TIDMZTF
RNS Number : 0761I
Zotefoams PLC
10 August 2021
Zotefoams plc
Interim Report for the Six Months Ended 30 June 2021
Strong trading performance in a difficult environment
10 August 2021 - Zotefoams plc ("Zotefoams", the "Company" or
the "Group"), a world leader in cellular materials technology,
today announces its interim results for the six months ended 30
June 2021.
Results highlights
-- Group revenue of GBP48.2m, 39% above the same period
last year (HY 2020: GBP34.6m) and 14% ahead of the comparative
period for 2019: - High-Performance Products (HPP) sales up 66%
to GBP19.6m
- Polyolefin foams sales up 24% to GBP27.3m
- MuCell Extrusion LLC (MEL) sales up 50% to GBP1.3m
-- At constant currency, Group revenue was 46% ahead of
prior year at GBP50.7m
-- Favourable operational leverage from higher sales volumes
was partially offset by gross margin pressures: - Significant supply chain inflationary pressures,
particularly in polyolefin raw materials and
freight, with selective pricing actions taken
to mitigate
- Commissioning of the Poland plant, with expected
low initial utilisation
- Reversal of some short-term cost savings, implemented
to conserve cash in 2020
-- Profit before tax (PBT) increased 49% to GBP4.0m (HY
2020: GBP2.7m). FX headwinds impacted PBT by GBP1.2m,
with constant currency PBT increasing 93% to GBP5.2m
-- Strong cash and profit performance reduced the period-end
leverage ratio to 1.9x (net debt: EBITDA), down from
2.1x at year-end and retaining significant covenant headroom
-- Interim dividend of 2.10p per share declared (HY 2020:
2.03p per share), reflecting strong growth and positive
outlook
Strategic highlights
-- Broad-based recovery in most polyolefin foam markets
and territories provides good momentum leading into H2
-- Poland, our third major manufacturing site, commissioned
on time and budget in Q1 2021
-- HPP footwear market now accounts for 34% of Group revenue,
with strong order pipeline and good visibility
-- T-FIT(R) insulation demonstrated continued growth, despite
significant COVID-19 related disruption to the Indian
market
-- ReZorce(R) recyclable packaging technology validation
progressing as planned
Financial summary
Six months Six months Change
ended 30 ended 30
June 2021 June 2020
GBPm GBPm %
Group revenue 48.2 34.6 39
Operating profit 4.7 3.1 49
Profit before tax 4.0 2.7 49
Basic EPS (p) 6.52 4.48 46
Cash generated from operations 5.6 6.0 (6)
Leverage ratio (multiple) 1.9 2.6 -
Interim dividend (p) 2.10 2.03 3
Net debt 35.6 36.2
Commenting on the results and the outlook, David Stirling, Group
CEO, said:
"We are delighted to have produced such a strong trading
performance across most regions and markets. The Group has
responded well operationally to the strong demand recovery despite
challenging supply-chain conditions from Brexit and COVID-19.
" In the second six months of 2021 we expect further positive
momentum in sales, with a strong order book underpinned by
improving economic conditions. Product mix is anticipated to be
slightly more favourable, with good growth in HPP products and
recent sales price rises in polyolefin foams. FX headwinds are
expected to continue. Gross margin, benefitting from strong sales
and better mix, is expected to remain steady despite cost
inflation, predominantly in polyolefin raw materials, the price of
which increased sharply during the first six months and is now, we
believe, at its peak. We anticipate these raw material price levels
and operational disruption to freight to persist for the remainder
of this year before seeing a return towards more normal conditions
early in 2022.
"We are mindful of the high level of uncertainty in the current
economic climate, with supply chain challenges and COVID-related
risks of operational disruption remaining high, so these
expectations must be tempered with caution. Overall, we are pleased
to have delivered another solid performance in difficult conditions
and remain optimistic about our future."
Enquiries:
Zotefoams plc +44 (0) 208 664 1600
David Stirling, Group CEO
Gary McGrath, Group CFO
IFC Advisory (Financial PR &
IR) +44 (0) 203 934 6630
Graham Herring
Tim Metcalfe
Zach Cohen
About Zotefoams plc
Zotefoams plc (LSE - ZTF) is a world leader in cellular
materials technology delivering optimal material solutions for the
benefit of society. Utilising a variety of unique manufacturing
processes, including environmentally friendly nitrogen expansion
for lightweight AZOTE(R) polyolefin and ZOTEK(R) high-performance
foams, Zotefoams sells to diverse markets worldwide. Zotefoams uses
its own cellular materials to manufacture T-FIT(R) advanced
insulation for demanding industrial markets. Zotefoams also owns
and licenses patented microcellular foam technology to reduce
plastic use in extrusion applications and for ReZorce(R)
mono-material recyclable barrier packaging.
Zotefoams is headquartered in Croydon, UK, with additional
manufacturing sites in Kentucky, USA and Brzeg, Poland (foam
manufacture), Oklahoma, USA (foam products manufacture and
conversion), Massachusetts, USA (MuCell Extrusion) and Jiangsu
Province, China (T-FIT).
www.zotefoams.com
AZOTE(R) , ZOTEK(R) , ReZorce(R) and T-FIT(R) are registered
trademarks of Zotefoams plc.
Results overview
Group revenue increased 39% to GBP48.2m ( HY 2020: GBP34.6m) and
14% versus the comparative period for 2019, with strong demand
across most regions and markets. At constant currency, Group
revenue was up 46% to GBP50.7m.
Gross profit increased 16% to GBP13.9m (HY 2020: GBP12.0m), with
gross margin reducing to 28.9% (HY 2020 34.8%). The Group has
responded well operationally to the strong demand recovery,
overcoming challenging supply-chain conditions from Brexit and
COVID-19. In addition, significant inflationary pressures,
particularly in polyolefin raw materials and logistics, have
depressed gross margins in the period, as have the added costs of
our recently commissioned facility in Poland and the strengthening
of sterling, partly mitigated by the Group's hedging activities
which are recorded under administrative expenses.
The operational gearing benefit from the revenue growth more
than offset these higher costs and increased operating profit for
the period by 49% to GBP4.7m ( HY 2020: GBP3.1m). Profit before tax
increased 49% to GBP4.0m ( HY 2020: GBP2.7m) and basic earnings per
share increased 46% to 6.52p ( HY 2020: 4.48p). At constant
currency, profit before tax increased 93% to GBP5.2m, representing
a GBP1.2m headwind and arising predominantly from the Group's
invoicing of most High-Performance Products (HPP) sales in US
dollars.
Cash generated from operations remained strong, with increased
profitability versus the previous period offset by the impact of
working capital growth from higher levels of business activity,
resulting in a 6% decline to GBP5.6m (HY 2020: GBP6.0m). Closing
net debt for the period was unchanged at GBP35.6m (31 December
2020: GBP35.6m). Adjusting for the impact of IFRS 2 and IFRS 16,
net debt under the Group's banking definition was flat at GBP34.3m
(31 December 2020: GBP34.2m), with leverage (net borrowings to
EBITDA) at 1.9x (31 December 2020: 2.1x), well below the 3.0x
covenant.
The Board remains confident in the cash generation of the
business and an interim dividend of 2.10p per share has been
approved by the Board ( HY 2020: 2.03p per share).
Business unit review
Markets
Zotefoams' speciality materials are used in a wide variety of
applications globally. Our main markets are footwear, where we have
an exclusive agreement to supply Nike, product protection and
transportation, which includes aviation and aerospace, automotive
and rail. Building and construction is the only other market
segment traditionally representing over 10% of sales, while we also
supply to medical, industrial and other markets.
