms that, to the best of their knowledge:

   • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

   • the Strategic Report, beginning on page 1 of the Annual Report, includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

By order of the Board G C McGrath Finance Director

Principal risks and uncertainties

The Board of Directors believes that the principal risks and uncertainties that the Group currently faces are as stated below. Regular risk reviews are undertaken to ensure that the major risks in the business that could affect the Group's operations and financial performance have been identified and that, where possible, mitigating actions and controls are put in place.

Significant risks are reviewed by the Board and the Audit Committee. It is not possible to identify every risk that could affect the Group's business, and the mitigating actions and controls that have been put in place may not provide absolute assurance that the risk will neither occur nor materially affect the Group's operations or financial performance.

Key to Links to the Strategy:

1. Grow: Grow sales in the Polyolefin business

2. Develop: Develop a HPP portfolio and MEL customer base to deliver enhanced margins

3. Profit: Increase our profit margins

4. Improve: Improve our return on capital employed

Risk and potential impact

Mitigation actions

Operational Trend: → Link to strategy: 1, 2, 3, 4 As the Group's operations are currently mainly on one site, a significant operational disruption or Safety, Health and Environmental ('SHE') incident could impact the Group's ability to manufacture and supply products. This could have sizeable financial and commercial consequences including, in certain defined circumstances, customer claims. It could also generate reputational risk.

The Group has extensive SHE policies and procedures in place, which are in line with best practice. In the UK the Company is certified to accredited standards OHSAS 18001 on Health and Safety and ISO 14001, the International Standard for Environment Management Systems. Regular training is provided on SHE matters to the staff. Pressure equipment used is operated under the Pressure Systems Safety Regulations 2000 and is subject to systematic internal and frequent external inspections in accordance with the Safety Assessment Federation.

The Group has extensive fire prevention systems in place and also has appropriate contingency plans in place in the event of the failure of certain major pieces of equipment. 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 reoccurrences. Insurance is in place to cover capital restatement and loss of profits in the event of operational disruption caused by certain events. The Group is investing in its Kentucky, USA, site which, when completed, will give multi- site capability, subject to capacity, on many polyolefin products.
Operational Trend: → Link to strategy: 1, 3, 4 The Group is extending its operations in Kentucky to cover the full block foam manufacturing process. This is a significant capital project, which is reliant on some specialist suppliers and needs to be managed to time and budget.	The extension of our facilities in Kentucky is replicating, where appropriate, machinery and processes already in operation in the UK. Existing managerial and engineering support in North America is being supplemented by external project expertise and resource from the Group's Croydon operations. Alternative suppliers were considered. Raw materials will be trialled in the UK first to reduce the commissioning risk.
Supply chain Trend: → Link to strategy: 1, 2, 3, 4 Certain of the Group's raw materials and engineering components are sourced from single suppliers. Disruption in those supplies, either on a temporary or more permanent basis, could affect production and supply to the Group's customers and, in certain defined circumstances, have contractual commercial consequences which may result in customer claims.	Wherever possible, supplies are sourced from more than one supplier or location. However, this is not always possible due to the special nature of the raw materials and machinery used. The Group continually monitors suppliers and is investing significantly in the search for, and testing and approval of, alternative suppliers of critical materials.
Technology Trend: → Link to strategy: 1, 2, 3, 4 The Group's processes for the manufacture of its products are substantially unique to the Group. Whilst the principles behind the processes are not confidential, the precise know-how is. A competitor could match or improve upon the properties and economics of the Group's products.	There are high barriers of entry to the market. Significant capital investment is required for the autoclaves and related infrastructure. The Group actively maintains its intellectual property. It patents its technology wherever it believes it is appropriate to do so. Where technology is not subject to patent, patents are no longer applicable or the technology is incapable of being patented, the Group guards its know-how.

Key to the success of the business of MuCell Extrusion LLC ('MEL') is the strength of its intellectual property and, on the back of that, its ability to grant commercial licences. The risks to MEL are that its intellectual property becomes dated or its patents expire or are successfully challenged.	The Group reduces its technology risk by entering into new markets. For example, the development of High-Performance Products ('HPP') and MEL, 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 potential significant and lasting differential advantages. 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 of key third-party patents which are complementary to the existing portfolio. MEL licences typically include a bundle of patents and know-how and therefore are not completely dependent on any particular patent.
Pension Trend: ↑ Link to strategy: 2, 4 The Company has a defined benefit pension scheme ('the Scheme') and any inability of the Scheme to meet its liabilities to its members could, ultimately, be the responsibility of the Company. There have in recent times been a number of legal cases challenging the validity of previously closed defined benefit schemes, but as yet no clear case law.	To minimise the risk to the Company of meeting the obligations under the Scheme, the Company took action to close the Scheme to new members in 2001 and closed it to future accrual of benefits in 2005. The Company is following the development of case law around the effective closure of defined benefit schemes. The Company will continuously work together with the Trustees to undertake de-risking activities to the Scheme, where feasible. The next triennial actuarial valuation of the Scheme is at 5 April 2017. As a recovery plan for the Scheme for the previous valuation (5 April 2014), the Company agreed to make a contribution to the Scheme of £41,000 per month until April 2020 to reduce the deficit.
Foreign exchange Trend: ↑ Link to strategy: 1, 3, 4 The Group has significant exposure to foreign exchange fluctuations. This is both transactional and on the translation of foreign currency balances and the consolidation of its foreign subsidiaries. The Group's operations are substantially based in the UK and, therefore, most of its manufacturing assets and costs are sterling denominated. The Group's customers are normally invoiced in their local currencies. In 2016,	The Group reduces its foreign exposure for transactional items by making purchases either in euros or US dollars. 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 and US dollars. The Group is nearing completion of its significant capital investment in North America, which will reduce net exposure for transactional items on the US dollar by increasing the cost base in the USA, with local labour and raw material procurement.