Record FY25 results: higher margins, stronger cash and a 46% EPS surge
Zotefoams has delivered another step up in performance. For the year ended 31 December 2025 (unaudited), revenue hit a record £158.5m, up 7.2%. Adjusted operating profit rose 26% to £22.8m, lifting the adjusted operating margin to 14.4% (up 220 basis points – a basis point is one hundredth of a percent). Adjusted profit before tax increased 39% to £21.2m and adjusted basic EPS jumped 46% to 38.00p.
Cash generation was a highlight: cash from operations of £39.7m was up 31%, cash conversion ran at 101% and free cash flow exceeded £23m. Return on capital employed (ROCE) improved to 13.9% (+220bps), showing better use of the asset base. The Board proposed a 5% higher final dividend of 5.35p, taking the full-year dividend to 7.85p.
| Key numbers (FY25) | FY25 | FY24 | Change |
|---|---|---|---|
| Revenue | £158.5m | £147.8m | +7.2% |
| Adjusted operating profit | £22.8m | £18.1m | +26% |
| Adjusted operating margin | 14.4% | 12.2% | +220bps |
| Adjusted profit before tax | £21.2m | £15.3m | +39% |
| Adjusted basic EPS | 38.00p | 25.95p | +46% |
| Cash from operations | £39.7m | £30.4m | +31% |
| ROCE | 13.9% | 11.7% | +220bps |
| Net debt (covenant basis) | £31.5m | £24.1m | +31% |
| Leverage ratio (net debt/EBITDA) | 0.8x | 0.9x | Improved |
| Final dividend | 5.35p | 5.10p | +5% |
Note: “Adjusted” excludes exceptional items and amortisation of acquired intangibles. Statutory basic EPS was 46.37p, helped by a tax credit from recognising deferred tax assets in Poland and the US; investors may prefer the adjusted 38.00p for like-for-like comparisons.
Strategy in action: selective M&A and an Asian manufacturing beachhead
The refreshed strategy, Expanding Beyond the Core, is clearly moving from PowerPoint to plant and product. Two big moves stood out:
- OKC acquisition (Spain): completed in November for total consideration of up to €36m. OKC extends products, capabilities and routes to market in Europe. It contributed £2.0m of FY25 revenue given the late timing and is expected to be earnings accretive in 2026. Integration is progressing with a “best of both” approach.
- Vietnam manufacturing: construction of machinery is well progressed, with £4.3m invested in FY25. This facility will produce advanced 3D foam preforms for athletic footwear, bringing Zotefoams closer to customers in Asia and freeing UK/European capacity for other markets over time. Initial production is expected from late 2026 into 2027. A new Footwear Innovation Centre in South Korea was also established to deepen technical collaboration.
In the US, the second low-pressure expansion autoclave is now operational, effectively doubling low-pressure capacity in North America and supporting growth in Transport & Smart Technologies.
Regional performance: where growth came from
EMEA: record sales, footwear still dominant
EMEA revenue rose 9% to £124.0m, including an initial £2.0m from OKC. Footwear remained the primary growth driver with exceptional volumes. Management expects volumes to normalise in 2026 as customers rebalance inventories. Segment margin eased to 20.5% (from 21.5%) as Zotefoams reinvested in commercial capability and absorbed inflation and FX effects.
North America: better mix and margins
Revenue increased 7.1% to £30.1m. Growth was led by Transport & Smart Technologies, including aerospace and specialist applications. Segment profit improved to £3.5m and margin to 11.6% (2024: 6.4%) on improved mix and cost discipline, aided by lower raw material pricing.
Asia: building for tomorrow
Revenue declined to £4.2m, reflecting tougher conditions in China for T-FIT insulation and prioritisation of capacity for other regions. Profitability was around break even due to early-stage investment in Vietnam and South Korea. The strategic bet is that Asia becomes a much larger contributor once Vietnam is online.
Margins, cash, debt and dividends: the quality looks better
- Gross margin: 33.3% (2024: 31.2%), helped by richer product mix, price discipline and operational efficiencies.
- Costs: distribution costs fell to £8.2m as logistics were optimised; admin costs rose to £22.1m, mainly from investment in people and FX effects, partly offset by reduced spend from the ReZorce exit.
- Capex: £14.0m, focused on the new US vessel and Asia build-out. These were funded from strong operating cash flow.
- Balance sheet: net debt (covenant basis) rose to £31.5m due to the OKC acquisition, but leverage improved to 0.8x thanks to higher EBITDA. A new £90m revolving credit facility with a £30m accordion was signed in January 2026, providing headroom for growth.
- Dividend: proposed final dividend of 5.35p (ex-dividend 30 April 2026; payable 3 June 2026). Full-year dividend 7.85p, covered 5.1x by adjusted PAT.
Outlook and targets: what management is aiming for
Early 2026 trading is in line with expectations. The product mix is rebalancing as footwear normalises from extraordinary 2024-2025 levels, while Transport & Smart Technologies stays strong and pipelines in aerospace, industrial and other technical applications look healthy.
Medium-term objectives remain unchanged:
- Organic revenue CAGR of 7% to FY2029, targeting >£230m revenue
- Operating profit of >£40m by FY2029
- ROCE >20% and cash conversion >95%
Longer term, Zotefoams is aiming for >£300m revenue and >£60m operating profit, with selective M&A as an accelerator. The OKC deal is framed as a template for disciplined, capability-enhancing acquisitions.
Why this matters for investors
Positives I like
- High-quality growth: margins and ROCE are moving up, not just sales. That usually signals better mix and execution.
- Cash talks: 101% cash conversion and >£23m free cash flow give comfort that profits are real and can fund growth and dividends.
- De-risking the footprint: Vietnam should improve proximity to footwear customers and release European capacity for higher-value work.
- North America upswing: margin improvement to 11.6% shows the US investments are earning their keep.
- Balance sheet headroom: leverage at 0.8x and a freshly upsized facility support further investment and bolt-ons.
Watch-outs and what to track
- Footwear normalisation: management has flagged a moderation in 2026. The key is whether aerospace and industrial pipelines fill the gap at healthy margins.
- Vietnam execution: timing, cost and ramp-up to late 2026/early 2027 are pivotal. Any delays would push out the working-capital and capacity benefits.
- OKC integration: earnings accretion is expected in 2026; watch revenue synergies, margin progression and cash generation from this business.
- FX exposure: currency moves can swing reported results; hedging helped in 2025, but it remains a standing risk.
- Construction end-markets: still mixed in some geographies; discipline on margin versus chasing volume will matter.
Josh’s take
This is a tidy set of numbers with the right shape: faster profit growth than sales, better margins, improving ROCE and strong cash. The strategy is sensibly balanced – deepen in high-spec applications, get closer to customers in Asia, and use selective M&A to add capability and channels. The footwear cool-down is not a surprise and looks planned for; the real test in 2026 is how well Transport & Smart Technologies and industrial niches backfill while Vietnam and OKC bed in.
On balance, FY25 reinforces the thesis that Zotefoams is shifting from a good manufacturer into a more diversified, market-led operator with firmer pricing power. Execution on Asia and delivery from OKC will determine whether those FY2029 targets move from ambition to baseline. For now, the momentum, cash generation and balance sheet give them the runway to try.