The first half of 2021 and the comparative period in 2020 were
characterised by large swings in both the total demand for, and mix
of, products across a number of our markets. The impact of COVID-19
initially increased uncertainty and reduced demand, leading to
destocking along supply chains. Zotefoams' customers are often two
or three steps away from the final product, with changes in
end-user demand impacting short-term demand for our products in an
amplified manner as supply chains adjust inventory, particularly in
sectors such as aviation and automotive. Over the course of the
past 18 months, we have been able to adapt our commercial focus
effectively to target growth niches against a changing backdrop.
During 2020, this saw us capitalise on short-term opportunities in
sectors with elevated short-term demand, such as personal
protective equipment ("PPE"), while also meeting the anticipated
ramp-up in footwear and delivering to more traditional AZOTE(R)
markets with shorter lead times. In 2021, with demand returning
strongly to a number of these markets, we have been able to pivot
to much higher levels of supply to these customers as their demand,
including some inventory rebuilding, increased to levels last seen
in early 2019.
In the first six months of 2021, our footwear business has
performed extremely well and accounted for 34% of Group sales (HY
2020: 19%). Demand in most other markets also showed strong growth
against the prior period, although aviation, which had remained
resilient early in 2020, fell from 12% of Group sales in the first
half of 2020 to 3% in the current period and, as anticipated,
demand from PPE was negligible (HY 2020: 5% of sales).
The performance of our business by geography was significantly
influenced by product mix, with footwear driving strong growth of
sales to Asia and the decline in aviation, where demand is
primarily in the USA, depressing this region. Demand in continental
Europe, which is primarily from product protection and industrial
markets, rebounded strongly in line with the wider AZOTE business,
although again a lack of activity in aviation negatively impacted
mix and average selling prices. In the UK, which accounted for
almost all PPE sales in 2020, the broader market recovered well,
while there was negligible PPE demand in the period.
Polyolefin Foams
Polyolefin Foams represented 57% of Group revenue (HY 2020:
64%), with sales increasing 24% to GBP27.3m (HY 2020: GBP22.0m) and
sales volumes increasing 31% against the previous period to levels
slightly above those achieved in 2019. Product mix, with lower
aviation sales in particular, negatively impacted the average
selling price in the period, although it was pleasing to see a
return of strong demand in most markets as supply chains were
rebuilt. In continental Europe, our largest market, sales increased
51% versus the comparative period, with all markets and geographies
performing strongly. In the UK, sales decreased 6%, with the
previous year benefitting from the first shipments of PPE for a
significant short-term UK government contract won by our largest UK
customer. Excluding this, sales for the period increased 34%. In
North America, sales increased 8%, with growth impacted by
semiconductor availability issues in the automotive industry and
continuing subdued aviation demand. In Asia, where volumes are
significantly lower, sales also grew strongly, up 37% with high
demand across most sectors.
Segment profit declined to GBP1.3m ( HY 2020: GBP2.0m), yielding
a segment profit margin of 5% (HY 2020: 9%), with a number of
factors contributing to this. Within our direct control were the
incremental costs associated with our newly commissioned Poland
facility, which is currently operating as planned at lower
utilisation levels, and some mix and efficiency headwinds as our
North American business grows. The price of our major raw
materials, particularly low-density polyethylene ("LDPE"),
increased significantly during the period, from the very low levels
seen in 2020 to peak prices in June 2021 that were approximately
60% higher than the average price of the five years preceding the
pandemic. Zotefoams implemented price increases effective 1 May
2021 for our Polyolefin Foams business with, in some cases, freight
surcharges and speciality materials surcharges. The intent of these
price increases is to recover margin consistent with higher levels
of polymer pricing in the market but not to recover polymer peak
pricing. Our sales prices are therefore expected to hold when
polymer prices return to more normal levels, while surcharges will
be removed when the pricing of freight and speciality materials
realigns to lower levels. Foreign exchange rates did not have a
major impact on our Polyolefin Foams business unit sales or
profitability.
High-Performance Products ("HPP")
HPP represented 41% of Group revenue in the period ( HY 2020:
34%), with sales increasing 66% to GBP19.6m ( HY 2020: GBP11.8m).
At constant currency, sales increased 81%. Sales of our largest
application, footwear, continued the momentum of H2 2020 and
increased 147% in the period to GBP16.5m (HY 2020: GBP6.7m). Sales
of ZOTEK(R) F, which primarily services the aviation market,
declined 67% to GBP1.1m (HY 2020: GBP3.5m and HY 2019: GBP4.2m).
While there are promising early signs of recovery in this sector,
we expect sales to remain subdued for the remainder of this year.
T-FIT (R) advanced insulation, which is mainly used for cleanrooms
in pharmaceutical, biotech and semiconductor manufacturing, grew
30% in the period despite very difficult conditions, particularly
in India, one of our main markets, which was materially affected by
COVID-19. As we develop the T-FIT brand, supported by clear
evidence of the performance and value to the customer across a
range of installations, we are increasing our marketing spend to
accelerate the adoption of the product range. Our HPP team has
focused its resources on developing new applications and extending
our product offering in aviation interiors, where new opportunities
are emerging as a result of the current pandemic, and in capturing
more business outside the core cleanroom offering in T-FIT
technical insulation.
The segment profit in HPP reflects a mix of products and markets
at different stages of development. Within this portfolio ZOTEK
PEBA and ZOTEK F foams, mainly used for footwear and aviation
respectively, have both reached a scale that makes them profitable.
T-FIT technical insulation, which has attractive underlying margin
potential, has a mixture of profitable lines and earlier stage
products, and the Group has continued to invest in operational and
sales capability, mainly in China and India and more recently in
the USA and Poland. We intend to continue with both this investment
and that in other technical foams, such as the recently launched
ZOTEK T thermoplastic elastomer foam, which we believe offer good
potential to support our long-term ambition.
Segment profit in HPP was GBP3.9m ( HY 2020: GBP2.8m),
delivering a 20% segment profit margin for the period ( HY 2020:
23%). At constant currency, segment profit increased 42% to
GBP5.5m, reflecting a GBP1.6m negative impact from the weaker US
dollar in which most of our HPP sales are invoiced. Supply chain
and logistics costs, including unplanned freight costs of GBP0.4m
to compensate for supply chain disruptions mainly as a result of
Brexit, negatively impacted margins in the period. Investment in
selling and distribution costs increased, reflecting management's
confidence in and intent for the HPP products. Raw materials costs
increased only modestly, with these mainly being passed on to
customers.
MuCell Extrusion LLC ("MEL")
MEL, which licenses microce llular foam technology and sells
related machinery, accounted for 3% ( HY 2020: 3%) of Group revenue
in the period with sales of GBP1.3m ( HY 2020: GBP0.9m).
During the period we have allocated more resources to deliver
the business opportunity offered by our ReZorce(R) barrier
materials products. ReZorce is a mono-material, and hence easily
recyclable, barrier packaging solution which offers the possibility
to replace difficult-to-recycle cartons and pouches with a system
that can not only be easily recycled but also uses recycled
material to deliver a circular packaging solution. ReZorce,
therefore, offers a potential improvement in carbon footprint and
recyclability to an industry currently worth multiple billions of
pounds.
It continues to be extremely difficult to progress our
traditional MEL licensing business model under the travel
restrictions imposed as a result of COVID-19 and we have redeployed
resources to deliver the ReZorce opportunity while continuing to
support existing and in-progress MEL licensing clients.
We have increased the scope of ReZorce capital projects to not
only invest GBP0.7m in a pilot extrusion line to produce sheet
material but also invest GBP0.7m (of which, at HY 2021, we had
incurred GBP0.3m) to demonstrate downstream sterile processing and
packaging of cartons, such as those used for fruit juice, enabling
a more rapid development with potential customers. To support this,
we have completed an initial downstream validation of waste
processing and life-cycle analysis, both of which resulted in very
positive outcomes. The next steps are to complete our pilot
processing facility and validate with branded goods partners our
carton technology, initially for juice and alcohol, and pouch
technology for foodstuffs. These partners are already heavily
engaged. The flexibility of the ReZorce technology lends itself to
multiple business models on a global scale and detailed assessments
of these are in progress and dependent on the outcome of the
validation trials.
MEL reported a segment loss after amortisation costs of GBP0.1m
( HY 2020: loss GBP0.7m), with a small profit in the core business
of MEL, benefitting from increased licence income, more than offset
by GBP0.3m of costs relating to the development of our ReZorce
product lines. We also capitalised GBP0.3m of operating costs in
line with IAS 38 'Intangible Assets'.
Financial review
Currency review
As a predominantly UK-based exporter, over 80% of Zotefoams'
sales are denominated in US dollars and euros. Most costs are
incurred in sterling, other than the main raw materials processed
at the Croydon, UK site, which are in euros, and the operating
costs of the Group's North American activities, which are in US
dollars. As a result, movements in foreign exchange rates can have
a significant impact on the Group's results. The Group also incurs
operating costs at the Poland facility in Polish zloty and
operating costs at its China T-FIT processing plant in Chinese
yuan, but any fluctuations here are immaterial to the Group.
The exchange rates used to translate the key flows and balances
were:
6 months 6 months 12 months
to 30 Jun to 30 Jun to 31 Dec
21 20 20
------------------------------ ---------- ---------- ----------
GBP to euro - period average 0.88 0.87 0.88
GBP to euro - period-end spot 0.86 0.91 0.90
GBP to USD - period average 0.73 0.79 0.78
GBP to USD - period-end spot 0.72 0.81 0.73
------------------------------ ---------- ---------- ----------
The Group uses forward exchange contracts to hedge its foreign
currency transaction risk and 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 with the
movement being 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 balance sheet, the impact of which should reverse through
forward currency contracts but are subject to the timing difference
between accounts receivable recording and cash received. The Group
does not currently hedge for the translation of its foreign
subsidiaries' assets or liabilities. This policy is kept under
regular review and is formally approved by the Board on an annual
basis.
In the period, net FX movements had a negative impact on sales
and profitability. Reported net sales were GBP2.6m below those
adjusted at constant currency. The net profit effect of this on the
Group prior to any hedging activity was a loss of approximately
GBP1.8m ( HY 2020 benefit: GBP0.4m). Offsetting this, and included
in administrative expenses, our transactional hedging from forward
exchange contracts generated a gain of GBP1.0m ( HY 2020 loss:
GBP0.4m) and we recorded a non-cash translation loss of GBP0.4m (
HY 2020 gain: GBP0.4m) on foreign currency denominated net assets.
The combined adverse impact of movements in foreign currency on
profitability in the period was GBP1.2m.
Operating costs
Gross profit increased 16% in the period to GBP13.9m (HY 2020:
GBP12.0m), benefitting from the operational gearing effect of
higher sales but adversely impacted by inflationary pressures and
the movement in sterling. Average low density polyethylene raw
material prices in the UK increased significantly, almost doubling
in the six months to June 21, with six-month average prices for the
period being approximately 40% higher than the equivalent period in
2020, while freight prices into Europe and Asia also showed
sizeable increases. In addition, the commissioning of the Poland
manufacturing facility in February, completing the Group's recent
global capacity expansion programme, added GBP0.6m of
manufacturing-related fixed cost and depreciation, which will be
margin diluting until utilisation rates reach target levels. The
average US dollar rate against sterling fell 8% against the
previous period. This devaluation, given that most of the Group's
global HPP sales as well as AZOTE(R) polyolefin foam sales at our
US subsidiary are invoiced in US dollars, further impacted gross
margin by GBP1.8m, GBP1.0m of which was recovered by the Group's
forward exchange contract hedging activities, recorded under
administrative expenses. The impact of these cost pressures in the
period was to decrease gross profit margin to 28.9% (HY 2020:
34.8%).
Sales price increases from May will help offset the higher
average polymer prices and continued higher freight costs of H2
2021. We do not anticipate any meaningful reduction in polymer
prices before the end of the year as supply in the industry
increases to match demand and freight prices return to more
familiar levels in the medium term.
Included within distribution expenses in the Group's income
statement are sales, marketing, despatch and warehousing costs.
These costs increased 11% to GBP3.6m (HY 2020: GBP3.2m) as a result
of higher shipping activity and storage levels and a return to more
normal levels of marketing spend following significantly curtailed
activity in Q2 2020 at the height of COVID-19 uncertainty.
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. In the
period, these costs were unchanged at GBP5.7m (HY 2020: GBP5.7m),
with GBP0.6m of FX-related credit variances offsetting an
equivalent increase in underlying costs related to variable
compensation against a low comparative.
The Group continues to pursue an expansion strategy, founded on
proprietary cellular-materials technology and an increasing
portfolio of differentiated products. Organic growth at the rate
the Group is targeting has required investment in manufacturing,
processing and engineering capability to deliver the required
capacity around the world. Some of this, mostly in the USA and
Poland, remains work-in-progress. In addition, investment in
distribution and administrative expenses is expected to continue as
opportunities to pursue mix enrichment develop.
Finance Costs
Finance costs increased to GBP0.6m ( HY 2020: GBP0.5m) and
include GBP0.1m ( HY 2020: GBP0.1m) of interest on the Company's
Defined Benefit Scheme pension obligation. The Group capitalised
GBPnil ( HY 2020: GBP0.4m) of interest on qualifying assets under
IAS 23 'Capitalisation of Borrowing Costs', in relation to the
financing of its capacity expansion projects still under
construction.
Taxation
Income tax expense is recognised based on management's estimate
of the weighted average annual income tax rate expected for the
full financial year. Zotefoams' estimated average annual tax rate
used for the period to 30 June 2021 is 21.04% (estimated average
annual tax rate for the year used at 30 June 2020: 19.89%), which
reflects the profits expected in higher tax rate jurisdictions such
as India and China.
Cash flow
Cash generated from operations was GBP5.6m ( HY 2020: GBP6.0m).
Included in this was a net increase in working capital in the
period of GBP3.0m ( HY 2020: net increase of GBP2.7m). Accounts
receivable increased GBP4.1m in the period ( HY 2020: decreased
GBP1.0m), reflecting significantly higher levels of sales activity
than in the heavily COVID-disrupted prior year period. Inventories
increased GBP3.9m in the period ( HY 2020: increased GBP6.0m),
reflecting higher levels of business activity and some supply chain
disruption. PVDF raw materials, used in aviation applications,
remain at high levels as a consequence of lower consumption levels
in this currently subdued market. Accounts payable increased
GBP5.0m ( HY 2020: increased GBP2.3m), reflecting significantly
higher levels of activity compared with the previous COVID-19
impacted period.
Capital expenditure in the period was GBP 3.4m ( HY 2020:
GBP7.4m), with some minor timing delays in certain planned
expenditure for H1 and, for the most part, the end of the Group's
recent capacity expansion programme and return to more normalised
levels of investment. A final dividend of GBP2.1m was paid during
the period, following suspension of the final dividend in the
previous year.
Net debt and covenants
Net debt (cash less bank borrowings and lease liabilities) was
unchanged from the start of the period at GBP35.6m (31 December
2020: GBP35.6m). Under the definition of the bank facility
agreement, which adjusts for the impact of IFRS 2 and the
introduction of IFRS 16, net debt was GBP34.3m (31 December 2020:
GBP34.2m).
Throughout the first half of the year and at the period-end, the
Group remained comfortably within its bank facility covenants. As
at 30 June 2021, the ratio of EBITDA to net finance charges was 21x
(31 December 2020: 23x; 30 June 2020: 30x), against a covenant
minimum of 4x, and the ratio of net borrowings to EBITDA (leverage)
was 1.86x (31 December 2020: 2.12x; 30 June 2020: 2.61x), against a
covenant maximum of 3.0x.
Post-employment benefits
A full actuarial valuation of the Defined Benefit Pension Scheme
("DB Scheme") was completed as at 5 April 2020 in line with the
requirement to have a triennial valuation. As part of the actuarial
valuation, the Statutory Funding Objective ("SFO") deficit was
calculated to be GBP7.8m as at 5 April 2020. Given the deficit, a
Recovery Plan was put in place with the aim of being fully funded
by 31 October 2026 (the same timeframe as agreed under the previous
actuarial valuation as at 5 April 2017). As the funding level of
the Scheme improved significantly from the effective date of the
valuation to the date of signing the Recovery Plan, the improved
funding position was taken into account when determining the
contributions required to meet the SFO deficit. As a result, the
Company has agreed with the Trustees to increase its
deficit-related contributions to the DB Scheme from GBP0.70m to
GBP0.86m per year. These contributions also cover death-in-service
insurance premiums, the expenses of administering the Scheme and
Pension Protection Fund levies.
At the previous year-end of 31 December 2020, the IAS19 deficit
disclosed in the Company accounts was calculated to be GBP8.9m.
Over the period to 30 June 2021, the Scheme's invested assets have
increased by around GBP0.4m while the liabilities have reduced due
to the significant increase in long dated corporate bond yields.
After taking these factors into account, the IAS19 deficit is
estimated to have reduced by around GBP2.8m (i.e. from GBP8.9m as
at 31 December 2020 to around GBP6.1m as at 30 June 2021).
Going Concern
At 30 June 2021, the Group's gross finance facilities were
GBP48.0m (31 December 2020: GBP53.8m), comprising a multi-currency
term loan of GBP20.0m (31 December 2020: GBP25.0m), a
multi-currency revolving credit facility of GBP25.0m (31 December
2020: GBP25.0m) and a remaining balance of GBP3.0m (31 December
2020: GBP3.8m) of a further GBP7.5m sterling annually renewable
term loan, repayable in equal quarterly instalments. In line with
the bank financing agreement, a repayment of GBP5.0m was made on 30
June 2021. The bank facility is for a five-year period and expires
in May 2023. At the balance sheet date, GBP6.7m was undrawn on the
facility (31 December 2020: GBP10.7m). At the same date, the Group
also held GBP6.7m (31 December 2020: GBP8.5m) 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.
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 12 months following the date of approval of this interim
report. 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 these interim financial statements.
Employees and talent management
Hiring and retaining employees with the right skills, and
managing and further developing these talented people, is very
important to Zotefoams as it grows and evolves globally. We have a
wide scope of opportunities and need to identify and develop the
right people to define and deliver our potential. After putting our
recruitment plans temporarily on hold in the previous period in
order to manage the business through the pandemic, we returned in
the period to recruiting the staff required to achieve our business
objectives. This mostly involved recruitment in the UK and the USA.
We currently employ 551 people globally (HY 2020: 461 people), 35%
( HY 2020: 33%) of whom are outside the UK.
On behalf of the Board, we would like to thank all our employees
for their continued contributions and commitment to Zotefoams, as
well as their ongoing flexibility during these challenging
times.
Dividend
An interim dividend of 2.10p per share ( HY 2020: 2.03p per
share) will be paid on 8 October 2021 to shareholders on the
Company's register at the close of business on 10 September
2021.
Principal risks and uncertainties
Zotefoams' business and share price may be affected by a number
of risks, not all of which are within its control. The process
Zotefoams has in place for identifying, assessing and managing
risks is set out in the Risk Management and Principal Risks
section, on pages 33 to 42 of the 2020 Annual Report.
In the opinion of the Board, the specific principal risks (which
could impact Zotefoams' sales, profits and reputation) and relevant
mitigating factors, as currently identified by Zotefoams' risk
management process, have not changed significantly since the
publication of the last Annual Report, which was prepared at a time
when we had a reasonably clear view of the impact of the pandemic,
our ability to mitigate these risks and a reasonable expectation of
the consequences of an effective vaccination roll-out. Detailed
explanations of these risks can be found in the 2020 Annual Report.
Broadly, these risks include COVID-19, operational disruption,
sustainability and climate change, global capacity management,
technology displacement, scaling-up international operations, loss
of a key customer and external.
At the time of this report, there continues to be concerns over
new waves of COVID-19 and, particularly in the UK, the consequences
of the release of most measures on 19 July 2021. The Group remains
prepared to implement appropriate mitigation strategies to minimise
any potential business disruption, is continuing with its effective
working-from-home practices and effective social-distancing
practices in the UK post 19 July 2021 until it considers the risk
to be manageable and will continue to carry out a regular and
robust assessment and management of the Group's risks.
Current trading and prospects
Zotefoams' business is well diversified both within AZOTE
polyolefin foams and in our HPP and MEL businesses, the latter two
being structurally high-growth opportunities.
In Polyolefin Foams, we anticipate the strong demand experienced
in the first six months of the year to continue for the remainder
of the year, partially augmented by some additional customer
restocking and improvement in mix from an anticipated strengthening
in aviation sales in Q4. Polymer prices, which rose quickly through
H1 to a peak in June, have stabilised and price rises implemented
on our polyolefin foams will be in place throughout the remainder
of the year.
In HPP, we enter the second half of the year with a strong order
book for footwear and a good pipeline of business in other areas.
We therefore anticipate further sequential growth in HPP for the
remainder of the year, even though visibility over both the growth
rates for T-FIT insulation products, where demand is normally
final-quarter weighted, and over the timing of the recovery in
aviation sales, remains limited.
In MEL, we expect sales in the second six months of the year to
be at similar levels to the first half, albeit with a mix more
oriented to equipment sales.
Outlook
In the second six months of 2021 we expect further positive
momentum in sales, with a strong order book underpinned by
improving economic conditions. Product mix is anticipated to be
slightly more favourable, with good growth in HPP products and
recent sales price rises in polyolefin foams. FX headwinds are
expected to continue. Gross margin, benefitting from strong sales
and better mix, is expected to remain steady despite cost
inflation, predominantly in polyolefin raw materials, the price of
which increased sharply during the first six months and is now, we
believe, at its peak. We anticipate these raw material price levels
and operational disruption to freight to persist for the remainder
of this year before seeing a return towards more normal conditions
early in 2022.
We are mindful of the high level of uncertainty in the current
economic climate, with supply chain challenges and COVID-related
risks of operational disruption remaining high, so these
expectations must be tempered with caution. Overall, we are pleased
to have delivered another solid performance in difficult conditions
and remain optimistic about our future.
S P Good D B Stirling
Chairman Group CEO
10 August 10 August
2021 2021
ZOTEK (R) , AZOTE (R) , ReZorce (R) and T-FIT (R) are registered
trademarks of Zotefoams plc.
STATEMENT OF DIRECTORS' RESPONSIBILITIES
The Directors confirm that these condensed consolidated interim
financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial Reporting'
as adopted by the United Kingdom and that the interim management
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed
set of financial statements, and a description of the
principal risks and uncertainties for the remaining six
months of the financial year; and
-- material related-party transactions in the first six months
and any material changes in the related-party transactions
described in the last annual report.
The Directors of Zotefoams plc are listed in the Zotefoams plc
2020 Annual Report as well as on the Zotefoams plc website:
www.zotefoams.com.
By order of the Board:
S P Good G C McGrath
Chairman Group CFO
10 August 2021 10 August 2021
CONDENSED CONSOLIDATED INTERIM INCOME STATEMENT FOR THE SIX
MONTHSED 30 JUNE 2021
Six months ended Year Ended
---------------------------------
30-Jun-21 30-Jun-20 31-Dec-20
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
Revenue 6 48,164 34,627 82,652
Cost of sales (34,233) (22,588) (54,874)
----------------------------------- ------ -------------- ----------------- -------------
Gross profit 13,931 12,039 27,778
Distribution costs (3,583) (3,235) (6,793)
Administrative expenses (5,695) (5,672) (11,876)
Operating profit 4,653 3,132 9,109
----------------------------------- ------ -------------- ----------------- -------------
Finance costs (617) (454) (872)
Finance income 4 16 26
Share of (loss)/profit from joint
venture (36) 1 38
----------------------------------- ------ -------------- ----------------- -------------
Profit before income tax 4,004 2,695 8,301
Income tax expense 7 (842) (536) (1,138)
----------------------------------- ------ -------------- ----------------- -------------
Profit for the period/year 3,162 2,159 7,163
Profit attributable to:
Equity holders of the Company 3,162 2,159 7,163
----------------------------------- ------ -------------- ----------------- -------------
3,162 2,159 7,163
Earnings per share:
Basic (p) 9 6.52 4.48 14.87
----------------------------------- ------ -------------- ----------------- -------------
Diluted (p) 9 6.40 4.40 14.63
----------------------------------- ------ -------------- ----------------- -------------
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF COMPREHENSIVE INCOME
FOR THE SIX MONTHSED 30 JUNE 2021
Six months ended Year ended
--------------------------
30-Jun-21 30-Jun-20 31-Dec-20
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
---------------------------------------------------
Profit for the period/year 3,162 2,159 7,163
--------------------------------------------------- ------------ ------------ -----------
Other comprehensive income/(expense)
Items that will not be reclassified to
profit or loss
Actuarial gains/(losses) on defined benefit
pension schemes 2,554 (2,466) (2,460)
Tax relating to items that will not be
reclassified (528) 469 467
--------------------------------------------------- ------------ ------------ -----------
Total items that will not be reclassified
to profit or loss 2,026 (1,997) (1,993)
--------------------------------------------------- ------------ ------------ -----------
Items that may be reclassified subsequently
to profit or loss
Foreign exchange translation gains/(losses)
on investment in foreign subsidiaries (623) 2,666 (583)
Change in fair value of hedging instruments 570 (1,338) 952
Hedging (losses)/gains reclassified to
profit or loss (995) 430 82
Tax relating to items that may be reclassified (155) 169 (256)
Total items that may be reclassified subsequently
to profit or loss (1,203) 1,927 195
--------------------------------------------------- ------------ ------------ -----------
Other comprehensive income/(expense) for
the period/year, net of tax 823 (70) (1,798)
--------------------------------------------------- ------------ ------------ -----------
Total comprehensive income for the period/year 3,985 2,089 5,365
--------------------------------------------------- ------------ ------------ -----------
Profit attributable to:
Equity holders of the Company 3,985 2,089 5,365
---------------------------------------------------
Total comprehensive income for the period/year 3,985 2,089 5,365
--------------------------------------------------- ------------ ------------ -----------
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2021
30-Jun-21 30-Jun-20 31-Dec-20
(Unaudited) (Unaudited) (Audited)
Notes GBP'000 GBP'000 GBP'000
--------------------------------------- ------ ---------------------- ------------------- ------------------
Non-current assets
Property, plant and equipment 10 91,505 93,914 92,925
Right-of-use assets 1,353 1,027 1,397
Intangible assets 5,617 6,810 5,888
Investments in joint venture 147 146 183
Trade and other receivables 35 45 54
Deferred tax assets 460 486 509
--------------------------------------- ------
Total non-current assets 99,117 102,428 100,956
--------------------------------------- ------ ---------------------- ------------------- ------------------
Current assets
Inventories 26,817 24,961 23,033
Trade and other receivables 26,112 22,951 22,150
Derivative financial instruments 13 868 31 1,580
Cash and cash equivalents 6,738 12,207 8,503
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total current assets 60,535 60,150 55,266
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total assets 159,652 162,578 156,222
--------------------------------------- ------ ---------------------- ------------------- ------------------
Current liabilities
Trade and other payables (12,639) (11,328) (7,851)
Derivative financial instruments 13 (156) (742) (53)
Current tax liability - (631) (101)
Lease liabilities (503) (357) (420)
Interest-bearing loans and borrowings 11 (26,717) (27,873) (23,430)
Total current liabilities (40,015) (40,931) (31,855)
--------------------------------------- ------ ---------------------- ------------------- ------------------
Non-current liabilities
Lease liabilities (870) (673) (986)
Interest-bearing loans and borrowings 11 (14,272) (19,535) (19,263)
Deferred tax liabilities (1,760) (372) (891)
Post-employment benefits (6,050) (9,150) (8,851)
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total non-current liabilities (22,952) (29,730) (29,991)
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total liabilities (62,967) (70,661) (61,846)
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total net assets 96,685 91,917 94,376
--------------------------------------- ------ ---------------------- ------------------- ------------------
Equity
Issued share capital 2,431 2,431 2,431
Share premium 44,178 44,178 44,178
Own shares held (10) (24) (23)
Capital redemption reserve 15 15 15
Translation reserve 1,701 5,573 2,324
Hedging reserve 329 (608) 909
Retained earnings 48,041 40,352 44,542
--------------------------------------- ------ ---------------------- ------------------- ------------------
Total equity 96,685 91,917 94,376
--------------------------------------- ------ ---------------------- ------------------- ------------------
The notes below form an integral part of these condensed
consolidated interim financial statements.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS FOR THE
SIX MONTHSED 30 JUNE 2021
Six months
ended Year ended
------------ -----------------------
30-Jun-21 30-Jun-20 31-Dec-20
(Unaudited) (Unaudited) (Audited)
GBP'000 GBP'000 GBP'000
------------------------------------------------- ------------ ----------------------- --------------------------
Cash flows from operating activities
Profit for the period/year 3,162 2,159 7,163
Adjustments for:
Depreciation and amortisation 3,783 3,158 6,746
Disposal of assets 88 2 40
Finance costs 612 438 846
Share of (profit)/loss from joint venture 36 (1) (38)
Net exchange differences 121 2,497 (133)
Equity-settled share-based payments 342 220 300
Taxation 842 536 1,138
------------------------------------------------- ------------ ----------------------- --------------------------
Operating profit before changes in working
capital and provisions 8,986 9,009 16,062
Decrease/(increase) in trade and other
receivables (4,084) 982 1,199
Increase in inventories (3,899) (5,964) (4,536)
Increase in trade and other payables 4,956 2,303 980
Employee defined benefit contributions (350) (350) (700)
------------------------------------------------- ------------ ----------------------- --------------------------
Cash generated from operations 5,609 5,980 13,005
Interest paid (405) (216) (456)
Income taxes paid (443) (21) (1,113)
------------------------------------------------- ------------ ----------------------- --------------------------
Net cash flows generated from operating
activities 4,761 5,743 11,436
------------------------------------------------- ------------ ----------------------- --------------------------
Cash flows from investing activities
Interest received 4 16 26
Interest paid (33) (369) (604)
Purchases of intangibles (328) (239) (346)
Purchases of property, plant and equipment (3,069) (7,161) (12,363)
Net cash used in investing activities (3,426) (7,753) (13,287)
------------------------------------------------- ------------ ----------------------- --------------------------
Cash flows from financing activities
Proceeds from options exercised and issue 26 - -
of share capital
Repayment of borrowings (5,489) (3,803) (8,053)
Proceeds from borrowings 4,618 11,429 13,180
Lease payments (270) (199) (433)
Dividends paid (2,058) - (977)
------------------------------------------------- ------------ --------------------------
Net cash (used)/generated from financing
activities (3,173) 7,427 3,717
------------------------------------------------- ------------ ----------------------- --------------------------
Net increase/(decrease) in cash and cash
equivalents (1,838) 5,417 1,866
Cash and cash equivalents at start of
period/year 8,503 6,656 6,656
Exchange gains/(losses) 73 134 (19)
------------------------------------------------- ------------ ----------------------- --------------------------
Cash and cash equivalents at end of period/year 6,738 12,207 8,503
------------------------------------------------- ------------ ----------------------- --------------------------
Cash and cash equivalents comprise cash at bank and short-term
highly liquid investments with a maturity date of less than three
months.
The notes below form an integral part of these condensed
consolidated interim financial statements.
During the period, the Group paid interest of GBP438k (June
2020: GBP585k, December 2020: GBP1,060k) of which it capitalised
GBP33k (June 2020: GBP369k, December 2020: GBP604k) on qualifying
assets under IAS 23 'Capitalisation of Borrowing Costs'. The
interest paid has been split between operating activities and
investing activities to reflect the Group's utilisation on interest
paid.
The net exchange differences of GBP121k (June 2020: GBP2,497k,
December 2020: (GBP133k)) within operating activities relate to the
foreign exchange movement on borrowings.
CONDENSED CONSOLIDATED INTERIM STATEMENT OF CHANGES IN EQUITY
FOR THE SIX MONTHSED 30 JUNE 2021
Own Capital
Share Share shares redemption Translation Hedging Retained Total
capital premium held reserve reserve reserve earnings equity
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Balance as at 1
January 2021 2,431 44,178 (23) 15 2,324 909 44,542 94,376
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Foreign exchange
translation gains
on investment in
subsidiaries - - - - (623) - - (623)
Change in fair value
of hedging
instruments
recognised in other
comprehensive income - - - - - 570 - 570
Reclassification to
income statement
- administrative
expenses - - - - - (995) - (995)
Tax relating to
effective portion
of changes in fair
value of cash
flow hedges net of
recycling - - - - - (155) - (155)
Actuarial gain on
Defined Benefit
Pension Scheme - - - - - - 2,554 2,554
Tax relating to
actuarial gain
on Defined Benefit
Pension Scheme - - - - - - (528) (528)
Profit for the period - - - - - - 3,162 3,162
Total comprehensive
income/(expenditure)
for the period - - - - (623) (580) 5,188 3,985
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Transactions with
owners of the
Parent:
Options exercised - - 13 - - - 27 40
Proceeds of shares - - - - - - - -
issued, net
of expenses
Equity-settled
share-based payments
net of tax - - - - - - 342 342
Dividends paid - - - - - - (2,058) (2,058)
Total transactions
with owners
of the Parent - - 13 - - - (1,689) (1,676)
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Balance as at 30 June
2021 (Unaudited) 2,431 44,178 (10) 15 1,701 329 48,041 96,685
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Own Capital
Share Share shares redemption Translation Hedging Retained Total
capital premium held reserve reserve reserve earnings equity
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
Balance as at 1
January 2020 2,415 44,178 (9) 15 2,907 131 40,003 89,640
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Foreign exchange
translation gains
on investment in
subsidiaries - - - - 2,666 - - 2,666
Change in fair value
of hedging
instruments
recognised in other
comprehensive income - - - - - (1,338) - (1,338)
Reclassification to
income statement
- administrative
expenses - - - - - 430 - 430
Tax relating to
effective portion
of changes in fair
value of cash
flow hedges net of
recycling - - - - - 169 - 169
Actuarial loss on
Defined Benefit
Pension Scheme - - - - - - (2,466) (2,466)
Tax relating to
actuarial loss
on Defined Benefit
Pension Scheme - - - - - - 469 469
Profit for the period - - - - - - 2,159 2,159
Total comprehensive
income/(expenditure)
for the period - - - - 2,666 (739) 162 2,089
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Transactions with
owners of the
Parent:
Options exercised - - 1 - - - (1) -
Proceeds of shares
issued, net
of expenses 16 - (16) - - - - -
Equity-settled
share-based payments
net of tax - - - - - - 188 188
Total transactions
with owners
of the Parent 16 - (15) - - - 187 188
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
Balance as at 30 June
2020 (Unaudited) 2,431 44,178 (24) 15 5,573 (608) 40,352 91,917
---------------------- ---------- ------------- ---------- ----------------- ----------------- ------------- -------------- -----------
During the six months period ended 30 June 2021, 262,313 (June
2020: 28,260) shares vested and were issued from the Zotefoams
Employee Benefit Trust ('EBT') following the exercise of these
options.
During the six months period ended 30 June 2021, no shares were
issued to the Zotefoams Employee Benefit Trust ('EBT') at par (June
2020: 320,000).
The notes below form an integral part of these condensed
consolidated interim financial statements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE SIX MONTHSED 30 JUNE 2021
1. GENERAL INFORMATION
Zotefoams plc ('the 'Company') and its subsidiaries and joint
venture (together, 'the Group') manufacture and sell
high-performance foams and license related technology for
specialist markets worldwide.
The Group has manufacturing sites in the UK, USA, Poland and
China, with the Poland manufacturing facility being commissioned in
February 2021.
The Company is a public limited company which is listed on the
London Stock Exchange and incorporated and domiciled in the UK. The
address of the registered office is 675 Mitcham Road, Croydon, CR9
3AL.
These condensed consolidated interim financial statements do not
comprise statutory accounts within the meaning of section 434 of
the Companies Act 2006. Statutory accounts for the year ended 31
December 2020 were approved by the Board of Directors on 7 April
2021 and delivered to the Registrar of Companies. The report of the
auditors on those accounts was unqualified, did not contain an
emphasis of matter paragraph and did not contain any statement
under section 498 of the Companies Act 2006.
These condensed consolidated interim financial statements have
been reviewed, not audited.
These condensed consolidated interim financial statements for
the six months ended 30 June 2021 have been prepared in accordance
with the Disclosure Guidance and Transparency Rules of the
Financial Conduct Authority and with IAS 34, 'Interim financial
reporting' as adopted by the United Kingdom. The condensed
consolidated interim financial statements should be read in
conjunction with the annual financial statements for the year ended
31 December 2020, which have been prepared in accordance with IFRSs
as adopted by the European Union.
Forward-looking statements
Certain statements in this condensed set of consolidated interim
financial statements are forward-looking. Although the Group
believes that the expectations reflected in these forward-looking
statements are reasonable, we can give no assurance that these
expectations will prove to be correct. As these statements involve
risks and uncertainties, actual results may differ materially from
those expressed or implied by these forward-looking statements.
We undertake no obligation to update any forward-looking
statements, whether as a result of new information, future events
or otherwise.
2. BASIS OF PREPARATION
ACCOUNTING POLICIES
The accounting policies adopted are consistent with those of the
previous financial year and corresponding interim reporting period
except for income taxes. Taxes on income in the interim condensed
consolidated financial statements are accrued using the tax rate
that would be applicable to the expected full financial year
results for the Group.
GOING CONCERN
At 30 June 2021, the Group's gross finance facilities were
GBP48.0m (31 December 2020: GBP53.8m), comprising a multi-currency
term loan of GBP20.0m (31 December 2020: GBP25.0m), a
multi-currency revolving credit facility of GBP25.0m (31 December
2020: GBP25.0m) and a remaining balance of GBP3.0m (31 December
2020: GBP3.8m) of a further GBP7.5m sterling annually renewable
term loan, repayable in equal quarterly instalments. In line with
the bank financing agreement, a repayment of GBP5.0m was made on 30
June 2021. The bank facility is for a five-year period and expires
in May 2023. At the balance sheet date, GBP6.7m was undrawn on the
facility (31 December 2020: GBP10.7m). At the same date, the Group
also held GBP6.7m (31 December 2020: GBP8.5m) 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.
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 12 months following the date of approval of the interim report
and 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 these interim financial
statements.
3. ESTIMATES AND JUDGEMENTS
The preparation of interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets and liabilities, income and expense. Actual
results may differ from these estimates.
In preparing these condensed consolidated interim financial
statements, the significant judgements made by management in
applying the Group's accounting policies and the key sources of
estimation uncertainty were the same as those that applied to the
consolidated financial statements for the year
ended 31 December 2020, with the exception of changes in
estimates that are required in determining the provision for income
taxes.
4. FINANCIAL RISK MANAGEMENT
Financial risk factors
The Group's activities expose it to a variety of financial
risks: market risk (including currency risk and interest rate
risk), credit risk and liquidity risk.
The condensed consolidated interim financial statements do not
include all financial risk management information and disclosures
required in the annual financial statements; they should be read in
conjunction with the Group's annual financial statements as at 31
December 2020.
There have been no changes in any risk management policies since
the year end.
5. SEASONALITY OF OPERATIONS
The seasonality of the Group's business has been largely
eliminated, with most variability derived from order timing from
HPP and MEL, and customer inventory management according to their
specific business needs. There remains an underlying cyclical
nature of our markets, over the longer macroeconomic business
cycle, as the Group sells into a wide variety of business segments,
many of which are themselves cyclical.
6. 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.
Zotefoams' activities are categorised as follows:
-- Polyolefin foams: these foams are made from olefinic
homopolymer and copolymer resin. The most common resin used is
polyethylene.
-- High-Performance Products ('HPP'): these foams exhibit
high-performance on certain key properties, such as improved
chemical, flammability or temperature performance or energy
management performance. Turnover in the segment is currently mainly
derived from products manufactured from three main polymer types:
PVDF fluoropolymer, polyamide (nylon) and polyether block amide
(PEBA). Foams are sold under the brand name ZOTEK(R) while
technical insulation products manufactured from certain materials
are branded as T-FIT(R) .
-- MuCell Extrusion LLC ('MEL'): licenses microcellular foam
technology and sells related machinery. Recently, a variation of
this technology has been used to create ReZorce(R) , a recyclable,
mono-material barrier packaging solution.
Polyolefin foams HPP MEL Inter-segment Consolidated
adjustment
------------------ ---------------------------------------- ----------------------------------- --------------------------------- ------------------------------------ ---------------------------
Six Months 30-Jun-21 30-Jun-20 30-Jun-21 30-Jun-20 30-Jun-21 30-Jun-20 30-Jun-21 30-Jun-20 30-Jun-21 30-Jun-20
ended (Unaudited)
------------------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Group revenue 27,309 22,026 19,573 11,780 1,354 902 (72) (81) 48,164 34,627
Segment
profit/(loss)
pre-amortisation 1,345 2,049 3,899 2,755 62 (602) (72) - 5,234 4,202
Amortisation
of acquired
intangible
assets - - - - (124) (128) - - (124) (128)
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Segment
profit/(loss) 1,345 2,049 3,899 2,755 (62) (730) (72) - 5,110 4,074
Foreign exchange
gains/ (losses) - - - - - - - - 600 (67)
Unallocated
central costs - - - - - - - - (1,057) (875)
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Operating profit 1,345 2,049 3,899 2,755 (62) (730) (72) - 4,653 3,132
Financing costs - - - - - - - - (613) (438)
Share of loss
from joint
venture - - - - - - - - (36) 1
Taxation - - - - - - - - (842) (536)
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Profit for
the period - - - - - - - - 3,162 2,159
Segment assets 102,337 111,361 47,721 42,128 9,134 8,603 - - 159,192 162,092
Unallocated
assets - - - - - - - - 460 486
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Total assets 159,652 162,578
Segment
liabilities (43,696) (55,647) (16,327) (13,087) (1,184) (924) - - (61,207) (69,658)
Unallocated
liabilities - - - - - - - - (1,760) (1,003)
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Total liabilities (62,967) (70,661)
Depreciation 2,402 2,064 528 459 50 60 - - 2,980 2,583
Depreciation
of right-of-use
assets 152 158 47 31 66 - - - 265 189
Amortisation 291 200 129 39 124 147 - - 544 386
Capital
expenditure:
Property, plant
and equipment
(PPE) 2,039 5,907 447 1,216 479 128 - - 2,965 7,251
Intangible
assets 38 93 13 18 277 128 - - 328 239
------------------ ---------------------- ---------------- ---------------- ----------------- ---------------- --------------- ------------------- --------------- --------------- ----------
Unallocated assets and liabilities are made up of prepayments,
corporation tax and deferred tax assets and liabilities. Segment
profit/(loss) is made up of operating profit/(loss) before foreign
exchange gains/(losses) and unallocated central costs. Unallocated
central costs are not directly attributable or cannot be allocated
to a segment. Segment profit/(loss) pre-amortisation only excludes
amortisation on acquired intangible assets.
Geographical segments
Polyolefin foams, HPP and MEL are managed on a worldwide basis
but operate from the UK, Europe, US 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.
United Kingdom Europe North Rest of Total
America World
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
GBP`000 GBP`000 GBP`000 GBP`000 GBP`000
----------------------------- --------------- -------------- ------------ ------------ ------------
For the period ended 30
June 2021
Group revenue from external
customers 5,609 13,547 8,522 20,486 48,164
Non-current assets 43,982 20,476 34,196 463 99,117
Capital expenditure -
PPE 1,160 568 1,231 6 2,965
----------------------------- --------------- -------------- ------------ ------------ ------------
For the period ended 30
June 2020
Group revenue from external
customers 6,117 9,322 9,823 9,365 34,627
Non-current assets 45,050 18,619 38,303 456 102,428
Capital expenditure -
PPE 2,022 4,336 848 44 7,250
----------------------------- --------------- -------------- ------------ ------------ ------------
Major customers
Revenue from one customer of the Group located in the United
Kingdom contributed GBP2,280k (2020: GBP3,544k) to the Group's
revenue. Revenue from one customer of the Group located in "Rest of
World" contributed GBP16,496k (2020: GBP6,666k) to the Group's
revenue.
Analysis of revenue by category
Breakdown of revenue by products and services for the Group:
Six months ended
--------------------------
30-Jun-21 30-Jun-20
(Unaudited) (Unaudited)
GBP'000 GBP'000
---------------------------- ------------ ------------
Sale of foam 46,793 33,725
Sale of equipment 462 232
Licence and royalty income 909 670
---------------------------- ------------ ------------
Group Revenue 48,164 34,627
---------------------------- ------------ ------------
7. INCOME TAX EXPENSE
Six months ended
--------------------------
30-Jun-21 30-Jun-20
(Unaudited) (Unaudited)
GBP'000 GBP'000
UK corporation tax 259 380
Overseas tax 39 11
-------------------- ------------ ------------
Total current tax 298 391
Deferred tax 544 145
-------------------- ------------ ------------
Income tax expense 842 536
-------------------- ------------ ------------
Income tax expense is recognised based on management's estimate
of the weighted average annual income tax rate expected for the
full financial year. The estimated average annual tax rate used for
the period to 30 June 2021 is 21.04% (the estimated average annual
tax rate for the period ended 30 June 2020 was 19.89%).
8. DIVIDS
A dividend of GBP2,058k that relates to the period to 31
December 2020 was paid in May 2021 (2020: no dividend was paid
during the period).
An interim dividend of 2.10 pence per share was approved by the
Board of Directors on 9 August 2021 (2020: 2.03 pence per share).
It is payable on 8 October 2021 to shareholders who are on the
register at 10 September 2021. This interim dividend, amounting to
GBP1,018k (2020: GBP977k), has not been recognised as a liability
in this interim financial information. It will be recognised in
shareholders' equity in the year to 31 December 2021.
9. EARNINGS PER SHARE
Earnings per ordinary share is calculated by dividing the
consolidated profit after tax attributable to equity holders of the
Parent Company of GBP3,162k (2020: GBP2,159k) by the weighted
average number of shares in issue during the period, excluding own
shares held by employee trusts which are administered by
independent trustees. The number of shares held in the trust at 30
June 2021 was 196,888 (2020: 470,135). 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.
Six months ended
30-Jun-21 30-Jun-20
(Unaudited) (Unaudited)
-------------------------------------------- ------------ ------------
Weighted average number of ordinary shares
in issue(1) 48,467,429 48,166,555
Deemed issued for no consideration 973,546 849,897
-------------------------------------------- ------------ ------------
Diluted number of ordinary shares issued 49,440,975 49,016,452
-------------------------------------------- ------------ ------------
(1) Own shares held by employee trusts have already been
deducted.
10. PROPERTY, PLANT AND EQUIPMENT
Land Plant Fixtures Under
and buildings and equipment and fittings construction Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
Cost
At 1 January 2021 32,793 99,037 4,031 24,733 160,594
Additions - 266 38 2,661 2,965
Disposals - (88) (1) - (89)
Transfers 12,766 9,277 38 (22,081) -
Effect of movement in foreign
exchange (349) (570) (13) (582) (1,514)
At 30 June 2021 45,210 107,922 4,093 4,731 161,956
------------------------------- --------------- --------------- -------------- -------------- --------
Accumulated depreciation
At 1 January 2021 12,578 52,195 2,896 - 67,669
Depreciation charge 748 2,019 213 - 2,980
Transfers 47 (119) 72 - -
Effect of movement in foreign
exchange (61) (127) (10) - (198)
At 30 June 2021 13,312 53,968 3,171 - 70,451
------------------------------- --------------- --------------- -------------- -------------- --------
Net book value
At 31 December 2020 20,215 46,842 1,135 24,733 92,925
------------------------------- --------------- --------------- -------------- -------------- --------
At 30 June 2021 31,898 53,954 922 4,731 91,505
------------------------------- --------------- --------------- -------------- -------------- --------
11. INTEREST-BEARING LOANS AND BORROWINGS
30-Jun-21 31-Dec-20
-----------------------------
(Unaudited) (Audited)
-----------------------------
GBP'000 GBP'000
----------------------------- ------------ ----------
Current bank borrowings 26,717 23,430
Non-current bank borrowings 14,272 19,263
------------------------------- ------------ ----------
40,989 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 bank facility is
for a five-year period and expires in May 2023.
At 30 June 2021, the Group's gross finance facilities were
GBP48.0m (31 December 2020: GBP53.8m) after having repaid GBP5.0m
of the term loan and a further GBP0.8m of a sterling term loan
repayable in quarterly instalments.
At 30 June 2021, the Group has utilised a multi-currency term
loan of GBP19.4m (31 December 2020: GBP25.0m), a multi-currency
revolving credit facility of GBP18.9m (31 December 2020: GBP14.8m)
and has a remaining balance of GBP3m (31 December 2020: GBP3.8m) on
the sterling annually renewable term loan. The total amount of
GBP41.3m is gross of GBP0.3m origination fees paid up front, being
amortised over the period of the loan.
12. RELATED PARTY TRANSACTIONS
There were no material related party transactions requiring
disclosure for the periods ended 30 June 2021 and 30 June 2020.
13. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Fair value estimation
To provide an indication about the reliability of the inputs
used in determining fair value, the Group classifies its financial
instruments into the three levels prescribed under the accounting
standards. An explanation of each level follows underneath the
table.
The following table presents the Group's financial assets and
financial liabilities measured and recognised at fair value at 30
June 2021 and 30 June 2020:
Level Level Level Total
1 2 3
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-21 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------ ------------ ----------------
Assets
Forward exchange contracts - 868 - 868
---------------------------- ------------- ------------ ------------ ----------------
Total assets - 868 - 868
---------------------------- ------------- ------------ ------------ ----------------
Liabilities
Forward exchange contracts - (156) - (156)
---------------------------- ------------- ------------ ------------ ----------------
Total liabilities - (156) - (156)
---------------------------- ------------- ------------ ------------ ----------------
Level Level Level Total
1 2 3
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
30-Jun-20 GBP'000 GBP'000 GBP'000 GBP'000
---------------------------- ------------- ------------ ------------ ----------------
Assets
Forward exchange contracts - 31 - 31
---------------------------- ------------- ------------ ------------ ----------------
Total assets - 31 - 31
---------------------------- ------------- ------------ ------------ ----------------
Liabilities
Forward exchange contracts - (742) - (742)
---------------------------- ------------- ------------ ------------ ----------------
Total liabilities - (742) - (742)
---------------------------- ------------- ------------ ------------ ----------------
The forward exchange contracts have been fair valued using
forward exchange rates that are quoted in an active market.
Level 1: The fair value of financial instruments traded in
active markets (such as publicly traded derivatives, and trading
and available-for-sale securities) is based on quoted (unadjusted)
market prices at the end of the reporting period. The quoted marked
price used for financial assets held by the Group is the current
bid price. These instruments are included in level 1.
Level 2: The fair value of financial instruments that are not
traded in an active market (for example, over-the-counter
derivatives) is determined using valuation techniques. These
valuation techniques maximise the use of observable market data
where it is available and rely as little as possible on entity
specific estimates. If all significant inputs required to fair
value an instrument are observable, the instrument is included in
level 2.
Level 3: If one or more of the significant inputs is not based
on observable market data, the instrument is included in level 3.
This is the case for unlisted equity securities.
Group's valuation process
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 Group also has a number of financial instruments which are
not measured at fair value in the Statement of Financial Position.
For the majority of these instruments, the fair values are not
materially different to their carrying amounts, since the interest
receivable/payable is either close to current market rates or the
instruments are short-term in nature. The fair value of the
following financial assets and liabilities approximate to their
carrying amount:
-- Trade and other receivables
-- Cash and cash equivalents
-- Trade and other payables
Fair value of financial assets and liabilities measured at
amortised cost
The fair value of borrowings is as follows:
30-Jun-21 30-Jun-20
(Unaudited) (Unaudited)
GBP'000 GBP'000
------------- ------------ ------------
Current 26,717 27,873
Non-current 14,272 19,535
------------- ------------ ------------
Total 40,989 47,408
------------- ------------ ------------
14. CAPITAL COMMITMENTS
Capital expenditure commitments of GBP1,540k (2020: GBP4,191k)
have been contracted for at the end of the reporting period but not
yet incurred, and are in respect of Property, Plant and
Equipment.
15. EVENTS OCCURING AFTER THE REPORTING PERIOD
There are no material events occurring after the reporting
period.
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END
IR UPUAARUPGGBB
(END) Dow Jones Newswires
August 10, 2021 02:00 ET (06:00 GMT)
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